Explained: Can the ED attach ancestral property? The legal debate over ‘equivalent value’

The Delhi High Court held on February 16 that the Enforcement Directorate (ED) has the power to attach even ancestral property of an accused under the Prevention of Money Laundering Act (PMLA), 2002. The court ruled that if the actual “proceeds of crime” generated from an offence are unavailable or untraceable, the agency can attach legitimate assets of equivalent value, regardless of when they were acquired. The court’s order in Arun Suri vs ED is the latest ruling on what has emerged as a far-from-settled question of law: Can the ED confiscate assets inherited or acquired before a crime was committed, in place of the actual money generated from the alleged crime? Court’s ruling The appellant, Arun Suri, had approached the High Court challenging the attachment of a residential property in Delhi’s Pitampura. He argued that the property was purchased by his father in 1991 using his own income. Since the alleged crime and the subsequent money laundering by Suri occurred decades later, he argued that this ancestral property could not be termed “proceeds of crime” and was, therefore, immune from attachment. Under Section 5 of the PMLA, the ED is empowered to provisionally attach property derived from criminal activity. Suri contended that the law allows the attachment of only “tainted” property — that is, assets directly linked to the crime. The Delhi High Court rejected this plea. Relying on the definition of “proceeds of crime” in Section 2(1)(u) of the PMLA, the bench of Justices Navin Chawla and Ravinder Dudeja held that the provision allows for the attachment of the “value of any such property”. The court reasoned that if the actual proceeds of crime — which, in this case, was allegedly foreign exchange remitted abroad — are not available, the law empowers the ED to attach other assets of equivalent value to ensure the accused does not enjoy the fruits of the crime. The court stated that the plea of the property being ancestral “does not [by itself] grant immunity” and that the PMLA “does not carve out an exception for ancestral or inherited properties, and thus, they are not immune from attachment.” In arriving at this conclusion, the bench on a 2019 judgment of the High Court in Deputy Director vs Axis Bank. In that case, the court had interpreted Section 2(1)(u) of the PMLA, which defines proceeds of crime, to have three distinct parts: property derived directly from crime, the value of such property, and property of equivalent value held within the country if the actual proceeds are taken abroad. The single judge Justice R K Gauba held that the legislature intended to capture assets of “equivalent value” to prevent money launderers from enjoying their ill-gotten gains by simply spending or hiding the original money. The court introduced the concept of “alternative attachable property” or “deemed tainted property” — ruling that if the actual tainted asset cannot be traced, the ED can attach other assets of the accused instead that match the value of the proceeds of the crime, even if those assets were acquired legitimately. The Arun Suri order also referred to the case of Prakash Industries vs Directorate of Enforcement of 2022, in which the Delhi High Court had reiterated that properties acquired prior to the enforcement of the PMLA are not completely immune if they are being attached as “equivalent value”. Divergent rulings The Arun Suri order also referred to the Supreme Court’s 2022 judgment in Vijay Madanlal Choudhary, which upheld the constitutionality of the PMLA. The High Court referred to the clarification given by the three-judge bench’s judgment “that the definition of ‘proceeds of crime’ is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property”. However, the High Court did not refer to the more recent Supreme Court ruling from 2023 in Pavana Dibbur vs Directorate of Enforcement, cited by the appellant in his favour. In that case, a division bench of the apex court held that a “property cannot be said to have any connection with the proceeds of the crime [if] the acts constituting scheduled offence were committed after the property was acquired”. In Arun Suri, too, the property was acquired in 1991, long before the PMLA was enacted or the alleged crime took place. Other High Courts too have taken a similar stance on this question — although the views of other High Courts are not binding on the Delhi High Court. In Seema Garg vs Deputy Director, the Punjab and Haryana High Court in 2020 disagreed with the Delhi High Court’s Axis Bank ruling. It held that the phrase “value of such property” does not mean the ED can attach any property of the accused. Instead, it ruled that this phrase applies only when the original tainted property has been converted into another form — for example, if cash from a crime is used to buy a house. The court held that legitimate properties acquired before the crime was committed cannot be attached unless the actual proceeds have been moved abroad. This view was repeated in 2021 by the Andhra Pradesh High Court in Kumar Pappu Singh vs Union of India and the Patna High Court in HDFC Bank vs Government of India. The appellant, Suri, had also relied on a 2020 Karnataka High Court judgment in H M Malthesh vs Directorate of Enforcement which had ruled that ancestral properties could not be attached as they were not derived from criminal activity. However, this judgment had been set aside by the Supreme Court — albeit on technical grounds, rather than on its legal merits. The Arun Suri order reinforces the stringent interpretation of Section 2(1)(u) of the PMLA within the jurisdiction of the Delhi High Court. Since a High Court is bound only by the decisions of the Supreme Court and by larger benches of its own court but not by the rulings of other High Courts, the Supreme Court may soon be called upon to resolve the conflict between the dissimilar interpretations on this question among different High Courts.