TaxTMI 
TaxTMI 
2026 (3) TMI 1643
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....al order dated 13.08.2025 is on the ground that there is no evidence or money trail established by the respondents in support of their allegation that the appellant had received an amount of Rs. 40 lakhs in the cash for leak of question paper scam. Further, the provisional attachment order dated 20.12.2023 does not show that the same had been made under Section 2(1)(u) of the Act, i.e., that the attached property was a part of the proceeds of crime. The reasons subsequently given for issuing the provisional attachment order having been explained by subsequent reasons, the provisional attachment order could not have any public effect. In this respect, the learned counsel for the appellant has relied upon the judgement of the Hon'ble Supreme Court in the case of Mohinder Singh Gill & Anr. Vs. Chief Election Commissioner, New Delhi & Ors., reported in (1978) 1 SCC 405, which in Para 8 has held as follows:- "8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an ord....
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....f the Schedule if the total value involved in such offences is [one crore rupees] or more; or (iii) the offences specified under Part C of the Schedule. 6. Para 13 of the above judgment in Pavana Dibbur (supra) states as follows:- "13. Clause (v) of sub-section (1) of Section 2 PMLA defines "property" to mean any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible. To constitute any property as proceeds of crime, it must be derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence. The Explanation clarifies that the proceeds of crime include property, not only derived or obtained from scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. Clause (u) also clarifies that even the value of any such property will also be the proceeds of crime. Thus, the existence of "proceeds of crime" is sine qua non for the offence under Section 3 PMLA." 7. Section 2(1)(u) and 2(1)(v) of the Act states as follows:- "2(1)(u) "p....
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....eds of crime and which have been put into hiding by the appellant. She accordingly submits that there is no infirmity with the impugned final order dated 13.08.2025 passed by the learned Appellate Tribunal, inasmuch as, the attachment of the appellant's property has been made on the basis of 2nd limb of Section 2(1)(u) of the Act. Further, though an attached property may not have been purchased with the money received from a crime, the same did not disqualify or bar the attachment of property under Section 2(1)(u) of the Act. She accordingly submits that the appeal should be dismissed. She submits that the appellant had purchased the attached property on 25.06.2019, i.e., during the currency of the commission of the offence. 10. We have heard the learned counsels for the parties. 11. The case of the appellant is that a case under the Act was initiated against the appellant, pursuant to FIR No.21/2020 dated 20.09.2020 registered by the CID, Assam Police, for offences under Section 120B, 119,120, 166, 201, 204, 212, 406, 409, 420, 461, 506 and 34 IPC read with Section 66(B) of the Information Technology Act, apart from offences under the local laws applicable in the State of As....
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....hary & Ors. Vs. Union of India & Ors., reported in (2023) 12 SCC 1, the Hon'ble Supreme Court while reading down the definition "Proceeds of Crime" in Section 2(1)(u) of the Act, has held that for property to be regarded as proceeds of crime, it must be derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence. Possession of unaccounted property acquired by legal means may be actionable as a tax violation. However, it will not be regarded as proceeds of crime unless the relevant tax legislation prescribes such a violation as an offence, and such offence is included in the Schedule to the Act. The Supreme Court further held that to be classified as proceeds of crime, the property associated with the scheduled offence must have been derived or obtained as a result of criminal activity relating to that offence. It further held that the authorities under the Act cannot resort to action against any person for money laundering based on an assumption that the property recovered by them must be proceeds of crime, or that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or is pending inqu....
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....property derived out of criminal activity is taken out of India and held outside India. This is clear from paragraph No. 109 of Vijay Madanlal Choudhary (Supra), which is also reflected in the decision of the Supreme Court in Pavana Dibbur (Supra), which is as follows: "109. Tersely put, it. is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence that can be regarded as proceeds of crime. The authorities under the 2002 Act cannot resort to action against any person for money laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. For, the expression "derived or obtained" is indicative of criminal activity relating to a scheduled offence already accomplished. Similarly, in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the c....
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....at the said property had been attached, as it represented the value of the property in terms of Section 2(1)(u) of the PMLA Act, 2002. 21. A reading of the reasons for attachment of the said property shows that the property had been attached in terms of the 2nd limb of Section 2(1)(u) of the PMLA Act. Though the provisional attachment order has used the word "equivalent", while attaching the property of the appellant, the official records show that the attachment had been made in terms of the 2nd limb of Section 2(1)(u) of the Act. The attachment had not been made in terms of the 3rd limb of Section 2(1)(u) of the Act, just because it has used the word "equivalent" in the provisional attachment order. Though the respondents could attach property, which was equivalent to the value of the crime proceeds, it is seen that the property that has been attached is apparently valued @Rs.16.60 lakhs, while the crime proceeds alleged to have been received by the appellant from the total amount of Rs. 6,13,74,440/- is alleged to be Rs.40 lakhs. 22. In the case of Abdullah Ali Balsharaf & Anr. Vs. Directorate of Enforcement & Ors., reported in 2019 SCC OnLine Del 6428, the Hon'ble Supreme....
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.... to have a link or nexus with the actual property derived from criminal activity and it cannot merely be a 'property equivalent in value', attachment of which is only permissible if the proceeds of crime is taken or held outside India. Therefore, when the case of the ED falls under equivalent in Value of any such property', it cannot take any unrelated property which has no nexus or link with the actual proceeds of crime and attach the same as 'property equivalent in value' in the absence of evidence." 25. In the case of Pavana Dibbur (Supra), the Hon'ble Supreme Court in Para 13, 15, 19 & 31.3 has held as follows:- "13. Clause (v) of sub-section (1) of Section 2 PMLA defines "property" to mean any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible. To constitute any property as proceeds of crime, it must be derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence. The Explanation clarifies that the proceeds of crime include property, not only derived or obtained from scheduled offence but also any property which ma....
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....e term 'proceeds of crime' explicitly states that when the proceeds of a crime is a property, such property must have been obtained or derived directly or indirectly as a result of any criminal activity relating to a scheduled offence. No doubt, even if the property was obtained indirectly, it can still be regarded as proceeds of crime. Assuming that a property derived out of a criminal activity mentioned is not available, still, attachment can be effected to the extent of the equivalent value of such property. The term 'value' in S. 2(1)(u) can only mean the monetary worth of the property that was derived from the criminal activity. This is evident from the words 'value of any such property'. The only method, when a property, which is unconnected with the proceeds of crime, can be attached, is when the property derived out of the criminal activity was taken out of India or is held outside the country. Under no other circumstance does the statute mandate attaching a property unconnected with the proceeds of crime. The Kerala High Court further held in Para 22 and 23 as follows: "22. The statute never intends to attach or confiscate all properties of a person connected w....
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....en "taken or held" abroad, any other property "equivalent in value" whether held in India or abroad." The Delhi High Court held that while the first part of the said section deals with tainted property, which had been acquired through tainted money, the second and third part of the section would ordinarily deal with untainted properties. They could have been acquired legitimately, without any connection with criminal activity or it's result. The same were however intended to fall in the net, because their owner was involved in the proscribed criminal action and the tainted assets held by him were not traceable or could not be reached. While some of the properties could be held in India or abroad, a rider was put by law, insisting on equivalent in value in the property to be attached. It was this inclusive definition of proceeds of crime in respect of property of the second and third kind mentioned in Section 2(1)(u) of the Act that the equivalent value of those properties of the second and third category could be attached, even though the use of the word "equivalent in value" had not been used in the second part/limb of Section 2(1)(u) of the Act. It thus held in Para 109 and 11....
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....that they are actually "derived or obtained" from criminal activity, but because they are of equivalent "value" as to the proceeds of crime which cannot be traced, it is essential that there be some nexus or link between such property on one hand and the person accused of or charged with the offence of money-laundering on the other hand. Para 160 of the said judgment provides as follows:- "160. But, in cases where the enforcement authority seeks to attach other properties, suspecting them to be "proceeds of crime", not on the basis of fact that they are actually "derived or obtained" from criminal activity but because they are of equivalent "value" as to the proceeds of crime which cannot be traced, it is essential that there be some nexus or link between such property on one hand and the person accused of or charged with the offence of money-laundering on the other. In cases of this nature, the person accused of money-laundering must have had an interest in such property at least till the time of engagement in the proscribed criminal activity from which he is stated to have derived or obtained pecuniary benefit which is to be taken away by attachment or confiscation. It i....
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....ion is made dependent on the first limb, it would be literally re-writing the provision or making it redundant to a great extent and for this, jurisdiction does not lie with any court of law which includes even the Constitutional Court. They can declare any provision to be unconstitutional but till then there remains presumption of constitutional validity." 31. The decision in Shri Sadananda Nayak (Supra), was reached by the learned Appellate Jurisdiction by taken into consideration paragraph No. 68 of the Judgment of the Supreme Court in Vijay Madanlal Choudhary (Supra). It may be stated here that this Court on going through the decision of Vijay Madanlal Choudhary (Supra), found that paragraph No. 68 of the Judgment in Vijay Madanlal Choudhary (Supra), which is reproduced in the decision of Shri Sadananda Nayak (Supra), is actually at paragraph No. 172, which is as follows: "172. It was also urged before us that the attachment of property must be equivalent in value of the proceeds of crime only if the proceeds of crime are situated outside India. This argument, in our opinion, is tenuous. For, the definition of "proceeds of crime" is wide enough to not only refer to ....
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.... 3rd part of the definition of proceeds of crime no doubt includes attachment of property of equivalent value in India, if the property is taken or held outside the country. Thus, what is clear from the above is that when the property is relatable to a scheduled offence, the property can be attached. In both the cases, there is a prior requirement of identifying and coming to a finding that the property attached is part of the proceeds of crime. The problems arises with the second part of the definition of proceeds of crime where it only speaks of "or the value of any such property" in Section 2(1)(u) of the Act. It is no doubt true that if an accused commits a crime and wipes out all traces of the proceeds of crime, then there would be nothing left to attach, if the proceeds of crime has been made untraceable. However, the fact remains that the definition of proceeds of crime, as defined by the Hon'ble Supreme Court in Vijay Madanlal Choudhary (Supra) has been followed in paragraph No. 15 of Pavana Dibbur (Supra). 35. Though the learned counsel for the respondent has relied upon paragraph No. 68/172 of Vijay Madanlal Choudhary (Supra), in support of her submission that when the....
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.... offence under Section 3 of the 2002 Act." 36. Though paragraph No. 68/172 of Vijay Madanlal Choudhary (Supra), appears to support the interpretation given by the learned Tribunal with regard to the definition of proceeds of crime, the Judgments as a whole shows that there is no conflict between the decision in Vijay Madanlal Choudhary (Supra) and Pavana Dibbur (Supra), where only property which has been derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be attached. As such, we are of the view that attachment of property, acquired prior to the commission of the crime, would not fall within the definition of the proceeds of crime. 37. In view of the above reasons and the fact that the Supreme Court in Pavana Dibbur (Supra), has clearly held that the decision in Vijay Madanlal Choudhary (Supra) has held that only such property which is derived or obtained, directly or indirectly, as a result of criminal activity, relating to a scheduled offence can be regarded as proceeds of crime, we hold that properties which have no nexus to a criminal activity relating to a scheduled offence cannot be regarded as proceeds of cr....