ED’s Section 5 PMLA Power Is Self-Contained; Allocation Letters Are ‘Property’, and Share-Market Gains from Fraud Are ‘Proceeds of Crime’

Introduction

In Directorate of Enforcement v. M/s Prakash Industries Ltd and Directorate of Enforcement v. M/s Prakash Thermal Power Ltd (LPA 102/2023 and LPA 138/2023), a Division Bench of the Delhi High Court (Anil Kshetarpal, J. and Harish Vaidyanathan Shankar, J.) reversed a learned Single Judge’s order quashing a Provisional Attachment Order (PAO) issued under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA). The Bench held that:

Writ intervention to quash a PAO under Article 226 is ordinarily impermissible given PMLA’s self-contained, multi-tier remedial structure, unless a narrowly tailored Whirlpool exception squarely applies.
Allocation letters are “property” under Section 2(1)(v) PMLA; gains flowing directly or indirectly from criminal activity relating to such allocation are “proceeds of crime” (PoC) under Section 2(1)(u).
The offence of money-laundering is distinct and continuing; ostensibly lawful transactions (such as preferential share issuances) can be part of the “process” under Section 3 if they are connected to PoC.
Section 5 PMLA (provisional attachment) is a self-contained, preventive power; compliance with Section 66(2) PMLA (inter-agency information sharing) is not a condition precedent to attachment.

The dispute stems from the Fatehpur coal block allocation in favour of M/s Prakash Industries Ltd (PIL). The Enforcement Directorate (ED) alleged that: (i) the allocation was procured through misrepresentation of net worth to the Ministry of Coal; and (ii) before formal allocation, PIL told the Bombay Stock Exchange (BSE) on 19.11.2007 that it had been allotted the block, spiking share prices and enabling preferential share sales that generated Rs. 118.75 crores, which ED traced as PoC.

Summary of the Judgment

The Division Bench allowed the ED’s LPAs, set aside the Single Judge’s order dated 24.01.2023, and restored the PAO and consequential proceedings. The Court:

Held that the Single Judge’s writ interference with a PAO was unwarranted, as none of the Whirlpool exceptions applied and PMLA provides a comprehensive adjudicatory and appellate mechanism (Sections 8, 26, 42).
Affirmed that the coal block allocation letter qualifies as “property” and that benefits or gains derived from it, even indirectly (e.g., through share price inflation and preferential allotment), constitute PoC.
Clarified that Section 5 PMLA powers are autonomous; Section 66(2)’s information-sharing duty is directory and does not condition, suspend, or vitiate a PAO if not fulfilled before attachment.
Reiterated that money-laundering is a continuing offence; the focus is on the process/activity connected with PoC, not whether each step is itself a scheduled offence.
Cautioned against using writs to generate parallel proceedings or to short-circuit PMLA’s statutory pipeline, terming such practice an abuse of process.

Background and Procedural History

Application and allocation: PIL applied (12.01.2007) for Fatehpur coal block; contemplation letter issued 06.11.2007; formal allocation on 06.02.2008 to PIL and SKS Ispat.
Alleged misstatements:
- To Ministry of Coal: PIL allegedly misrepresented net worth as Rs. 532 crores (vs. actual (-) Rs. 144.16 crores).
- To BSE (19.11.2007): PIL allegedly declared it had already been allotted the block, preceding formal allocation, precipitating share price escalation (Rs. 31 to Rs. 254.60).
Preferential allotment: On 03.01.2008, PIL/promoters sold 62,50,000 equity shares on a preferential basis, allegedly yielding undue gains of Rs. 118.75 crores.
Coal block cancellation: The Supreme Court in Manohar Lal Sharma v. Union of India cancelled numerous coal block allocations, including PIL’s.
CBI and ED proceedings:
- CBI FIR (26.03.2014) under IPC Sections 120B, 420 and PC Act; chargesheet filed 17.11.2021; trial stayed by Supreme Court (May 2022 orders).
- ED ECIR (30.08.2014); seizure (2016); Section 5 complaint allowed (2017) with partial release by PMLA Appellate Tribunal (2019).
- ED prosecution complaint under PMLA (17.07.2018); PAO issued (29.11.2018) attaching properties worth Rs. 122.74 crores.
Single Judge’s judgment (24.01.2023): Quashed PAO, holding ED lacked jurisdiction as the share-allotment episode was not in the FIR/chargesheet/ECIR, and that ED should first have shared information with the police under Section 66(2) before invoking the second proviso to Section 5.

Analysis

Precedents Cited and Their Role

Whirlpool Corporation v. Registrar of Trademarks (1998) 8 SCC 1
Applied to determine when writ jurisdiction can be exercised despite an alternative remedy. The Bench found none of the three exceptions (fundamental rights violation, breach of natural justice, or patent lack of jurisdiction/vires) satisfied. PMLA’s structure ensures audi alteram partem through Sections 8, 26, and 42.
Vijay Madanlal Choudhary v. Union Of India, 2022 SCC OnLine SC 929
Relied on for key PMLA propositions:
- Section 3 targets the “process or activity” connected with PoC; money-laundering is a stand-alone, continuing offence.
- Prosecution cannot proceed on a purely notional predicate; however, if the accused continues dealing with PoC even after the scheduled listing, PMLA applies.
- “Indirect” derivation is captured under Section 2(1)(u) and the focus is PoC, not the criminality of each intermediate step.
Union of India v. Kanhaiya Prasad
Quoted to reinforce that money-laundering is independent of the predicate prosecution; involvement in any one process connected with PoC suffices.
Satyendar Kumar Jain v. Directorate of Enforcement
Referred for the proposition that money-laundering continues as long as the accused enjoys or deals with PoC.
Prakash Industries Ltd v. Directorate of Enforcement (Prakash Industries-I)
A prior decision by the same Bench, holding that:
- Allocation letters are “property” under Section 2(1)(v) PMLA.
- ED can attach “value of property” where the original PoC is untraceable or dissipated.
- Misrepresentation to obtain allocation can generate PoC under Section 2(1)(u) and attract Section 3.
The present decision adopts and extends those principles to preferential share gains traceable to the tainted allocation.
Himachal EMTA Power Ltd v. Union of India, 2018 SCC OnLine Del 11078
Relied upon by PIL to argue that investments or share subscriptions are not PoC without concrete nexus. The Division Bench effectively distinguishes the present case by finding a clear, traceable nexus between misrepresentation (to Ministry/BSE), the share price run-up, and the preferential allotment gains.
Manohar Lal Sharma (Coal Allocation)
Contextual precedent for the allocation’s invalidation; the Division Bench clarified the Single Judge had misconstrued ED’s reliance on ML Sharma regarding forum-related observations. The core maintainability question here turned on PMLA’s statutory remedial path, not ML Sharma’s special procedural regime.

Legal Reasoning and Application

1) Writ Maintainability Versus the PMLA Pipeline

The Court emphasised the PMLA’s self-contained system: a PAO is only a provisional, preventive measure. Section 8 guarantees notice, reply, and hearing before confirmation; Section 26 provides an appeal to the Appellate Tribunal; Section 42 provides a further appeal to the High Court. Against this backdrop:

No fundamental right violation was pleaded or made out.
No breach of natural justice: the PMLA scheme itself ensures procedural fairness before an adverse finality attaches.
No patent lack of jurisdiction or vires challenge: the Single Judge’s reasoning hinged on factual contests about predicate scope and Section 66(2), unsuited to Article 226. The Single Judge also entertained a writ while a statutory appeal against a related Tribunal order was already pending, creating impermissible parallel tracks.

Result: The Division Bench held the Single Judge ought not to have interfered; the LPA was maintainable; and the writ should not have been used to short-circuit the statutory process.

2) “Property” and “Proceeds of Crime”: Indirect Derivation Counts

The Bench reaffirmed that “property” under Section 2(1)(v) PMLA is intentionally expansive, covering tangible and intangible assets and interests. An allocation letter confers valuable, exclusive commercial rights; it is “property.”

Crucially, “proceeds of crime” in Section 2(1)(u) includes property “derived or obtained, directly or indirectly” from criminal activity relating to a scheduled offence, as well as the “value” of such property. This statutory breadth matters for capital markets: where misrepresentation taints the foundation, the shares’ price appreciation and the proceeds of preferential allotment can be PoC if traceably connected (even indirectly) to the predicate criminality.

3) Section 3: The “Process or Activity” and the Continuing Offence

The Court rejected the Single Judge’s narrowing of “activity” to “criminal activity.” Section 3 penalises involvement in the “process or activity connected with PoC,” which includes concealment, possession, acquisition, use, and projection/claim as untainted. Lawful-seeming steps (e.g., a compliant shareholder meeting under Companies Act/SEBI) can still be part of the laundering process if they are used to layer, integrate, or project PoC.

The offence continues so long as the person enjoys or deals with PoC; appreciation in value does not cleanse taint. The Court’s illustration is instructive: if bribe money is invested in shares that appreciate due to market forces, the enhanced corpus remains PoC.

4) Section 5 (PAO) Is Self-Contained; Section 66(2) Is Directory

Section 5 authorises provisional attachment when the authorised officer has written “reasons to believe” that a person possesses PoC and there is a risk of frustrating confiscation proceedings. The first proviso requires a Section 173 CrPC report or a complaint by the competent predicate agency; the second proviso empowers immediate attachment in emergent circumstances. The Division Bench underscored:

Section 5 is a complete code for attachment, laying down its own conditions and time frames (including the 180-day cap, subject to exclusions).
Section 66(2) is an inter-agency cooperation tool. Although it uses “shall,” it sets no pre-attachment timeline or consequence for non-observance, and it does not override or condition Section 5. Non-sharing or delayed sharing does not vitiate a PAO.
There is no statutory command that a separate predicate case must be registered for each downstream transaction (such as share allotment) if ED can trace the PoC to the original criminal activity relating to the scheduled offence.

5) Predicate Linkage: Enough to Show Nexus; Ingredients of 420/120B Are for Trial

The Court focused on whether ED demonstrated a prima facie nexus between the alleged misrepresentation to obtain the allocation (the scheduled offence under investigation and chargesheeted by CBI) and the later preferential allotment gains. It held that it is not for the High Court, in a PAO challenge, to adjudicate the full ingredients of cheating/conspiracy—that is the trial court’s domain (and here, the trial proceedings are stayed by the Supreme Court). For attachment, a traced linkage suffices, and ED’s “reasons to believe” were supported by the record.

Impact and Prospective Significance

Reinforced deference to the PMLA process: High Courts are likely to be far more reluctant to quash PAOs in writ jurisdiction where PMLA’s adjudicatory pipeline is available. Litigants will need to exhaust the Section 8 and Section 26/42 route.
Intangibles and capital markets in the PMLA crosshairs: By reaffirming that an allocation letter is “property,” the Court underscores that market-facing conduct (e.g., exchange disclosures and preferential allotments) can form part of the laundering “process” if tethered to tainted origins.
Indirect and appreciated value is attachable: Gains achieved through market movements or layering do not become clean; the entire enhanced corpus can remain PoC. This broadens ED’s tracing and attachment mandate.
Section 66(2) is not a defence to a PAO: Accused cannot defeat attachment by arguing that ED didn’t first share information with the predicate agency. ED’s Section 5 power is autonomous and preventive.
Parallel proceedings disfavoured: Where a PMLA appeal is pending, initiating a writ on overlapping issues is liable to be treated as an abuse of process.
Ex post facto and timing arguments weakened: The continuing nature of money-laundering, as reaffirmed, means that even if the predicate pre-dates scheduling, continuing dealings with PoC after scheduling can attract PMLA.

Complex Concepts Simplified

PAO (Provisional Attachment Order): A temporary freezing of property believed to be PoC, to prevent its dissipation during investigation/adjudication. It precedes a full hearing before the Adjudicating Authority (Section 8).
Predicate offence: The underlying scheduled offence (e.g., cheating, conspiracy) from which PoC arises. PMLA prosecution focuses on the laundering of resulting PoC, not on the predicate crime itself.
Proceeds of Crime (Section 2(1)(u)): Any property or its value derived directly or indirectly from criminal activity related to the predicate offence. “Indirectly” and “value” make the definition wide, covering layered or appreciated gains.
Property (Section 2(1)(v)): Any asset or interest, tangible or intangible, corporeal or incorporeal, including documents evidencing title/interest; expressly includes property used in commission of PMLA/scheduled offences.
Section 3 (Offence of money-laundering): Involvement in any process/activity connected with PoC—concealment, possession, acquisition, use, projecting/claiming as untainted. It is a continuing offence as long as the person enjoys or deals with PoC.
Section 5 (Attachment): ED can attach when it records written reasons to believe that a person possesses PoC and non-attachment could frustrate confiscation. The first proviso ties attachment to filing of a predicate report/complaint; the second proviso allows emergency attachment.
Section 66(2) (Inter-agency sharing): ED “shall” share information if it believes other laws are being contravened. The Court treats it as directory and not a precondition to Section 5 attachment.
Whirlpool exceptions: Writ jurisdiction despite alternative remedies is confined to three narrow scenarios—fundamental rights infringement, breach of natural justice, or patent lack of jurisdiction/vires challenge.

Discussion of Contentious Points

“Share trading isn’t a scheduled offence” argument: True; but PMLA’s focus is not on whether each step is a scheduled offence. The question is whether the step is part of a “process” connected with PoC. Preferential allotment driven by an earlier misrepresentation fits that description.
“Article 20(1) ex post facto” argument: The Bench counters via the continuing offence doctrine: even if the predicate pre-dates scheduling, the ongoing dealing with PoC after scheduling attracts PMLA.
Himachal EMTA precedent: Distinguished in substance; that case found no material to show that investments were derived from the crime. Here, the Court found a traceable nexus from misrepresentation to share-price inflation to preferential allotment gains.
Timing of PAO vis-à-vis CBI chargesheet (2018 PAO; 2021 chargesheet): The Court emphasises the second proviso to Section 5 (emergency attachment) and treats Section 5 as self-contained. Section 66(2) is not a precondition. The legality of the ED’s “reasons to believe” is tested within PMLA’s adjudicatory steps, not via writ quashment.

Practical Takeaways

Corporates should treat regulatory disclosures with extra care: misstated milestones that inflate prices can transmit taint to capital raises and be later attached as PoC.
For ED: record robust “reasons to believe,” demonstrate a traceable nexus (even indirect) to the predicate criminality, and be prepared to justify emergency use of the second proviso to Section 5.
For defence: challenges to PAOs should ordinarily go through the Section 8/26/42 ladder; writs will rarely succeed absent a clear Whirlpool ground.
For markets: appreciation does not purge taint; lawful forms (SEBI-compliant meetings or pricing) do not immunize proceeds if the foundation is fraudulent.

Conclusion

The Division Bench’s ruling re-aligns the law on three axes. First, it restores discipline to PMLA litigation by discouraging writ short-cuts against PAOs and insisting on the statute’s built-in adjudicatory pipeline. Second, it cements an expansive, modern understanding of “property” and “proceeds of crime,” squarely encompassing intangible allocation rights and indirectly derived market gains. Third, it clarifies that Section 5’s provisional attachment power is autonomous and preventive; Section 66(2)’s information-sharing duty, while important for inter-agency cooperation, is not a precondition to attachment.

On facts, the Court was satisfied that ED had established a prima facie nexus: misrepresentation to secure the coal allocation, a misstatement to BSE, a resultant share-price spike, and preferential allotment yielding substantial gains—all cohered as a laundering “process” connected with PoC. At the same time, the Court was careful not to pre-judge the criminal case, noting that the CBI chargesheet is pending and the Supreme Court has stayed trial proceedings.

The judgment thus stands as a significant precedent on the scope of ED’s provisional attachment powers, the breadth of PMLA’s definitions, and the limited role of writ courts in interlocutory PMLA enforcement disputes. It will likely have a marked influence on future PMLA litigation, corporate compliance strategies, and ED’s approach to tracing and attaching indirectly derived or appreciated assets.

Case Citation

Directorate of Enforcement v. M/s Prakash Industries Ltd and Directorate of Enforcement v. M/s Prakash Thermal Power Ltd, 2025 DHC 9626-DB, decision dated 03.11.2025 (Delhi High Court, Division Bench).