Can Properties Acquired Before the Crime Be Attached as “Proceeds of Crime” under PMLA?

 

By Abhishek Jat, Advocate

Introduction

The Prevention of Money Laundering Act, 2002 (PMLA) is a robust legislative framework designed to combat the menace of money laundering in India. A recurring legal conundrum under the Act is whether properties acquired prior to the commission of the scheduled offence can be attached as "proceeds of crime," especially when the actual tainted property is unavailable. The recent decision of the Appellate Tribunal under SAFEMA in Sadananda Nayak v. Deputy Director, Directorate of Enforcement, Bhubaneswar (FPA-PMLA-5612/BBS/2023, decided 14.10.2024) has provided significant clarity on this issue.

Factual Matrix

Appellant: Shri Sadananda Nayak, a sub-contractor with Hindustan Aeronautics Limited (HAL), Sunabeda, Odisha, for nearly 40 years.

Allegations: In 2017, the then Finance Manager of HAL, Mr. Bhaben Maitra, allegedly credited substantial sums to the appellant’s account without consent. Under threat and intimidation, Mr. Nayak withdrew the funds and returned them to Mr. Maitra, claiming he did not use any of the money for personal benefit.

Criminal Proceedings: The CBI registered an FIR in 2018 implicating all parties. The bank accounts of Mr. Nayak and his sons were frozen.

Attachment of Properties: In July 2022, the Enforcement Directorate (ED) provisionally attached four properties belonging to Mr. Nayak. Notably, three of these properties were purchased before the alleged offence.

Legal Issue

Whether properties acquired prior to the commission of the scheduled offence can be attached as “proceeds of crime” under Section 2(1)(u) of the PMLA, particularly under the ‘second limb’ relating to property of equivalent value?

Arguments Advanced

For the Appellant: 

• The three properties in question were purchased prior to the alleged offence and from independent, legitimate sources.
• Cited the Kerala High Court’s decision in Satish Motilal Bidri v. Union of India [WP(Crl.) No. 406/2024], which held that pre-offence properties cannot be attached as proceeds of crime unless the tainted property is held outside India.
• Relied on the Supreme Court’s ruling in Pavana Dibbur v. Directorate of Enforcement [2023 SCC OnLine SC 1586], where pre-offence properties were released from attachment.

For the Respondent (ED):

• Relied on the Supreme Court’s authoritative judgment in Vijay Madanlal Choudhary v. Union of India [2022 SCC OnLine SC 929], which interprets the definition of “proceeds of crime” broadly.
• Cited the Delhi High Court’s decisions in Directorate of Enforcement v. Axis Bank [2019 SCC OnLine Del 7854] and Prakash Industries Ltd. v. Directorate of Enforcement [2022 SCC OnLine Del 2087], supporting the attachment of properties of equivalent value, irrespective of the date of acquisition.

Tribunal’s Reasoning and Findings

Statutory Interpretation: Section 2(1)(u) of PMLA

The Tribunal meticulously dissected the definition of “proceeds of crime,” which comprises three limbs:

1. First Limb: Property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence.
2. Second Limb: The value of any such property.
3. Third Limb: Where such property is held outside India, the property equivalent in value held within or outside India.

Key Observations:

• The second limb, “the value of any such property,” is not contingent on the property being acquired post-offence. It is designed to allow the attachment of properties of equivalent value if the actual proceeds of crime are unavailable or have been siphoned off.
• Restricting attachment only to properties acquired post-offence would defeat the legislative intent, as offenders could simply dissipate or conceal tainted assets before enforcement action.

Rejection of Contrary Precedents

• The Tribunal expressly declined to follow the Kerala High Court’s view in Satish Motilal Bidri and the Supreme Court’s two-judge bench in Pavana Dibbur, holding that such interpretations would render the second limb of Section 2(1)(u) redundant.
• The Tribunal emphasized that only a larger bench of the Supreme Court could override the interpretation laid down in Vijay Madanlal Choudhary.

Reliance on Authoritative Precedents

• Vijay Madanlal Choudhary v. Union of India (Supreme Court, 2022): Para 68 of this judgment clarifies that the definition of “proceeds of crime” is wide enough to include properties of equivalent value, regardless of acquisition date.
• Directorate of Enforcement v. Axis Bank (Delhi High Court, 2019): Recognized that even “untainted properties” can be provisionally attached if the tainted property is not traceable, provided the value matches the proceeds of crime.
• Prakash Industries Ltd. v. Directorate of Enforcement (Delhi High Court, 2022): Reaffirmed the above principle.

Glossary of Key Legal Terms

• Proceeds of Crime: Any property derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence, or the value thereof.
• Attachment: The legal process of seizing property to prevent its disposal pending adjudication.
• Equivalent Value: Property of the same monetary value as the proceeds of crime, which may be attached if the original tainted property is unavailable.
• Adjudicating Authority: The statutory authority responsible for confirming or revoking provisional attachment orders.
• Tainted Property: Property directly or indirectly connected to criminal activity.
• Un-Tainted Property: Property not connected to criminal activity but may be attached if it represents equivalent value.

Conclusion

The Appellate Tribunal’s decision in Sadananda Nayak v. ED marks a significant affirmation of the legislative intent behind the PMLA. It underscores that the attachment of properties of equivalent value is not limited by the date of acquisition. This interpretation ensures that offenders cannot frustrate the law by dissipating or concealing tainted assets, thereby upholding the efficacy of anti-money laundering enforcement in India.

The Tribunal’s reliance on the Supreme Court’s larger bench in Vijay Madanlal Choudhary and the Delhi High Court’s consistent jurisprudence fortifies the legal position that even pre-offence properties can be attached if they represent equivalent value, provided the original proceeds of crime are unavailable.

Case Details & Citations

Case Title: Sadananda Nayak v. Deputy Director, Directorate of Enforcement, Bhubaneswar

Tribunal: Appellate Tribunal under SAFEMA, New Delhi

Coram: Justice Munishwar Nath Bhandari (Chairman), Shri Rajesh Malhotra (Member)

Order Date: 14.10.2024

Citation: FPA-PMLA-5612/BBS/2023

Key Precedents Discussed:

• Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929
• Directorate of Enforcement v. Axis Bank, 2019 SCC OnLine Del 7854
• Prakash Industries Ltd. v. Directorate of Enforcement, 2022 SCC OnLine Del 2087
• Satish Motilal Bidri v. Union of India, Kerala High Court, WP(Crl.) No. 406/2024 (Not followed)
• Pavana Dibbur v. Directorate of Enforcement, 2023 SCC OnLine SC 1586 (Not followed)

(This article is authored by Abhishek Jat, Advocate. For academic and informational purposes only.)