In a recent case, the Hon’ble Supreme Court has passed an order (‘Order’)[1], allowing the substitution of provisionally attached assets with unencumbered, marketable commercial units offered by the Petitioner subject to the satisfaction of certain conditions.
Background:
Section 5 of the Prevention of Money Laundering Act, 2002 (‘PMLA’), empowers the Directorate of Enforcement (‘ED’) to provisionally attach a person’s properties if it is of the belief that such person is in possession of ‘proceeds of crime’ and such ‘proceeds of crime’ are likely to be concealed, transferred or dealt with in a manner which would frustrate confiscation proceedings under the PMLA.
Once such provisional attachment is done by the ED, the PMLA requires that it must be confirmed to the Adjudicating Authority within a period of six months for it to continue during the pendency of trial for the offence of money laundering. However, the statute does not explicitly empower either the ED or the Adjudicating Authority or the Appellate Tribunal to allow substitution of such provisionally attached assets.
In the present case[2], the assets of the Petitioner were provisionally attached by the ED. During the pendency of proceedings before the Adjudicating Authority, the Petitioner filed a writ petition before the Hon’ble Punjab & Haryana High Court (‘P&H HC’) and inter-alia sought the substitution of the attached assets citing operational hardships. However, the P&H HC dismissed[3] the petition and held that the PMLA and the rules framed thereunder do not contain any enabling provision for substitution prior to the confirmation of the provisional attachment.
Aggrieved by the P&H HC’s decision, the Petitioner filed a Special Leave Petition (‘SLP’) before the SC challenging the provisional attachment and also sought interim relief in the form of substitution of the attached assets.
Order of the Supreme Court:
The SC allowed the substitution of the provisionally attached properties with unencumbered, marketable commercial units of equivalent value in the Petitioner’s real estate projects. The valuation of the properties offered for substitution was conducted by an external valuer, registered with the Income-tax Department, appointed by the ED. Further, the substitution was allowed by the SC subject to the satisfaction of the following conditions imposed by the ED, which were agreed to by the Petitioner:
- That the Petitioner must submit a no encumbrance certificate in relation to the assets proposed for substitution.
- That the Petitioner must give a notarized undertaking that the substituted property will not be sold or transferred during the pendency of proceedings.
- That the Petitioner must deposit the original title documents of the substituted property with either the ED or the SC.
- That the Petitioner must provide an indemnity bond to compensate the ED for loss/legal deficiency arising from the substitution.
- That the Petitioner must give an assurance that third-party rights in other units of the project in question remain unaffected.
- That in case of confirmation of provisional attachment, the substituted assets must be handed over by the Petitioner.
- That the Petitioner must disclose the source of acquisition of the substituted assets.
- That the Petitioner must continue to cooperate with the ED in investigation.
- That the substitution shall not impact the merits of the ongoing investigation or trial and should not be construed as an acknowledgement of the source or legality of the attached assets.
While passing the Order, the SC clarified that the Order shall not be treated as a binding precedent as it has been passed in the specific facts of this case. The SC also noted that since nothing survived in the SLP after the Order, the SLP also stood disposed of in the above terms. However, the SC has not commented on the correctness of the reasoning given by the P&H HC.
LKS Comments:
The issue regarding the substitution of provisionally attached assets remains a contentious one. In the absence of clear statutory framework in this regard, depending on the facts of each case, the Courts in India have taken differing views.
While the P&H HC has denied substitution in the case under consideration during the pendency of proceedings before the Adjudicating Authority, the Hon’ble Delhi High Court in its decisions[4] has allowed the substitution of provisionally attached assets where such attached assets were of equivalent value and not the direct proceeds of crime even during the pendency of proceedings before the Adjudicating Authority. In another case[5], the Hon’ble Telangana High Court has allowed the substitution of provisionally attached assets after confirmation by the Adjudicating Authority. Accordingly, there is a need for a definitive judgment on this issue by the Supreme Court.
[1] Order dated 30 June 2025 in M3M India Pvt. Ltd. v. Union of India, IA 36570/2025 in SLP(C) No. 4027/2025.
[2] Ibid.
[3] Vide judgment dated 26 July 2024 in M3M India Pvt. Ltd. v. Union of India, CWP 17388 of 2024.
[4] (i) Joint Director, Directorate of Enforcement v. A. Raja & Ors., Order dated 20 September 2023, CRL.L.P. 184/2018; and (ii) Gagan Infraenergy Ltd. v. Dy. Director, Directorate of Enforcement, Judgment dated 22 May 2024, W.P.(C) 11264/2021.
[5] Enforcement Directorate v. Smt. Y. S. Bharathi Reddy, Order dated 28.11.2022, CMSA No. 15 of 2015.