2025 (11) TMI 860 - AT - Money Laundering

Adjudicatory body refuses substitution of attached property under PMLA, lacking statutory power to allow substitution

Sanjeev Tyagi, Krishanayan, Sangeeta Tyagi and Neel Krish Versus The Deputy Director Directorate of Enforcement, Delhi

The AT dismissed the substitution applications, holding it lacks statutory power under PMLA to permit substitution of attached property. The tribunal ... Money Laundering - proceeds of crime - attachment of the properties - substitution of property under joint ownership - whether this Appellate Tribunal can allow substitution of the property? - HELD THAT:- The order passed by the Hon’ble Delhi High Court in Directorate of Enforcement Vs. Mahender Kumar Khandelwal was a consensual order wherein the Ld. ASG, appearing for the Directorate, expressed willingness to release of jewellery against the submission of FDR which was permitted by the Hon’ble Court. The same cannot, therefore, does not propound a ratio and cannot constitute a valid precedent in the present case, especially as the respondent is strongly opposing the prayer for substitution in the present case. Similarly, in the case of Esskay Properties and Investment Pvt. Ltd. [2022 (9) TMI 1592 - SC ORDER] too, the facts were significantly different. The Hon’ble Supreme Court in the said case noted the fact that the properties attached are worth approximately 72 crores whereas the allegations against the petitioners are for an amount of Rs. 3 crores only, and the respondents could not satisfy the court why two properties had been put under attachment when one was sufficient for the amount of Rs. 3 crores. No such facts exist in the present case. As such, the case cannot come to the assistance of the appellant. The court in Gagan Infraenergy and Revati Cements [2024 (6) TMI 33 - DELHI HIGH COURT] may not order substitution of attached property in case of attachment due to proceeds of crime but the court may allow substitution of attached property in case of attachment being equivalent value of proceeds of crime. As already stated, the aforesaid ratio has been arrived at by the Hon’ble Delhi High Court after a thorough review of the existing legal precedent on the subject. The present case, being a case pertaining to the Delhi, even jurisdictionally, the order of the Hon’ble Delhi High Court would become squarely applicable to the instant cases. It is well known that writ jurisdiction is an extra-ordinary jurisdiction available only to the High courts and the Hon’ble Supreme Court. Writ is an equitable remedy going beyond individual statutes such as the PMLA. It is also not in doubt that this Appellate Tribunal is a creature of the PMLA and cannot travel beyond the said statute and the rules framed thereunder. Accordingly, in the absence of any specific power vesting in this Appellate Tribunal to allow substitution of attached property, the applications are hereby dismissed. Applications dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the Appellate Tribunal vested under the Prevention of Money-Laundering Act (PMLA) has power to allow substitution of immovable property attached/confirmed under section 8 by acceptance of equivalent security in the form of bank guarantee or Fixed Deposit Receipts (FDRs) pending disposal of the appeal. 1.2 Whether substitution is permissible where the impugned attachment is of 'amount equivalent to proceeds of crime' rather than attachment of property as direct 'proceeds of crime'. 1.3 Applicability and effect of Rule 5(5) of the PML (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 where the immovable property is under joint ownership-i.e., whether an authorised officer/tribunal may accept fixed deposits equivalent only to the share of one joint owner. 1.4 The precedential weight of decisions of constitutional courts (High Courts/Supreme Court) permitting substitution and whether those decisions can be applied by this Tribunal, which is a statutory/quasi-judicial body created under PMLA. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Tribunal's power to permit substitution of attached immovable property by bank guarantee/FDR pending appeal Legal framework: The PMLA and its Rules define powers of Adjudicating Authority, Special Court and the Appellate Tribunal (section 26 and section 35 of PMLA and Rules of 2013). Section 35 confers procedural powers on the Tribunal (guided by principles of natural justice; civil-court powers for certain matters) but does not expressly confer power to release or substitute attached property, a power specifically provided to the Special Court under section 8(6)-(8) in certain circumstances. Rule 4 and Rule 5 of the 2013 Rules govern manner of taking possession and treatment of attached movable/immovable property; Rule 5(5) deals with joint ownership substitution by FDR to extent of concerned person's share. Precedent treatment: Several decisions of constitutional courts have allowed substitution in cases where the attachment was of equivalent value rather than direct proceeds; other decisions and previous orders of this Tribunal have denied substitution citing absence of statutory power. The Tribunal noted that orders of High Courts and Supreme Court were rendered in writ jurisdiction and involved equitable reliefs beyond the statutory regime. Interpretation and reasoning: The Tribunal found no explicit statutory provision empowering it to order substitution of attached immovable property. Section 35 permits procedural regulation but does not enlarge substantive powers to grant release/substitution when statute vests such power with Special Court or Adjudicating Authority. The Tribunal emphasized that writ jurisdiction of High Courts/Supreme Court enables equitable remedies that a statutory tribunal, as a creature of statute, may not exercise absent express grant. Prior orders allowing substitution by this Tribunal were noted but distinguished or restrained by higher courts in some instances. Ratio vs. Obiter: Ratio - The Tribunal concluded that, in absence of specific statutory power under the PMLA or Rules, the Appellate Tribunal cannot entertain applications for substitution of attached immovable property by bank guarantees/FDRs. Observations summarising and distinguishing constitutional court decisions are explanatory and therefore largely obiter with respect to the Tribunal's statutory-power conclusion. Conclusion: Applications for substitution were dismissed on the ground that this Tribunal lacks statutory authority to permit substitution of attached immovable property pending disposal of appeals. Issue 2 - Permissibility of substitution where attachment is by equivalent value (not direct proceeds of crime) Legal framework: Distinction between property that is 'proceeds of crime' and property attached as 'amount equivalent to proceeds of crime' is material; constitutional courts have recognised the difference and allowed substitution where the attachment is of equivalent value. Precedent treatment: High Court decisions have held that substitution may be permitted where attachment is of equivalent value; Supreme Court orders in some matters affirmed such reliefs. This Tribunal has earlier considered similar precedents and in some instances allowed substitution (subject to higher court intervention/stay in particular matters). Conversely, earlier Tribunal orders denied substitution where Rules/Act did not permit same. Interpretation and reasoning: The Tribunal accepted the legal distinction and acknowledged that constitutional courts may permit substitution when attachment is by equivalent value after thorough review of precedents. However, it held that even if substitution may be appropriate in cases of equivalent attachment, the present Tribunal's lack of statutory power prevents it from granting the remedy. Thus, the substantive correctness of substitution in equivalent-value cases was recognised but not applied by the Tribunal due to institutional/ statutory limits. Ratio vs. Obiter: Ratio - The Tribunal's operative finding is not that substitution is impermissible as a legal principle for equivalent attachments, but that this Tribunal cannot effectuate such substitution absent statutory authority. The recognition that substitution may be permissible in equivalent-value cases (as per High Court precedents) is obiter in the context of the Tribunal's power analysis. Conclusion: While substitution is conceptually available in equivalent-value attachments under constitutional court jurisprudence, this Tribunal declined to grant such substitution because it lacks authority under the PMLA and Rules to do so. Issue 3 - Applicability of Rule 5(5) where property is under joint ownership Legal framework: Rule 5(5) permits acceptance of equivalent fixed deposit to the extent of the value of the share of the concerned person in jointly owned immovable property estimated by the authorised officer to be involved in money-laundering. Precedent treatment: The Rule is part of the 2013 Rules and has been relied upon where appropriate for substitution limited to a joint owner's share. Interpretation and reasoning: The Tribunal applied Rule 5(5) to the facts where the attached property was jointly owned by both applicants who were parties before the Adjudicating Authority. The Tribunal reasoned that pending the outcome of the main appeal, it must be presumed prima facie that the entire property is involved in money-laundering when both joint owners are defendants; consequently, the rule's mechanism to accept fixed deposit to the extent of one owner's share would not arise where the whole property is presumed implicated. Ratio vs. Obiter: Ratio - Where all joint owners are respondents/accused and the entire property is prima facie involved in money-laundering, Rule 5(5) does not permit acceptance of fixed deposit only for one owner's share; the Tribunal applied the Rule restrictively in that factual matrix. Conclusion: Rule 5(5) was held inapplicable to permit substitution of only one joint owner's share where both co-owners are implicated and the whole property is prima facie involved; therefore substitution under Rule 5(5) was denied in the instant joint-ownership cases. Issue 4 - Precedential weight of constitutional court judgments and their applicability to the Tribunal Legal framework: High Courts and the Supreme Court exercise writ jurisdiction and equitable reliefs not confined to the statutory scheme of PMLA; their decisions are binding but remedies available under writ jurisdiction may not be executable by a statutory tribunal lacking express authority. Precedent treatment: Multiple High Court and Supreme Court decisions permitting substitution in certain contexts were reviewed. The Tribunal noted that some such decisions were rendered in writ petitions and that some prior Tribunal orders allowing substitution have been stayed or set aside by higher courts. Interpretation and reasoning: The Tribunal distinguished the remedial reach of constitutional courts from the powers of a statutory tribunal. It accepted the correctness of legal principles laid down by High Courts about equivalent-value attachments but held that those courts' equitable powers cannot be mechanically exercised by the Appellate Tribunal unless the PMLA/Rules expressly confer them. The Tribunal thus limited the practical application of those precedents in its own decision-making. Ratio vs. Obiter: Ratio - Constitutional court precedents recognising substitution for equivalent attachments are authoritative on law, but their remedial prescriptions are not automatically transferable to this Tribunal where statutory compulsion is absent; this limitation is a binding aspect of the Tribunal's reasoning. Observations on the merits of the constitutional decisions are ancillary. Conclusion: Decisions of constitutional courts recognising substitution in appropriate cases do not empower this Tribunal to grant substitution in the absence of express statutory authority; such writ-based equitable remedies remain within the domain of High Courts/Supreme Court or the statutory bodies specifically empowered by the Act/Rules. Overall Disposition The Tribunal dismissed the applications for substitution of attached immovable properties with bank guarantees/FDRs on the grounds that (a) the Tribunal lacks express statutory power under the PMLA and the 2013 Rules to permit such substitution, (b) Rule 5(5) is inapplicable where the entire joint property is prima facie involved in money-laundering because all joint owners are respondents, and (c) constitutional court precedents permitting substitution do not confer on the Tribunal the remedial authority to order substitution in absence of statutory mandate.