2026 (3) TMI 1643 - HC - Money Laundering

Provisional attachment requires nexus to proceeds of crime; disputed acquisition date can sustain attachment pending proof.

Provisional attachment under the Act requires a nexus with proceeds of crime, and an order is not invalid merely because the statutory basis is not ... Provisional attachment - definition of the term ‘proceeds of crime’ - “Scheduled Offence” is defined in Section 2(y) - reason to believe - commission of the offence - Possession of unaccounted property acquired by legal means may be actionable as a tax violation - Nexus with scheduled offence - Pre-offence property attachment - Supplementation of reasons. Supplementation of reasons - Provisional attachment order - HELD THAT: - The Court found that the provisional attachment order itself expressly recorded that the immovable property represented the value of proceeds of crime as defined under Section 2(1)(u) and was liable for immediate attachment. Since the statutory basis and the reason for attachment were already stated in the order, the principle in Mohinder Singh Gill & Anr. Vs. Chief Election Commissioner, New Delhi & Ors [1977 (12) TMI 138 - SUPREME COURT] against supplementing reasons by subsequent explanation had no application. [Paras 12] The challenge founded on absence of reasons in the provisional attachment order was rejected. Proceeds of crime - Nexus with scheduled offence - Pre-offence property attachment - HELD THAT: - On a conjoint reading of the decisions in Vijay Madanlal Choudhary & Ors. Vs. Union of India & Ors [2022 (7) TMI 1316 - SUPREME COURT (LB)] and Pavana Dibbur Vs. Directorate of Enforcement [2023 (12) TMI 49 - Supreme Court], the Court held that there was no conflict between them. The governing principle is that attachment under the Act is confined to property linked to the scheduled offence; the statutory expression cannot be read as permitting attachment of any unconnected property merely because the alleged proceeds have become untraceable. The Court further held that the exception permitting attachment of equivalent value property applies where the property derived from criminal activity is taken or held outside India. Accordingly, property acquired prior to the commission of the crime, and having no nexus to the criminal activity relating to the scheduled offence, cannot be regarded as proceeds of crime. [Paras 27, 34, 35, 36, 37] The Court held that attachment of property acquired prior to the commission of the crime would not fall within the definition of proceeds of crime. Disputed question of fact - Timing of acquisition - HELD THAT:- The appellant asserted that consideration for the property had been paid between 2008 and 2011, whereas the respondents maintained that the property was purchased on the date of registration during the period of the alleged scheduled offence. In view of this factual dispute, and particularly because the property stood registered in the appellant's name during the period of commission of the offence, the Court held that the question whether the property had in fact been acquired prior to the crime had to be established by evidence. Until that factual foundation was proved, the Court declined to interfere. [Paras 38, 39, 40] As the factual basis for treating the property as pre-offence property was unproved, the appeal was dismissed. Final Conclusion: The Court held that only property having nexus with criminal activity relating to a scheduled offence can be treated as proceeds of crime, and that property acquired prior to the commission of the crime would not ordinarily fall within that definition. However, since the appellant failed to establish, on the present record, that the attached property had in fact been acquired before the alleged offence period, the appeal was dismissed. Issues: (i) Whether the provisional attachment could be invalidated for want of a clear invocation of the statutory basis and by applying the rule against supplementation of reasons; (ii) Whether property allegedly acquired before the scheduled offence could be attached as proceeds of crime or as property of equivalent value under the Act.Issue (i): Whether the provisional attachment could be invalidated for want of a clear invocation of the statutory basis and by applying the rule against supplementation of reasons.Analysis: The provisional attachment order itself recorded that the immovable property was being treated as value of proceeds of crime under the statutory definition and was liable for immediate attachment under the attachment provision. On that basis, the challenge founded on the rule against post hoc supplementation of reasons was not accepted.Conclusion: The objection based on absence of reasons failed.Issue (ii): Whether property allegedly acquired before the scheduled offence could be attached as proceeds of crime or as property of equivalent value under the Act.Analysis: The statutory definition of proceeds of crime requires a connection with criminal activity relating to a scheduled offence. The attachment power is confined to property derived or obtained from such activity or to the value of such property, and unconnected property cannot be attached merely because the accused is involved in crime. The Court reconciled the authorities to hold that property with no nexus to the scheduled offence is not attachable, but the present case involved a factual dispute as to when the property was actually acquired and registered, which required evidence.Conclusion: The appellant did not establish, at this stage, that the attached property was acquired before the crime so as to exclude attachment.Final Conclusion: The appeal failed because the disputed factual question regarding the date of acquisition of the property had not been proved in the appellant's favour, and the attachment was not set aside.Ratio Decidendi: Property can be provisionally attached only if it bears a nexus to proceeds of crime as defined under the Act, but where the date of acquisition is itself disputed and remains unproved, the attachment will not be interfered with in appeal.