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Issues: (i) Whether a provisional attachment under Section 5(1) of the Prevention of Money-Laundering Act, 2002 could be sustained in the absence of a final report under Section 173 of the Code of Criminal Procedure, 1973, when the predicate offence had been registered as a criminal complaint; (ii) Whether the provisional attachment could validly extend to property where the value was partly financed by a bona fide mortgagee or otherwise did not wholly represent proceeds of crime, and whether the Adjudicating Authority was confined to a one-way confirmation power while dealing with the show cause notice.
Issue (i): Whether a provisional attachment under Section 5(1) of the Prevention of Money-Laundering Act, 2002 could be sustained in the absence of a final report under Section 173 of the Code of Criminal Procedure, 1973, when the predicate offence had been registered as a criminal complaint.
Analysis: The first proviso to Section 5(1) was construed as applying where a report under Section 173 of the Code of Criminal Procedure, 1973 had been forwarded, or where a complaint had been filed by an authorised person before a Magistrate or court. The second proviso was read as an independent enabling provision permitting attachment of property of any person where the officer had reason to believe that the property was involved in money-laundering and non-attachment may frustrate proceedings. On that construction, a person against whom a complaint was pending but no final report had yet been filed was held to fall within the zone of the second proviso rather than being excluded from the attachment power.
Conclusion: The challenge based on the absence of a final report under Section 173 of the Code of Criminal Procedure, 1973 failed, and the provisional attachment was not invalid on that ground.
Issue (ii): Whether the provisional attachment could validly extend to property where the value was partly financed by a bona fide mortgagee or otherwise did not wholly represent proceeds of crime, and whether the Adjudicating Authority was confined to a one-way confirmation power while dealing with the show cause notice.
Analysis: The expression "proceeds of crime" and the definition of "property" were treated as controlling the scope of attachment under Section 5(1). The Court held that the Adjudicating Authority under Section 8(2) is not confined to mechanically confirming attachment: it must consider the reply, hear affected persons, and record a finding whether all or any of the properties are involved in money-laundering. If none, or only some, of the properties are found to be involved, the attachment cannot be confirmed against the rest. The proviso to Section 8(2) was also understood to require notice to persons claiming an interest in the property, including financial institutions. The Court therefore held that disputed factual questions regarding the source of funds and the extent of the proceeds-of-crime component were matters for adjudication under the statutory scheme.
Conclusion: The attachment was not quashed on this ground, and the petitioners were directed to participate in the adjudicatory process before the Adjudicating Authority.
Final Conclusion: The writ petitions were rejected, while preserving the petitioners' opportunity to place material before the Adjudicating Authority, which was required to issue fresh notice and decide the matter on merits in accordance with Section 8 of the Act.
Ratio Decidendi: Under the Prevention of Money-Laundering Act, 2002, provisional attachment may proceed under the second proviso to Section 5(1) even before filing of a final report where the officer has reason to believe that the property is involved in money-laundering, and the Adjudicating Authority must independently determine under Section 8(2) whether all or any of the attached properties are actually involved in money-laundering before confirming attachment.
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