The Karnataka High Court has held that a property bought years before the alleged scheduled offence cannot be shielded from provisional attachment under the Prevention of Money Laundering Act, 2002 (PMLA) merely because of its date of acquisition.

Justice Suraj Govindaraj ruled that Section 2(1)(u) read with Section 5 of the Act permits attachment of property of equivalent value even where the original proceeds of crime are not held outside India.

"The provisional attachment of the Petitioner's properties is not unsustainable in law merely because they were purchased under registered sale deeds dated 15.12.2004 and 28.03.2008, before the alleged scheduled offence and the transactions of 2011–2012. The properties cannot themselves be treated as having been derived or obtained from criminal activity that occurred later, and the Respondent does not claim that they were directly acquired from the alleged proceeds of crime.

However, Section 2(1)(u), read with Section 5 of the PMLA, permits attachment of property of equivalent value where the statutory requirements are satisfied. That interpretation follows from Vijay Madanlal Choudhary (paragraphs 172 and 173) and Axis Bank (paragraph 171). This Court does not follow Satish Motilal Bidri to the extent that it restricts equivalent-value attachment to cases where the original proceeds of crime are taken or held outside India.

Whether the original proceeds are unavailable, whether the amounts received by the Petitioner constitute proceeds of crime, and whether the statutory conditions for attachment are otherwise satisfied must be determined on the evidence by the Adjudicating Authority and, subject to the statutory remedies, the Appellate Tribunal. Accordingly, this Court answers Point No. (ii) by holding that the dates of acquisition do not, by themselves, invalidate the attachment as one of equivalent value; the factual and statutory conditions for such attachment remain subject to adjudication under the PMLA"

Dismissing a writ petition filed by Shanker Mahadevan Iyer, the Court held that the provisional attachment of properties purchased in 2004 and 2008 was permissible as equivalent-value assets, provided statutory requirements are met.

Equivalent-Value Attachment Not Restricted to Assets Held Abroad

The petitioner had argued that the ED could not provisionally attach his properties because they were purchased long before the alleged 2011–2012 transactions, and contended that the “equivalent value” provision applied only to properties held abroad.

Section 5 of the PMLA allows the authority to provisionally attach property if he has reason to believe that a person is in possession of any proceeds of crime. Section 2(1)(u) defines proceeds of crime as property derived, directly or indirectly, as a result of criminal activity relating 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.

The court answered affirmatively to the question whether the authorities could provisionally attach the said properties.

Referring to the Apex Court's ruling in Vijay Madanlal Choudhary v. Union of India, which dealt with attachment of property equivalent in value, the court said, “This Court is bound by the interpretation adopted by the Hon'ble Supreme Court. Accordingly, the absence of property held abroad does not, by itself, exclude attachment of other property of equivalent value under the PMLA.”

The Court added, “This conclusion does not mean that any property belonging to an accused may be attached without satisfying the statutory requirements. The legal basis for equivalent value attachment and the conditions governing its exercise must still be established.”

While acknowledging that properties purchased in 2004 and 2008 could not have been directly derived from a criminal activity occurring in 2011–2012, the Court clarified that the date of acquisition does not invalidate an attachment under the value limb of the provision.

“The dates of acquisition do not, by themselves, invalidate the attachment as one of equivalent value; the factual and statutory conditions for such attachment remain subject to adjudication under the PMLA,” the Court held.

No requirement of prior notice under Section 5(1)

The High Court said that PMLA does not provide for prior notice before provisional attachment. Instead, other safeguards operate through subsequent process— such as the order and material must be forwarded to the Adjudicating Authority, the complaint must be filed within the prescribed period, and the affected person is given an opportunity to respond in the proceedings under Section 8.

“The provisional nature of the attachment, the statutory time limit and the subsequent adjudicatory process are material safeguards. This Court finds no basis to read a requirement of prior hearing into Section 5(1),” the Court held.

The Court further observed that the ED had complied with the procedure stipulated for such attachment under Section 5(1) and that the impugned attachment order was not vitiated by non-application of mind or a lack of nexus between the properties attached and the alleged proceeds of crime.

Accordingly, the High Court dismissed the writ petition. It further kept all remedies available under the PMLA open to the petitioner.

Background

The dispute arose from a private complaint before Additional Civil Judge and ACJM, Udupi, resulting in a charge sheet naming the petitioner as the third accused. It stemmed from a commercial dispute over iron ore supplies between M/s. Hanuman Minerals and M/s. Manipal Global Services Pvt. Ltd. Based on this, the ED recorded an ECIR in 2022 and provisionally attached the petitioner's properties on October 29, 2024.

The petitioner contended that he was part of the alleged transaction as a stevedore and that funds received from M/s. Hanuman Minerals were partial repayments of an advance he had paid for iron ore in 2011.