The Basics of Attachment under the Prevention of Money Laundering Act, 2002

Prologue

The attachment of proceeds of crime is one of the functions that the Directorate of Enforcement carries out under the PMLA. The rationale behind attaching the proceeds of crime is quite simple. An economic offence is usually carried out for pecuniary gain. If the very basis, for which a crime is committed is taken away, there will be a deterrent for the perpetrators who seek to commit such economic offences. Additionally, attachment would be necessary where it is possible that the proceeds of crime may be dealt with in a manner that could frustrate the objectives of the PMLA. The section dealing with provisional attachment brings this out by itself. This is brought out by the twin conditions that are prescribed by the statute itself and can be gauged by a cursory reading of Section 5(1) of the PMLA. The relevant extract is as below:

5. (1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that—

any person is in possession of any proceeds of crime; and
such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter,

he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed:

Of course the section does go on with three provisos and an explanation, but for the purpose of brevity we may restrict ourselves to the extract reproduced above. The Provisional attachment can therefore be only made if “the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section” has “reason to believe” which further need to be “recorded in writing” based specifically upon “material in his possession” that the twin conditions prescribed by the section are fulfilled. The twin conditions are that not only must the person be in possession of proceeds of crime but such proceeds of crime which are in the possession of the person in whose hands the said provisional attachment is sought to be done should be likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. The reasons why these conditions can be called twin conditions is because the conjugation used between them is ‘and’ not ‘or’. This finds validation from the Judgement of the Bombay High Court in of Digambar Kamat & Ors. V. Joint Director 2020 SCC OnLine Bom 1899 : (2021) 1 Bom CR 660 : (2021) 1 AIR Bom R (Cri) 451. For a valid provisional attachment to be made, both these conditions need to be satisfied. It is however to be noted that no show cause notice needs to be issued before provisional attachment is made by the Directorate of Enforcement as held by the Delhi High Court in Gautam Khaitan & Onr. v. UOI & Anr. 2015 SCC OnLine Del 7071: (2015) 218 DLT 183: 2015 Cri LJ 2112.

The safeguards against arbitrary usage of the power of Attachment

Diving in head first, it would be instructive to see what safeguards exist against arbitrary use of the powers of provisional attachment. We need not look too far to find out the safeguards as the Supreme Court has already enumerated them in its landmark judgement of Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. 2022 SCC OnLine SC 929 which held as follows :

“The procedural safeguards provided in respect of provisional attachment are effective measures to protect the interest of the person concerned who is being proceeded with under the 2002 Act, in the following manner as rightly indicated by the Union of India:

For invoking the second proviso, the Director or any officer not below the rank of Deputy Director will have to first apply his mind to the materials on record before recording in writing his reasons to believe is certainly a sufficient safeguard to the invocation of the powers under the second proviso to Section 5(1) of the 2002 Act.
There has to be a satisfaction that if the property involved in money-laundering or ‘proceeds of crime’ are not attached “immediately”, such non-attachment might frustrate the confiscation proceedings under the 2002 Act.
The order passed under Section 5(1) of the 2002 Act is only provisional in nature. The life of this provisional attachment order passed under Section 5(1) of the 2002 Act is only for 180 days, subject to confirmation by an independent Adjudicating Authority.
Under Section 5(2) officer passing provisional attachment order has to immediately forward a copy of this order to the Adjudicating Authority in a sealed envelope.
Under Section 5(5) of the 2002 Act, the officer making such order must file a complaint before the Adjudicating Authority within 30 days of the order of provisional attachment being made.
Section 5(3) of the 2002 Act provides that the provisional attachment order shall cease to have effect on the expiry of the period specified in Section 5(1) i.e. 180 days or on the date when the Adjudicating Authority makes an order under Section 8(2), whichever is earlier.
Under Section 8(1), once the officer making the provisional attachment order files a complaint and if the Adjudicating Authority “has a reason to believe that any person has committed an offence under Section 3 or is in possession of the proceeds of crime”, the Adjudicating Authority may serve a show cause notice of not less than 30 days on such person calling upon him to indicate the sources of his income, earning or assets or by means of which he has acquired the property attached under Section 5(1) of the 2002 Act.
The above SCN would require the noticee to produce evidence on which he relies and other relevant information and particulars to show cause why all or any of the property “should not be declared to be the properties involved in money- laundering and confiscated by the Central Government”.
Section 8(2) requires the Adjudicating Authority to consider the reply to the SCN issued under Section 8(1) of the 2002 Act. The Section further provides to hear the aggrieved person as well as the officer issuing the order of provisional attachment and also take into account “all relevant materials placed on record before the Adjudicating Authority”. After following the above procedure, the Adjudicating Authority will record its finding whether all the properties referred to in the SCN are involved in money-laundering or not.
While passing order under Section 8(2) read with Section 8(3) there are two possibilities which might happen:
1. the Adjudicating Authority may confirm the order of provisional attachment, in which case again, the confirmation will continue only up to
 1. the period of investigation not exceeding 365 days, or
 2. till the pendency of any proceedings relating to any offence under the 2002 Act or under the corresponding law of any other country before the competent Court of criminal jurisdiction outside India.
2. Adjudicating Authority may disagree and not confirm the provisional attachment, in which case attachment over the property ceases.
Under Section 8(4) of the 2002 Act, upon confirmation of the order of provisional attachment, the Director or other officer authorized by him shall take the possession of property attached.
Under Section 8(5) of the 2002 Act, on the conclusion of a trial for an offence under the 2002 Act if the Special Court finds that the offence of money-laundering has been committed it will order that the property involved in money-laundering or the property which has been involved in the commission of the offence of money-laundering shall stand confiscated to the Central Government.
However, under Section 8(6) if the Special Court on the conclusion of the trial finds that no offence of money- laundering has taken place or the property is not involved in money-laundering it will release the property which has been attached to the person entitled to receive it.
Under Section 8(7), if the trial before the Special Court cannot be conducted because of the death of the accused or because the accused is declared proclaimed offender, then the Special Court on an application of the Director or a person claiming to be entitled to possession of a property in respect of which an order under Section 8(3) is passed either to confiscate the property or release the property to the claimant, after considering the material before it.
Under Section 8(8), when a property is confiscated, Special Court may direct the central government to restore the property to a person with the legitimate interest in the property, who may have suffered a quantifiable loss as a result of money- laundering. Provided that the person must not have been involved in money-laundering and must have acted in a good faith and has suffered a considerable loss despite taking all reasonable precautions.
The order passed by the Adjudicating Authority is also subject to appeal before the Appellate Tribunal which is constituted under Section 25 of the 2002 Act. Thus, the Adjudicating Authority is not the final authority under the 2002 Act as far as the attachment of proceeds of crime or property involved in money-laundering is concerned.
Any person aggrieved of an order confirming the provisional attachment order can file an appeal before the Appellate Tribunal under Section 26(1) of the 2002 Act. The Appellate Tribunal on receipt of an appeal after giving the parties an opportunity of being heard will pass an order as it thinks fit either confirming or modifying or setting aside the provisional attachment order appealed against.
Further, the order passed by the Appellate Tribunal is further appealable before the High Court under Section 42 of the 2002 Act on any question of fact or question of law arising out of the order passed by the Appellate Tribunal.”

In the above paragraph, “2002 Act” refers to PMLA while “SCN” refers to show cause notice. The Supreme Court therefore traversed through the scheme of attachment and consequent possible confiscation and concluded that sufficient safeguards were built into the wordings of the statute in respect of provisional attachments. The above scheme also demonstrates the process itself and brings out the nuance of the attachment process. It goes without saying that the Directorate of Enforcement must scrupulously follow the wordings of the act and the observations of the Supreme Court.

The Consequences of Attachment

The fate of the property does not become fait accompli upon attachment. Provisional attachment by itself does not contemplate the Directorate of Enforcement taking physical possession of the property. The question of taking physical possession comes up for the first time only after the confirmation of the provisional attachment by the adjudicating authority under Section 8(4) of the PMLA. Though the said section states that “Where the provisional order of attachment made under sub- section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached under section 5 or frozen under sub-section (1A) of section 17, in such manner as may be prescribed”, it may not be necessary in each and every case. At this juncture it may be beneficial to remember that there are two in conditions for the provisional attachment of property. The Madras High Court in A. Kamarunnisa Ghori v. The Chairperson, Prevention of Money Laundering, Union of India 2012 SCC OnLine Mad 2527 held that symbolic possession can be taken under Section 8(4) of the PMLA. But by far the most authoritative pronouncement on this issue is the judgement of the Supreme Court in Vijay Madanlal Coudhary v. Union of India & Ors. 2022 SCC OnLine SC 929 which held that that merely because the provisional attachment order passed under Section 5(1) is confirmed, it does not follow that the property stands confiscated and that until an order of confiscation is formally passed, there is no reason to hasten the process of taking possession of such property. The Court observed “Once the possession of the property is taken in terms of sub-section (4) and the finding in favour of the person is rendered by the Special Court thereafter and during the interregnum if the property changes hands and title vest in some third party, it would result in civil consequences even to third party. That is certainly avoidable unless it is absolutely necessary in the peculiar facts of a particular case so as to invoke the option available under sub-section (4) of Section 8. The direction under Section 8(4) for taking possession of the property in question before a formal order of confiscation being passed merely on the basis of confirmation of provisional attachment order, should be an exception and not a rule.” The Court therefore held that Section 8(4) should be the exception and the rule.

It is therefore clear that at the state of provisional attachment, the Directorate of Enforcement cannot take physical possession of the property and upon confirmation of the said provisional attachment displacing those in possession of the attached property is not compulsory and the discretion given should be exercised on a case to case basis. What is also to be considered is that confiscation of the proceeds of crime is ultimately neither ordered by the Directorate of Enforcement not the adjudicating authority under PMLA but by the Special Court which actually tries the offence of money-laundering. What is also clear is that the ultimate confiscation of the property involved in money laundering or used for the commission of the offense of money laundering can only be done at the end of the trial for the offence of money-laundering by the Special Court as laid down by Section 8(5) of the PMLA.

Epilogue

The importance of understanding the provisions relating to attachment of proceeds of crime cannot be understated as it is not necessary that a person needs to have committed the offence of money-laundering as defined under Section 3 of the PMLA for the attachment of his property. It is completely possible that bonafide third parties may receive such notice of attachment due to unforeseen circumstances with regard to acquisition of properties unknown to them. At this juncture it may be beneficial to revert back to the judgement of the Supreme Court in Vijay Madanlal Coudhary v. UOI & Ors. 2022 SCC OnLine SC 929 which holds that the sweep of Section 5(1) is not limited to the accused name in the criminal activity under Section 3 of the PMLA but to any person who is involved in any process or activity connected with proceeds of crime. In fact, the Court goes further to hold that though for the purposes of the offence of money-laundering the registration of a scheduled offence is necessary, there is no such precondition for initiating the action of provisional attachment. It can therefore be seen that the power of provisional attachment is extremely wide. A bonafide third party shall have to appear before the Adjudicating Authority and show its bonafides so that the provisional attachment is not confirmed. It is of no doubt that professionals such as lawyers and chartered accountants will be called upon to render services in connection with attachment proceedings. Considering that the PMLA is being increasingly enforced as required under international commitments, one may presume that a significant number of provisional attachments may happen going forward.