2026 (3) TMI 1078 - HC - Money Laundering

Provisional attachment: continued possession or use of pre Act proceeds permits PMLA attachment when activity continues after commencement.

Provisional attachment under Section 5(1) of the PMLA can reach immovable property bought before the Act if possession or use of that property continued ... Scope of provisional attachment under Section 5(1) - offence of money laundering - definitions of “attachment” and “proceeds of crime” u/s 2(1)(d) and 2(1)(u) - Continuing offence of money laundering. Whether the offence of money laundering can continue and support provisional attachment where the proceeds derived property was acquired before the PMLA but remained in possession and use after the PMLA came into force - HELD THAT: - The Court held that Sections 3, 5 and 8 must be read as an integrated scheme and that the offence of money laundering is capable of being a continuing offence. Under Section 3 the word 'includes' and the Explanations bring within the offence acts such as concealment, possession, acquisition or use of proceeds of crime; Explanation (ii) expressly treats the process or activity as continuing so long as a person enjoys the proceeds by concealment, possession, acquisition, use or by projecting/claiming them as untainted. Consequently, where property purchased from proceeds of a scheduled offence continued to be possessed and used after the PMLA came into force, the offence of money laundering was being committed on and after that date and Section 5 could be invoked to provisionally attach the property. [Paras 55, 56, 59, 61, 62] The Court held that possession and use of property that constitutes proceeds of crime after the PMLA came into force sustains a continuing offence of money laundering and justifies provisional attachment under the integrated scheme of Sections 3, 5 and 8. Proceeds of crime includes property purchased from proceeds - prohibition on retrospective penal operation - HELD THAT: - The Court rejected the contention that invoking the PMLA in such circumstances effects impermissible retrospective penal operation. It explained that the PMLA punishes the distinct offence of money laundering, not the predicate scheduled offence; the relevant date for PMLA liability is when the activities that constitute money laundering occur or continue. Reliance on precedents and the inclusive wording of Section 3 led to the conclusion that application of the PMLA to possession/use of proceeds continuing after the Act came into force does not amount to unlawful retrospectivity under Article 20(1). [Paras 30, 68, 69, 71, 72] The Court held that application of the PMLA to money laundering activity that continued after the Act came into force is not retrospective and does not violate Article 20(1). Proceeds of crime includes property purchased from proceeds - HELD THAT: - The Court found that the impugned judgment erred in limiting 'proceeds of crime' to the monetary receipts and in conflating 'coming into possession' with continued 'possession.' Section 2(1)(u) includes within 'proceeds of crime' property obtained directly or indirectly from criminal activity; accordingly the subject property purchased with those funds also constituted proceeds of crime and its continued possession/use after the PMLA came into force meant the offence was not completed prior to the Act. [Paras 30, 52, 53, 54, 55] The Court held that the Single Judge was in error; the subject property itself is proceeds of crime and could not be treated as having removed the matter from the sweep of the PMLA merely because acquisition began before the Act. Reasoned belief required for provisional attachment - HELD THAT: - The Court observed that Section 5 requires a recorded reasoned belief by the officer based on material in possession. Given the trail of transactions described in the provisional attachment order and the nature of the alleged scheme, the Court concluded that the subjective reasoned belief of the Deputy Director was not shown to be baseless or wholly without material; under certiorari jurisdiction the High Court should not sit as an appellate fact finder to displace such a belief absent manifest absence of evidence. [Paras 7, 33, 70, 73] The Court held that there was material to sustain the Deputy Director's recorded reason to believe and that interference with the provisional attachment on that ground was not warranted. Final Conclusion: The Letters Patent Appeal is allowed; the impugned judgment is quashed and set aside, the provisional attachment order is upheld and the writ petition is dismissed. The Court concluded that the subject property constitutes proceeds of crime and its continued possession and use after the PMLA came into force justified attachment under the integrated scheme of the Act. Issues: (i) Whether immovable property purchased from proceeds of a scheduled offence before the Prevention of Money Laundering Act, 2002 (PMLA) came into force can be provisionally attached under Section 5(1) of the PMLA if the person continues in possession of and continues to use the property after the PMLA came into force.Analysis: Section 5(1) permits provisional attachment of 'such property' which, read with Section 2(1)(u), covers any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. Section 3 defines the offence of money-laundering and, by use of the word 'includes' and the Explanations, expressly encompasses concealment, possession, acquisition or use of proceeds of crime; Explanation (ii) confirms the process or activity is continuing so long as the person enjoys the proceeds by concealment, possession, acquisition, use or by projecting/claiming it as untainted. Sections 3, 5 and 8 form an integrated scheme where provisional attachment under Section 5(1) is in aid of adjudication under Section 8. The PMLA, being penal, does not apply retrospectively to completed acts prior to its commencement, but where one or more acts constituting money-laundering continue after the Act came into force (for example, continued possession or use of property that itself constitutes proceeds of crime), the offence continues and the PMLA applies from the date of continued activity. On the facts accepted for the purpose of certiorari review, the property purchased before the PMLA was in continued possession and use after the PMLA came into force and the provisional attachment decision recorded reasons to believe the property was proceeds of crime and likely to be dealt with so as to frustrate confiscation; such a subjective reasoned belief, supported by material, is amenable to provisional attachment under Section 5(1).Conclusion: The provisional attachment under Section 5(1) is sustainable; the attachment of the subject immovable property is upheld and the writ petition challenging the provisional attachment is dismissed.