The Gauhati High Court has held that a writ petition challenging a Provisional Attachment Order (PAO) under Section 5(1) PMLA is not barred merely because a statutory remedy exists, where the challenge raises a jurisdictional issue going to the root of the attachment. The Court further held that under Section 5(1) PMLA read with the Second Proviso, provisional attachment can be sustained where the authorised officer, on the basis of material in his possession and recorded reasons to believe, forms satisfaction that the person is in possession of proceeds of crime and that non-attachment is likely to frustrate confiscation proceedings.
The Court also held that the expression “proceeds of crime” in Section 2(1)(u) PMLA includes not only property directly derived or obtained from criminal activity relating to a scheduled offence, but also “the value of any such property”. Therefore, if the actual tainted property is unavailable, an equivalent value property can be attached, even if that property was acquired prior to commission of the scheduled offence. Finally, the Court held that if the reasons to believe were already recorded in writing in the file prior to issuance of the PAO, their inclusion in the PAO does not render the PAO illegal or without jurisdiction.
A Single Judge Bench of Justice Manish Choudhury analysed Section 5(1) PMLA and held that before issuing a PAO, the authorised officer must have material in his possession, must record reasons to believe in writing, and must be satisfied on the twin conditions under Section 5(1)(a) and Section 5(1)(b), namely that the person is in possession of proceeds of crime and that such proceeds of crime are likely to be concealed, transferred or dealt with in a manner frustrating confiscation proceedings. The Bench found that the PAO was preceded by recorded reasons to believe on March 29, 2026 and that the authorised officer had relied on FIR materials, ECIR materials, seized records, GST returns, statements under Section 50 PMLA, and banking and transaction records.
The Bench accepted the ED’s prima facie case that M/s Siddhi Vinayak generated fraudulent ITC of Rs. 99.31 crore, that amounts were layered through shell entities including M/s Krishti Enterprise and M/s L.S. & Company, and that M/s Fama Marketing availed and utilised fraudulent ITC of Rs. 52.66 lakh through those entities. It held that the authorised officer had adequate, acceptable, reliable and verifiable material to form the belief that the petitioner was in possession of part of the proceeds of crime and that immediate attachment was necessary to prevent frustration of confiscation proceedings.
On the petitioner’s argument that property purchased before the scheduled offence cannot be attached, the Bench rejected that submission. Reading Section 2(1)(u) PMLA, especially the words “the value of any such property”, together with the definition of “property” in Section 2(1)(v), the Bench held that if the actual proceeds of crime are not available, property equivalent in value can be attached. Therefore, even though the land was bought in 2022, prior to the alleged scheduled offences committed during October 2023 to March 2024, it could still be attached as equivalent value property because the proceeds of crime had already been infused into the formal financial system and were not available for direct attachment.
On the issue of “reason to believe”, the Bench disagreed with the contention that such reasons are confidential and cannot form part of the PAO. It held that neither Section 5(1) PMLA nor the 2013 Rules impose any restriction that the recorded reasons cannot be included in the PAO. The Bench further observed that making the reasons part of the PAO aligns with principles of natural justice and fair play, and that the reasons should be furnished to the affected person, sooner or later, if requested.
Briefly, the case arose from an FIR registered on a complaint by a CGST officer alleging that M/s Siddhi Vinayak Trade Merchants, a GST-registered entity in Arunachal Pradesh, was a fake shell concern that issued 15,258 bogus invoices worth Rs. 658.55 crore between October 2023 and March 2024, enabling fraudulent input tax credit (ITC) of Rs. 99.31 crore to 58 entities across 11 States without actual supply of goods. Search and investigation found that its declared principal place of business was fictitious, no e-way bills were generated, and the entity existed only on paper. On that basis, ECIR was recorded for offence of money-laundering under Section 3 PMLA.
During the PMLA investigation, the petitioner, proprietor of M/s Fama Marketing, stated that his concern had business dealings with two entities in the chain, namely M/s Krishti Enterprise and M/s L.S. & Company. The PAO recorded that M/s Fama Marketing purchased goods from those entities and availed ITC of Rs. 52.66 lakh. The ED alleged that both supplier entities were shell entities in the fake ITC chain and that the petitioner had availed and utilised fraudulent ITC on the strength of suspicious invoices and e-way bills. The attached land had been purchased in 2022, before registration of the FIR and the ECIR, and that timing formed one of the petitioner’s key grounds of challenge.
