Restoration of Properties under PMLA pending Trial - Quite the Quagmire

Efforts to 'restore' monies to victims of large-scale frauds using the Prevention of Money Laundering Act 2002 [PMLA] have received some attention in 2024. Simply put, the scheme works as follows (at least in most cases). Usually at the start of PMLA cases, properties allegedly involved in money laundering are frozen or attached by the authorities to prevent their dissipation. This is called a 'provisional attachment' that subsists for the duration of the trial for the alleged crime of money laundering if an Adjudicating Authority agrees with this decision in parallel proceedings (which, it almost always does). These assets are then sold off by the government, and the sale proceeds are distributed amongst victims on a pro-rata basis. Everyone goes home happy, and the law delivers justice for a change. Well, at least that is what you are supposed to be left thinking after reading about these exercises in the news.

At first, this news appeared a little strange to me. This is because I was labouring under a misconception about what the PMLA regime allowed in respect of properties attached by authorities. Till 2019, the law under Section 8 of the PMLA said that while attachments would subsist the life of the criminal trial, confiscation i.e., the actual transfer of title in the property to the government, happened only after the trial resulted in a conviction for offences of money laundering involving the assets in question. And Section 8(8) said that where the property stood confiscated, a court could consider a claim for restoration of property to a claimant who suffered a loss due to the offence. 

In this 2019 framework, then, no sales and pro-rata distributions could happen without convictions. This is not an ideal scenario in a legal system where trials take an eternity to conclude. What made it even more problematic, was that the global body responsible for reviewing anti-money-laundering compliance — the FATF — had consistently viewed this conviction-based confiscation framework as suboptimal.   

Enter amendments to the relevant regulatory regime in 2019. Section 8(8) of the PMLA was amended in 2018 and the following proviso—the legalese for a condition or exception to the norm—was inserted: "Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed." In other words, the restoration to claimants could happen even before conviction. The power was operationalised in 2019, through an amendment to the Prevention of Money Laundering (Restoration of Confiscated Property) Rules 2016, with insertion of Rule 3A. It lays out the procedure by which a court can exercise these powers of considering claims, and in addition to procedural compliances requires that (i) the case should have progressed to the framing of charges, and (ii) owners of the properties in question be heard before passing any orders. 

Here is the catch. The law, by which I mean Section 8 of the PMLA, still only provides for confiscation in the event of conviction at trial. And Section 9 of the PMLA further specifies that "all the rights and title" in such property shall vest in the government only after confiscation. Section 8(8) itself says that the idea of restoration flows after confiscation. So, of confiscation and transfer of title itself remains glued to the end of trials, how on earth is Section 8 conferring powers on the court to direct sale of assets for some kind of restoration to claimants pending trial? 

There are many questions which may spring to mind making this seem problematic. Let me run through a few. First, charge is meant to be a sieve through which 90% of the cases percolate onwards to trials, since the sieve is made entirely from the story crafted by the prosecution. So, in effect, there is no filter to make sure that only cases which may genuinely result in convictions are being opened up for pre-conviction sale of assets. Second, in line with this first issue, what about the very likely outcome of a case ending in an acquittal or it being quashed? Third, what about the pendency of an appeal against the attachment and its effect on any claim by the claimant? All of these questions beget no real answers from within the statute itself. 

Beyond these problems of logic and implementation, the justice-delivery proviso to Section 8(8) also brings us face to face with an old legal maxim, that the scope of an exception to the rule cannot be broader than the rule itself. In this case, it would seem that this principle is clearly violated. The rule here is the text of Section 8 PMLA, which links transfer of title to confiscation. The exception to this rule, in the form of this 2018 proviso to Section 8(8), permits transfer without confiscation. Probably this is why High Courts (here, and here) have expressed doubts about the legal soundness of the proviso in passing already. If anything, the legally proper course of action may have been to amend Section 8(7), which caters to a few situations where a trial cannot conclude due to death or the accused absconding and permits passing an order for confiscation in such cases also, to allow for a wider set of scenarios.  

Who cares, though? 

(While this post is restricted to the restoration to claimants pending a trial for money laundering, and by no means should one assume that the regime post confiscation is ideal either)