2025 (11) TMI 1202 - HC - Money Laundering

Unregistered sale agreement gives no title; property treated as proceeds of crime, attachment under PMLA upheld on appeal

Deputy Director Directorate of Enforcement Versus Rajendrakumar Jain, State Bank of India Stressed Assets Management Branch, Punjab National Bank, IDBI Bank Limited, Bank of Baroda, Union Bank of India, Uco Bank, Indian Overseas Bank, The Federal Bank Ltd., Punjab And Sind Bank, Jammu And Kashmir Bank Ltd., JM Financial Asset Reconstruction Co. Pvt. Ltd.

HC held that an unregistered Agreement to Sell does not transfer title under the TP Act and cannot confer any right, title, or interest in immovable ... Money Laundering - provisional attachment order - scheduled offences - proceeds of crime - Agreement to Sell is a transfer of title under the provisions of Transfer of Properties Act, 1882 or not - HELD THAT:- The transfer of immovable property by way of sale can only be by way of a deed of conveyance (duly stamped and registered) as required by law. Without registration of the sale deed, no right, title, interest in the immovable property can be transferred. A contract of sale (Agreement to Sell) which is not a registered deed of conveyance would fall short of the requirements of Sections 54 and 55 of the TP Act. The Hon’ble Supreme Court in the case of SURAJ LAMP AND INDUSTRIES PVT. LTD., vs STATE OF HARYANA AND ANOTHER, [2011 (10) TMI 8 - SUPREME COURT] has held that 'Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of the Transfer of Property Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted under section 53A of the Transfer of Property Act). According to the Transfer of Property Act, an agreement of sale, whether with possession or without possession, is not a conveyance. Section 54 of the Transfer of Property Act enacts that sale of immovable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject-matter.' The Bombay High Court in the case of CREST HOTEL LTD [1994 (1) TMI 303 - BOMBAY HIGH COURT] has held that a contract for sale of immovable property does not by itself create any interest in or charge on such property. It is an Agreement to Sell, a document creating a right to obtain any other document of sale on fulfillment of terms and conditions specified therein. The respondent No. 1 did not have any title over Flat No.7A, Kingfisher Towers. The property was of the UBHL and not of the respondent No. 1. The transactions between the respondent No. 1 and the UBHL were not bona fide - The Enforcement Directorate was well within the power to attach the aforesaid property in possession of the UBHL being equivalent to the value of the proceeds of crime as defined under Section 2(1)(u) of the PMLA, 2002, no objection of the official liquidator for registration of the sale deed despite the pendency of the proceedings for restoration of the properties in favour of the consortium of banks and the pendency of this appeal, was not a bona fide act. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether an unregistered Agreement to Sell confers ownership or sufficient proprietary interest in immovable property to defeat provisional attachment under the Prevention of Money Laundering Act (PMLA) as 'proceeds of crime' or property equivalent in value. 2. Whether a provisional attachment under Sections 5 and 8 of PMLA (and related provisions including Sections 17, 20, 22, 23) was lawfully made and/or rightly confirmed by the Adjudicating Authority, having regard to the statutory procedural safeguards and requirements for recording reason to believe and forwarding material to the Adjudicating Authority. 3. Whether the Appellate Tribunal erred in setting aside the Adjudicating Authority's confirmation of provisional attachment by treating the transaction as a legitimate transfer to a bona fide purchaser without addressing statutory presumptions and evidentiary framework under PMLA. 4. Whether actions taken during insolvency/winding-up proceedings and subsequent registration of sale deed (post-attachment proceedings) affect the validity of prior provisional attachment or suggest bona fides of the purchaser and of the official liquidator. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of an unregistered Agreement to Sell on title and proprietary interest Legal framework: Sections 54 and 55 of the Transfer of Property Act provide that transfer of ownership in immovable property of value Rs.100 or more must be by registered instrument; an Agreement to Sell does not itself transfer title and creates only a contractual right (subject to limited protection under Section 53A where applicable). Precedent Treatment: The Court relied on binding authority holding that an agreement of sale which is not a registered deed does not confer title and only creates a right to obtain a sale deed; such authority was followed to reinforce the principle that title vests with the seller until registration. Interpretation and reasoning: The Court examined the chronology of payments, the timing of the winding-up petition and the execution date of the unregistered Agreement to Sell. Payment of nearly the entire consideration before execution of the agreement and after public filing of winding-up petitions raised strong doubts about bona fides. The Agreement to Sell being unregistered did not pass title; hence the seller (corporate owner) retained proprietary rights at the time of provisional attachment. Ratio vs. Obiter: Ratio - Unregistered Agreement to Sell does not confer ownership and cannot defeat provisional attachment where title remained with the corporate owner; circumstances showing payments and timing can negate bona fides. Obiter - Observations on incredibility of payment timing and intent to circumvent proceedings are contextual but support the ratio. Conclusion: The respondent could not be said to be owner of the flat on the basis of the unregistered Agreement to Sell; title remained with the corporate owner and the transaction's bona fides were suspect. Issue 2 - Validity of provisional attachment under PMLA: procedural and substantive requirements Legal framework: Sections 2(1)(u) (definition of 'proceeds of crime'), 5 (attachment), 8 (adjudication), 17 (seizure/freezing) and 20 (retention procedure) of PMLA together with the Restoration Rules embody procedural safeguards: recorded reason to believe, forwarding material to Adjudicating Authority, timelines, and independent opinion for retention. Precedent Treatment: The Court relied on a Three-Judge Bench authority emphasizing strict compliance with procedural mandates; where statute prescribes a method it must be followed. That authority was applied to reinforce that recording of belief and forwarding of material are essential and non-compliance can render freezing/attachment unsustainable. Interpretation and reasoning: The Court acknowledged PMLA's special character and need for balance between enforcement and protection of rights. It reiterated that the Director/officer must have recorded reasons and follow statutory process under Section 20(1)-(2) for retention, and Section 17 for seizure/freezing. In this case the provisional attachment and its confirmation were supported by material showing the corporate owner held the properties linked to proceeds of scheduled offences; the attachment proceeded after investigation and report to the relevant criminal authority, meeting statutory preconditions for Section 5. The Court found that the Enforcement Directorate was within power to attach property of the corporate owner (UBHL) as equivalent in value to proceeds of crime. Ratio vs. Obiter: Ratio - Attachment under PMLA must comply with the procedural safeguards (recorded reasons, forwarding material, timelines); where those requirements are met and property remains vested with alleged proceeds-holder, provisional attachment is lawful. Obiter - General observations on multiple amendments to PMLA and its evolving scope. Conclusion: The statutory procedure and substantive threshold for attachment require compliance, but where material shows title vested with the corporate owner and reasons for belief are recorded and forwarded, attachment of property as proceeds-equivalent is justified; the Enforcement Directorate was within its powers to attach the subject property. Issue 3 - Appellate Tribunal's decision to set aside confirmation: adequacy of consideration of PMLA presumptions and evidence Legal framework: Sections 22 and 23 (statutory presumptions regarding records/property and interconnected activities), Section 2(1)(u) (proceeds/value equivalent), and Section 71 (overriding effect) underscore that PMLA provides special presumptions and an overriding scheme to deal with proceeds of scheduled offences. Precedent Treatment: The Court rejected reliance upon an older civil attachment precedent on the basis that PMLA is a special enactment with its own statutory presumptions and overriding effect; where Tribunal applied civil-attachment principles in place of PMLA framework, that treatment was distinguished. Interpretation and reasoning: The Court reasoned that the Tribunal failed to appreciate that an Agreement to Sell (unregistered) does not pass title and that PMLA's statutory presumptions and special scheme require independent analysis. The Tribunal's reliance on civil attachment jurisprudence and its alleged mechanical order without adequate engagement with Sections 2(1)(u), 22, 23 and Section 20 procedural requirements rendered its decision erroneous. The Court also considered subsequent acts (registration of sale deed, actions by official liquidator) and found those acts lacked bona fides and in some instances occurred despite pendency of restoration proceedings, undermining the Tribunal's treatment of the purchaser as bona fide. Ratio vs. Obiter: Ratio - Appellate authorities under PMLA must decide appeals within the statutory framework of PMLA and cannot substitute civil attachment reasoning where PMLA presumptions and procedures apply; failure to do so amounts to jurisdictional error. Obiter - Comments on what constitutes bona fide conduct by official liquidator and purchasers in insolvency context. Conclusion: The Appellate Tribunal erred in reversing the confirmation without properly applying PMLA's definitions, presumptions and procedural framework; its reliance on civil attachment precedents and failure to scrutinise bona fides warranted setting aside. Issue 4 - Impact of insolvency/winding-up proceedings and subsequent registration of sale deed on attachment Legal framework: Company winding-up and insolvency proceedings and the role of official liquidator interact with PMLA attachment provisions; Section 5's provisos allow attachment notwithstanding other proceedings if reason to believe non-attachment would frustrate confiscation; Rules provide for restoration subject to bonds and undertakings. Precedent Treatment: The Court considered how PMLA tribunals and Special Courts have treated restoration applications and the requirement that claimants establish bona fides; it followed authority that restoration is not a matter of right and requires meeting statutory tests. Interpretation and reasoning: The Court noted winding-up petitions were publicly filed before the alleged Agreement to Sell, and the respondent failed to obtain leave from the Company Court before entering into such transaction. Registration of sale deed later, and the official liquidator's purported non-objection, occurred during pendency of restoration proceedings and this sequence created strong inference of mala fides or circumvention. Where consortium banks satisfied the stringent test under Section 8 and provided bonds, restoration to banks was ordered in a related Special Court proceeding, reinforcing that subsequent registration and official liquidator conduct did not negate earlier lawful attachment. Ratio vs. Obiter: Ratio - Insolvency/winding-up proceedings and subsequent acts cannot be used to validate transactions that occurred in suspicious circumstances or post-attachment in a way that would frustrate PMLA proceedings; restoration requires proof of bona fides and compliance with PMLA rules. Obiter - Observations on interactions between Company Court orders and PMLA restoration mechanics. Conclusion: The post hoc registration of sale deed and the official liquidator's conduct did not cure lack of title at time of attachment nor demonstrate bona fides sufficient to invalidate the provisional attachment; attachment remained valid and the appellant's appeal was allowed.