The Gauhati High Court has clarified a critical boundary under the Prevention of Money Laundering Act, 2002: property acquired before the commission of a scheduled offense cannot be treated as proceeds of crime, regardless of its value or the accused’s financial status. This ruling reinforces the statutory requirement of a direct nexus between the property and the criminal activity, curbing speculative attachments.
Background & Facts
The Dispute
The appellant, Kumar Sanjit Krishna, challenged the final order dated 13.08.2025 passed by the Appellate Tribunal under the Scheduled Activities (Forfeiture of Property) Act (SAFEMA), which upheld the provisional attachment of his residential property in Guwahati. The attachment was ordered by the Directorate of Enforcement (ED) under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA), based on allegations that the appellant received Rs. 40 lakhs as proceeds from a question paper leak scam involving Rs. 6,13,74,440.
Key Facts
- The alleged scheduled offense occurred between 11.04.2018 and 19.09.2020, involving the leak of question papers for the recruitment of Sub-Inspectors in Assam Police.
- The appellant was named as one of 42 accused in FIR No. 21/2020, registered by CID, Assam Police on 20.09.2020.
- The property in question - a residential house - was allegedly purchased by the appellant through payments made between 2008 and 2011.
- The sale deed for the property was executed on 17.07.2019, and it was registered in the appellant’s name on 25.06.2019.
- The ED valued the property at approximately Rs. 16.60 lakhs, which is less than the alleged share of Rs. 40 lakhs attributed to the appellant.
- The provisional attachment order dated 20.12.2023 cited Section 2(1)(u) of PMLA but did not specify which limb of the definition was invoked.
- The ED later contended that the attachment was made under the second limb of Section 2(1)(u) - "the value of any such property" - arguing that the original proceeds were untraceable.
Procedural History
- 20.09.2020: FIR registered by CID, Assam Police for offenses under IPC and IT Act relating to question paper leak.
- 17.12.2021: ECIR No. GWZO/02/2021 issued, initiating investigation under PMLA.
- 20.12.2023: Provisional attachment order issued for the residential property.
- 27.05.2024: Adjudicating Authority confirmed the attachment.
- 13.08.2025: Appellate Tribunal dismissed the appellant’s appeal, upholding the attachment.
- 01.01.2026: Writ petition filed before the Gauhati High Court.
- 26.02.2026: Judgment reserved.
- 27.03.2026: Judgment pronounced.
The Parties' Positions
Appellant’s Position: The property was purchased between 2008 and 2011, long before the scheduled offense commenced on 11.04.2018. Therefore, it cannot be proceeds of crime under Section 2(1)(u) of PMLA. Relied on Pavana Dibbur v. Directorate of Enforcement and Vijay Madanlal Choudhary v. Union of India to argue that only property derived from or connected to the scheduled offense qualifies as proceeds of crime.
Respondent’s Position: The ED argued that the second limb of Section 2(1)(u) - "the value of any such property" - permits attachment of any property of equivalent value, even if acquired prior to the offense, provided the original proceeds are untraceable. Cited Deputy Director v. Axis Bank and Prakash Industries Ltd. to support the view that the legislature intended to prevent evasion by dissipation of assets.
Relief Sought
The appellant sought quashing of the attachment order dated 20.12.2023 and the appellate order dated 13.08.2025, and a declaration that the property cannot be treated as proceeds of crime under PMLA.
The Legal Issue
Can a property acquired by an accused prior to the commission of a scheduled offense be treated as "proceeds of crime" under Section 2(1)(u) of the PMLA merely because the original tainted assets are untraceable?
Arguments Presented
For the Appellant
The appellant’s counsel argued that Section 2(1)(u) requires a direct or indirect derivation of property from criminal activity relating to a scheduled offense. Relying on Pavana Dibbur v. Directorate of Enforcement (2023) 15 SCC 91, she emphasized that the Supreme Court held that property acquired before the offense cannot be proceeds of crime. She further cited Vijay Madanlal Choudhary (2023) 12 SCC 1, particularly Paragraphs 105 - 109 and 169, which stress that "derived or obtained" is a necessary precondition. The ED’s reliance on the second limb of Section 2(1)(u) was challenged as an attempt to circumvent the statutory requirement of nexus. The counsel also invoked Mohinder Singh Gill v. Chief Election Commissioner to argue that attachment orders cannot be validated post hoc by new justifications.
For the Respondent
The ED’s counsel contended that the second limb of Section 2(1)(u) - "the value of any such property" - is a standalone provision designed to prevent evasion. She argued that if proceeds are dissipated or hidden, the law permits attachment of other assets of equivalent value, even if acquired before the offense, to ensure effective confiscation. She relied on Deputy Director v. Axis Bank (2019) and Prakash Industries Ltd. (2022), which interpreted the second limb as independent of the first. The counsel further cited Shri Sadananda Nayak (2023) to argue that reading the second limb as dependent on the first would render it redundant.
The Court's Analysis
The Court undertook a detailed examination of the statutory framework under Section 2(1)(u) of PMLA, which defines "proceeds of crime" in three limbs:
(i) property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offense;
(ii) the value of any such property;
(iii) property equivalent in value held within India if the original proceeds are held abroad.
The Court noted that the appellant’s property was allegedly acquired between 2008 and 2011, while the scheduled offense commenced only on 11.04.2018. The ED’s claim that the property was purchased on 25.06.2019 was disputed and remained a factual issue.
The Court emphasized that Pavana Dibbur and Vijay Madanlal Choudhary are not in conflict. While Vijay Madanlal Choudhary (Para 172) broadly interpreted "value of any such property," the Court held that this must be read in conjunction with Paragraphs 105 - 109 and 169, which unequivocally state that "the expression 'derived or obtained' is indicative of criminal activity relating to a scheduled offence already accomplished." The Court observed:
"It is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence that can be regarded as proceeds of crime."
The Court rejected the ED’s argument that the second limb permits attachment of any property of equivalent value irrespective of timing or nexus. It held that the term "such property" in the second limb refers back to the property described in the first limb - i.e., property derived from the scheduled offense. The Court stated:
"If the definition of proceeds of crime did not require a nexus with the scheduled offense, the second limb would not merely expand the scope - it would obliterate the statutory foundation of the entire PMLA."
The Court also distinguished Axis Bank and Prakash Industries Ltd., noting that those cases involved properties acquired during or after the offense, not before. The Court further held that the Appellate Tribunal erred in relying on Paragraph 68/172 of Vijay Madanlal Choudhary in isolation, without considering the broader context of the judgment.
The Court acknowledged the legislative intent to prevent dissipation of proceeds but held that this cannot override the express language of the statute. It cited Davy Varghese v. Deputy Director (2024) to affirm that the principle against ex post facto application, though not strictly applicable, informs the interpretation of PMLA to avoid arbitrary deprivation.
The Verdict
The appeal was dismissed. The Court held that the factual dispute regarding the date of acquisition of the property - whether prior to or during the scheduled offense - remains unresolved. The appellant has not yet established, through evidence, that the property was purchased before 11.04.2018. The Court directed that the ED must prove, in the ongoing investigation, that the property was acquired during the period of the offense. Until such proof is adduced, the attachment remains in force. No order of quashing was passed. The Court emphasized that the burden of proving the timing of acquisition lies with the appellant.
What This Means For Similar Cases
Nexus Is Non-Negotiable
- Practitioners must now insist that ED produce concrete evidence linking the attached property to the scheduled offense, not merely assert its "value".
- Any attachment based on the second limb of Section 2(1)(u) must demonstrate that the "value" claimed corresponds to actual proceeds derived from the offense.
- Properties acquired before the scheduled offense cannot be presumed proceeds of crime, even if the original assets are untraceable.
Timing of Acquisition Is Decisive
- In PMLA proceedings, the date of acquisition of property must be established with documentary evidence (sale deeds, bank statements, registration records).
- If the property was acquired before the scheduled offense, the burden shifts to the ED to prove that the property was purchased with tainted funds or is otherwise connected to the offense.
- Courts will not accept speculative or retrospective inferences to justify attachment.
Avoiding Legislative Overreach
- The judgment reinforces that PMLA is not a tool for general asset seizure but a targeted mechanism to recover illicit gains.
- Advocates should challenge attachments where the ED fails to distinguish between unaccounted wealth and proceeds of crime.
- This ruling strengthens the defense against overbroad interpretations of "value" under Section 2(1)(u).
