Equivalent‑Value Substitution at the Provisional Attachment Stage under PMLA – IndiaCorpLaw

[Shailee Basu is a lawyer based in Delhi and Research Fellow with the Crime & Punishment team at Vidhi Centre for Legal Policy]

Recently, the Supreme Court of India permitted M3M India Pvt. Ltd, a real estate company, to substitute its land worth ₹317 crore provisionally attached by the Enforcement Directorate (ED) under section 5 of the Prevention of Money Laundering Act, 2002 (PMLA) with commercial units of equivalent value. The Court’s order came with detailed safeguards and reflected a balanced approach to competing concerns of enforcement and economic continuity in the absence of an express framework under the PMLA.

While the Supreme Court was not expected to lay down an overarching policy, nor would it have been institutionally appropriate for it to do so, it could have allowed its reasoning to remain available as a guide for future cases. Instead, it explicitly directed that the ruling “shall not be treated as a precedent”, closing the door to its reasoning being cited in similarly situated matters. In doing so, the Court offered a well-reasoned solution, but denied it replicability, thereby reinforcing the ad-hoc nature of relief in such cases. If India is to have a credible and proportionate white-collar enforcement regime, substitution must evolve from a judicial workaround to a recognised safeguard.

How Provisional Attachment Operates under the PMLA

The PMLA is India’s primary legislation to trace and confiscate property believed to be linked to criminal activity (i.e., proceeds of crime). It allows the ED to temporarily ‘attach’ assets suspected to be ‘proceeds of crime’ before the accused is convicted or even charged. This provisional attachment, under section 5 of the PMLA, lasts for up to 180 days and must be confirmed by a quasi-judicial adjudicating authority under the legislation.

This mechanism is meant to prevent accused persons from hiding or transferring tainted property before trial. But because it operates at a pre-trial stage, it can also ensnare third-party investors, lenders, or buyers who are not accused of wrongdoing but are caught in the dragnet. The law provides for procedural safeguards, including notice and hearing rights, but in practice attachments often remain in place for extended periods, disrupting commercial activity long before any guilt is established.

The use of this provision has increased significantly in the last decade. Between 2014 and 2024the ED issued nearly 2,000 provisional attachment orders, more than six times the number issued between 2005 and 2014. Approximately 84 per cent of these attachments were confirmed by the adjudicating authority. Yet the remaining 16 per cent of attachments that were either set aside or allowed to lapse reflect a substantial proportion of cases where the ED’s actions failed to meet even the initial threshold.

These statistics highlight the risk of collateral harm. Provisional attachments can paralyse legitimate businesses or deprive innocent parties of property while proceedings drag on. Relief through substitution — replacing the attached asset with an equivalent, untainted one offers a balanced middle path.

Targeting Proceeds of Crime: Why Equivalent-Value Remedies Matter

Confiscation of criminal proceeds is a core element of anti-corruption enforcement. Because financial gain is the primary motive for corruption and related offences, depriving offenders of these gains serves both a preventive purpose, removing the incentive for future wrongdoing and a reparative purpose by enabling recovery to compensate victims or restore legitimate interests. Economic offences differ in nature from violent crimes. They typically do not produce a single, direct victim but instead erode financial integrity and destabilise the economy at large. For such offences, enforcement is most effective when it focuses on stripping offenders of their illegal gains rather than relying only on punitive measures.

International frameworks, including the United Nations Convention against Corruption (UNCAC), require states to adopt measures to confiscate ‘proceeds of crime’ or property of equivalent value when the direct proceeds are unavailable. The term ‘proceeds of crime’ covers property derived directly or indirectly from an offence, as well as any profits generated from it. Equivalent‑value confiscation is therefore an alternative remedy, ensuring offenders are deprived of unlawful gains even if the original tainted property is concealed, transferred or mixed with legitimate assets.

The Financial Action Task Force (FATF) echoes this approachcalling for asset‑recovery frameworks to include due‑process safeguards, protection for bona fide third parties and flexibility through mechanisms like substitution or value‑equivalent confiscation. India has already adopted a similar approach through section 37A of the Foreign Exchange Management Act, 1999 (FEMA), introduced in 2015, which allows authorities to seize equivalent‑value domestic property when illicit foreign assets cannot be traced.

Making Substitution a Structured Safeguard

India’s framework for tackling money laundering under the PMLA operates in two stages. It first requires the occurrence of a ‘scheduled offence’, such as those under laws dealing with corruption, securities regulation, company fraud, taxation or customs violations. Second, it requires that laundering be linked to a ‘scheduled offence’.

Recognising this structure underscores why enforcement against economic crimes should prioritise the recovery of criminal proceeds. Substitution, as an alternative remedy, aligns with this objective by securing equivalent-value property while avoiding disproportionate harm to legitimate business operations and third-party interests.

The Supreme Court’s intervention in the M3M case is an example of pragmatic problem-solving at the provisional attachment stage. The company was allowed to replace the attached land with unencumbered commercial units of equivalent value. This preserved the ED’s interest in securing the asset while allowing M3M to continue business operations and protect its obligations to investors and buyers.

What is required now is the recognition that substitution can serve as a legitimate legal remedy in appropriate cases, particularly where the value of the proceeds of crime is identifiable and quantifiable for substitution. Such substitution must be subject to stringent safeguards to ensure that the replacement property remains unencumbered and is not sold, transferred, or alienated while proceedings continue.

Substitution does not weaken enforcement; it strengthens it by ensuring that PMLA proceedings do not derail commerce, harm unrelated actors, or stretch enforcement powers beyond what due process can support. The law’s legitimacy depends not only on its ability to punish the guilty, but also on its ability to shield the law-abiding from unjustified harm and ultimately to meet the purpose of the law — to prevent money laundering.

– Shailee Both