2025 (7) TMI 158 - SCH - Money Laundering

Money Laundering - direction to Respondents to substitute the provisionally attached property with that of any of the unencumbered marketable assets - HELD THAT - The petitioners namely M/s. M3M India Pvt. Ltd. and M/s. M3M India Infrastructure Pvt. Ltd. have filed an affidavit agreeing to the conditions. The substitution of the property as indicated in paragraphs 10(a) 10(b) and 10(c) in the additional affidavit allowed the same shall be subject to the conditions as specified in paragraphs 10(d)(i) to 10(d)(ix). SLP disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this judgment are:

• Whether the petitioner can substitute the provisionally attached property with other unencumbered marketable assets during the pendency of the Special Leave Petition.
• The conditions under which such substitution of attached properties can be permitted by the Court.
• The legal implications and safeguards necessary to protect the interests of third parties and the enforcement authority during the substitution process.
• The extent to which substitution affects the ongoing investigation and enforcement proceedings under the Prevention of Money Laundering Act (PMLA).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Permission for Substitution of Provisionally Attached Property

Relevant Legal Framework and Precedents: The provisional attachment of properties under the PMLA is a measure to prevent dissipation of assets suspected to be involved in money laundering. The law allows for attachment but also recognizes the possibility of substitution with equivalent unencumbered assets to protect the rights of the accused, provided the substituted assets are free from encumbrances and can be easily liquidated to satisfy the claims of the enforcement agency.

Court's Interpretation and Reasoning: The Court considered the petitioners' request for substitution of the attached assets with other commercial units from the same project, which were unsold and marketable. The Court acknowledged the petitioner's offer "under protest" and examined the valuation reports submitted by a registered valuator, which assessed the fair market value of the proposed substitution assets at INR 317 crores in total.

Key Evidence and Findings: The valuation reports dated 14.05.2025 and 20.05.2025 by M/s CSV Techno Solutions LLP, a valuator registered with the Income Tax Department, were critical in establishing the fair market value of the proposed substitution assets. The petitioner offered 317 commercial units valued at INR 317 crores, which was deemed sufficient to substitute the provisionally attached property.

Application of Law to Facts: The Court allowed the substitution of the attached property with the proposed unencumbered commercial units, subject to strict conditions ensuring the substituted assets were free from encumbrances and legally marketable. This aligns with the principle that attachment should not unduly prejudice the petitioner's rights if suitable alternative assets are available.

Treatment of Competing Arguments: The Enforcement Directorate (ED) consented to the substitution but requested the Court to impose several conditions to safeguard the enforcement proceedings and third-party interests. The petitioner accepted these conditions, indicating a balance between enforcement interests and petitioner's rights.

Conclusion: The Court granted permission for substitution of attached property with unencumbered commercial units, subject to conditions ensuring clear title, no alienation, and protection of third-party rights.

Issue 2: Conditions Governing Substitution of Attached Properties

Relevant Legal Framework and Precedents: Substitution of attached assets is permissible under the PMLA framework, but it requires rigorous safeguards to prevent misuse or dissipation of assets. Courts have emphasized the need for clear title, no encumbrances, and undertakings to maintain the status quo during pendency of proceedings.

Court's Interpretation and Reasoning: The Court incorporated the conditions proposed by the Enforcement Directorate as mandatory for permitting substitution. These include submission of a No Encumbrance Certificate, notarized undertaking not to alienate the substituted assets, deposit of original title documents, furnishing of indemnity bond, and disclosure of source of acquisition funds.

Key Evidence and Findings: The petitioner's affidavit agreeing to these conditions was pivotal. The Court also acknowledged the ED's concerns regarding safeguarding third-party retail buyers and ensuring that enforcement proceedings are not prejudiced.

Application of Law to Facts: The conditions imposed ensure that substituted assets remain intact and available to the enforcement agency if required, while protecting bona fide third-party interests and maintaining the integrity of the ongoing investigation.

Treatment of Competing Arguments: The Court balanced the petitioner's right to substitute assets against the ED's legitimate interest in preserving the efficacy of the attachment and investigation. The petitioner's acceptance of the conditions facilitated this balance.

Conclusion: The Court mandated stringent conditions for substitution, including clear title, no alienation, indemnity, and cooperation with investigation, to protect all stakeholders.

Issue 3: Impact of Substitution on Ongoing Investigation and Third-Party Rights

Relevant Legal Framework and Precedents: The PMLA and related enforcement procedures prioritize the prevention of money laundering while ensuring that the rights of innocent third parties are not adversely affected. Courts have consistently held that enforcement actions should not impede legitimate commercial transactions unrelated to the alleged offense.

Court's Interpretation and Reasoning: The Court explicitly stated that substitution shall be without prejudice to the rights of the Enforcement Directorate and shall not amount to an acknowledgment of the legality of the attached properties or their sources. It further emphasized safeguarding third-party rights created for other commercial units in the project, ensuring that legitimate transactions and project progress remain unaffected.

Key Evidence and Findings: The ED's proposed condition that transactions involving third-party retail buyers/investors shall not be obstructed by the enforcement proceedings was accepted and incorporated into the order.

Application of Law to Facts: This approach ensures that the enforcement action does not unduly hamper the commercial viability of the project or the interests of bona fide purchasers, while preserving the ED's investigative rights.

Treatment of Competing Arguments: The Court balanced the enforcement agency's need to secure assets with the commercial realities and rights of third parties, ensuring neither is compromised.

Conclusion: The substitution order protects ongoing investigations and third-party rights, maintaining a fair and equitable balance.

3. SIGNIFICANT HOLDINGS

The Court held:

"While we allow the substitution of the property as indicated in paragraphs 10(a), 10(b) and 10(c) in the additional affidavit, the same shall be subject to the conditions as specified in paragraphs 10(d)(i) to 10(d)(ix)."

"Substitution of properties shall be without prejudice to the rights of the Directorate of Enforcement and shall not be construed as an acknowledgment of the legality of the source or legitimacy of the attached properties. It shall not affect the merits of the ongoing investigation or trial."

"Transactions involving third-party retail buyers/investors for other commercial units in the project (MM Broadway) shall remain unaffected by the present enforcement proceedings. The petitioner shall not rely on the pendency of such proceedings to obstruct or delay legitimate transactions, registrations, or project progress."

Core principles established include:

• The permissibility of substituting provisionally attached property with unencumbered, marketable assets of equivalent value, subject to stringent conditions.
• The necessity of clear title, no encumbrances, and undertakings to prevent alienation during pendency of proceedings.
• The protection of third-party rights and commercial transactions unrelated to enforcement proceedings.
• The non-prejudice clause ensuring that substitution does not affect ongoing investigations or imply acceptance of legality of assets.

Final determinations:

• The Special Leave Petition for substitution is allowed subject to the enumerated conditions.
• The petitioner must comply with all conditions including submission of title documents, indemnity bonds, and cooperation with investigation.
• The order is passed in the facts and circumstances of the case and shall not be treated as precedent.
• Pending applications stand disposed of.