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Authored By
Rajat Jain, Advocate
Vaish Associates Advocates
Email id: rajatjain@vaishlaw.com
Mobile No. 9953887311
LinkedIn: https://www.linkedin.com/in/rajat-jain-75772398/
In Jayamma v. Directorate of Enforcement, 2026:KHC:25829, the Karnataka High Court set aside a provisional attachment order issued under Section 5(1) of the Prevention of Money Laundering Act, 2002 (“PMLA”), holding that mere reproduction of the statutory language contained in the Second Proviso to Section 5(1) cannot substitute the mandatory requirement of recording an independent and reasoned “belief” based on objective material. The Court further held that a writ petition challenging the very jurisdictional foundation of the attachment is maintainable notwithstanding proceedings before the Adjudicating Authority under Section 8 of the PMLA or the availability of a statutory appellate remedy.
The case arose from a provisional attachment order passed by the Enforcement Directorate (“ED”) in relation to certain immovable properties alleged to constitute proceeds of crime. The attachment was invoked under the Second Proviso to Section 5(1) of the PMLA, which permits provisional attachment even before filing of a police report or complaint relating to the scheduled offence, provided the competent authority records reasons to believe that immediate attachment is necessary and that non-attachment is likely to frustrate proceedings under the Act.
Maintainability of Writ Petition Despite Availability of Statutory Appeal
Before examining the validity of the attachment order, the High Court dealt with the preliminary objection raised by the ED regarding maintainability of the writ petition. The ED contended that since the provisional attachment order had already been confirmed by the Adjudicating Authority under Section 8 of the PMLA, the petitioner ought to pursue the statutory appellate remedy available under the Act and that the writ petition was therefore not maintainable.
Rejecting the objection, the Court held that the challenge raised by the petitioner went to the very jurisdiction of the authority to invoke the Second Proviso to Section 5(1) of the PMLA. The Court observed that the issue whether the mandatory jurisdictional requirements contained in the Second Proviso had been satisfied is not a matter that falls within the scope of adjudication before the Adjudicating Authority under Section 8 of the Act. The role of the Adjudicating Authority is principally confined to examining whether the attached property constitutes proceeds of crime and whether the attachment deserves confirmation. The Authority is not empowered to adjudicate upon the validity of the “reason to believe” recorded for invoking the exceptional power contained in the Second Proviso to Section 5(1).
The Court relied upon the decision of the Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai & Ors., (1998) 8 SCC 1, wherein the Supreme Court carved out well-recognised exceptions to the rule of alternate remedy and held that a writ petition would be maintainable, inter alia, where the impugned action or order is wholly without jurisdiction. Applying the said principle, the Court held that non-compliance with the jurisdictional conditions prescribed under the Second Proviso to Section 5(1) of the Act strikes at the very foundation of the authority's power to order provisional attachment. Since the challenge pertained to the legality of the assumption of jurisdiction itself, the case fell within the recognised exceptions to the rule of alternate remedy, rendering the writ petition maintainable notwithstanding the statutory appellate mechanism available under the PMLA.
Compliance with the Conditions Under the Second Proviso to Section 5(1): A Jurisdictional Prerequisite
Turning to the merits, the Court undertook a detailed examination of the statutory scheme under Section 5 of the PMLA. Under Section 5(1), the Director or any other authorised officer may provisionally attach property for a period not exceeding 180 days if he has reason to believe, on the basis of material in his possession, that such property constitutes proceeds of crime and is likely to be concealed, transferred, or dealt with in a manner which may frustrate confiscation proceedings under the Act.
Ordinarily, such power can be exercised only after a report under Section 173 of the Code of Criminal Procedure or a complaint in respect of the scheduled offence has been forwarded to the competent court. However, the Second Proviso to Section 5(1) carves out an exception and permits provisional attachment even before filing of such report or complaint. Since the provision confers an extraordinary power, the legislature has imposed an additional safeguard requiring the authorised officer to record reasons in writing showing that immediate attachment is necessary and that failure to do so is likely to frustrate proceedings under the Act.
Examining the provisional attachment order, the Court noted that while the authority had elaborately discussed the alleged offence of money laundering and the nature of the purported proceeds of crime, it had failed to record any meaningful reasons demonstrating why immediate attachment was necessary or how non-attachment would frustrate proceedings under the Act.
The Court found that the relevant portion of the attachment order merely stated that if the properties were not attached, proceedings under the Act may be frustrated and that the proceeds of crime could be further laundered, affecting the financial system and economy. However, apart from reproducing the language of the statute, no objective material was identified to support such conclusions.
In a significant observation, the Court held:
“In the guise of adherence to law mere copy-paste of statutory language to indicate compliance would not be sufficient.”
The Court further observed:
“There must be application of mind to the particular facts to demonstrate that material in possession would indicate the failure of passing an order for provisional attachment would likely frustrate the proceedings under the PMLA.”
The Court emphasised that there must be a demonstrable application of mind to the specific facts of the case and the material available with the authority. The existence of material suggesting commission of the offence of money laundering is not, by itself, sufficient to invoke the Second Proviso. The authority must separately identify material showing that immediate attachment is necessary because failure to attach the property would likely frustrate proceedings under the PMLA.
Drawing a clear distinction between the two statutory requirements, the Court held that material establishing a prima facie case of money laundering is fundamentally different from material required to justify immediate attachment of property. The latter must specifically demonstrate a real likelihood that the property may be concealed, transferred, dissipated, encumbered, or otherwise dealt with in a manner that would frustrate proceedings under the Act.
On the facts of the case, the Court noted that the properties in question could not even be effectively transferred at the relevant point of time because mutation entries had not been effected. Consequently, there was no objective basis to conclude that the petitioner was in a position to create third-party rights or otherwise deal with the properties so as to frustrate proceedings under the PMLA.
The Court observed that the apprehension expressed by the ED was unsupported by any material having a nexus with the statutory requirement under the Second Proviso. Mere suspicion, conjecture, or speculative concerns could not substitute the mandatory requirement of recording a legally sustainable “reason to believe”.
The Court further held that adherence to the procedure prescribed under the Second Proviso to Section 5(1) of the PMLA is mandatory and any deviation would vitiate the attachment order itself.
Rejecting the contention that subsequent confirmation proceedings before the Adjudicating Authority would cure the defect, the Court held that if the foundational provisional attachment order is legally unsustainable, all consequential proceedings founded upon such order must necessarily fail.
Accordingly, the High Court set aside the provisional attachment order as well as all consequential proceedings arising therefrom, while reserving liberty to the Enforcement Directorate to initiate fresh proceedings in accordance with law if the statutory requirements contained in the Second Proviso to Section 5(1) are duly satisfied.
The judgment reaffirms that the extraordinary power of provisional attachment under the PMLA cannot be exercised mechanically. It underscores that the requirement of “reason to believe” under Section 5 is a substantive jurisdictional safeguard and not a mere reproduction of statutory language. The Court further clarifies that non-compliance with the mandatory requirements of Section 5 strikes at the very assumption of jurisdiction, thereby justifying the exercise of writ jurisdiction notwithstanding the availability of an alternative statutory remedy. Mere reiteration of statutory phrases, without objective material and independent application of mind, is insufficient to sustain such a drastic exercise of power.
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