Attachment of property under PMLA as Equivalent Value

Gold Coin having a value

EQUIVALENT VALUE UNDER PMLA


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The Prevention of Money Laundering Act, 2002 (the Act) deals with not only attachment of property derived or obtained, directly or indirectly as a result of criminal activity relating to a scheduled offence but also with the attachment of the property legitimately acquired by accused as equivalent value if ‘proceeds of crime’ is not traceable.

Clause (u) of sub-section (1) of section 2 of the Act defines ‘proceeds of crime’ as under:

“proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the 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;

This definition clearly says that where ‘proceeds of crime’ has been taken or held outside the country, alienated, transferred or disposed of in any manner, any other property of same value held by the such person either in India or abroad may be attached for ‘equivalent value’.

Conditions for attachment of property for ‘equivalent value’ under the Act are as under:

1.       ‘Proceeds of crime’ has been alienated, disposed of in any manner;

2.       Where ‘proceeds of crime’ is not traceable or the Authorities failed to trace ‘proceeds of crime’; and

3.       Where the person responsible has received ‘illicit gain’ of the criminal activity relating to ‘scheduled offence’.

The Authorities entrusted for administration and enforcement of the provisions of the Act are under greater statutory obligation to give effect to its provisions in letter and spirit. Accordingly, all the authorities exercising its power under the Act are duty bound to ensure that the attachment proceeding is not an idle formality but such proceeding has to be in consonance and conformity with the intent and purpose for which the Act has been enacted. It means any property cannot be attached blindly as ‘equivalent value’. Authorities must be very careful before attaching properties as ‘equivalent value’ because various High Courts and the Appellate Tribunal (PMLA) have settled the position of ‘equivalent value’.

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Dealing the mandate of attachment for any property as ‘equivalent value’, the Appellate Tribunal in Shri Surendra Singhi v. The Joint Director Directorate of Enforcement, Hyderabad & Ors. [FPA-PMLA-1928/HYD/2017 (Decided on 21.12.2018)], held as under:

“13. Value as defined in Sec. 2 (zb) of the PMLA has to be harmoniously read with Sec. 2 (u) of the Act which mandates to acquisition value only to situations where the proceeds of crime being attached. Such application cannot be pedantically extended to situations where the property equivalent of alleged proceeds of crime are being attached, which do not have any nexus or continuum with the alleged direct proceeds of crime. The said exercise can only be done if ED is not in a position to recover the actual amount of proceeds of crime from the accused who by manipulation spent the proceeds of crime and the ED is not able to recover the same and attached that only under those circumstances, the property can be attached equivalent to value thereof if the party has some link and nexus in the crime or the attached property was purchased from proceed of crime and is in possession of third party.”

In Dy. Director, ED vs. Axis Bank & Others [(2019) SCC OnLine Del 7854], the High Court of Delhi held as under:

“103. The special legislation against money-laundering (PMLA) seeks to enforce the sanction of confiscation (initiated by attachment) against ill-gotten assets expecting to ensnare them in a net wider than under most of the existing laws germane to the issue of economic well-being, security and integrity of India as a sovereign State. The expansive definition of the targeted property, described as “proceeds of crime”, as given in Section 2(1)(u) is as under:

“proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the 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;

104. The above definition may be deconstructed into three parts:-

(i).     property derived or obtained (directly or indirectly) as a result of criminal activity relating to scheduled offence; or

(ii).    the value of any such property as above; or

(iii).   if the property of the nature first above mentioned has been “taken or held” abroad, any other property “equivalent in value” whether held in India or abroad.

105. It is vivid that the legislature has made provision for “provisional attachment” bearing in mind the possibility of circumstances of urgency that might necessitate such power to be resorted to. A person engaged in criminal activity intending to convert the proceeds of crime into assets that can be projected as legitimate (or untainted) would generally be in a hurry to render the same unavailable. The entire contours of the crime may not be known when it comes to light and the enforcement authority embarks upon a probe. The crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude. The total wrongful gain from the criminal activity cannot be computed till the investigation is completed. The authority for “provisional” attachment of suspect assets is to ensure that the same remain within the reach of the law.

106. Among the three kinds of attachable properties mentioned above, the first may be referred to, for sake of convenience, as “tainted property” in as much as there would assumably be evidence to prima facie show that the source of (or consideration for) its acquisition is the product of specified crime, the essence of “money-laundering” being its projection as “untainted property” (Section 3). This would include such property as may have been obtained or acquired by using the tainted property as the consideration (directly or indirectly). To illustrate, bribe or illegal gratification received by a public servant in form of money (cash) being undue advantage and dishonestly gained, is tainted property acquired “directly” by a scheduled offence and consequently “proceeds of crime”. Any other property acquired using such bribe as consideration is also “proceeds of crime”, it having been obtained “indirectly” from a prohibited criminal activity within the meaning of first limb of the definition.

107. In contrast, the second and third kinds of properties mentioned above would ordinarily be “untainted property” that may have been acquired by the suspect legitimately without any connection with criminal activity or its result. The same, however, are intended to fall in the net because their owner is involved in the proscribed criminality and the tainted assets held by him are not traceable, or cannot be reached, or those found are not sufficient to fully account for the pecuniary advantage thereby gained. This is why for such untainted properties (held in India or abroad) to be taken away, the rider put by law insists on equivalence in value. From this perspective, it is essential that, before the order of attachment is confirmed, there must be some assessment (even if tentative one) as to the value of wrongful gain made by the specified criminal activity unless it be not possible to do so by such stage, given the peculiar features or complexities of the case. The confiscation to be eventually ordered, however, must be restricted to the value of illicit gains from the crime. For the sake of convenience, the properties covered by the second and third categories may be referred to as “the alternative attachable property” or “deemed tainted property”.

109. The inclusive definition of “proceeds of crime” respecting property of the second above-mentioned nature - i.e. “the value of any such property” - gives rise (as it has done so in these five appeals) to potential multi-layered conflicts between the person suspected of money-laundering (the accused), a third party (with whom such accused may have entered into some transaction vis-a-vis the property in question) and the enforcement authority (the State). Since the second of the above species of “proceeds of crime” uses the expression “such property”, the qualifying word being “such”, it is vivid that the “property” referred to here is equivalent to the one indicated by the first kind. The only difference is that it is not the same property as of the first kind, it having been picked up from among other properties of the accused, the intent of the legislature being that it must be of the same “value” as the former. The third kind does use the qualifying words “equivalent in value”. Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense.

110. Thus, it must be observed that, in the opinion of this court, if the enforcement authority under PMLA has not been able to trace the “tainted property” which was acquired or obtained by criminal activity relating to the scheduled offence for money-laundering, it can legitimately proceed to attach some other property of the accused, by tapping the second (or third) above-mentioned kind provided that it is of value near or equivalent to the proceeds of crime. But, for this to be a fair exercise, the empowered enforcement officer must assess (even if tentatively), and re-evaluate, as the investigation into the case progresses, the quantum of “proceeds of crime” derived or obtained from the criminal activity so that proceeds or other assets of equivalent value of the offender of money-laundering (or his abettor) are subjected to attachment to such extent, the eventual order of confiscation being always restricted to take over by the Government of illicit gains of crime, the burden of proving facts to the contrary being on the person who so contends.”

In a recent case of Seema Garg v. The Deputy Director, Directorate of Enforcement [PMLA No.1 of 2019(O&M) (Decided on 06.03.2020)], the Punjab and Haryana High Court of Punjab and Haryana has widely dealt with ‘value of such property’ and held as under:

“14.   From the conceded position and arguments of both sides, we find that following questions arise for our adjudication:

(i)      Whether provisional attachment of property is sustainable after the expiry of 90 or 365 days from the date of order passed by adjudicating authority?

(ii)     Whether property acquired prior to enactment of PMLA i.e. prior to 1.7.2005 can be provisionally attached under Section 5 of the PMLA?

(iii)    Whether phrase ‘value of such property’ occurring in definition of ‘proceeds of property’ includes any property of any person irrespective of source of property?

(iv)    Whether officer attaching property is required to record reason that property is likely to be concealed, transferred or dealt with in any manner which may frustrate proceedings relating to confiscation?

19.     In view of above discussion, we summarise our findings as below:

(i)      In case investigation is pending, filing of complaint against others is not sufficient to deprive any person from benefit of time cap of 365 days,

(ii)     Property acquired prior to commission of scheduled offence i.e. criminal activity or introduction of PMLA cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country.

(iii).   Director or any other officer authorised by him is bound to record reasons which must be specific and mere reproduction of wording of Section 5 is not sufficient.”

Considering the above, it apparent that provision of ‘equivalent value’ has been incorporated in the Act to serve the purpose of law rather for the convenient attachment of any property by the Authorities. Attachment of any property as ‘equivalent value’ can only be done when the ‘proceeds of crime’ is untraceable and the person concern had ‘illicit gain’ from the criminal activity relating to ‘scheduled offence’.

Now the Punjab and Haryana High Court in above case has clearly stated that property acquired prior to commission of scheduled offence i.e. criminal activity or introduction of the Act cannot be attached unless property obtained or acquired from scheduled offence is held or taken outside the country.

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