In a major setback for the Enforcement Directorate (ED), the Delhi High Court on October 17, 2025, dismissed the agency's appeals against an earlier single-judge order that had quashed a ₹227-crore provisional attachment linked to the controversial Chotia coal block. The Bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar ruled that merely obtaining a coal block - even if through misrepresentation - does not automatically translate into "proceeds of crime" under the Prevention of Money Laundering Act (PMLA).
Background
The case traces back to the early 2000s when M/s Prakash Industries Ltd (PIL) was allotted the Chotia coal block. The allotment, like many others during that period, was later struck down by the Supreme Court in the 2014 Manohar Lal Sharma vs Union of India verdict, which had famously cancelled over 200 coal allocations as illegal.
Following that decision, the Central Bureau of Investigation (CBI) filed two charge sheets alleging that Prakash Industries had obtained the coal block by submitting false and forged documents regarding its capacity and financial health.
Parallelly, the ED initiated money-laundering proceedings, attaching assets worth ₹227 crore in December 2021, claiming that the company's coal mining profits constituted "proceeds of crime."
A single judge of the Delhi High Court, however, quashed the attachment in July 2022. The ED then filed Letters Patent Appeals (LPA 588/2022 and 590/2022) to challenge that decision - both of which were decided through a consolidated judgment this week.
Court's Observations
At the heart of the controversy was a crucial legal question: Can an administrative coal block allocation be treated as property, and thus as proceeds of crime, under the PMLA?
The Court answered firmly in the negative.
Justice Kshetarpal, writing for the Bench, remarked that the allocation of a coal block "cannot stricto sensu be construed either as property or conferment of a right in property." The judges elaborated that such an allocation merely gave a company permission to apply for a mining lease; it did not in itself generate any financial gain or "monetary advantage" capable of attachment under money-laundering law.
"The Act is designed to confiscate assets derived from criminal activity - the washing of illicit profits - not administrative permissions," the Bench noted. "The allocation per se cannot be recognised as representing proceeds of crime."
The Court was also critical of the ED's expansive interpretation of process under Section 3 of the PMLA, which the agency claimed covered every act leading to the generation of illegal money. The judges rejected this boundless construction, holding that PMLA proceedings cannot rest on speculation but must trace a clear and proximate nexus between the alleged criminal act and the asset in question.
Significantly, the Bench pointed out that the ED's case rested on a second CBI charge sheet that itself limited the investigation only up to the date of allocation - September 4, 2003. The actual coal extraction and sale - which could have generated proceeds of crime - took place after that date and were part of an earlier, now-quashed FIR.
“The utilisation of the allocation and consequential generation of alleged proceeds of crime fall beyond the realm of the second charge sheet,” the Court said, echoing the reasoning of the single judge.
Arguments and Rebuttals
Senior advocate Zoheb Hossain, representing the ED, argued that Prakash Industries had "misrepresented its financial capacity" and secured the coal block through fraudulent means. He claimed the illegal mining that followed produced over ₹950 crore worth of coal, making the proceeds attachable under Section 5 of PMLA.
Countering this, Kapil Sibal, senior counsel for PIL, said the company had already paid ₹249 crore as a compensatory levy imposed by the Supreme Court and another ₹186 crore in cesses and duties. "There are no proceeds of crime left to attach," he asserted, calling the ED’s ₹951-crore figure "mathematically inflated and legally unsustainable."
The Court appeared to agree with this assessment, observing that the ED’s calculations lacked evidentiary backing and that the Directorate had "failed to demonstrate any monetary gains derived or obtained as on the date of allocation."
Decision
Concluding the 52-page judgment, the Division Bench upheld the single judge’s findings in their entirety. It ruled that:
- The appeal by the Directorate of Enforcement was maintainable but devoid of merit.
- The coal block allocation, though later found irregular, does not constitute property or proceeds of crime under Sections 2(1)(u) and 2(1)(v) of PMLA.
- The Provisional Attachment Order dated 01.12.2021 and all consequential proceedings are hereby set aside.
With that, the Bench disposed of both appeals, bringing a close - at least for now - to a long-winding legal battle born out of India's coal allocation saga.
As one lawyer remarked outside Court,
"This judgment reinforces that every wrongful act does not amount to money laundering the law must draw a clear line."
