2025 (11) TMI 519 - AT - Money Laundering

Order restraining mortgage or transfer not provisional attachment under s.5(1) PMLA; no attachment direction found

Smt. Saraladevi Surana, Smt. Preeti Surana, Shri Shantilal Surana, M/s Enlight Green Energy Pvt. Ltd., Shri Rajiv Surana and Smt. Leenam Surana Versus The Deputy Director, Directorate of Enforcement, Chennai

AT upheld that NCLT's restraint order prohibiting mortgage, creation of charges or alienation of properties does not constitute provisional attachment ... Money Laundering - provisional attachment order hit by Section 5(1) of the Prevention of Money Laundering Act, 2002 or not - no apprehension of alienation or property - restrain order constitutes the Provisional Attachment of the properties or not - HELD THAT:- A bare perusal of the order does not show attachment of the properties involved in these cases. In fact, the NCLT has not directed for attachment of any of the properties though the main prayer referred by the Counsel for the Appellants may be for the aforesaid purpose but we find no narration or an order for attachment of the property. It was only for restraining mortgage of the property or creating charge or lien of third parties in any manner alienating the movable or immovable properties. The restrain order cannot constitute to the Provisional Attachment of the properties. The Counsel for the Appellants have been failed to refer to any provision under Insolvency & Bankruptcy Code, 2016 or Companies Act, 2013 empowering NCLT to cause attachment of the properties. In view of the above, it cannot be taken to the case where the properties under attachment before provisionally attached. The provision of Section 5(1) of the Act of 2002 allows attachment of the properties in a given circumstance if it is taken to be proceeds of crime. The proviso indicates provisional attachment when the properties are likely to be dealt with to frustrate the proceedings of confiscation. It is no doubt that NCLT passed an order restraining for mortgage of the properties or creating a charge or lien of third party or to alienate it. However, the purpose of provisional attachment of the property is to save it till conclusion of the trial and to be settled as per Section 8(6) to Section 8(8) of the Act of 2002. If the accused are convicted, the provisional attached property goes to the Government for its settlement in favors of those who may have claim and thereby purpose of the provisional attachment of the property is to do the justice with the victim. It is no doubt that NCLT has passed an order denying alienation of the properties but it would be till the conclusion of the proceedings before the NCLT. There are no reason to cause interference in the impugned order as otherwise even according to the Appellants, they cannot alienate or deal with the properties creating third right interest and that remains the purpose even for the provisional attachment but furthermore, to settle it in favor of the claimants subject to final outcome of the trial. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether an interim restraining order by a corporate/insolvency tribunal (restraining mortgage, charge, lien or alienation) operates as an 'attachment' of property for the purposes of Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA), thereby precluding provisional attachment by the designated authority. 2. Whether provisional attachment under Section 5(1) PMLA was lawfully made in the facts where an earlier interim order restrained alienation but did not expressly attach the properties, and whether such provisional attachment should be set aside on that ground. 3. Ancillary: the relevance of non-production of subsequent orders or the latest position in the proceedings before the corporate/insolvency tribunal to the exercise of powers under Section 5(1) PMLA (addressed insofar as it arose in the record). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Effect of corporate/insolvency tribunal's restraint order vis-à-vis 'attachment' under Section 5(1) PMLA Legal framework: Section 5(1) PMLA empowers the Director (or an authorised officer) to provisionally attach property where there is reason to believe (recorded in writing, based on material) that (a) a person is in possession of proceeds of crime, (b) such person has been charged with a scheduled offence, and (c) such proceeds are likely to be concealed, transferred or dealt with so as to frustrate confiscation proceedings. The provisional attachment is to preserve property pending trial and possible confiscation under the Act. Precedent Treatment: The Tribunal's reasons do not invoke, cite or follow any judicial precedent; the issue was decided by application of statutory language and factual analysis rather than by distinguishing or overruling prior case law. Interpretation and reasoning: The Court examined the text and purpose of Section 5(1) and the proviso thereto and contrasted an interim injunction restraining mortgage/creation of charge/alienation with an attachment under PMLA. The tribunal order in the corporate/insolvency forum only restrained third-party charges or alienation; it did not direct attachment or vesting of property. The Court reasoned that such a restraining order operates only for the duration and scope of those forum proceedings and does not achieve the protective object of provisional attachment under the PMLA, namely preservation of property for settlement in favour of victims upon conviction. The Court emphasised that provisional attachment secures the property beyond mere restraint against third-party encumbrances, and is aimed at preventing dissipation, layering and assimilation into other businesses - risks that may persist once interim restraints expire or are limited in scope. Ratio vs. Obiter: Ratio - An interim restraining order by a corporate/insolvency tribunal that merely prohibits mortgage/charge/alienation does not amount to 'attachment' under Section 5(1) PMLA; it does not oust the power of the designated authority to provisionally attach property where statutory conditions are fulfilled. Obiter - Observations about the temporal risk of alienation after conclusion of tribunal proceedings and the general policy purpose of PMLA preservation measures. Conclusions: The Tribunal concluded that a restraining order preventing mortgage or creation of charge is not equivalent to a statutory provisional attachment under PMLA and therefore does not preclude the designated authority from invoking Section 5(1) to provisionally attach property where the statutory requirements are met. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of the provisional attachment in the facts (sufficiency of cause and effect of prior restraining order) Legal framework: Section 5(1) requires recorded reason to believe based on material that the three statutory criteria exist; proviso prescribes preconditions for certain scheduled offences (e.g., report forwarded to Magistrate under section 173 CrPC). The object of provisional attachment is preservation of proceeds pending trial and settlement under Sections 8(6)-8(8) PMLA. Precedent Treatment: No specific authorities were relied upon; the Court evaluated statutory text and the factual matrix recorded in the Adjudicating Authority's order and investigation report (ECIR, investigative findings and tabulated transactions). No precedent was followed, distinguished or overruled. Interpretation and reasoning: The Court reviewed the investigative material recited by the Adjudicating Authority: alleged use of dummy companies, related-party round-tripping, diversion of bank funds to promoters and relatives, unsecured loans routed to promoters, acquisition of properties and assets out of allegedly siphoned funds, and statements admitting namesake/directorship and direction by one promoter. The Court accepted that these materials furnished a basis for the recording of 'reason to believe' in writing as required by Section 5(1). Regarding the prior NCLT interim order, the Court examined the order's terms and found no direction of attachment; it only restrained mortgage/charge/alienation and therefore could not be treated as effecting attachment that would preempt the statutory provisional attachment. The Court also observed that the interim order's protective scope may cease or be limited upon conclusion of those proceedings, leaving risk of alienation; provisional attachment addresses that continuing risk and secures potential victim rights under PMLA. Ratio vs. Obiter: Ratio - Given the investigative material and absence of an express attachment by the corporate/insolvency tribunal, the designated authority's provisional attachment under Section 5(1) PMLA was permissible and the impugned confirmation of provisional attachment warranted no interference. Obiter - Remarks about the utility of producing the latest tribunal orders and the continuing apprehension of alienation even where interim restraints exist. Conclusions: The Court concluded that the provisional attachment was lawfully made and correctly confirmed by the Adjudicating Authority. The earlier restraining order by the corporate/insolvency tribunal did not nullify or preclude provisional attachment because it did not itself attach the properties; hence the impugned order was not set aside on this ground. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Relevance of non-production of subsequent tribunal orders and the requirement of up-to-date record Legal framework: The exercise of power under Section 5(1) PMLA depends on contemporaneous material forming the 'reason to believe'. Where other judicial or quasi-judicial orders exist affecting the property, production and consideration of those orders is relevant to assess the real risk of alienation and the propriety of provisional attachment. Precedent Treatment: No case law was adduced; the Court addressed the point as one of fact and procedural fairness rather than invoking established authorities. Interpretation and reasoning: The Court noted that the appellants did not produce subsequent or up-to-date orders from the corporate/insolvency tribunal showing any change in status that could negate the necessity for provisional attachment. The Court observed that an interim restraint does not guarantee permanence and that without being shown later orders, the apprehension of alienation remains a live concern. Consequently, absence of the latest tribunal disposition did not persuade the Court to disturb the provisional attachment. Ratio vs. Obiter: Obiter - The observation that up-to-date tribunal orders would be material to challenge a provisional attachment and that parties should produce such records when asserting absence of risk. Ratio - To the extent the appellants failed to produce such updated orders, the Court was justified in relying on the record before the Adjudicating Authority and refusing interference. Conclusions: The non-production of subsequent or clarifying tribunal orders undermined the appellants' contention that no real risk of alienation existed; on the available record, the provisional attachment was sustainable. OVERALL CONCLUSION The Court dismissed the challenge to the confirmation of provisional attachment: an interim restraining order by a corporate/insolvency forum that merely prevents mortgage/creation of charge or alienation does not operate as an 'attachment' under Section 5(1) PMLA and does not preclude the designated authority from provisionally attaching properties where the statutory conditions and material supporting a recorded reason to believe exist; absence of updated tribunal orders in the record reinforced the propriety of maintaining the provisional attachment. The impugned order was upheld and the appeals disposed of without interference.