PMLA

Attachment of Property Involved in Money Laundering

The main objective of the Prevention of Money Laundering Act 2002, i.e. PMLA (the Act), is curbing money laundering in India. One of the steps taken in this respect is through Section 5 of the Act, which deals with the attachment of property involved in money laundering.

Under Section 5 of the Act, the investigating agency, the Enforcement Directorate, is empowered for the provisional attachment of the property; however, this provision has attracted serious criticism on the grounds of being arbitrary in nature resulting in the constitutional validity of such provisions being challenged recently through the case titled Vijay Madanlal Chaudhary vs UOI dated 27^th July 2022  However, the Hon’ble Supreme Court upheld the provisions of this Act, including the power of ED regarding attachment of property arrest, search and seizure.  

 The present article shall discuss the concept of money laundering, proceeds of crime as well as the provisions with regard to the attachment of property involved in money laundering along with the part of the judgment which dealt with such attachment to provide clarity of the same.

Money Laundering and Proceeds of Crime: An Overview

The definition of money laundering is stated in Section 3 of the PMLA that when there is a direct or indirect attempt by anyone to indulge or after having the complete knowledge assist or be a party or actually be involved in the in any process or activity having a connection with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of the offence of money-laundering.

 To have a better understanding of money laundering, it is necessary to have clarity of the concept of proceeds of crime. It is crucial to note that there has been an amendment in the definition of proceeds of crime twice, first through the Finance Act 2015 and then by the Finance Act 2019

Through the Finance Act 2015, the ambit of the definition of proceeds of crime was expanded to include the cases wherein the property, which is in the scope of proceeds of crime, is held outside India, then the property equivalent in value held within the country or abroad,

There was the addition of an explanation to the definition of proceeds of crime to provide a clarification that the proceeds of crime shall include the property which isn’t only derived or obtained from the scheduled offence but also the property which is directly or indirectly derived or obtained from criminal activity relatable to scheduled offence.

Therefore the final definition is as follows – “Any property derived or obtained, either directly or indirectly, by a person as a result of criminal activity pertaining to a scheduled offence or 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 or abroad.”.

Provisional Attachment of Property under PMLA

If there has been the issuance of an order for the attachment of property, the transfer, conversion, disposition or movement of such property is prohibited.

The PMLA also provides for the provisional Attachment of Property, which can be done by the appointed authority under the said Act. Such property can be attached for a period of up to 180 days in the event of the existence of a reason to believe regarding the person having the possession of the proceeds of crime and that the proceeds of crime can be concealed, transferred or dealt with in a manner thereby frustrating the confiscation proceedings of such proceeds of crime. According to the law, such reasons to believe must be recorded in writing.

It must be noted that the order regarding provisional attachment of property under PMLA is made subsequent to forwarding the report to the magistrate u/s 173 of the CrPc for taking cognizance. However, in case of urgency or suspicion regarding the disappearance of the property, the order of provisional attachment can be made even prior to the filing of the report to the magistrate.

Attachment of Property under PMLA: Process

Section 5 of the PMLA deals with the attachment of property and the process followed in respect of the same, which is discussed below-

In the event of the Director or any other authorized officer having a reason to believe about the need for the provisional attachment of the property or proceeds of being involved in money laundering on the basis of the material under his possession, an order for the provisional attachment of the same can be issued by the relevant authority

  A landmark case dealt with by the Apex Court in this regard is the case of  Radha Krishan Industries v. State of H.P. wherein the court inter alia held that the exercise of discretion should be on the basis of the reason to believe, which is different from the opinion, however, if such opinion is made on the basis of the tangible material which establishes a reasonable nexus to the necessity to provisionally attach the property for the protection of interest of the revenue.

Thus, the person looking for the release or de-attachment of his property must showcase to the competent authorities that the attached property is not a “proceeds of crime” and/or “reason to believe” to be erroneous, arbitrary and unreasonable.

• The authorized officer endorses a copy of such order to all the concerned persons, including the person having possession of the property and the adjudicating authority.
• The Director, or any other officer with a rank not below the rank of Deputy Director, must forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority (AA) , in a sealed envelope, immediately after attachment under sub-section (1), in the prescribed manner and such AA shall keep such order and material for the prescribed time period.
• There shall be the cessation of every order of attachment made under sub-section (1) shall after the expiration of the period specified in the provisions of PMLA or on the date of an order made under 8 (3), whichever is earlier.
• Nothing in this section would be preventing the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment.
• It must be noted that for the purposes of this sub-section, “person interested” in relation to any immovable property includes all persons claiming or entitled to claim any interest in the property.
•  The Director or any other officer who provisionally attaches any property under sub-section (1) shall file a complaint stating the facts of such attachment before the Adjudicating Authority within 30 days of such attachment.

Process of Adjudication

Once the property is attached, the process of adjudication shall be initiated, which is elaborated below –

• Upon the receipt of a complaint pertaining to money laundering to the AA and upon having the reasons to believe regarding the person committing the said offence or having the possession of proceeds of crime, the authority shall serve a notice to that person.
• The person must provide the sources of their income, earnings or assets from which the person has acquired the property which has been attached/seized under PMLA, along with furnishing the evidence for the reliance of the claim and other relevant information and particulars as may be required. The concerned person must show the cause regarding why such property shouldn’t be declared to be the property having involvement in the money laundering offence.
• It is crucial to note that in case the property is jointly held by several persons, the notice shall be served to all those holding such property.
• Upon the consideration of the reply to the notice and hearing, the aggrieved person and the director or other authorized officer, the AA shall also consider the relevant materials placed on record and after considering everything, the such authority would record the finding regarding the involvement of the property in the offence of money laundering.
• If the findings are affirmative, i.e. reflects the involvement of the property in the proceeds of the crime, it shall confirm the attachment of the property by an order.
• Upon the confirmation of the order, the authorized officer shall take possession of the property attached or frozen.

Process related to Possession

After adjudication, the next step in the process of attachment of property is the possession of the same, and the process in this respect is elaborated below –

• In case of the confirmation of the provisional order of attachment of property under PMLA. , the officer authorized by him or the Director in this matter shall take possession of the property.
• In case the property is movable in nature, the authorized officer shall take physical possession of the attached property, which shall then be deposited in a warehouse or a storage place.
• If the attached property is likely to get decayed, then such property can be sold off by the authorized officer with the permission of the concerned Special Court or the Adjudicating Authority, after which the sale proceeds shall be deposited in the nearest government treasury.
• In case of the property contains cash, government securities or such other securities or bullion or jewellery or other valuables, the authorized officer can cause it to be deposited into a locker in the name of the investigating agency, i.e. Enforcement Directorate.
• In case the property is in the form of shares, debentures, mutual funds, or instruments, then such shares etc., shall be transferred in favour of the ED, and if it is in the form of money in the bank account, then there shall be the transfer of money to the account of the ED.

Confiscation of the property

The aspects with regard to the confiscation of the property are discussed below –

The Special Court shall undertake the trial of the offence. If the Court, at the end of the trial, finds that the offence of money laundering is being committed, it shall order confiscation of the property. However, in case the Court finds out about the non-occurrence of the money laundering offence or the non-involvement of the attached property in money laundering, the Court shall order the release of such property to the person who is entitled to the receipt of the same.

If the Trial under PMLA could not be conducted due to the death of the accused person or for any other reason, the appropriate orders on confiscation of the property shall be passed by the court, or it shall release such property.

Provisions of Appeal in Case of Attachment of Property under PMLA

• In case a person is aggrieved by an order of the AA, he can file an appeal before the appellate tribunal, which must be filed within a period of 45 days from the date of receiving the notice from the AA.
• It must be noted that an appeal can be entertained by the Appellate Tribunal even after the expiration of such period upon being satisfied with regard to the existence of enough reasons behind not filing the appeal within the specified period.
• Upon providing the opportunity to both parties, the appellate tribunal will pass orders confirming, modifying or setting aside the order which has been challenged before it. According to the Act, the appeal before the appellate tribunal should be dealt with at the earliest, preferably within the time period of 6 months from the filing date of the appeal.

Landmark Judgement on Attachment of Property under PMLA

The aspects of the judgement regarding the attachment of property involved in money laundering is discussed herein under

• On 27^th July 2022, the Supreme Court of India pronounced a landmark judgement in the case titled Vijay Madanlal Choudhary vs Union of India, upholding the constitutional validity of the PMLA. Numerous provisions of the Act were challenged before the Apex Court. However, the Court clarified that the confirmation of an order of provisional attachment; does not imply that the property shall be confiscated, as the same shall be done only upon a formal order being passed in respect of such confiscation.
• The Court further held that during the period between confirmation of the attachment order and passing of the confiscation order, the person interested in such property could not be refrained from enjoying such attached property.
• The Court also stated that taking possession of the property merely on the provisional attachment order is only permitted in exceptional cases.
• These observations were made by the court subsequent to the contentions being raised against the PMLA, which allows the ED for taking possession of the attached property upon the confirmation of the order of provisional attachment.
• The court upheld the constitutional validity of attachment of property as it provides for a balancing arrangement for the protection of the interests of the person along with ensuring that the proceeds of crime are available to be dealt with them.
• The Court opined that many inbuilt safeguards were provided by the parliament during the enactment of PMLA^[1]. The Court observed that section 5(1)  of the said Act delineated sufficient safeguards to be followed by the authorized officer prior to passing the order of provisional attachment. The Court noted that the order of provisional attachment is consequential to satisfaction already recorded by the authorized officer.
• Another observation made by the Apex Court was with respect to the duration of provisional attachment, wherein the court observed that the duration of 180 days for provisional order of attachment was a safeguard provided in the PMLA.  
• The Court observed that the Act had ensured the non-passing of the provisional attachment orders mechanically by the authorized officers. The Court opined it to be another safeguard provisioned in the Act.
• The Court also opined that the provisions regarding the attachment of property under PMLA would strengthen the mechanism of prevention of money laundering offences, along with strengthening the regulation of processes or activity resulting in the money laundering offence. The Court has held that the Act ensures that proceeds of crime are properly dealt with.
• The Apex Court held that upon the persuasion of the entire scheme of the PMLA, it was clear that enough safeguards had been provided as preconditions for invoking the powers of provisional attachment. 
• The Apex Court provided the clarification that the attachment of the property should only be in respect of such property that are proceeds of crime and not be in respect of all properties belonging to the concerned person.
• The Court had agreed with the stand taken by the Central Government, stating that the objective of enacting the PMLA was the attachment and confiscation of the proceeds of crime, which is the quintessence of fighting money laundering.
• The Court ascertained that the procedural protections provided regarding provisional attachment of property under PMLA were effective measures for safeguarding the interest of the person against whom the action is initiated PMLA.
•  Therefore, the Court opined that the provision of Section 5 of the Act consists of reasonable nexus with the objects to be achieved by the Act in the effective prevention and regulation of the evil of money laundering.
• Commenting on the adjudication process provided under the PMLA, the Apex Court observed that this provision was a wholesome provision which not only protects the interest of the concerned person but also provides the person with a fair opportunity during the process of adjudication.

Conclusion

The provision of attachment of property involved in money laundering act as a deterrent measure to combat the issue of money laundering in India. It is worth mentioning that the landmark judgement of the Apex Court has helped in clearing the confusion with respect to this concept, along with disregarding the notion of the power of such attachment being arbitrary in nature.           

Read our Article: Attachment of Property under PMLA- An Overview