Asset attachment under PMLA – What is the right approach?

To assess the value, the ED in certain situations adopted a novel method where it depresses the value of the assets, thereby empowering itself to virtually denude a person of all his assets, irrespective of whether such properties had been derived from any criminal activity. It was argued before the Supreme Court that such sweeping powers granted to the ED would result in anomalies, such as attachment of properties worth far more than the value of proceeds of crime, amongst others.

Under the PMLA, the ED is empowered to provisionally attach property if it has reason to believe that any person is in possession of any “proceeds of crime”, and such “proceeds of crime” are likely to be concealed, transferred or dealt with in a manner so as to frustrate confiscation of such property under the PMLA.

“Proceeds of crime” in turn means either the “property derived or obtained” as a result of a scheduled offence (i.e., the property directly obtained as a result of criminal activity, in other words – ‘tainted property’) or the “value of such property” (i.e. ‘untainted property’). Evidently, “proceeds of crime” as defined in the PMLA refers to two kinds of property –

* Tainted property, i.e. the actual “proceeds of crime”; and

* Untainted property, i.e. property not derived from the proceeds of crime but having a value equal to the tainted property of the concerned accused.

Usually, proceeds of crime are not available in the same form in which they were originally obtained, and are instead transferred, converted, or siphoned off into different assets, making it difficult to trace the original proceeds of crime. As such, the legislative intent behind such a broad definition of “proceeds of crime” appears to be to enable the ED to also attach properties (of the person concerned) equal in value to the actual proceeds of crime, which may have become untraceable.

How ‘Value’ is Assessed

Relevantly, the term “value” has been defined under the PMLA to mean the fair market value of any property on the date of its acquisition by any person, or if such date cannot be determined, the date on which such property is possessed by such person.

In-keeping with the intent and object of the PMLA, a prudent reading of the definitions of “value” and “proceeds of crime” would be that the term “value” as used in the definition of “proceeds of crime” refers to value of the tainted property, i.e. the property actually derived from the criminal activity. What also follows is that this definition of “value” is not applicable to valuing untainted properties sought to be attached.

In contrast however, it appears that in the ED’s interpretation, the phrase “fair market value of the property as on date of acquisition” (which finds mention in the definition of ‘value’) extends even to untainted property completely unconnected to the “proceeds of crime”. This interpretation would entitle attachment of untainted properties at their value as on the date of acquisition of such property, irrespective of the fact that such property may have been purchased many years prior to the alleged criminal activity (and consequently had no relation to the criminal activity in question).

For example, adopting the above interpretation, if some land had been acquired by a person in 1980, the ED under the PMLA may be entitled to attach such property today at its value in the year 1980, and not at the present market value of such land. This may lead to anomalous situations wherein immovable property; whose present market value is exponentially higher than their value as on the date of acquisition may be attached at a mere pittance.

The other, and more significant fallout of this interpretation would be that since immovable property belonging to a person under investigation would be attached at its value as on the date of acquisition (which may be many decades prior to when the purported criminal activity took place), multiple, if not all properties belonging to a person may be ring-fenced, in order to make up for the total quantum of alleged proceeds of crime.

Consider this – for instance, the ED alleges that between the years 2015 to 2020, an amount of Rs 50 crore derived by an individual are “proceeds of crime”. This individual today owns 10 immovable properties in Delhi, which had been inherited by him in the year 1980. In 1980, these inherited properties were valued at Rs 5 Crore per property. Now, say the present market value of each property has increased tenfold to Rs 50 crore each (meaning thereby that the cumulative value of all 10 properties is Rs 500 crore). However, adopting the above interpretation, these properties could all be attached at their value in the year 1980 (i.e. at Rs 5 Crore per property) and not at the present market value. On account of this depressed valuation, the ED would be entitled to attach all 10 properties of the concerned person as being the value of the “proceeds of crime” (which is Rs 50 crores). In effect, the ED would be empowered to attach properties worth Rs 500 crores in today’s terms, in relation to “proceeds of crime” amounting only to Rs 50 Crores.

Clarity Needed

Such illustrative situations bring to light the need for clarity on the method to be followed for arriving at valuations while attaching properties under the PMLA.

The Statement of Objects and Reasons of the PMLA reveals that the PMLA is “An Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering…” While confiscation of property derived from or involved in money-laundering is an important objective to give effect to the PMLA, such an interpretation may not have been intended by Parliament which would result in denuding a person of all his legally acquired assets.

This dichotomy presents an important question on which clarity would be welcome.

Interestingly, an opportunity to provide such clarity has in fact presented itself in the form of various review petitions, which are currently pending before the Supreme Court in Vijay Madanlal. Whether the Supreme Court does decide this issue however still remains to be seen. To quote Hamlet – “To be, or not to be, that is the question”.

Aditya Mukherjee is Partner, and Krishna Tangirala, Senior Associate, at Shardul Amarchand Mangaldas & Co. Views are personal, and do not represent the stand of this publication.