Under the Prevention of Money Laundering Act, the Enforcement Directorate cannot proceed against properties that have been acquired through money unrelated to the criminal act under investigation, the Kerala High Court has recently held.
The court said so in a case concerning a businessman by the name of Satish Motilal Bidri. The ED was investigating a money laundering case against M/s Masters Finserv, and Bidri was implicated for setting up two mule accounts for the latter's benefit. The alleged offences are said to have been committed during 2021-22.
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Various financial fraudsters use a mule account to conceal the source of funds. First, they acquire illicit money and transfer it to an account unconnected to the true beneficiary. The account holder then distributes this money through various channels and typically keeps some commission for themselves.
In this case, Bidri was said to have received Rs 33 lakh as commission for setting up the mule accounts. This prompted the ED to attach an immovable property belonging to Bidri that was bought by him in 2004.
As per the provisions of the PMLA, the ED has the power to provisionally attach properties that have been bought through proceeds of crime and that are likely to be concealed, transferred, or dealt with in a manner that may frustrate the proceedings relating to the confiscation of such proceeds of crime.
Setting aside the ED's attachment order of Bidri's 2004 property, the court said that it will be too far-fetched if it accepts the argument that the term ‘proceeds of crime' will also include the value of the property which had been acquired even earlier.
PMLA provisions cannot be used to enable the authorities to proceed against properties that are unconnected with any of the criminal activity in question, the court said.
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.Kerala High Court
The property that was provisionally attached was bought in 2004, more than a decade and a half before the alleged crime was committed. As a result, the court declared the order attaching the immovable property to be ex-facie, exceeding the powers of the statute, and completely illegal and arbitrary.
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