Clean Before the Crime? Attachment of Properties Acquired Before the Commission of the Scheduled Offence under the PMLA

Introduction

In recent years, enforcement under the Prevention of Money Laundering Act, 2002 (‘PMLA’) has become increasingly assertive, particularly in the use of provisional attachment powers under s. 5. One of the recurring interpretative issues is whether property acquired before the commission of a scheduled offence can fall within the definition of ‘proceeds of crime’ or be subject to attachment as property of equivalent value. The issue is not merely chronological – it goes to the core of legislative design, statutory structure, and the limits of permissible inference in economic-offence enforcement.

At the centre of this inquiry lies s. 2(1)(u) of the PMLA, which defines ‘proceeds of crime’ through three distinct limbs. In practice, the arguments put forth by the Directorate of Enforcement (‘ED’) sometimes blend the second and third limbs to justify attaching untainted assets, particularly where the alleged tainted property is unavailable. This inevitably raises two threshold questions: whether there is a legally cognizable link between the property and the alleged criminal activity, and whether the statutory scheme permits value-equivalence in domestic situations at all.

Statutory Framework under the PMLA

S. 2(1)(u) defines ‘proceeds of crime’ to include: (i) property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence; (ii) the value of such property; and (iii) where such property is taken or held outside India, property of equivalent value held in India or abroad.

All three limbs operate on the premise that the property (or its assessed value) can be traced back to a benefit arising from the criminal activity. This structural sequencing flows from the statutory text itself: derivation from a scheduled offence presupposes prior criminal activity. The third limb, introduced in 2015[i] and later expanded in 2018[ii], provides for value-equivalent attachment where the tainted property is taken or held outside India. The phrasing places a territorial precondition on the use of this substitute-asset mechanism. While enforcement practice has increasingly invoked this limb even where the original property is only untraceable domestically, the statutory text does not extend to such situations – a debate that lies at the heart of the present controversy.

This territorial qualifier becomes particularly relevant when considering s. 5 of the PMLA, which authorizes provisional attachment of property ‘involved in money laundering’, and s. 8(1), which requires a notice indicating the source of funds used for acquiring the attached property. If pre-offence, lawfully acquired property were attachable irrespective of derivation, this statutory requirement to explain its source would serve no purpose and lose all meaning.

From a policy standpoint, the prosecution argument draws on what Alldridge terms the ‘profit principle’ – that no one should be allowed to retain the benefits of crime, both to remove illicit gain and to deter future offending. Yet Alldridge cautions, this principle is not absolute: extending confiscation to sums exceeding the actual benefit of the crime transforms the measure from reparative to punitive[iii]. However, one perspective remains that effective enforcement must not permit offenders to insulate themselves by dissipating tainted assets, and that the law must secure equivalent value when direct proceeds are no longer recoverable. The statutory balance between these two approaches is what the courts have been called upon to interpret.

Judicial Interpretation: Drawing the Line Between Nexus and Overreach

Judicial consideration of whether pre-offence properties can be attached under the PMLA has produced two strands of reasoning. One view is that such properties fall outside the first and second limbs of s. 2(1)(u), and can be attached only under the third limb, where tainted assets are taken or held abroad. The other line of authority permits attachment in domestic situations where a demonstrable and quantifiable nexus is shown between the property and the pecuniary advantage derived from the scheduled offence, notwithstanding that the asset itself is untainted.

In K. Rethinam (2018)[iv], the Delhi High Court analysed the three limbs of s. 2(1)(u) and clarified that the third limb operates only where the proceeds are taken or held abroad. It rejected the blending of the second and third limbs, affirming their distinct operation. The judgment thus confined value-equivalent attachment to cross-border scenarios, signalling that domestic dissipation of tainted property does not automatically open the door to attaching pre-offence assets.

In Abdullah Ali Balsharaf(2019)[v], the Delhi High Court read s. 2(1)(u) in two parts: property derived from criminal activity, and property of equivalent value where tainted assets are held abroad. It held that assets acquired legitimately before the alleged offence and before PMLA’s enactment do not fall within the first part. However, it recognized that pre-offence assets can be attached if they are equivalent in value to tainted property held overseas, thus situating the possibility of attachment squarely within the third limb’s territorial qualifier.

A somewhat broad reading emerged in ED v. Axis Bank(2019)[vi], where the Delhi High Court, while affirming that untainted assets may be attached as ‘alternative attachable property’ when actual proceeds are untraceable or insufficient, the Court insisted on a demonstrable nexus between the property and the person accused of money laundering. Mere ownership by the accused was not enough; confiscation was limited to the value of illicit gains, and attachment required a reasonable assessment of such gains. This decision leaves the concepts of ‘alternative attachable property’ and ‘deemed tainted property’ too open, which then can accommodate pre-offence properties.

Shortly thereafter, the Punjab & Haryana High Court in Seema Garg(2020)[vii] drew a sharper interpretative line. It held that property purchased before the commission of a scheduled offence does not fall within the first limb, and ‘value of such property’ in the second limb refers only to property acquired in exchange for, or by converting, property obtained from the offence. It firmly rejected an interpretation allowing attachment of unconnected property merely because tainted assets are unavailable, warning that this would grant unguided powers to the ED and violate as. 20 and 21 of the Constitution. Notably, this decision was affirmed[viii] by the Supreme Court in 2021.

In HDFC Bank(2021)[ix], the Patna High Court adopted similar reasoning, holding that pre-offence, legitimately acquired property cannot be brought within the first limb, and that the second limb’s ‘value’ is confined to the worth of tainted property, not any property of the accused. As the tainted assets were not located abroad, the third limb did not apply, and the attachment was held to be beyond the PMLA’s scope.

The Andhra Pradesh High Court in Kumar Pappu Singh[x] (2021) approached the issue through Heydon’s Rule, noting that the third limb of s. 2(1)(u) was introduced to address the problem of tainted property held outside India. The Court concluded that this amendment was not meant to allow attachment of unrelated domestic assets when tainted property was dissipated domestically, and therefore, properties purchased before the commission of the offence could not be treated as proceeds of crime.

A key turning point came with the Supreme Court’s ruling in Vijay Madanlal Choudhary(2023)[xi], where the Court clarified that money laundering under s. 3 can occur only after property has been ‘derived or obtained’ from criminal activity. Notably, the Court in para 251 stressed that ‘proceeds of crime’ must be interpreted strictly, and not all property recovered in relation to a scheduled offence qualifies as proceeds. It laid down that lawfully acquired, unaccounted assets may be subject to tax law but are outside PMLA’s ambit unless the underlying violation is a scheduled offence.

Applying this reasoning, the Supreme Court in Pavana Dibbur(2023)[xii] noted that the phrase ‘derived or obtained’ presupposes that the criminal activity has already occurred. Accordingly, a property purchased in 2013 when the alleged offence took place in 2017 was held to have no nexus to the offence, and its attachment was set aside. Though this decision clearly excludes pre-offence property from the first limb, it does not discuss the other limbs in depth, seemingly because the facts of the case did not require it.

In Davy Varghese(2024)[xiii], the Kerala High Court quashed the attachment of properties acquired in 1997, 1999, and 2005 – well before the alleged predicate offence period (2014-2018). It held that such properties could only be attached under the narrow third limb exception under s. 2(1)(u) and that ‘value of such property’ refers to the monetary worth of property derived from the offence, not to clean assets. The Court also warned against retroactive application of attachment powers as this would offend the constitutional principle against ex post facto penal consequences under a. 20 of the Constitution.

In Sterling Futures(2024)[xiv], the Madras High Court rejected the argument that pre-offence properties are immune from attachment. It held that under the third limb of s. 2(1)(u), pre-offence properties can be attached if they are equivalent in value to tainted assets held abroad. It was stated that the substitute property need not itself be purchased from the proceeds of crime; the key statutory condition is that the original tainted property be located outside India. It should be noted that though this decision focuses on the third limb, in fact, its reasoning does not close the door to other equivalent-value attachments. Notably, the emphasis in this judgment is on the legislative intent to secure the value of the proceeds.

In Satish Motilal Bidri(2024)[xv], the Kerala High Court reaffirmed that ‘value’ in s. 2(1)(u) refers to the monetary worth of property derived from criminal activity, and that unrelated assets can only be attached on an equivalent-value basis if tainted property is abroad. It expressly rejected broader readings by other High Courts, aligning with Seema Garg[xvi] and Pappu Singh[xvii]. The Court emphasized that the PMLA’s purpose is to target tainted money and its transformations, not to attach all assets of a person merely accused of money laundering.

Taken together, these authorities indicate that lawfully acquired, pre-offence property generally falls outside the scope of attachment under the second limb of s. 2(1)(u). The jurisprudence also reflects that equivalent value attachment of such property is statutorily permissible only when the proceeds of crime are located abroad, thereby engaging the third limb. However, a contrary strand continues to recognize the possibility of value-based attachment in domestic situations, but only where the factual record supports a direct connection between the property and the gains of the scheduled offence. How this distinction ultimately crystallizes in practice remains a matter of judicial evolution, turning on the interplay between statutory construction, and the factual matrix in each case.

Comparative International Regimes: UK, USA, Singapore

A comparative overview of international anti-money laundering frameworks shows that many jurisdictions adopt express legislative provisions to address situations where the proceeds of crime are unavailable, untraceable, dissipated, or held outside the jurisdiction, including where clean, pre-offence property must be realized as a substitute.

The United Kingdom’s (‘UK’) Proceeds of Crime Act, 2002 (‘POCA’) establishes a confiscation regime centred on the concept of a ‘criminal lifestyle’. Where a court finds such a lifestyle under s. 75, s. 10 permits statutory assumptions that any property held, received, or expenditure incurred within the previous six years is derived from criminal conduct. These assumptions enable confiscation from pre-offence assets unless the accused proves the property was lawfully obtained or that applying the assumption would be unjust.

Ss. 6 and 7 of POCA require courts to determine the ‘recoverable amount’ based on the benefit obtained from criminal conduct. Where the specific tainted asset is unavailable, s. 9 permits confiscation of the ‘available amount’, defined as the value of all free property (after priority obligations) plus the value of any tainted gifts. Thus, it appears that the POCA regime is not conditioned on whether the proceeds were taken abroad or rendered untraceable. Once the benefit from criminal activity is assessed, any free property can be recovered, subject to statutory protections. Notably, if the accused is not found to have a criminal lifestyle, confiscation is limited to the benefit from the particular criminal conduct of conviction, meaning that unrelated pre-offence property would generally fall outside the scope of confiscation.

The United States of America (‘US’) adopts a bifurcated model under the Racketeer Influenced and Corrupt Organizations Act, 18 US Code S. 1963 and the Criminal Forfeiture provisions in 21 US Code S. 853, distinguishing between tainted property directly derived from criminal conduct and untainted property that may be forfeited only as a substitute. Both statutes define forfeitable property in terms of assets ‘constituting, or derived from, any proceeds’ obtained from the underlying specified unlawful activity or racketeering activity.

However, where such directly forfeitable property is unavailable, the substitute asset provisions in 18 US Code S. 1963(m) and 21 US Code S. 853(p) empower courts to order forfeiture of ‘any other property’ of the accused up to the equivalent value. For such substitute forfeiture to be ordered, the statute requires the Government to prove by a preponderance of the evidence, that the directly forfeitable property: (i) cannot be located with due diligence, (ii) has been transferred, sold, or deposited with a third party, (iii) has been placed beyond the court’s jurisdiction, (iv) has been substantially diminished in value, or (v) has been commingled with other property such that it cannot be divided without difficulty. Only after satisfying one of these statutory conditions the court may order forfeiture of substitute property, including assets acquired legitimately before the offence.

Singapore’s Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, 1992 (‘CDSA’) also contained two value-based mechanisms relevant to pre-offence property. First, under ss. 6 and 7, where a person is convicted of a drug-dealing or serious offence, the court must, on the Public Prosecutor’s application, make a confiscation order if satisfied that the accused has ‘derived benefits’ from the offence. The recoverable amount is the assessed value of those benefits, subject to the statutory cap linked to the ‘amount that might be realised’ as per s. 13. Enforcement of such an order extends to all ‘realisable property’ of the accused and any ‘gifts caught’ under s. 15 of the CDSA, which includes property transferred to others within the statutory look-back period or at any time if it represents the benefit of the offence. Because ‘realisable property’ is not restricted by the date of acquisition, lawfully acquired, pre-offence assets can be realised to satisfy the order up to the assessed benefit amount.

Second, under Part 4A of the CDSA, if property used or intended to be used as an instrumentality of the offence is unavailable, such as where it has been disposed of, transferred, or cannot be found, the court may issue a ‘substitute property confiscation order’ under s. 34 for a sum equal to the instrumentality’s value at the time of the offence. This order is enforced in the same manner as ordinary confiscation orders under s. 35, permitting recovery from any realisable property within the meaning of s. 15, including pre-offence assets.

All these jurisdictions thus expressly provide for value-equivalent confiscation, including against clean or pre-offence property. The triggering conditions, however, vary; but in each, the legislature has expressly addressed what should happen when the original proceeds are dissipated, mixed, or moved out of jurisdiction. Notably, none of these frameworks presume such power impliedly or by extension.

Position in Other Indian Laws: Parallel Legislative Trends

Several Indian statutes also incorporate value-equivalent attachment, although with differing scope and safeguards. These include the Narcotic Drugs and Psychotropic Substances Act, 1985 (‘NDPS Act’), the Unlawful Activities (Prevention) Act, 1967 (‘UAPA’), the Foreign Exchange Management Act, 1999 (‘FEMA’), the Prevention of Corruption Act, 1988 (‘PC Act’), the Bharatiya Nagarik Suraksha Sanhita, 2023 (‘BNSS’), and the Fugitive Economic Offenders Act, 2018 (‘FEOA’).

Under ch. VA of the NDPS Act, ‘illegally acquired property’ is defined in s. 68-B(g) to include property acquired, whether before or after the enforcement of the chapter, from income or assets attributable to a contravention under the NDPS Act, by means wholly or partly traceable to such tainted assets, or the equivalent value thereof. Notably, s. 68-I(2) permits the competent authority to rely on a best-judgment finding when specific tainted assets cannot be identified, but this operates strictly within the statutory definition of ‘illegally acquired property’. Thus, even with a best-judgment standard in a specified situation, the NDPS Act still requires a demonstrable nexus to criminal activity.

Under the UAPA, s. 24A(3) allows attachment of property equivalent to the proceeds of terrorism, irrespective of whether the concerned person is prosecuted or convicted. The scope here is broader than in other statutes, but the attachment still requires that the property represent the value of proceeds connected to terrorist activity. This statutory design reflects the heightened state interest in curbing terrorism financing, but even then, the value-equivalence power is tied to proceeds, not merely to the status of the person or the absence of traceable assets.

S. 37A of FEMA empowers seizure within India of property equivalent in value to foreign exchange or assets held abroad in contravention of the Act. The provision, similar to the third limb of s. 2(1)(u) of the PMLA is territorially specific and applies only where the foreign asset has been taken or held abroad illegally. This appears to indicate that the territorial qualifier for invoking the principle of value-equivalence typically employs express conditions that need to be satisfied for when such powers may be exercised.

While the PC Act itself does not have standalone attachment provisions, s. 18A incorporates the Criminal Law (Amendment) Ordinance, 1944. Under the Ordinance, s. 3 allows attachment of money or property believed to have been procured by means of the offence, or if such property cannot be attached, ‘other property of the said person of equivalent value’. However, this equivalence is allowed only upon satisfaction that the original property was ‘procured by means of the offence’, and that it cannot be attached for specified reasons, such as it has been transferred or dissipated.

The BNSS also contains provisions concerning attachment and forfeiture of property. Notably, s. 111(c) defines ‘proceeds of crime’ as property derived or obtained from criminal activity or the value of such property; s. 117 permits attachment where property is likely to be transferred or concealed; s. 116 deals with tracing unlawfully acquired property, and s. 120 allows forfeiture where the property is found to be proceeds of crime based on available material. While these provisions mirror the architecture of PMLA, they reiterate a common principle: value equivalence operates only after a finding of nexus or derivation. There is no support for the idea that clean properties can be attached merely due to their availability or ownership by the accused, except where expressly provided by law.

In contrast, the FEOA adopts a deliberate, non-derivative attachment mechanism by allowing the attachment of ‘any property’ of the accused, whether or not such property is traceable to criminal activity. This design appears to represent a policy choice to address unique enforcement difficulties posed by fugitives who abscond to evade the law. S. 5(2) of the FEOA goes beyond the scope of any other enactment in two material respects: (i) it allows attachment even of untainted property, so long as it is held by an individual who qualifies as a fugitive economic offender, and (ii) the power is not predicated on proving nexus to any criminal activity or demonstrating that proceeds were taken outside the country. The non-obstante clause in s. 5(2) further confirms the legislative intent to create an independent, non-derivative basis for attachment, untethered from the limitations of traceability or availability.

In the author’s opinion, the FEOA exemplifies how, when Parliament intends to create a wider forfeiture regime, it does so through clear and express language – conferring power to attach any property regardless of its origin. By contrast, in all the other statutes discussed, value-equivalence is tied to a specific legislative condition requiring fulfilment. This appears to reflect a deliberate legislative pattern: broader forfeiture powers are exceptional and expressly stated, whereas ordinary attachment powers remain tied to the principle of nexus between the property and the offence.

Our Analysis

The legal permissibility of attaching pre-offence properties under the PMLA is not a merely abstract or academic puzzle – it carries immediate consequences for how the statute is operationalized. The inquiry ultimately turns on whether such attachment functions as a genuine deterrent against crime by securing crime-linked value, or whether it stretches the statutory framework to become an asset-deprivation tool.

Interestingly, the FEOA, which expressly permits confiscation of ‘any property’ of the fugitive economic offender, was enacted in the same year as the 2018 amendment in s. 2(1)(u) to include ‘or abroad’ in the third limb. This is notable because an argument could be that if the legislature intended similar breadth in the PMLA as introduced in the FEOA, it could have amended, expanded or clarified the definition under s. 2(1)(u) accordingly.

Another notable aspect is that the rebuttable presumption created by s. 24 of the PMLA operates only where the attached property already falls within the definition of ‘proceeds of crime’. Applying it to pre-offence assets makes the presumption easily rebuttable simply by showing the date of acquisition of the property to prove that it was not involved in money laundering. It is settled jurisprudence that statutory presumptions must operate within plausible evidentiary limits, not be stretched to absurdity. Even if s. 24 were to be applied for the sake of argument, the burden on the accused is to prove that the property is not involved in money laundering. For pre-offence properties, the date of acquisition itself is sufficient to discharge that burden: it conclusively shows the property could not have been derived from the scheduled offence and hence, not involved in money laundering. And to reject such a rebuttal would effectively invert the burden of proof built into s. 24.

If the statutory interpretation were to be represented in the form of a truth table, it would appear as follows:

Ultimately, the broader concern arises when enforcement reasoning moves away from tracing actual proceeds towards treating any property as fair game under a value-equivalence theory. Because once the focus shifts from identifying the actual proceeds of crime to satisfying a monetary figure from whatever assets happen to be accessible, the law risks losing its judicial restorative character and taking on the nature of a general asset-stripping device. From the prosecution’s perspective, however, such flexibility is necessary to prevent offenders, especially in complex, transnational laundering schemes, from dissipating, concealing, or converting illicit gains beyond recovery. Without a mechanism to reach substitute property, the deterrent effect of the law becomes weak, and the financial infrastructure that enables serious offences remains insulated from effective disruption.

End Notes

[i] Inserted by Act 20 of 2015, S. 145(i) (w.e.f. 14-5-2015)

[ii] Inserted by Act 13 of 2018, S. 208(a) (w.e.f. 19-4-2018)

[iii] Peter Alldridge; HART Publishing, 2003 – Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering and Taxation of the Proceeds of Crime; Chapter 3 [Theory: Justifications for Forfeiture, Confiscation and Criminalisation]

[iv] K. Rethinam v. Union of India, 2018 SCC OnLine Del 6523

[v] Abdullah Ali Balsharaf & Anr. v. ED & Ors., 2019 SCC OnLine Del 6428

[vi] ED v. Axis Bank & Ors., 2019 SCC OnLine Del 7854

[vii] Seema Garg v. ED, (2020) SCC OnLine P&H 738

[viii] ED v. Seema Garg, SLP (C) Nos. 14713-14715/2020 vide order dated 30.04.2021

[ix] HDFC Bank Ltd. v. ED & Ors., 2021 SCC OnLine Pat 4222

[x] Kumar Pappu Singh v. Union of India & Ors., (2021) 1 HCC (AP) 556

[xi] Vijay Madanlal Choudhary v. Union of India, (2023) 12 SCC 1

[xii] Pavana Dibbur v. ED, (2023) 15 SCC 91

[xiii] Davy Varghese & Anr. v. ED & Ors., 2024 SCC OnLine Ker 7343

[xiv] Sterling Futures & Holidays Ltd. & Ors. v. ED, 2024 SCC OnLine Mad 5372

[xv] Satish Motilal Bidri v. Union of India & Ors., 2024 SCC OnLine Ker 3410

[xvi] See Note vii

[xvii] See Note x

Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.