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

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 property, relying on SC precedent in Suraj Lamp and Bombay HC in Crest Hotel. Since respondent 1 had no valid title over Flat No. 7A, Kingfisher Towers, which belonged to the company UBHL, the transactions between respondent 1 and UBHL were not bona fide. HC upheld the Enforcement Directorate's provisional attachment of the property as equivalent to proceeds of crime under PMLA, 2002, finding the official liquidator's no-objection to registration not bona fide. Appeal disposed.

---

---

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.

---