Introduction
The Prevention of Money Laundering Act, 2002 (‘PMLA’), serves as a cornerstone in the fight against financial crime. A critical aspect of the Act is the attachment of properties linked to illicit proceeds. In Alive Hospitality and Foods (P.) Ltd. v. Deputy Director, Directorate of Enforcement[i], the Appellate Tribunal – SAFEMA, New Delhi (‘Tribunal’), examined key legal issues under s. 5 of the PMLA, including ownership, possession, and the retrospective application of statutory amendments.
Brief Facts
The case originated from a charge sheet filed by the Bank Security and Fraud Cell of the Central Bureau of Investigation (‘CBI’) against M/s Vishal Exports Overseas Ltd. (‘VEOL’), its Managing Director Pradeep Mehta, and Joint Managing Director Deepak Mehta, and others for cheating and defrauding four banks, including Punjab National Bank (‘PNB’), and the National Agricultural Cooperative Marketing Federation of India Ltd. (‘NAFED’).
The CBI investigation established that VEOL fraudulently obtained and misused PNB’s credit facilities, causing a financial loss of Rs. 106 crores through forged documents. When VEOL defaulted on loan repayments, the banks seized certain immovable properties under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), which were subsequently auctioned. The Appellant purchased one of these properties in the auction for Rs. 2.15 crores.
The Directorate of Enforcement (‘ED’) initiated an investigation under the PMLA based on inputs suggesting that Pradeep Mehta had funnelled money through intermediary companies into the Appellant, which was allegedly set up by him. The ED concluded that the investment by the Appellant represented crime proceeds acquired through fraudulent means. Witness statements and transaction records confirmed that these funds originated from Pradeep Mehta’s network, reinforcing the ED’s conclusion that the companies were mere fronts for laundering crime proceeds.
Consequently, a provisional attachment order (‘PAO’) was passed, attaching the property purchased by the Appellant, among other properties. The Adjudicating Authority (‘AA’) confirmed the PAO, leading to the present appeal by the Appellant claiming to be a bona fide purchaser.
The Tribunal examined key legal questions: (i) whether the evidence justified classifying the property as proceeds of crime; (ii) whether purchasing the property in a public auction severed its connection to alleged criminal activity; (iii) whether amendments to the PMLA’s Schedule applied retrospectively; and (iv) whether attachment under PMLA impacted ownership, possession, or use of the property.
Held
The Appellate Tribunal upheld the AA’s confirmation of the PAO and held as follows:
There was more than sufficient evidence to conclude that the subject property constituted proceeds of crime, justifying its attachment pending the outcome of criminal proceedings. It was observed that the provisions of PMLA aim to prevent the integration of crime proceeds into the legitimate financial system and that properties acquired using laundered money could not be treated as legitimate purchases.
The Tribunal traced the financial trail and found that funds were routed through multiple shell companies controlled by Pradeep Mehta, establishing a direct nexus between the property and illicit proceeds. The Tribunal reiterated that the definition of ‘proceeds of crime’ under s. 2(1)(u) of the PMLA includes not only directly derived property but also indirectly acquired property and its value. It was emphasized that a mere auction purchase does not establish a claim of bona fide ownership if the funds used are tainted.
Regarding retrospective applicability, the Tribunal reaffirmed that money laundering is a continuing offense. It ruled that the relevant date was not when the predicate offense occurred but when acts constituting money laundering, such as concealment, possession, or dealing with tainted proceeds, were carried out.
Regarding possession and ownership, the Tribunal explained that attachment under the PMLA does not automatically alter ownership, possession, or use of the property except in exceptional circumstances. However, given that the criminal trial was still pending, the Tribunal found it necessary to continue the attachment to prevent the potential dissipation of assets.
Our Analysis
This case underscores the nuanced approach to property attachment under the PMLA. The Tribunal’s ruling is consistent with the Supreme Court’s broad construction of ‘proceeds of crime’ under s. 2(1)(u) in Vijay Madanlal Choudhary v. Union of India[ii], confirming that the definition extends to both directly and indirectly acquired assets, as well as their equivalent value.
Additionally, the Tribunal’s decision on retrospective applicability is consistent with established judicial precedent. It reinforces that money laundering is a continuing offence, meaning that even if the predicate offence was committed prior to the PMLA amendment, any act of concealment, possession, or dealing with proceeds of crime post-amendment falls within PMLA’s ambit.
The ruling also reiterates that attachment is a temporary protective measure rather than an outright forfeiture. The Tribunal balanced the state’s interest in preventing asset dissipation with the rights of the accused, ensuring that dispossession occurs only in exceptional circumstances – a principle emphasized in Ganpati Dealcom Pvt. Ltd. v. Union of India[iii].
Thus, the judgment reinforces the necessity of a balanced enforcement approach under PMLA, ensuring robust asset tracing while upholding the procedural rights of affected parties.
End Notes
[i] [2025] 170 taxmann.com 814, SAFEMA - New Delhi.
[ii] [2022] 2 SCC 793.
[iii] Civil Appeal No. 5783 of 2022.
Authored by Aayan Birla at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.