Property Cannot Be Attached As ‘Proceeds Of Crime’ Under PMLA Absent Nexus With Scheduled Offence: Bombay High Court Grants Relief To Shapoorji Pallonji Group
The High Court held that for property to qualify as “proceeds of crime” under the Prevention of Money Laundering Act, it must be shown to have been derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, and in the absence of such a nexus, attachment under PMLA cannot be sustained.
The Bombay High Court has held that unless property is shown to be derived or obtained, directly or indirectly, as a result of criminal activity relating or relatable to a scheduled offence, it cannot be termed as “proceeds of crime” under the Prevention of Money Laundering Act, 2002.
The Court was hearing multiple criminal appeals filed by the Union of India challenging orders of the PMLA Appellate Tribunal, which had set aside provisional attachment orders in respect of properties linked to transactions involving Shapoorji Pallonji and Co. Pvt. Ltd. and associated entities.
A Division Bench of Justice A. S. Gadkari and Justice Ranjitsinha Raja Bhonsale, while dismissing the Enforcement Directorate’s challenge, held that “to be proceeds of crime, the property must be derived or obtained, directly or indirectly, 'as a result of' criminal activity relating or relatable to a scheduled offence, and …if any of the aforestated ingredients i.e property, derived out of a criminal activity, relating or relatable to a schedule offence is missing, then in that event the property cannot be termed as a proceeds of crime”.
Manisha Jagtap, Advocate, appeared for the Union of India. Advocate Gaurang Mehta appeared for the respondents.
Background
The proceedings arose out of provisional attachment orders passed by the Directorate of Enforcement in connection with investigations under the Prevention of Money Laundering Act relating to financial transactions between Shapoorji Pallonji and Co. Pvt. Ltd. and entities forming part of the Nilesh Thakur Group.
The Enforcement Directorate proceeded based on scheduled offences under the Prevention of Corruption Act involving a public servant, and alleged that monies advanced by Shapoorji Pallonji to the group entities constituted proceeds of crime.
The PMLA Appellate Tribunal, however, set aside the attachment orders, holding that the offence under the Prevention of Corruption Act was not a scheduled offence during a substantial part of the relevant period and that there was no nexus between the alleged criminal activity and the monies advanced by Shapoorji Pallonji.
Aggrieved, the Union of India filed criminal appeals before the Bombay High Court challenging the Tribunal’s findings and seeking restoration of the attachments.
Court’s Observation
The High Court undertook a detailed examination of the statutory scheme under the Prevention of Money Laundering Act, 2002, particularly the definition of “proceeds of crime” under Section 2(1)(u). The Bench reiterated that for property to fall within the scope of “proceeds of crime”, it must be shown to have been derived or obtained, directly or indirectly, as a result of criminal activity relating or relatable to a scheduled offence.
The Court emphasised that the statutory definition incorporates multiple mandatory ingredients, namely, the existence of property, derivation or obtaining of such property from criminal activity, and a clear nexus of such criminal activity with a scheduled offence. It held that the absence of these essential elements would be fatal to the Enforcement Directorate’s case, as property cannot be branded as proceeds of crime on assumptions or conjecture.
The Bench examined the nature of the transactions between Shapoorji Pallonji and the group entities and noted that the amounts in question arose from commercial and financial arrangements, duly reflected in the books of account. The Court observed that the mere existence of financial dealings or advances does not, by itself, establish that such property is derived from criminal activity, unless a demonstrable link is established between the funds and the commission of a scheduled offence.
The Court also took note of the findings recorded by the PMLA Appellate Tribunal, which had examined the temporal applicability of the scheduled offences relied upon by the Enforcement Directorate. The Tribunal had found that during a substantial part of the relevant period, the alleged predicate offence under the Prevention of Corruption Act did not fall within the list of scheduled offences under the PMLA. The High Court held that this aspect went to the root of the matter, as proceeds of crime must necessarily relate to a scheduled offence in force during the relevant time.
The Bench further held that no material had been placed on record to establish that the funds advanced by Shapoorji Pallonji were linked to the discharge of any official function by a public servant, or that the payments were made in exchange for any official favour. In the absence of such linkage, the Court held that the advances could not be presumed to be tainted.
The Bench reiterated that attachment under the PMLA is a drastic statutory power, and that strict compliance with statutory preconditions is mandatory. It held that the Enforcement Directorate bears the burden of demonstrating, at least prima facie, the existence of proceeds of crime and a live nexus with a scheduled offence, and that such burden cannot be discharged by relying on the mere pendency of predicate proceedings or existence of financial transactions.
The Court also rejected the contention that subsequent inclusion or interpretation of scheduled offences could retrospectively validate attachment in respect of earlier transactions. It held that the statutory framework requires a contemporaneous nexus between the alleged criminal activity and a scheduled offence.
On an overall appreciation of the statutory framework, factual matrix, and the Tribunal’s findings, the High Court concluded that the essential ingredients required to constitute proceeds of crime were not satisfied. It held that the Enforcement Directorate had failed to establish that the properties attached were derived or obtained as a result of criminal activity relatable to a scheduled offence.
Accordingly, the Court found no infirmity in the Tribunal’s decision setting aside the provisional attachment orders and held that continuation of attachment in the absence of proceeds of crime would be contrary to the scheme and object of the PMLA.
Conclusion
The High Court dismissed the appeals filed by the Union of India and upheld the orders of the PMLA Appellate Tribunal setting aside the provisional attachment orders.
The Court directed that the attached movable and immovable properties be released in terms of the Tribunal’s directions.
All connected appeals and interim applications were disposed of accordingly.
Cause Title: Union of India v. Nilesh J. Thakur; Union of India v. Shapoorji Pallonji and Co. Pvt. Ltd. (Neutral Citation: 2025:BHC-AS:58090-DB)
Appearances
Appellants: Manisha Jagtap, Advocate
Respondents: Advocates Gaurang Mehta, Shahzad A. K. Najam-Es-Sani, Rhea Mehta
