Pre-Crime Assets May Face Equivalent-Value PMLA Attachment Without Overseas Proceeds, Subject To Statutory Tests: Karnataka HC

The petitioner, proprietor of M/s. S.S. Maritime, was named in a charge sheet arising from allegations concerning an iron-ore transaction involving M/s. Hanuman Minerals and M/s. Manipal Global.

The Enforcement Directorate (ED) issued a provisional attachment order dated 29 October 2024, attaching two properties purchased by the petitioner in 2004 and 2008.

The ED’s case was that the properties were attached as being of equivalent value to alleged proceeds of crime, which it said were no longer available.

The petitioner maintained that the properties predated the alleged offence and that Rs.17 lakh received from Hanuman Minerals was repayment of an earlier advance.

A notice under Section 8 of the Prevention of Money Laundering Act, 2002 (PMLA) followed, and the petitioner challenged the attachment and consequential proceedings under Articles 226 and 227 of the Constitution.

Section 2(1)(u) of the PMLA defines proceeds of crime to include property derived or obtained from criminal activity relating to a scheduled offence and the value of such property; the Supreme Court in Vijay Madanlal Choudhary v. Union of India held that equivalent-value attachment is not confined to cases where the original proceeds are held outside India.

Under Section 5(1), provisional attachment requires recorded reasons to believe, based on material in the officer’s possession, that the statutory conditions are met; the First Proviso ordinarily requires a report or complaint relating to the scheduled offence, while the Second Proviso permits immediate attachment in the specified circumstances.

Pavana Dibbur v. Directorate of Enforcement establishes that property acquired before the acts constituting a scheduled offence cannot, merely by that ownership, be treated as derived from those later acts; it does not itself decide the separate question of equivalent-value attachment.

Sections 8, 26 and 42 provide for adjudication and appeals, and the availability of that statutory process ordinarily weighs against entertaining a writ petition, though it does not oust Article 226 jurisdiction.

The Court held that the petition was maintainable but that no exceptional circumstance justified intervention instead of recourse to the PMLA’s adjudicatory and appellate process; the alleged Second Proviso defect did not warrant intervention because a charge sheet had already been filed, satisfying the First Proviso.

It accepted that the properties could not themselves have been acquired from proceeds generated by the later alleged transactions, but, applying Vijay Madanlal Choudhary, rejected the argument that equivalent-value attachment is permissible only when the original proceeds are abroad.

The attachment order identified the alleged proceeds, recorded the alleged fund movements and referred to material considered by the authorised officer; the competing explanations for the Rs.17 lakh and the sufficiency of the nexus were factual matters for the statutory proceedings, not resolution in writ jurisdiction.

The petitioner’s remedies under the PMLA were left undisturbed, and the statutory authorities were directed to decide the matter on its merits, uninfluenced by the judgment’s observations.

The petitioner was granted the benefit of Section 14 of the Limitation Act for the time spent prosecuting the writ petition, and the interim protection was continued for 30 days from receipt of the certified copy to enable him to seek relief before the appropriate authority.