Delhi High Court Ruling on Ancestral Property under PMLA

The Delhi High Court's decision on February 16, 2023, in the case of Arun Suri vs Enforcement Directorate (ED), established that the ED has the power to attach even ancestral property under the Prevention of Money Laundering Act (PMLA), 2002. This ruling addresses the contentious issue of whether the ED can confiscate assets acquired before a crime took place.

Court’s Ruling

• The appellant, Arun Suri, contested the attachment of a property in Delhi's Pitampura, arguing it was bought in 1991 by his father using his own income, and thus, it should not be considered "proceeds of crime."
• Under Section 5 of the PMLA, the ED can provisionally attach property derived from criminal activity.
• The court, referencing Section 2(1)(u) of the PMLA, held that the ED can attach assets of equivalent value if the actual "proceeds of crime" are unavailable, regardless of when they were acquired.
• The ruling emphasized that ancestral or inherited properties are not immune from attachment.

Legal Precedents and Interpretations

• The decision drew upon a 2019 judgment in Deputy Director vs Axis Bank, interpreting "proceeds of crime" to include property of equivalent value held in the country if the actual proceeds are abroad.
• The court introduced the concept of "alternative attachable property" or "deemed tainted property," allowing the ED to attach assets of equivalent value if the original tainted assets are untraceable.
• In Prakash Industries vs Directorate of Enforcement (2022), the court reiterated that properties acquired before the PMLA enforcement are not immune if attached as of "equivalent value."

Divergent Rulings and Legal Uncertainty

• The order referred to the Supreme Court's 2022 judgment in Vijay Madanlal Choudhary, affirming the broad definition of "proceeds of crime," including equivalent value assets.
• However, a 2023 Supreme Court ruling in Pavana Dibbur vs Directorate of Enforcement diverged, stating properties acquired before the crime do not connect to proceeds of crime if the crime occurred post-acquisition.
• Other High Courts, like the Punjab and Haryana High Court in Seema Garg vs Deputy Director (2020), held that legitimate properties cannot be attached unless the original proceeds are moved abroad, a view echoed by Andhra Pradesh and Patna High Courts.
• A Karnataka High Court judgment in H M Malthesh vs Directorate of Enforcement was initially against attaching ancestral properties but was set aside by the Supreme Court on technical grounds.

The Arun Suri order affirms a stringent interpretation of Section 2(1)(u) of the PMLA within the Delhi High Court's jurisdiction. This legal conflict across High Courts may prompt the Supreme Court to provide a definitive resolution.