De-Attachment of Property under PMLA – Part 2 ( In continuation to the article titled “De-Attachment of Property under PMLA”[1])
Introduction
The Prevention of Money Laundering Act (PMLA), 2002 empowers the Enforcement Directorate (ED) to attach, confiscate or seize any property involved in money laundering. The Act aims to ensure a fair balance between the powers of the ED and the rights of third parties who may have legitimate interests in such properties.
In the present article, we shall discuss the rights of a claimant[2]in restoration of the attached property under the Act. It would be unfair and unjustified for any innocent third party to suffer due to the adverse judicial proceedings. This is why the Act further propounds that a property can be restored or released if any claimant has a legitimate interest in the property and has suffered a quantifiable loss as a result of the offence of money laundering. This article explores the rights of claimants in the restoration of attached properties and provides an in-depth analysis of the provisions under the Act and their judicial interpretations.
Brief Synopsis
The PMLA Act, in its efforts to curb the crime of money laundering, accords wide-ranging powers to the ED, including property attachment. However, the Act also has provisions to ensure that the rights of innocent third parties are not unduly affected. Section 8(8) of the Act delineates provisions for restoration of confiscated property to a claimant who has a legitimate interest in the property and has suffered a quantifiable loss due to the offence of money laundering.
A series of judicial precedents have further clarified the scope of these provisions, providing a clearer understanding of what constitutes a “legitimate interest” in a property and affirming that only “untainted property” can be restored to a claimant. Cases such as Deputy Director, Directorate of Enforcement, Delhi v. Axis Bank and Ors, Jyoti Ashish v. Deputy Director, Directorate of Enforcement, and Axis Bank Case, among others, have played pivotal roles in these clarifications.
Provision for Restoration
The legislature has made all efforts to ensure that the rights of an interested third party should be protected during any proceedings under the Act. It is clearly mention under Section 8(8)that:-
“(8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of money laundering
Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering:
Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed.”
Thus, any property which has been confiscated can be restored if the claimant has acted in good faith and has suffered a loss as a consequence of money laundering. Further, the courts shall satisfy itself that a loss has occurred despite of the claimant taking all reasonable precautions.
Procedure for restoration of property
The Prevention of Money-laundering (Restoration of confiscated property) Rules, 2016 (hereinafter referred as the “Rules”), establishes that the Special Court shall call upon any claimant by publishing a notice who has a “legitimate interest” in the property or part thereof to establish their claims. If the interested claimant has suffered a loss, then the Special Court may restore the property on a pro-rata basis.
The Rule 3 of the Rules clearly prescribes the manner for restoration of the property. Rule 3 states that:-
“(1) The Special Court, within forty-five days from the date of passing the order of confiscation under sub-section (5) section 8 of the Act in respect of property, shall cause to be published a notice in two daily newspapers, one in English language and one in vernacular language, having sufficient circulation in the locality where the property is situated calling upon the claimants, who claim to have a legitimate interest in such property or part thereof, to submit and establish their claims, if any, for obtaining restoration of such property or part thereof.
(2) When the confiscated property is insufficient to meet the loss suffered by the claimants as a result of the offence of money-laundering, the Special Court, as it thinks fit, may pass an order of restoration of property on a pro-rata basis in accordance with the share of loss suffered by each claimant.
(3) No claimant shall be entitled to claim restoration of confiscated property before the Special Court beyond thirty days from the date of publication of the notice referred to in sub-rule (1): Provided that the Special Court may entertain any claim not exceeding further thirty days, upon the satisfaction that the claimant was prevented by sufficient cause.”
Legitimate interest in the property
As mentioned above the claimant should have a legitimate interest in the property. Meaning thereof that the claimant should have a bonafide or justifiable interest in the clean and untainted property[3] that has been attached by the ED.
In Deputy Director, Directorate of Enforcement, Delhi v. Axis Bank and Ors[4], wherein the Hon’ble Delhi High Court while dealing with the claim of the claimant discussed the scope of the “legitimate interest”. It was held that the basic test prescribed by law in order to determine “release” or “restore” the property is to find whether claimant has legitimate interest in the property and whether he has acted in good faith having taken all reasonable precautions and himself was not involved in the offence of money laundering or has suffered a quantifiable loss. Having said this, the property attached may be released as well as restore to the claimant with a proven legitimate interest.
Further, in Jyoti Ashish v.Deputy Director, Directorate of Enforcement[5], the claimant was the sister of the accused but there was no involvement of her in money laundering and no proceedings were initiated against her yet her belongings were confiscated under the Act. Thus, the ld. Appellate Tribunal correctly allowed the application and directed to de-freeze the lockers of the petitioner.
Similarly, in Himanshu Kothari v. Pen Coop. Urban Bank ltd[6]., Kiran Mazumdar v. Deputy Director, Directorate of Enforcement[7], and Vivek Mathias v. Deputy Director, Directorate of Enforcement[8] the Hon’ble Courts safeguards and protected the interest of innocent third party who has the legitimate interest in the attached property.
Thus, the claimant shouldn’t be involved in the proceeds of crime and further prove that there is a justifiable interest in the property that has been confiscated, attached or seized by the authority. Further, the claimant has suffered a substantive loss due to the proceeds of crime and any proceedings thereof.
Property should be untainted
In Axis Bank Case[9], the Delhi High Court further elaborated that a tainted property i.e. property obtained through any criminal activity cannot be released even if there is a bonafide interest of a third party. The Hon’ble Court reasoned that the act provides vast and absolute power to the Central Government, however the right of the third part is limited to sue the wrong doer for damages. The purpose of attaching, confiscating, seizing the property will be defeated/frustrated if a tainted property is also released on the grounds of legitimate interest of the claimant.
Thus, an “untainted property” can be released upon on application filed by the claimant. Further, there can be instances where the interest in the property arises prior to the attachment of the property. In such scenarios, the order of attachment will not be absolutely frustrated and will remain operative. However, the State will be restricted to the property which exceeds the claim of the third party. In a contradictory scenario wherein the interest in the property arised of the claimant after the attachment of the property. In Seema Garg v. Deputy Director, Directorate of Enforcement[10], the Hon’ble Court held that the property before the period of alleged commissioned scheduled offence shall not be proceeds of crime. Further, an appeal was preferred by the ED challenging the order passed by the Hon’ble Court which was dismissed and set aside by the Apex Court.
Conclusion
It is evident from the above-mentioned cases that judiciary has attempted to create a balance between the property rights of a third party and the actions of the ED to attach the property under PMLA. It is settled that rights of an interested third party should not be affected due to proceeding under PMLA for a scheduled crime since it would be unfair and unjust for the claimant. Although, the scheme of the act should not be defeated. The ED has been given wide powers to attach the property which is parallel to the rights of an individual. Thus, a harmony is created by the judiciary. However, it is observed that the powers under the act are often misused and abused by the authorities against which there is still no limitation.
[1] De-Attachment of Property under PMLA, Law Street India, https://majestylegal.in/wp-content/uploads/2022/11/expert.pdf.
[2]Rule 2(b) of Prevention of Money-laundering (Restoration of Confiscated Property) Rules, “claimant” means a person who has acted in good faith and has suffered a quantifiable loss as a result of the offence of Money- laundering despite having taken all reasonable precautions, and is not involved in the offence of money-laundering
[3]“untainted property” that have been acquired by the suspect legitimately without any connection with criminal activity or its result thereof. See Deputy Director, Directorate of Enforcement, Delhi v. Axis Bank and Ors.
[4](2019) SCC Online Del 7854
[5](2018) SCC OnLine ATPMLA 10.
[6]2016 SCC OnLineBom 12835.
[7]2018 SCC OnLine.ATPMLA 42.
[8]2018 SCCOnLine ATPMLA 22.
[9]Supra
[10]2020 (374) ELT 46 (P&H)
[11]Majesty legal is a LAW FIRM established in 2013 by Ms. Mahi Yadav. Objective of the above article is to provide insights on law, statutes and is personal in nature, not to be deemed as legal advice.
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