ED cannot proceed under PMLA against assets unrelated to money laundering: Kerala High Court

The Kerala High Court recently held that authorities cannot proceed against properties unconnected to money laundering under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA). [Satish Motilal Bidri v Union of India & ors].Justice Bechu Kurian Thomas observed that PMLA aims to combat money laundering by targeting the proceeds of crime. It permits provisional attachment of properties only if they are derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence under PMLA and the law cannot be used to proceed against properties unrelated to the crime. "It is also necessary to observe at this juncture that the purpose of the PMLA is to remove tainted money and also to initiate proceedings against the proceeds of crime which have been transformed or converted into other property or intermingled with legitimate sources and then the value of the intermingled gain will assume the colour of proceeds of crime. Such a provision cannot be used to enable the authorities to proceed against properties that are unconnected with any of the criminal activity in question," the Court held. .The Court was hearing a plea by one Satish Motilal Bidri, a businessman from Maharashtra, who had his bank accounts frozen by the Enforcement Directorate (ED) in September 2023 after an investigation was carried out against a proprietary concern M/s. Masters Finserv for alleged money laundering activities. In May 2022, the ED issued a provisional attachment order under Section 5 (attachment of property involved in money laundering) of the PMLA, provisionally attaching the bank accounts and an immovable property of the petitioner.He approached the Court challenging the provisional attachment order.He claimed that he had no association with the business of Masters Finserv or its proprietor..The petitioner's counsel argued that freezing the bank accounts violated Section 17(1) (power of entry, search, and seizure by competent authority) of the PMLA. It was submitted that the provisional attachment of property was also illegal as the immovable property was acquired in 2004, long before the alleged offences occurred.However, the standing counsel for ED questioned the petition's maintainability arguing that the petitioner has an alternative remedy before the adjudicating authority under Section 8 of the PMLA instead The standing counsel further alleged that the petitioner facilitated transactions for the proprietary by arranging mule accounts (bank accounts which are used to receive and transfer illegal money acquired on behalf of others) and receiving substantial sums for use in online casinos..On the issue of maintainability, the Court observed that it was empowered to entertain cases under exceptional circumstances, like when an order is ex-facie illegal.As the immovable property in question was purchased in 2004 long before the alleged offences which occurred between January 2021 and November 2022, the Court found that the provisional attachment of property which was purchased before the alleged criminal activity was ultra vires the PMLA and therefore, illegal."The provisionally attached immovable property was purchased in 2004 - more than a decade and a half before the predicate offence was allegedly committed, the order attaching the immovable property is ex-facie, ultra vires the powers of the statute and totally illegal and arbitrary to the extent of the said attachment," the Court added.The Court, therefore, concluded that the property acquired before the commission of a scheduled offence could not be attached under Section 5 of PMLA as proceeds of crime..Hence, it set aside the provisional attachment order and directed the petitioner to move under section 8 of the PMLA for adjudication of the frozen bank accounts..The petitioners were represented by advocates Vinay Mathew Joseph, Manish K Jha, Abhijeet Panday and Kislay Kumar.Advocates Jaishankar V Nair and Anuj Udupa appeared for the ED..[Read Judgment]