Can the Enforcement Directorate attach clean, inherited or pre-offence assets merely because they match the value of alleged proceeds of crime? Courts continue to give conflicting answers, and the divide has only sharpened after the Supreme Court decisions in Vijay Madanlal Choudhary vs. Union of India [1] and Pavana Dibbur vs. Directorate of Enforcement [2].
Why this debate matters
Few questions under the Prevention of Money Laundering Act, 2002 (PMLA) have generated as much disagreement as the scope of the Enforcement Directorate’s (ED) power to attach property under Section 5. The controversy turns on the definition of “proceeds of crime” in Section 2(1)(u) of the PMLA, particularly the phrases “the value of any such property” and “property equivalent in value”.
To put it simply, the question at hand is whether the ED can proceed only against property linked to criminal activity relating to a scheduled offence, or whether it can also move against untainted assets of corresponding value where the original tainted property is no longer traceable.
The case law now falls into two broad camps. One line of authority adopts an expansive reading and permits attachment of equivalent-value assets, including clean property. The other insists on a demonstrable nexus between the property attached and the underlying criminal activity and rejects the idea that unrelated or pre-existing property can be brought in merely because it matches the alleged value of the proceeds of crime.
The two questions driving the issue
This controversy can be reduced to following two recurring questions.
First, does the phrase “the value of any such property” permit attachment of untainted assets solely because they correspond in value to the alleged proceeds of crime?
Secondly, can property acquired before the commission of the scheduled offence ever be attached under the PMLA?
The offence of money laundering
Section 3 of the ……defines the offence of money laundering broadly. It covers not only the generation of illicit wealth, but every process or activity connected with proceeds of crime, including concealment, possession, acquisition, use, or projecting the property as untainted.
The real battleground is Section 2(1)(u) of ……... As originally enacted, “proceeds of crime” meant property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, “or the value of any such property”. The 2015 amendment to the …..added the limb dealing with “property equivalent in value” where the tainted property is taken or held outside India. The 2019 explanation to the …..clarified that the definition includes “property derived or obtained from criminal activity relatable to the scheduled offence, and not only from the scheduled offence itself”.
As the provision now stands, it is commonly understood as having three limbs:
- property derived or obtained from criminal activity relating to a scheduled offence;
- the value of such property; and
- where such property is taken or held outside India, property equivalent in value held within or outside India.
The dispute lies in the relationship between the second and third limbs. The expansive view reads the second limb broadly enough to allow attachment of other assets of corresponding value even if they are themselves untainted. The restrictive view treats the second limb as covering only the value embedded in, represented by, or traceable to the tainted property, while reserving true equivalent-value attachment for the offshore situation specifically covered by the third limb.
How the attachment machinery works
Section 5(1) of the … empowers the Director or an authorised officer to provisionally attach property for up to 180 days if there is reason to believe that a person is in possession of proceeds of crime and that the property is likely to be concealed, transferred or dealt with so as to frustrate confiscation proceedings.
After passing the provisional attachment order, the ED must then move the Adjudicating Authority under Section 8. If the Authority has reason to believe that the person has committed an offence under Section 3 or is in possession of proceeds of crime, it issues notice, hears the affected parties, and decides whether the property is involved in money laundering. If it confirms the attachment, the matter continues during investigation and then before the Special Court.
Attachment is provisional and preventive whereas confiscation is final and vests the property in the Central Government. The width of “proceeds of crime” therefore defines the outer boundary of a serious coercive power i.e. first to freeze property, and ultimately to take it away.
The statute also recognises restoration. Under Section 8(8), the Special Court may restore confiscated property to claimants with legitimate interests who have suffered quantifiable loss, and can even direct restoration during trial in appropriate cases.
The practical problem: what happens when the tainted asset has disappeared?
The easy case is where the property directly represents criminal gains. The hard case is where the original tainted property has been transformed, layered, dissipated, or moved, and the ED seeks to proceed against other assets said to represent its value.
No anti-money laundering law can work if it targets only the first identifiable asset. Criminal gains are often converted into other forms, mixed with legitimate funds, or moved through successive transactions. That is precisely why the words “the value of any such property” have assumed so much importance.
The real question, however, is whether those words capture transformed or substituted forms of the tainted asset, or whether they also permit attachment of wholly independent clean assets of equal value merely because the original proceeds can no longer be found.
The restrictive view: insist on nexus
In Satyam Computer Services Ltd. v. Directorate of Enforcement [3], the erstwhile High Court for the States of Telangana and Andhra Pradesh held that property acquired before the commission of the scheduled offence could not be treated as proceeds of crime. The logic was straightforward, i.e. property that existed before criminal activity cannot have been derived from it.
In Abdullah Ali Balsharaf v. Directorate of Enforcement [4], the Delhi High Court indicated that assets acquired prior to the alleged scheduled offence cannot simply be treated as proceeds of crime merely because they are valuable assets in the hands of the person concerned. The judgment also suggested that resort to equivalent-value property was specifically contemplated in the limited situation where tainted assets were taken or held outside India.
The most developed restrictive analysis came in Seema Garg v. Deputy Director, Directorate of Enforcement [5] where the Punjab and Haryana High Court drew a sharp distinction between “the value of any such property” and “property equivalent in value.” It held that the second limb concerns transformed or converted forms of tainted property, while true equivalent-value attachment is confined to the offshore situation introduced by the 2015 amendment. Property purchased before the commission of the scheduled offence was therefore held to lie outside the first limb altogether.
That reasoning was echoed in Kumar Pappu Singh v. Union of India [6]. The Andhra Pradesh High Court held that if Parliament intended to authorise attachment of any asset of equivalent value irrespective of source or timing, it would have said so in express terms. The PMLA, the Court stressed, does not create a roving power over all assets of a person accused of a scheduled offence.
Recent Kerala High Court decisions have pushed the nexus approach further. In Satish Motilal Bidri v. Union of India [7], the Kerala High Court held that “value of such property” refers to the worth of property derived from criminal activity and does not authorise attachment of unrelated assets purchased long before the offence. In its view, equivalent-value attachment of clean property is permissible only where the tainted property is taken out of India or held outside the country.
In Davy Varghese v. Deputy Director, ED [8], the Kerala High Court again held that properties acquired long before the scheduled offence could not be attached absent any allegation that tainted property had been taken outside India. The Court relied on Vijay Madanlal Choudhary and Pavana Dibbur to underline the need for a causal relationship between the criminal activity and the attached property.
The expansive view: follow the value
The first significant pointer toward a broad reading came in B. Rama Raju v. Union of India [9]. The Andhra Pradesh High Court upheld the constitutional validity of the attachment and confiscation provisions in Chapter III and accepted the breadth of the definition of “proceeds of crime”, while recognising that a person who proves bona fide acquisition may seek release of the property.
In J. Sekar v. Union of India [10], the Delhi High Court held that “value of any such property” refers to value equivalent to property derived from criminal activity relating to a scheduled offence. That reading supported attachment of equivalent value where the original tainted property was unavailable.
The strongest articulation of the expansive approach came in Deputy Director, Directorate of Enforcement v. Axis Bank [11]. The Delhi High Court held that if tainted property cannot be traced, the ED may attach other property of the accused, including untainted property, provided it is of value near or equivalent to the proceeds of crime. In practical terms, Axis Bank recognised a theory of “deemed tainted property.”
That approach was revisited in Prakash Industries Ltd. v. Directorate of Enforcement [12]. The Delhi High Court held that the phrase “value of any such property” cannot be rendered redundant by confining all equivalent-value attachment to the offshore limb. At the same time, the Court quashed the attachment on the facts because the coal allocation itself did not constitute proceeds of crime.
The broad reading received fresh support in Dilbag Singh v. Union of India [13]. The Punjab and Haryana High Court held that the definition of proceeds of crime extends not only to property directly derived from criminal activity but also to untainted property of equivalent value where the original proceeds are not traceable. The Court also stated that its decision in Seema Garg could no longer be treated as good law after Vijay Madanlal Choudhary.
Most recently, in Arun Suri v. Directorate of Enforcement [14], the Delhi High Court held that even inherited or ancestral property could be attached if proceeded against as representing the value of untraceable proceeds of crime.
What the Supreme Court has, and has not, settled
The Supreme Court’s decision in Vijay Madanlal Choudhary is the common reference point for both lines of authority. The Court held that only such property as is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as “proceeds of crime”. It also made clear that attachment cannot rest on assumption and that not every property recovered or attached in connection with a scheduled offence automatically qualifies.
The Court further held that if the person concerned is finally discharged or acquitted of the scheduled offence, or if the predicate proceedings are quashed, action under the PMLA cannot survive in relation to property linked to that offence.
In Pavana Dibbur, the Supreme Court dealt more directly with the status of pre-offence property. It held that property acquired before the commission of the scheduled offence cannot be treated as proceeds of crime unless there is material establishing a genuine nexus. Bare equivalence in value is not enough where chronology itself points the other way.
Yet neither decision has fully ended the debate. Some High Courts read Vijay Madanlal Choudhary and Pavana Dibbur as reinforcing a strict nexus requirement. Others continue to hold that Vijay Madanlal Choudhary leaves room for equivalent-value attachment where the original proceeds are untraceable.
Where the divide now stands
The law is not moving in a single direction. The Axis Bank-Prakash Industries-Dilbag Singh-Arun Suri line accepts that, in appropriate cases, the ED may attach untainted assets representing the value of untraceable proceeds of crime.
The Satyam-Seema Garg-Kumar Pappu Singh-Pavana Dibbur-Kerala High Court line insists that attachment under the PMLA must remain tied to a demonstrable nexus between the property and the scheduled offence, and generally excludes pre-offence or unrelated property except in the limited offshore situation expressly contemplated by Parliament.
This position reflects two rival conceptions of the statute. One treats the PMLA primarily as an anti-evasion instrument designed to prevent offenders from escaping by making the original asset disappear. The other treats it as a law aimed at tainted property, not a general licence to proceed against any asset of matching value.
Conclusion
The ED undoubtedly has wide powers of provisional attachment under the PMLA. But the precise extent to which those powers permit recourse to clean, inherited, or pre-offence assets on a pure equivalence theory remains unsettled.
Pavana Dibbur strongly supports the view that pre-offence property cannot, without a demonstrable nexus, be treated as proceeds of crime. But Prakash Industries, Dilbag Singh and Arun Suri show that courts continue to recognise a broader equivalent-value power in at least some situations. Until the Supreme Court resolves the conflict directly, litigation under the PMLA will continue to turn on a single fault line: must the ED prove nexus, or is equivalence enough?
References
- (2022) 10 SCC 1
- (2023) 15 SCC 91
- 2018 SCC Online Hyd 787
- 2019 SCC Online Del 6428
- 2020 SCC Online P&H 738
- (2021) 3 ALT 571
- 2024 SCC Online Ker 3410
- 2024 SCC Online Ker 7343
- 2011 SCC Online AP 152
- 2018 SCC Online Del 6523
- 2019 SCC Online Del 7845
- 2022 SCC Online Del 2087
- 2024 SCC Online P&H 15453
- 2026 SCC Online Del 673
Authors:
Abhinav Sharma, Partner
Dipan Sethi, Principal Associate
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.