The commission of offences dealing with the crime of money laundering, in India,
has increased considerably in the last decade or so with huge scandals being
uncovered on a regular basis.
The Prevention of Money Laundering Act, 2002
(the PMLA) though enacted and notified on 17th January 2003, came into force w.e.f. 1st July 2005 and has been amended more than once, lastly by the Finance
Act, 2019. It was enacted with the objective of prevention of money laundering
and for providing for confiscation of property derived from, or involved, in
money laundering and for matters connected therewith or incidental thereto.
article aims to critically analyse the law laid down under the PMLA regarding
attachment of properties related to the offence of money laundering by the
Directorate of Enforcement (ED) in the backdrop of the definition of proceeds
of crime as provided under Section 2(u) of the PMLA and the various Judicial
pronouncements which have interpreted the said definition.
Money laundering – Explained
Section 3 of the PMLA defines the offence of money laundering and states
that, whosoever directly or indirectly attempts to indulge or knowingly assists
or knowingly is a party to or is actually involved in any process or activity
connected with the proceeds of crime including its concealment, possession,
acquisition or use and projecting or claiming it as untainted property shall be
guilty of offence of money laundering. Section 4 of the PMLA provides the penal
consequence i.e. punishment for the offence of money laundering.
Thus, what is relevant to keep in mind is that for a person to be guilty of the
offence of money laundering the said person must be involved in any process of
activity connected with the proceeds of crime
Attachment of property under PMLA
The ED has power to provisionally attach a property in terms of Section 5(1) of
the PMLA if (apart from satisfaction of other conditions) a person is in
possession of proceeds of crime. The said attachment is confirmed by the
Adjudicating Authority under section 8(3) of the PMLA and eventually is to be
confiscated by the Government in terms of Section 9 of the PMLA.
The key thus, to establish an offence of money laundering or for attachment of
property under PMLA is existence of proceeds of crime. Consequently it becomes
imperative to understand what is meant by proceeds of crime under PMLA and how
the courts have interpreted it.
Proceeds of crime - Explained
The expression proceeds of crime forms the heart of the offence of money
laundering and has been defined under Section 2(i)(u) of the PMLA. The
definition has been amended twice, once vide the Finance Act, 2015 and
thereafter vide the Finance Act, 2019. The definition as originally stood
provided as follows any property derived or obtained, directly or indirectly,
by any person as a result of criminal activity relating to a scheduled offence
or the value of any such property.
Thereafter, vide the amendment carried out
in 2015 the definition of proceeds of crime
read as follows:
derived or obtained, directly or indirectly, by any person as a result of
criminal activity relating to a scheduled offence or the value of any such
property or where such property is taken or held outside the country, then the
property equivalent in value held within the country.
Subsequent to the
amendment carried out vide the Finance Act in 2019, an explanation to the
definition of proceeds of crime was added which reads as follows Explanation
– For the removal of doubts, it is hereby clarified that proceeds of crime
include property not only derived or obtained from the scheduled offence but
also any property which may directly or indirectly be derived or obtained as a
result of any criminal activity relatable to the scheduled offence.
The definition of proceeds of crime is divided into three parts i.e. (1)
property derived or obtained (directly or indirectly) as a result of criminal
activity; or (2) the value of such property as above; or (3) if the property has
been taken or held abroad, any other property equivalent in value whether
held in India or abroad.
Section 2(1)(v) of the PMLA defines property as any property or asset of every
description, whether corporeal or incorporeal, movable or immovable, tangible or
intangible and includes deeds and instruments evidencing title to, or interest
in, such property or asset, wherever located. The term property has been given
an expansive definition under the PMLA and includes all kinds of property.
From a plain reading of the definition of proceeds of crime it appears that in
order for a property
to be proceeds of crime
and to be liable for attachment
by the ED it is essential that such property must be derived or obtained as a
result of criminal activity relating to a scheduled offence
. However, the said
definition also uses the expressions value of such property and equivalent in
The ED has time and again relied upon the aforesaid expressions to
attach properties which admittedly are not derived or obtained by any criminal
activity but are otherwise clean properties i.e. properties which have been
acquired not through proceeds generated from any criminal activity. The basis
for this has been that since the actual properties derived or obtained from
criminal activity are not traceable or available for attachment, the ED has the
power to attach any other property by relying upon the words value of any
The counter argument which has been raised to this is that attachment
of a clean property i.e. property admittedly not obtained from any criminal
activity is not liable for attachment as the very purpose and object of PMLA is
to identify and attach properties involved in money laundering and if a property
is a clean property then ED has no jurisdiction to attach any such property.
In our view, this counter argument has some force in view of the following:
- From a perusal of the preamble it is apparent that the PMLA has been
enacted for prevention of money-laundering and for confiscation of only
those properties which are derived from or involved in money laundering. The
Act does not in clear terms empowers confiscation of properties which are
not involved in money-laundering or not derived from any criminal activity
(except in case the property considered to have been derived from criminal
activity is held or taken outside the country).
- In terms of Section 8(1) of the PMLA once any property of any person is
provisionally attached by the ED under Section 5(1) and a complaint is filed
under provisions of Section 5(5), the Ld. Adjudicating Authority is required to
serve a notice on the person whose properties have been attached for the purpose
of explaining the sources of income, earning or assets out of which the
properties attached under Section 5(1) have been acquired. Thus, the scrutiny
which the Adjudicating Authority is undertake is to see if the attached is
obtained cleanly or from tainted sources.
- Additionally, from a perusal of the Section 3 of the PMLA, which defines
the offence of money laundering, it is clear that in order to constitute the
offence of money laundering, a person ought to be projecting the proceeds of
crime as untainted property.
Having stated the above let’s examine how the courts have dealt with and
interpreted the definition of proceeds of crime under PMLA.
Important Judicial pronouncements:
B. Rama Raju vs. Union of India & Ors. (2011 SCC Online AP 152): In this judgment, while interpreting the definition of proceeds of crime, the
High Court of Andhra Pradesh has held that since proceeds of crime is defined to
include value of any property derived or obtained as a result of any criminal
activity relating to a scheduled offence, where a person satisfies the Ld.
Adjudicating Authority that the property acquired is through bona fide means,
such property ought to be released from attachment.
J. Sekar vs. Union of India & Ors. (2018 SCC Online Del 6523): The
Division Bench of the High Court of Delhi while upholding the constitutional
validity of the second proviso to Section 5(1) of the PMLA observed that the
expression value of any such property would be a value equivalent to the value
of a property derived or obtained (directly or indirectly) by any person as a
result of criminal activity. The property itself may no longer be available but
the equivalent value of such a property, whether held in cash, etc, would be
available for attachment.
Deputy Director, Directorate of Enforcement of Delhi vs. Axis Bank &
Ors. (2019 SCC Online 7845) (Axis Bank Judgment): The Axis Bank Judgment most
elaborately and extensively deals with the definition of proceeds of crime and
as to whether the ED can attach even clean/untainted properties when the tainted properties are not available for attachment. The High Court in this
case gave a distinction between tainted properties and deemed tainted
properties and held that deemed tainted properties are properties which may
have been obtained and acquired without any connection with criminal activity
but are still liable to be attached if the tainted properties are not traceable
or available for attachment. In this judgment the Court gave protection to bona
fide third party claimants to the extent that if the bona fide third party
claimants are able to show that they acquired an interest in the property at a
time anterior to the commission of the proscribed criminal activity or they are
able to establish that they took due diligence to ensure that the asset attached
is not a tainted asset, then the attached property can be released in favour of
such bona fide third party claimants.
The Court in this case interpreted the definition of proceeds of crime in a
manner which gave wide powers to the ED with respect to attachment of properties
under the PMLA and held that the ED has powers to even attach the clean
properties when the tainted properties are not available for attachment.
It is also pertinent to note that the Axis Bank Judgment has been challenged by
way of Special Leave Petition and is pending adjudication before the Hon’ble
Supreme Court of India.
- Seema Garg vs. Deputy Director, Directorate of Enforcement (2020 SCC
Online P&H 738):
This is the latest judgement with respect to the issue of
interpretation of the definition of proceeds of crime and has been passed by
the Division Bench of the Punjab and Haryana High Court.
The Court while dealing
with the issue whether value of such property occurring in the definition of
proceeds of crime includes any property of any person irrespective of source
of property has held that the phrase value of such property does not mean and
include any property which has no link direct or indirect with the property
derived or obtained from commission of scheduled offence i.e. the alleged
Thus, the Punjab and Haryana High Court took a divergent view from the view
taken by the High Court of Delhi in the Axis Bank Judgment and has held that the
clean properties and the so called deemed tainted properties as defined by the
High Court of Delhi in the Axis Bank Judgment cannot be attached by the ED under
the PMLA if they have no link, direct or indirect, with the property derived or
obtained from the commission of a scheduled offence.
What is pertinent to note is that, though, there is no clear pronouncement by
the Hon’ble Supreme Court of India which settles the issue whether the ED can
attach untainted or clean properties in case the tainted
are not available for attachment but, this issue is pending adjudication before
the Hon’ble Supreme Court of India in the Special Leave Petition filed against
the Axis Bank Judgment.
As we have mentioned above, the High Court of Delhi has held that such
properties can be attached whereas the High
Court of Punjab and Haryana has held to the contrary. Since, there is no
judicial pronouncement by the Hon’ble Supreme Court of India till now and there
are divergent views of two different High Courts, it would be interesting to
see, going forward, as to how the Courts adjudicate on the powers of the ED to
attach untainted or clean properties while scrutinizing and interpreting the
definition of proceeds of crime.
About the Authors:
Abhinav Agnihotri is an Associate Partner with Link Legal India Law Services
having 13 years of experience in handling disputes and arbitration matters. He
is a part of the Disputes team and has been handling various high-stake dispute
matters before various courts and tribunals. He has been representing clients in
disputes before the Supreme Court, High Courts, Subordinate Courts and Tribunals
Written By: Dipan Sethi
is an Associate in the Dispute Resolution
practice of the firm.