Real Estate and Regulation: Are we penalising Enterprise in the name of Enforcement?

The Indian real estate sector, a cornerstone of employment and economic activity, now finds itself grappling not only with regulatory compliance but also with an evolving enforcement regime that risks paralysing legitimate enterprise. At the heart of this growing friction lies a critical question: are we penalising enterprise in the name of enforcement?

Recent legal developments, particularly the Supreme Court’s July 2025 order in the M3M India Pvt. Ltd. case, have reopened this conversation. In a move that captured the attention of legal commentators and business observers alike, the Court permitted the substitution of a provisionally attached property worth ₹317 crore under the Prevention of Money Laundering Act, 2002 (PMLA) with commercial assets of equivalent value. The ruling, while not setting a formal precedent, has been widely viewed as a significant moment of judicial pragmatism.

Under Section 5 of the PMLA, the Enforcement Directorate (ED) has wide discretion to attach properties suspected of being linked to proceeds of crime. While this statutory power is essential for tackling economic offences, its broad application in the real estate domain often results in freezing operational assets, commercial plots, residential units under development, or land parcels under litigation.

ED lawyers frequently argue that such attachments are crucial to prevent dissipation of tainted assets. However, for real estate developers, these assets aren’t merely instruments of wealth; they are the foundation of business continuity. Projects involve intricate financing, third-party obligations, timelines linked to regulatory approvals, and direct employment. A provisional attachment, even before adjudication or conviction, can derail entire projects, jeopardising homebuyers, financiers, and associated industries.

The Supreme Court’s decision in M3M Group vs. Directorate of Enforcement, stands out not for challenging ED’s authority, but for carving out a balanced solution.

The Court allowed M3M to substitute the attached land parcel with built-up commercial units of matching value, subject to ED’s vetting. This allowed enforcement objectives to remain intact, while safeguarding ongoing commercial projects and associated economic stakeholders.

The decision signals an “economic pragmatism” within the judiciary, an understanding that enforcement mechanisms must coexist with economic activity. The verdict doesn’t dilute the PMLA’s teeth; rather, it demonstrates how procedural innovation can prevent disproportionate harm.

While the PMLA currently does not provide for property substitution, it doesn’t explicitly bar it either. The M3M order filled this legislative silence, creating space for what may become a jurisprudential middle path in future enforcement cases, especially in sectors like infrastructure, hospitality, and manufacturing.

The question now is whether such mechanisms should be formally incorporated through legislative amendment or clear ED guidelines, particularly in asset-heavy industries where provisional attachments can become de facto punishment. Many real estate attorneys in India argue that a structured approach to substitution could add clarity and reduce litigation while still protecting the public interest.

Legal processes under economic offence statutes must be stringent. But in real estate, the fallout of enforcement often extends far beyond the accused. Homebuyers find their investments locked in legal limbo. Banks see loan recoveries stalled. Jobs are lost mid-construction. And the market perception around the sector hardens into one of suspicion—even when allegations are unproven.

According to data cited in Outlook India and Financial Express, M3M alone claims to have created over 1 lakh jobs and positively impacted over 5 lakh lives through its infrastructure projects. While these claims remain outside the courtroom, they underscore the scale at which real estate intersects with public interest.

Should such enterprises be frozen entirely, especially when there exists an avenue for equitable substitution of assets? Courts, guided by arguments from white collar criminal defense attorneys, appear to be answering with cautious optimism.

This debate is not about offering a soft landing for real estate giants. It is about crafting frameworks that protect due process while preventing the collapse of lawful business ecosystems. Substitution mechanisms, judicial review of attachment proportionality, and sector-specific guidelines can serve both objectives: strong enforcement and economic resilience.

Moreover, as judicial recusals in related M3M matters at the Punjab and Haryana High Court show, the perception of fairness in economic offence litigation is just as important as the substance.

The M3M ruling marks an inflection point in how courts are choosing to interpret the PMLA, not by eroding its power, but by embedding proportionality and procedural fairness into its application. It offers a quiet reminder that justice must not just punish, it must also preserve.

In a country where infrastructure is both a developmental imperative and a legal minefield, we must ask: Can regulation be robust without being ruinous? Can enforcement be effective without freezing enterprise?

The Supreme Court, it seems, has answered in the affirmative.

About the author: Ashish Deep Verma is the Founder and Managing Partner of Vidhiśāstras – Advocates & Solicitors.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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