2026 (3) TMI 919 - HC - Money Laundering

Provisional attachment and frozen funds: Adjudicating Authority is the forum for determination; limited salary payments may be permitted.

The court clarified that adjudication whether frozen assets constitute proceeds of crime lies with the Adjudicating Authority and that that Authority ... Provisional attachment - Payment of salaries from amounts frozen under Section 17(1A) - Proceeds of crime - Scope of scheme of the PMLA including the definitions of 'proceeds of crime' and the statutory provisions governing provisional attachment, search, seizure and freezing of property (notably Sections 2(1)(u), 3, 5, 17, 20 and Section 8 procedure) - Adjudicating Authority under Section 8 PMLA lacks power to grant interim payments from frozen property - Whether the frozen assets of the respondent could be treated as 'proceeds of crime' without a direct link to the predicate scheduled offence. Proceeds of crime must be linked to predicate offence - HELD THAT: - Relying on the legal test articulated by the Apex Court in Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT (LB)], the Court held that only property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as 'proceeds of crime'. The Court found that, on the material before it, the sole surviving FIR related to the parent entity concerned an amount far smaller than the sums frozen and that the Authorities cannot treat all properties as proceeds of crime absent such a link. Consequently, the appellant's broad contention that the entire funds in the respondent's and parent company's accounts represented proceeds of crime was not accepted. [Paras 34, 35, 36] The claim that the entire frozen amounts constituted proceeds of crime was rejected insofar as no direct derivation from the predicate offence was shown. Adjudicating Authority under Section 8 PMLA lacks power to grant interim payments from frozen property - HELD THAT:- The Court noted the statutory scheme and expressly recorded that the Adjudicating Authority under Section 8 has no power to issue interim directions to make payments from funds frozen under Section 17(1A). That absence of power informed the Court's view of the remedial avenues available while the statutory adjudication proceeds. [Paras 36, 39] The Adjudicating Authority has no power to order partial payment from sums frozen under Section 17(1A) pending adjudication. Constitutional court may grant interim relief when statutory authority lacks power - HELD THAT: - The Court distinguished the cited authority and observed that because the Adjudicating Authority lacks power to order interim payments from frozen property, the Single Judge's exercise of discretion to permit the respondent to pay salaries was not perverse. The Court held that relegation to statutory remedies together with a limited interim relief by the constitutional court, in circumstances where the statutory forum cannot afford that relief, was within the High Court's discretionary jurisdiction. [Paras 39, 40] The Single Judge's discretion to permit payment of salaries from the frozen accounts while directing the statutory challenge to the Adjudicating Authority was held to be lawful. Final Conclusion: The appeal is dismissed. The High Court upheld that proceeds of crime must be linked to a predicate scheduled offence, recorded that the Adjudicating Authority under Section 8 cannot direct interim payments from frozen property, and found no error in the Single Judge's discretion to permit salary payments while relegating the parties to statutory remedies. Issues: Whether the learned Single Judge erred in directing payment of salaries from amounts frozen under Section 17(1A) of the Prevention of Money Laundering Act, 2002 and in relegating the respondent to seek remedy before the Adjudicating Authority; and whether the appeal by the Authority should be allowed.Analysis: The Court reviewed the scheme of the PMLA including the definitions of 'proceeds of crime' and the statutory provisions governing provisional attachment, search, seizure and freezing of property (notably Sections 2(1)(u), 3, 5, 17, 20 and Section 8 procedure). The Apex Court's guidance that property can be regarded as 'proceeds of crime' only if it is derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence was applied. The Court noted that the Adjudicating Authority is the forum for adjudication of whether frozen property amounts to proceeds of crime and that the Adjudicating Authority has no power under Section 8 to grant interim directions for partial defreeze to make payments from frozen amounts. The Single Judge's order relegated the respondent to the statutory remedy before the Adjudicating Authority while directing limited payment of salaries; the High Court considered whether that exercise of judicial discretion was perverse in view of the statutory scheme and binding precedents and concluded it was not.Conclusion: The appeal is dismissed and the exercise of discretion by the learned Single Judge in relegating the respondent to its statutory remedy and in the incidental direction regarding payment of salaries is upheld; the High Court's order stands.