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Provisional Attachment Order Under the Prevention of Money Laundering Act, 2002

Nikhil Mogha

| Updated: Oct 06, 2022 | Category: PMLA

Provisional Attachment order

The word “Attachment of Property” can be construed as attaching properties of a person charged with the offence under any law. The property is attached so that the accused could not appropriate any illegal income from the property. The provisional attachment order of property means that the property of the accused is attached by the authority or the court for a prescribed period of time or till the court has decided the case.The provision for provisional attachment is also provided under the CGST act. A similar provision is provided under the Prevention of Money Laundering Act, 2002, which allows the authority to cease the property of the accused illegally laundering the income generated from the asset. The present article will state the provisions and substantiate the current practice through judicial decisions.

Provisions guiding Provisional Attachment under PMLA

The Prevention of Money Laundering Act (PMLA) provides for “Attachment of property involved in money-laundering” and “Adjudication” under Sections 5 and 8, respectively.

Section -5: Provisional Attachment Order

Section 5 of PMLA talks about the attachment of property. Subclause 1 of Section 5 states that the director or any other officer not below the rank of Deputy Director can order the provisional attachment if there is a reasonable belief that the person is in possession of any proceeds of crime. The word “Proceeds of Crime” under the act means any property derived or obtained directly or indirectly by the person through criminal activity relating to a scheduled offence. Further,the order for provisional attachment can be issued against any person charged with a scheduled offence.

The officer can grantthe provisional attachment orderfor a period not more than 180 daysfrom the date of order if they have a reasonable belief that the property could be:

  1. Concealed
  2. Transferred
  3. Dealt in a manner

that may hamper the proceedings relating to the confiscation of such property under the act.

Provisional attachment only after submission of report and filing of a complaint.

First Proviso of Section- 5(1) of the act states that the order for attachment of property by the officer can be made only after:

  1. The report is forwarded to the Magistrate under Section 173 of Cr.P.C.
  2. Filing of complaint before the magistrate or court for taking cognisance of the offence by the special court under Section 36(1) of NDPS Act, 1985[1].

Immediate Attachment

Second Proviso of Section 5(1) of the states the exemption for the first proviso. It states that the director or any other officer in charge can order for the provisional attachment of property immediately if they have reason to believe, based on the material they possess, that the proceedings under the act will get hampered.

Forward the order to the authority

Clause 2 of Section 5 states that the copy of the provisional attachment order, including evidence or documents, passed by the officer shall be forwarded to the adjudicating authority in a sealed envelope.

Timeline of Provisional Attachment order

Clause 3 of Section 5 states that the order for provisional attachment shall cease to have effect after the expiry of:

  1. Time mentioned under Section 5(1)-180 days
  2. Time mentioned under Section 8(3)-365 days orduring Pendency of Proceedings or after the final order of the court

Filing of Complaint before Adjudicating Authority

Clause 5 of Section 5 statesthat the director, after passing the Provisional Attachment Order, shall, within 30 days from the date of attachment, file a complaint with the adjudicating authority in such manner as may be prescribed.

Section 8: Adjudicating Authority

Section 8 of PMLA talks about the confirmation of the attachment of property under the provisional attachment order. It states that if the adjudicating, after giving the accused the opportunity of beingheard, is of the opinion that the accused is involved in the activities of money laundering, then the authority shall confirm that order of attachment. Further, the duration of the order of attachment shall be:

  1. During Continuation of investigation but not exceeding 365 days
  2. During Pendency of proceedings before the court
  3. After the Final order of confiscation of the Special court

After the confirmation of the provisional attachment order, the director under Section 8(4) is authorised to take possession of the attached property.

Judicial Decisions

1. Constitutional validity of Section5: Vijay Madanlal Choudhary vs Union of India SCC OnLine SC 929

The court, in this case, upheld the constitutional validity of Section 5 of the PMLA act. The court states that the order for provisional attachment shall be initiated only after the offence is preliminarily established.Further, the court states that any person who has any interests in the attached property cannot be refrained from enjoying the property. Moreover, the court points out that merely the order passed under Section 5(1) is confirmed; it does not imply confiscation of the property until a formal confiscation order is passed. The court also stated that the direction under Section 8(4) to the director to take possession of property without any formal order should be an exception and not the rule.

2. Provisional attachment beyond 180 days: Vikas WSP Ltd. v. Directorate Enforcement, WP (C) 3551/2020

The court in the case states that without the adjudication authority’s confirmation of the Provisional attachment order, the order shall lapse after 180 days from the date of passing of the order. The court states that once the period of 180 days mentioned under Section 5(1) is passed and the adjudicating authority has not confirmed the order under Section 8 (3) of the act, the Provisional allotment order shall cease to have an effect and subsequently the adjudicating authority becomes functus officio. The section prima facie restricts the validity period of the Provisional Allotment order passed under Section 5(1) of the act beyond 180 days.

3. No express provision for Provisional attachment once the complaint is filed before adjudicating authority:  M/S Kaushalya Infrastructure Development Corporation limited vs Union of India &Anr.

The court in the case held that there is no express provision under PMLA that will prevent the officer from passing an order under Section 5(1) of the act once a complaint is filed before adjudicating authority. Further, the court states that even if the provisional attachment order is quashed, the same does not stop the adjudication proceedings before the adjudicating authority. The court also the satisfaction of the officer under Section 5 of the act shall be:

  1. The property in question is acquired through proceeds of crime
  2. The property in question is involved in the offence of money laundering
  3. The person in possession of the property is likely to transfer, conceal or deal with the property in a manner that may frustrate the confiscation proceedings.

Conclusion

The PMLA act is enacted to prevent the channelisation of income into illegal activities and economic crimes. To prevent the accused from channelising the income generated from the property further, the act under Section 5 provided the power to the officer to pass a provisional attachment order. The drawback in the section is that the order passed by the officer and confirmed by the adjudicating authority is an executive body and hence can be misused. It is a contention before the court in many cases that the section provides arbitrary power to the officer and the authority and hence requires judicial intervention.

Read our Article: Provisional Attachment under GST: Amendment & Supreme Court Ruling

Nikhil Mogha

An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.

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