Supreme Court Refuses To Quash Money Laundering Case Against JSW Steel Over Dealings With Obulapuram Mining Company

The Supreme Court today refused to quash PMLA proceedings against JSW Steel Limited in relation to alleged illegal mining by mining companies owned by former Karnataka minister G. Janardhana Reddy.A bench of Justice Dipankar Datta and Justice Augustine George Masih noted that JSW steel is no more an accused in the predicate offence investigated by the CBI, and the ECIR also doesn't name JSW Steel as an accused. The Court noted that ED's money laundering complaint was based only on alleged withdrawals of attached amount of ₹33.80 crore and not on any broader charge of criminal liability.Since JSW's appeal against the attachment orders was already pending before the Appellate Tribunal, the Court declined to intervene at this stage. "Viewed thus, the appropriate course would be to permit the statutory process to run its route to reach its logical conclusion. Interference at this stage would prejudge issues that are squarely within the domain of the Appellate Tribunal, including whether the attached property represents “proceeds of crime” within the meaning of Section 2(1)(u) PMLA and whether the withdrawals were in violation of law", the Court stated.The Court observed that JSW Steel can pursue its statutory appeal against the attachment orders on its accounts.The case arises from proceedings initiated by the Directorate of Enforcement (ED) against JSW Steel under the Prevention of Money Laundering Act, 2002 (PMLA), in connection with the illegal mining case involving Obulapuram Mining Company (OMC) and Reddy, its owner.Factual Background JSW Steel had entered into a contract with OMC on November 16, 2009, for supply of 1.5 million tonnes of iron ore to its Vijayanagar plant. The company paid ₹130 crore as advance by bank transfer. When OMC failed to supply the agreed quantity, JSW initiated arbitration proceedings and obtained an arbitral award for ₹35.44 crore in its favour.Following the Supreme Court's order of September 23, 2011, directing a CBI probe into illegal mining by Associated Mining Company (AMC), a partnership firm of Reddy, the CBI filed a charge sheet on May 5, 2012 against Reddy and others under the IPC and Prevention of Corruption Act. JSW Steel was named at that stage, however, subsequently, CBI dropped JSW Steel via a supplementary report dated September 6, 2013.Meanwhile, the Enforcement Directorate registered an ECIR (Enforcement Case Information Report) against Reddy and others on September 25, 2012. Subsequently, it included JSW in its investigation. It found that ₹33.80 crores remained payable by JSW to AMC which constituted “proceeds of crime". To recover this, on March 27, 2015, two provisional attachment orders (PAO) were issued against JSW Steel's bank accounts totaling ₹33.80 crore.The ED alleged that JSW, in collusion with bank officials, withdrew funds from its attached accounts after issuance of the first PAO, thereby frustrating the attachment. The agency alleged that ₹16.55 crore remained in JSW's possession despite confirmed attachment orders.Cognizance was taken by the trial court and summons were issued to JSW Steel's representatives.JSW Steel challenged the ECIR and related proceedings before the Karnataka High Court, arguing that it had no connection with the alleged “proceeds of crime,” and its transaction with OMC was a bona fide commercial contract. It asserted that it was a creditor of Reddy, OMC and its sister concerns, not a beneficiary of any illegal mining proceeds.JSW contended that the offences alleged were not “scheduled offences” under PMLA at the time of the 2009 transaction and that the Division Bench of the High Court had already quashed the ECIR on this ground. Since the Supreme Court, while admitting the ED's appeal, had not stayed that judgment, JSW contended that the entire PMLA case lacked legal foundation.The Karnataka High Court on June 13, 2022, dismissed JSW Steel's petitions against cognizance order. The High Court held that the offence of money laundering is a continuing one and that initiation of proceedings under PMLA does not depend on the date of commission of the predicate offence. The court also noted that the Division Bench's earlier judgment quashing the ECIR could not aid JSW Steel since the Supreme Court had directed that it should not operate as a precedent.JSW Steel challenged the HC judgment in the present appeals.ArgumentsJSW argued that it had been exonerated in the CBI case, was not named in the ECIR, and that without a live scheduled offence, PMLA proceedings could not continue. It contended that the withdrawals from the accounts occurred lawfully during a period when the High Court had granted stay and that cash-credit accounts could not be treated as attachable property under PMLA.The ED, however, submitted that the offence under Section 3 of PMLA was a continuing one and that JSW's withdrawals after the attachment orders amounted to “possession and use” of proceeds of crime. It maintained that the attachments had attained...

Supreme Court Refuses To Quash Money Laundering Case Against JSW Steel Over Dealings With Obulapuram Mining Company

Amisha Shrivastava

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