The High Court of Karnataka has ruled that immovable properties acquired years before an alleged scheduled offence remain liable to provisional attachment under the Prevention of Money Laundering Act (PMLA), 2002. In a significant judgment, the court held that the date of a property's acquisition does not grant it immunity from attachment proceedings, provided the asset represents the equivalent value of the alleged proceeds of crime.

The case, Shanker Mahadevan Iyer vs. Directorate of Enforcement , centered on a challenge to a provisional attachment order issued in October 2024. The petitioner, the proprietor of M/s. S.S. Maritime, had argued that two properties—an apartment purchased in 2004 and a non-agricultural plot acquired in 2008—could not be attached in relation to financial transactions dating back to 2011–2012. The petitioner contended that because these properties were bought long before the alleged predicate offence, they could not constitute "proceeds of crime" under Section 2(1)(u) of the PMLA.

Rejecting this argument, Justice Suraj Govindaraj emphasized that the statute is designed to reach assets equivalent in value to illicit gains, ensuring that the government’s ability to conduct confiscation proceedings is not frustrated. The court clarified that the "value limb" of the definition of proceeds of crime applies irrespective of the timing of the property's purchase.

Scope of Equivalent Value Attachment

Justice Govindaraj highlighted that the Enforcement Directorate (ED) does not necessarily need to prove that the specific assets in question were purchased directly with tainted money. Instead, the court affirmed that authorities have the power to provisionally attach properties of "equivalent value" when the original proceeds generated by a scheduled offence are no longer traceable, secreted, or insufficient in value.

The judgment states: "The provisional attachment of the Petitioner’s properties is not unsustainable in law merely because they were purchased under registered sale deeds dated 15.12. 2004 and 28.03. 2008 , before the alleged scheduled offence and the transactions of 2011–2012 ."

The court clarified that this interpretation aligns with the Supreme Court’s stance in Vijay Madanlal Choudhary vs. Union of India , which established that the statutory definition of proceeds of crime is expansive. By rejecting the petitioner’s attempt to restrict equivalent-value attachments only to assets held abroad, the court underscored that the PMLA allows the recovery of value equivalent to illicit gains within the country as well.

Independent Nature of PMLA Proceedings

A key issue addressed by the court was the relationship between the predicate offence—the underlying criminal activity—and the independent proceedings under the PMLA. The petitioner had argued that the lack of clear nexus between his business role as a stevedore and the alleged fraud should nullify the attachment. However, the court maintained that money laundering is a distinct, standalone offence.

The bench reinforced that proceedings under the PMLA are not legally bound by the status of the underlying FIR or charge sheet, provided the scheduled offence exists as a matter of record. Since a charge sheet had been filed in the predicate crime, the statutory condition under the First Proviso to Section 5(1) of the PMLA was satisfied, rendering the ED's actions compliant with the law. The court held that while quashing of a predicate offence on substantive grounds might affect an ECIR, mere procedural or technical challenges do not automatically render the attachment invalid.

Judicial Restraint and Statutory Remedy

While confirming the maintainability of the writ petition, Justice Govindaraj exercised judicial restraint by declining to entertain the plea on its merits at the provisional stage. The court stressed that the PMLA provides a comprehensive, self-contained mechanism for adjudication and appeal, which must be followed by any aggrieved party.

The judgment noted that Section 8 of the PMLA serves as the primary forum for addressing grievances. Before the Adjudicating Authority, affected parties are given the opportunity to present their case, disclose the source of their income, and produce evidence to contest the claim that the property is involved in money laundering. The court observed that bypass of this hierarchy of appeals—to the Appellate Tribunal under Section 26 and subsequently the High Court under Section 42—should only occur in exceptional cases of jurisdictional failure or ex facie illegality, neither of which was established in this instance.

The court observed: "The Adjudicating Authority must consider the material in accordance with Section 8(2) . An adverse order may then be challenged before the Appellate Tribunal under Section 26(1) , which has the power under Section 26(4) to confirm, modify or set aside the order."

Operational Outcome and Next Steps

The court’s order confirms that the petitioner’s objections concerning his role as a stevedore, his claim of partial repayment of funds, and the validity of the alleged money trail remain open for determination by the statutory authorities. By dismissing the writ petition, the court effectively directed the petitioner to engage with the ongoing proceedings before the Adjudicating Authority.

To mitigate the immediate impact of the dismissal, the court extended the benefit of the existing interim order for a period of 30 days. This grace period is intended to allow the petitioner to seek interim protection from the appropriate statutory forum or appellate body. Additionally, noting the time expended in litigating the writ petition, the court ruled that the petitioner would be entitled to the benefit of Section 14 of the Limitation Act, ensuring that his statutory rights are not prejudiced by the time spent pursuing this legal challenge.

The case serves as a precedent for the robustness of provisional attachment under the PMLA, emphasizing that assets are subject to the reach of law regardless of when they were acquired, provided they fulfill the criteria of equivalent value in the context of money laundering investigations. The ED’s procedural compliance, particularly regarding the recording of reasons to believe and the filing of the charge sheet in the predicate offence, was upheld as sufficient to sustain the provisional attachment.