Redevelopment of an attached property may proceed without a bank guarantee if attachment follows its replacement asset.

The petitioner society, comprising ten flats and twelve members, sought redevelopment of its building, which was over 44 years old and had become unsuitable for occupation.

Flat No. 4 was subject to a provisional attachment order dated 28 February 2013, subsequently confirmed by the Adjudicating Authority under Section 8(3) of the Prevention of Money-Laundering Act (PMLA).

The ED had refused the Society’s request for a no-objection certificate (NOC), stating that the flat was under attachment and in the custody of the Special Court.

The Society sought permission to redevelop while preserving the ED’s rights over the replacement flat and related monetary benefits.

It undertook, among other things, to identify the replacement flat in the redevelopment documents, hand it over to the ED, preserve the attachment, and deposit all accruals into an account designated by the ED.

The ED sought a bank guarantee securing delivery of the replacement flat.

1. Whether the Society could obtain an NOC to redevelop the building despite the attachment over Flat No. 4, provided the ED’s rights in the replacement flat and related accruals were preserved.

2. Whether furnishing a bank guarantee should be made a condition of permitting demolition and redevelopment.

The Court considered Sections 8(3) and 8(4) of the PMLA in relation to confirmation of attachment and possession of attached property, and Sections 8(5), 9 and 8(6) in relation to the treatment of the property depending on the outcome of the proceedings before the Special Court.

The order’s operative principle was that redevelopment could proceed on the facts of this case if the attachment and the ED’s rights were preserved in the substituted asset, the replacement flat was delivered to the ED, and the relevant monetary accruals were protected; the Society and developer would remain subject to orders of the Special Court.

No precedent was cited.

The Court considered the Society’s detailed undertakings sufficient to protect the ED’s interest: the replacement flat would be identified in the approved plans and PAAA, remain subject to attachment, be handed over to the ED, and not be transferred or encumbered; accruals would be deposited directly into an account designated by the ED.

The Court rejected the requested bank guarantee because only one flat was attached, the developer and development terms had not yet been finalised, and imposing the guarantee would place financial pressure on the Society.

It also directed that the ED be kept involved in drafting the Development Agreement and PAAA, with the drafts vetted by the ED as regards Flat No. 4.

It declined to require a bank guarantee, directed the ED to place the Society’s affidavit and the order before the Special Court at Ranchi, and made no order as to costs.