Pre-Offence Property Cannot Be Attached as PMLA Proceeds of Crime: AP High Court's Landmark Ruling

Background and Context

The Andhra Pradesh High Court delivered a significant ruling in Kumar Pappu Singh Vs Union of India, addressing a critical question under the Prevention of Money Laundering Act, 2002 — specifically, whether the Enforcement Directorate possesses jurisdiction to provisionally attach properties that were acquired before the commission of the scheduled offence, particularly in circumstances where the actual proceeds of crime had already been dissipated or lost.

The matter arose from a series of writ petitions filed by multiple parties — Private Limited Companies, a partnership firm, and individuals — all of whom challenged attachment order No. 2/2019 in File No. ECIR/VKSZ0/02/2018 dated 31.12.2019.

Factual Background

M/s IDBI Bank had filed a complaint before the Central Bureau of Investigation, registered as FIR No. RC03(A)/2018 dated 27.03.2018, naming several accused parties. The bank's allegation was that between 2009 and 2012, Kisan Credit Card (KCC) loans amounting to Rs. 74.99 crores were sanctioned to 101 borrowers without proper documentation, pre-sanction inspections, post-sanction verifications, or any monitoring of end-use of funds.

Kumar Pappu Singh, arrayed as Accused No. 3 in the said complaint, was alleged to have acted as guarantor for 87 KCC loans and to have diverted the sanctioned amounts into his own savings accounts and the accounts of firms and companies associated with him. These diverted funds were reportedly channelled into his pisciculture (fish farming) business, which eventually ran into substantial losses.

Since the complaint involved scheduled offences under the Prevention of Money Laundering Act, 2002, the Enforcement Directorate registered case No. ECIR/VKSZO/02/2018 on 28.05.2018. In the course of its investigation, the Enforcement Directorate determined that Rs. 69.46 crores had been diverted, and thereafter passed provisional attachment order No. 2 of 2019 dated 31.12.2019 under Section 5 of the Act.

The Two Categories of Attached Properties

The attached properties were classified into two distinct tables:

  • Table-I: Properties acquired by the petitioners prior to September 2010, i.e., before the alleged scheduled offences commenced
  • Table-II: Properties alleged to have been acquired after September 2010, purportedly from the proceeds of crime

The Enforcement Directorate's reasoning for attaching Table-I properties was that even though these assets pre-dated the commission of the scheduled offence, they were to be treated as "deemed tainted property" to substitute for the proceeds of crime that had been exhausted through losses in the pisciculture business.

Preliminary Objection: Maintainability of Writ Petition

Before examining the substantive issue, the Court addressed whether the writ petitions were maintainable at all, given that proceedings before the Adjudicating Authority in New Delhi were already underway.

The Enforcement Directorate relied on three judicial precedents to argue that the petitioners should be directed to avail themselves of the statutory remedy:

  1. Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement (Supreme Court), Civil Appeal No. 3221 of 2010, decided on 12.04.2010
  2. P. Trivikram Prasad v. Enforcement Directorate — erstwhile High Court for the State of Telangana and Andhra Pradesh
  3. Nivedita Sharma v. Cellular Operators Association of India and Others (Supreme Court) — (2011) 14 SCC 337

The petitioners countered by relying on:

  • Satyam Computer Services Limited v. Government of India — on maintainability of writ petitions challenging attachment orders on jurisdictional grounds
  • Aslam Mohd. Merchant v. Competent Authority and Others (Supreme Court) — (2018) 14 SCC 186
  • Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Others (Supreme Court) — (1998) 8 SCC 1

The Court examined these authorities and observed that in Raj Kumar Shivhare, the challenge concerned a pre-deposit order in a penalty appeal, and the Supreme Court had noted that the appeal lay before the very same High Court — a materially different factual scenario.