Court affirms attachment of properties linked to fraudulent GST Input Tax Credit scheme, rejects challenge on confidentiality of reasons recorded in Provisional Attachment Order, and emphasizes adherence to principles of natural justice.
In a significant judgment dated June 26, 2026, the Gauhati High Court, presided over by Justice Manish Choudhury, dismissed a writ petition challenging a Provisional Attachment Order (PAO) issued under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA). The petition was filed by Mrig Mrinal Dhawan, proprietor of M/s Fama Marketing, seeking to quash the attachment of three plots of land alleged to be linked to proceeds of crime (PoC) arising from a large-scale fraudulent Input Tax Credit (ITC) racket.
The case traces back to an FIR registered in October 2024 against multiple accused involved in fabricating GST invoices through a shell entity, M/s Siddhi Vinayak Trade Merchants, to fraudulently avail and pass on ITC amounting to over Rs. 99 crore. The Enforcement Directorate’s investigation revealed that this fake ITC was circulated through a network of shell companies, including entities linked to the petitioner. The PAO attached properties valued equivalent to the illicit funds utilized by the petitioner, asserting that the properties constituted proceeds of crime or their equivalent value under the PMLA.
The petitioner contended that (i) the “reason to believe” for attachment must be recorded confidentially and not disclosed in the PAO; (ii) property purchased prior to the alleged criminal activity could not be attached; (iii) attachment without direct traceability of PoC to the property was invalid; and (iv) the Authorized Officer failed to record necessary satisfaction before issuing the PAO.
Justice Choudhury, after detailed scrutiny, held that:
- The definition of ‘proceeds of crime’ under Section 2(1)(u) of the PMLA is wide enough to include property equivalent in value to the PoC, even if the actual asset is not directly traceable. Thus, properties purchased prior to the commission of the scheduled offences may be attached if they represent the value of PoC infused into the financial system.
- The Authorized Officer had adequate and verifiable material, including GST returns, statements, and seized documents, to form the requisite “reason to believe” linking the petitioner’s properties to the proceeds of crime. The belief was rational and based on objective evidence, precluding judicial substitution of opinion except for jurisdictional errors.
- The inclusion of the “reason to believe” in the PAO itself does not render the order invalid. Contrary to the petitioner’s submission, the Court found no statutory bar against disclosing the reasons in the PAO. On the contrary, such disclosure aligns with the principles of natural justice and fair play, reducing the risk of subjective or arbitrary action.
- While the PMLA Rules prescribe confidentiality in forwarding the PAO and related materials to the Adjudicating Authority, there is no prohibition on furnishing the “reason to believe” to the affected person. The Court emphasized that affected persons are entitled to know the grounds of attachment and may seek reasons to challenge the order effectively.
However, recognizing divergent views expressed by coordinate benches on the confidentiality and disclosure of the “reason to believe,” the Court referred the issue to a larger bench for authoritative resolution.
The Court also underscored the statutory remedy available to the petitioner before the Adjudicating Authority under Section 8 of the PMLA and stated that writ jurisdiction should be exercised cautiously at the PAO stage, except where jurisdictional errors or breaches of natural justice are evident. Since no such errors were found, the petition was dismissed.
This judgment clarifies the procedural and substantive standards for provisional attachment under the PMLA, particularly affirming that provisional attachment can be based on properties equivalent in value to proceeds of crime, even if purchased before the scheduled offence. It also opens the door for further judicial examination on the extent of disclosure of reasons for belief in such orders, balancing confidentiality with fairness.
Bottom line:-
Prevention of Money Laundering Act - Validity of a Provisional Attachment Order (PAO) under Section 5(1) of PMLA - Whether the reasons to believe recorded by the Authorized Officer must be confidential or can be included in the PAO itself - The court held that inclusion of reasons to believe in the PAO does not render the order invalid and aligns with principles of natural justice.
Statutory provision(s):
Prevention of Money Laundering Act, 2002 Sections 2(1)(u), 2(1)(v), 3, 5(1), 5(2), 5(3), 5(5), 8(1), 8(2), 8(3), 8(4), 19(1), 26, 42, 70, 73; Prevention of Money Laundering (Issuance of Provisional Attachment Order) Rules, 2013 Rule 3; Indian Penal Code Sections 120B, 420, 467, 468, 471, 473, 474.
Mrig Mrinal Dhawan v. Union of India, (Gauhati) : Law Finder Doc id # 2931820
