(PROVSIONS RELATING TO VALUATIONS)

According to Nitesh Shrivastava, registered valuer under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and also licensed under Section 34AB of Wealth Tax Act, 1957: the provisions which may come into force for the purpose of valuation in case of offences under PMLA, as in when the property shall be attached. Hence, the provisions dealing with Attachment are as follows:

5. Attachment of property involved in money-laundering:

1. Where the Director, or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-

• a) any person is in possession of any proceeds of crime;
• b) such person has been charged of having committed a scheduled offence; and
• c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding [one hundred and fifty days] from the date of the order, in the manner provided in the Second Schedule to the Income-tax Act, 1961 (43 of 1961) and the Director or the other officer so authorized by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of that Schedule:

[Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorized to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be: Provided further that, notwithstanding anything contained in clause (b), any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of

this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.]

2. The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed.

3. Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier.

4. Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation.— For the purposes of this sub-section “person interested”, in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property.

5. The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority.

• (i) Paragraph 1 of Part A and Part B of the Schedule, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974); or
• (ii) Paragraph 2 of Part A of the Schedule, a police report or a complaint has been filed for taking cognizance of an offence by the Special Court constituted under sub-section (1) of section 36 of the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985)”.

Meaning of Attachment:

'Attachment' means prohibition of transfer, conversion, disposition or movement of property by an order issued under Chapter HI of the Act [section rule 2(d) of Prevention of Money Laundering (Receipt and Management of Confiscated Properties) Rules, 2005].

When can a property be attached under PMLA?

A key feature of the enactment is the power of the investigating agency under the Act, i.e., the Directorate of Enforcement (hereinafter referred to as the “ED”), to provisionally attach any property believed to be involved in money laundering for an initial period up to 180 days from the date of such attachment.

What are the conditions for attachment of property for equivalent value?

Conditions for attachment of property for ‘equivalent value’ under the Act are as under:

1. ‘Proceeds of crime’ has been alienated, disposed of in any manner;

2. Where ‘proceeds of crime’ is not traceable or the Authorities failed to trace ‘proceeds of crime’; and

3. Where the person responsible has received ‘illicit gain’ of the criminal activity relating to ‘scheduled offence’.

The Act’s provisions must be carried out in letter and spirit by the Authorities charged with administering and enforcing them, as required by law. As a result, it is the responsibility of all authorities exercising their authority under the Act to ensure that the attachment action is not only a formality; rather, it must be in line with the goals and objectives for which the Act was intended. This means that no asset can be associated irrationally as having “equal value”. Because several High Courts and the Appellate Tribunal (PMLA) have established what constitutes “equivalent value”, authorities must exercise extreme caution before attaching properties as “equivalent value”.

What are suspicious transactions under PMLA?

Rule 2(1)(g) of PMLA-2002 defines suspicious transactions as:

A transaction whether or not made in cash which, to a person acting in good faith-

(a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or

(b) appears to be made in circumstances of unusual or unjustified complexity; or

(c) appears to have no economic rationale or bonafide purpose; or

(d) gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism.

Vesting of Properties with Central Government:

Section 9 of the PMLA states that when an order of confiscation has been made under section 8(5) of the PMLA, all rights and title in such property shall vest absolutely in the central government “free from all encumbrances”.

What happens when the Enforcement Directorate attaches properties?

Contrary to the popular understanding, Provisional attachment orders issued by the ED do not lead to immediate sealing of a property. Often the accused continues to live and enjoy his property while the matter remains pending in one court hearing after another.

As far as the common larger perception goes, one wonders whether the properties so attached can be accessed by the accused while the investigation is on. So what does the provisional attachment of a property entail – does it mean that the property is sealed during the course of the investigation? The intent to attach a property is to stop the accused from reaping the benefits from the asset. However, the accused can release the property through an application in courts or tribunals.

Vesting of Properties with Central Government:

Provision of the law on the attachment of properties:

The Enforcement Directorate has powers to provisionally attach a property as prescribed in Section 5(1) of the Prevention of Money Laundering Act, 2002 and the property concerned is to be confiscated by the Government in terms of Section 9 of the PMLA. To establish a crime for attaching a property, understanding the concept of ‘Proceeds of crime’ is important.

As per the latest amendment in 2019 via the Finance Act, the ‘proceeds of crime’ refers to “any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country”.

It has been clarified by the ED that any attachable property may or may not be directly obtained through means of a scheduled offence. The purpose of an ED attachment is to strip off the benefits to be incurred by the accused, while he/she holds the property as an asset. Until the judicial trial is complete, the property remains out of bounds for the accused until he is freed of all the charges. The law however has provisions for the accused to access the property by applying applications in High courts or tribunals.

Live properties such as shops, malls, restaurants, hotels, etc can continue to function even if the property is sealed. Commercial establishments can run even after the properties and attached while the law provides for the resting of operational profits with the ED. Upon this inclusion, businesses can go along sharing their profit with the government agency or can get a stay on this from the courts, based upon the outcome of the case.

What happens when properties are sealed?

Contrary to the popular understanding, Provisional attachment orders issued by the ED do not lead to immediate sealing of a property. Often the accused continues to live and enjoy his property while the matter remains pending in one court hearing after another. For example in 2018, when the ED had attached 50% of Congress leader P Chidambaram’s bungalow in New Delhi’s Jor Bagh, his family continued to enjoy the property until an eviction notice was sent to his son, Karti Chidambaram, who in return has secured legal protection against the notice.

The ED order for attachment of property is valid for 180 days for confirmation by the Adjudicating Authority under the PMLA. If the action of attachment is not approved by the Adjudicating Authority or the Government, the property is automatically released. If the attachment is approved, then the accused has a window of 45 days to challenge the ED action in the Appellate Tribunal followed by the higher courts.

What happens to the assets when they are attached for a long time?

Attached properties may remain locked for years, and their condition may start deteriorating. One may witness many jerkwater attached properties lying alone in the city, often in high-end areas. The provision for maintenance of such properties has not been highlighted yet in legal parlance. When vehicles are attached, they are parked inside the Central Warehousing Corporation. While cases continue for years, vehicles keep rotting inside the warehouses, the parking fee of which is paid by the ED.

Dealing the mandate of attachment for any property as ‘equivalent value’, the Appellate Tribunal in Shri Surendra Singhi v. The Joint Director Directorate of Enforcement, Hyderabad & Ors. [FPA-PMLA-1928/HYD/2017 (Decided on 21.12.2018)], held as under:

“13. Value as defined in Sec. 2 (zb) of the PMLA has to be harmoniously read with Sec. 2 (u) of the Act which mandates to acquisition value only to situations where the proceeds of crime being attached. Such application cannot be pedantically extended to situations where the property equivalent of alleged proceeds of crime is being attached, which do not have any nexus or continuum with the alleged direct proceeds of crime. The said exercise can only be done if ED is not in a position to recover the actual amount of proceeds of crime from the accused who by manipulation spent the proceeds of crime and the ED is not able to recover the same and attached that only under those circumstances, the property can be attached equivalent to value thereof if the party has some link and nexus in the crime or the attached property was purchased from proceed of crime and is in possession of third party.”

How a valuer is involved in Money Laundering Act?

When the Enforcement Directorate has reason to believe that any person is in possession of any proceeds of crime, it may attach a property. The property has to be valued by a competent person (a registered valuer of CBDT) who is knowledgeable, honest and known for his integrity and capable of defending his report when questioned.

Purposes of valuation under PMLA 2002?

1. To estimate the cost invested in the building or land or property.

2. To estimate the fair market value of the property for “as is where is” condition.

3. To certify the auction value if directed by the enforcement directorate.

The exact purpose though depends upon the specific requirement as directed by the ED.

Points to remember by the Valuer after directions by ED w.r.t valuation of any property:

Once the valuer is engaged by the ED, the valuer may:

• Clarify whether the exact purpose is to ascertain the cost or present market
• Value or auction value.
• Collect the phone numbers of contact persons / related persons / owners of the property.
• Clarify whether any officer of ED will accompany the valuer to inspect the property.
• Clarify the exact scope of valuation : may it be for land and or land & building and /or land, building, machinery or any other movable assets, and / or vehicles to be included or not; etc
• Clarify about the time required to submit the report.
• Clarify whether the report is to be forwarded in a sealed cover or email.
• Clarify about the professional fees and other charges.
• Clarify whether there will be any necessity to appear before the court to justify his report or to act as expert on the subject in the capacity of witness etc.

Cautioning areas of valuers w.r.t properties to be valued:

1. Special properties
2. Large chunk of vacant land in a remote place
3. Educational institutions
4. Religious institutions
5. Certain trust properties