PMLA Section 8(8) | Property Restoration During Trial Impermissible Without Charge Framing & Exhausted Appeals: Madras HC

The Madras High Court has clarified that the power to restore property under Section 8(8) of the Prevention of Money Laundering Act, 2002, cannot be exercised during the pendency of adjudication proceedings unless strict procedural conditions are met. This judgment reinforces the statutory hierarchy under the PMLA and curbs premature judicial interference in ongoing money laundering cases.

Background & Facts

The Dispute

The petitioner, M/s. Siva Industries and Holdings Limited, represented by its Director S. Manian, is embroiled in proceedings under the Prevention of Money Laundering Act (PMLA) and insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). The first respondent, the Directorate of Enforcement (ED), has attached properties belonging to the petitioner under PMLA. The second respondent, IDBI Bank Limited, claims a legitimate interest in the same properties as a secured creditor, having extended loans to the third respondent, M/s. Winwind Power Energy Pvt. Ltd., and having the petitioner as a guarantor.

Key Facts

• The petitioner had guaranteed loans extended by IDBI Bank to M/s. Winwind Power Energy Pvt. Ltd.
• IDBI Bank initiated recovery proceedings before the Debt Recovery Tribunal (DRT) in 2017 and obtained a decree dated 13.07.2021 for Rs. 3,77,272.87 against the petitioner as guarantor.
• Insolvency proceedings were initiated against M/s. Winwind Power Energy Pvt. Ltd. under IBC, leading to its sale to M/s. Agniti Industrial Parks Private Ltd. under an NCLT order dated 08.02.2021.
• IDBI Bank did not file any claim against M/s. Winwind Power Energy Pvt. Ltd. in the IBC proceedings.
• Insolvency proceedings were also initiated against the petitioner in 2019, but IDBI Bank did not include its guarantee claim in its creditor’s claim.
• The resolution plan proposed for the petitioner was rejected by NCLT and NCLAT, but the Supreme Court later allowed the petitioner’s SLP and approved settlement, ending the insolvency proceedings.
• IDBI Bank filed an application under Section 8(8) of the PMLA before the Special Court seeking restoration of attached properties to enable sale in execution of its DRT decree.
• The Special Court allowed the application on 09.12.2025, directing restoration of the properties.
• The ED’s attachment of the properties under PMLA remains pending adjudication before the Appellate Tribunal.
• Charges under Section 4 of the PMLA have not yet been framed against the petitioner.

Procedural History

• 2017: IDBI Bank initiates recovery proceedings before DRT against petitioner as guarantor.
• 2019: IBC proceedings initiated against petitioner; IDBI Bank does not file claim.
• 08.02.2021: NCLT approves sale of third respondent to M/s. Agniti Industrial Parks Private Ltd.
• 13.07.2021: DRT issues decree against petitioner for Rs. 3,77,272.87.
• 2025: ED attaches petitioner’s properties under PMLA; adjudication proceedings initiated.
• 09.12.2025: Special Court allows IDBI Bank’s application under Section 8(8) for restoration of properties.
• 26.02.2026: Criminal Revision petition filed before Madras High Court.
• 13.03.2026: Judgment pronounced.

Relief Sought

The petitioner seeks quashing of the Special Court’s order dated 09.12.2025, arguing that restoration under Section 8(8) is impermissible before framing of charges and while appeal against adjudication is pending.

The Legal Issue

Can a Special Court, under the second proviso to Section 8(8) of the PMLA Act, order restoration of attached property to a claimant during the pendency of adjudication proceedings, when charges under Section 4 have not been framed and an appeal against the adjudication order is pending before the Appellate Tribunal?

Arguments Presented

For the Petitioner

The petitioner’s counsel, Mr. Vijay Narayan, argued that:

• Section 8(8) and its second proviso can only be invoked after charges are framed under Section 4 of the PMLA, as mandated by Rule 3A of the 2016 Rules.
• The Supreme Court in Crl.A. No. 729 of 2026 held that applications under the second proviso are subject to strict compliance with Rule 3A, including publication of notice and framing of charges.
• The appeal against the adjudication order under Section 8(3) is pending before the Appellate Tribunal, triggering a deemed embargo under Section 8(7), which bars the Special Court from interfering.
• The Special Court’s order rendered the statutory appeal infructuous, violating the principle of exhaustion of remedies.
• The claimant (IDBI Bank) had not acted in good faith, having deliberately omitted its claim in IBC proceedings.

For the Respondent

The ED and IDBI Bank contended that:

• As a legitimate claimant suffering quantifiable loss, IDBI Bank is entitled to seek restoration under Section 8(8) even during trial.
• The petitioner has not disputed the mortgage or the existence of the decree.
• The property is not yet confiscated, and restoration would not prejudice the PMLA proceedings.
• The Special Court’s order included protective conditions, and the bank’s rights under the DRT decree remain enforceable.
• The petitioner is not an aggrieved party since the order does not extinguish its rights.

The Court's Analysis

The Court undertook a detailed statutory interpretation of Section 8(8) of the PMLA and its interaction with the Prevention of Money Laundering (Restoration of Confiscated Property) Rules, 2016, particularly Rule 3A.

"An application under the second proviso to Section 8(8) of the PMLA can only be filed subject to satisfying the essential conditions laid down by Rules 2(b) and 3A of the 2016 Rules."

The Court emphasized that the Supreme Court’s recent judgment in Crl.A. No. 729 of 2026 is binding and dispositive. Rule 3A mandates two non-negotiable conditions before a Special Court may consider restoration during trial: (1) framing of charges under Section 4 of the PMLA, and (2) publication of notice in two newspapers with circulation in the property’s locality.

In the present case, neither condition was satisfied. The Special Court proceeded without framing charges, rendering its order procedurally invalid. The Court further noted that the appeal against the adjudication order under Section 8(3) remains pending before the Appellate Tribunal. The Supreme Court had held that once an appeal is filed, a deemed embargo operates on the Special Court’s power under Section 8(7) and Section 8(8), as the higher forum is the exclusive authority to adjudicate the validity of the attachment.

"The Special Court has, in effect, rendered the appeal under Section 26 of the PMLA infructuous. The said action at the instance of the Special Court is totally impermissible in law."

The Court rejected the argument that the claimant’s legitimate interest overrides statutory procedure. It held that procedural compliance under the PMLA is not optional but jurisdictional. The Special Court’s order, therefore, was not merely erroneous but ultra vires.

The Verdict

The Criminal Revision is allowed. The order dated 09.12.2025 of the Special Court restoring the properties to IDBI Bank under Section 8(8) of the PMLA is set aside. No order as to costs. The attachment of properties under PMLA remains in force pending adjudication before the Appellate Tribunal. Restoration under Section 8(8) may only be considered after charges are framed under Section 4 and Rule 3A is fully complied with.

What This Means For Similar Cases

Restoration Under PMLA Cannot Preempt Appellate Remedies

• Practitioners must not file or support applications under Section 8(8) during pendency of appeals under Section 26.
• Any such application is liable to be dismissed as infructuous and procedurally invalid.
• Courts must defer to the Appellate Tribunal’s exclusive jurisdiction over adjudication challenges.

Charge Framing Is a Jurisdictional Prerequisite

• Section 8(8) applications under the second proviso are not maintainable unless charges under Section 4 are formally framed.
• The Special Court lacks jurisdiction to entertain restoration applications before this threshold is met.
• Legal notices and applications must be drafted to reflect compliance with Rule 3A, including newspaper publication.

Claimants Must Prove Good Faith and Exhaust IBC Procedures

• Creditors who omit claims in IBC proceedings risk being found to have acted in bad faith under the first proviso to Section 8(8).
• Courts may deny restoration if the claimant’s conduct suggests strategic avoidance of insolvency procedures.
• Secured creditors must file claims in all parallel proceedings (DRT, IBC, PMLA) to preserve rights.