Disclosure of “Reason to Believe” in PMLA Provisional Attachment Orders & Attachment of Equivalent-Value Assets (Pre-Offence Purchases)

1. Introduction

The writ petition challenged a Provisional Attachment Order (PAO) dated 30.03.2026 issued under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA), attaching three plots of land owned by the petitioner, Mrig Mrinal Dhawan (proprietor of M/s Fama Marketing). The attachment arose from an Enforcement Directorate (ED) investigation into an alleged fake GST invoice/Input Tax Credit (ITC) fraud chain originating from M/s Siddhi Vinayak Trade Merchants, leading to registration of FIR No. 182/2024 (scheduled offences under Part-A of the PMLA Schedule) and ECIR dated 28.03.2025.

The petitioner’s core objections were jurisdictional: (i) “reason to believe” must be recorded prior and not disclosed in the PAO as it is “confidential”; (ii) without traceable proceeds of crime (PoC), ED cannot attach property merely based on “value”; (iii) property purchased before the alleged scheduled offence period cannot be attached; and (iv) the PAO lacked genuine urgency/satisfaction about imminent alienation.

The ED responded that recorded reasons existed (29.03.2026), statutory remedies before the Adjudicating Authority should be pursued, and—importantly—there is no legal bar to including “reasons to believe” within the PAO.

The judgment both addresses the substantive Section 5 thresholds and also enters a significant procedural debate: whether “reasons to believe” under Section 5(1) are confidential and therefore must be excluded from the PAO. Finding a conflict with a coordinate bench decision, the Court ultimately refers this question to a larger bench.

2. Summary of the Judgment

• Maintainability: Despite alternative statutory remedies (Section 8 adjudication; appeals under Sections 26 and 42), the Court holds a writ can be entertained where the challenge alleges jurisdictional error affecting Article 300A rights (provisional attachment impairs property rights).
• Section 5(1) satisfaction: On the material summarized in the PAO (fake invoice chain, shell entities, absence of e-way bills, statements under Section 50, GST return mismatches, and downstream ITC availment), the Court finds the ED had sufficient material to form “reason to believe” that (a) the petitioner was in possession of part PoC (ITC allegedly availed/used: Rs. 52.66 lakh), and (b) non-attachment could frustrate confiscation.
• Pre-offence property attachment: The Court rejects the argument that property bought prior to the scheduled offences period is immune, holding that “PoC” includes “the value of any such property” (Section 2(1)(u)) and therefore equivalent-value property can be attached when the PoC is not traceable/available.
• “Reason to believe” in the PAO: The Court holds there is no statutory prohibition on including recorded “reasons to believe” in the PAO; further, disclosure aligns with natural justice and helps prevent “fishing expeditions.”
• Reference to larger bench: Because Aftabuddin Ahmed and another v. Enforcement Directorate and others, [2024] 4 GLR 566 expressed a contra view suggesting confidentiality/non-furnishing, the Court refers two questions to a larger bench: (i) whether Section 5(1) reasons are confidential and/or must be furnished; (ii) whether inclusion in the PAO creates jurisdictional error.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Decision)

A. Maintainability & alternative remedy

• Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement and another, [2010] 4 SCC 772: cited by ED to argue writ is barred due to statutory appellate mechanisms. The Court accepts the general rule but emphasizes established exceptions for jurisdictional error.
• Kujendra Doley v. Union of India and others, decided on 30.01.2025 (W.P.[C] no. 7331/2017): relied on for the proposition that the PMLA provides a structured remedy (Section 8/26/42) and courts should ordinarily show restraint.
• Southern Electricity Supply Co. of Orissa Ltd. v. Shri Sitaram Rice Mill, [2012] 2 SCC 108: key authority used to justify entertaining writs where the dispute goes to “very root of jurisdiction” and statutory action appears “in futility.”
• State of Himachal Pradesh v. Gujrat Ambuja Cement Limited, [2005] 6 SCC 499: used to reinforce that once the High Court entertains and hears merits, dismissal solely for alternative remedy may be unjustified unless factual disputes predominate.

B. Core PMLA concepts: PoC, “value”, continuing offence, and non-accused liability

• Vijay Madanlal Choudhary v. Union of India, [2023] 12 SCC 1: the judgment’s backbone on (i) the independent nature of money-laundering, (ii) the “twin requirements” under Section 5(1), and (iii) crucially, that PoC includes “the value of any such property,” allowing attachment even when PoC itself is unavailable. The Court quotes/relies particularly on the discussion rejecting the argument that equivalent-value attachment is confined to foreign-held PoC.
• PAVANA DIBBUR v. THE DIRECTORATE OF ENFORCEMENT, 2023 INSC 1029: used to explain that even persons not accused in the scheduled offence can commit money-laundering by knowingly assisting concealment/use of PoC. This supports extending Section 5 attachment exposure to downstream beneficiaries/entities in the ITC chain.
• M/s. Nav Nirman Builders & Developers Pvt. Ltd. v. the Union of India, 2026 INSC 130: reinforces that Section 2(1)(u)’s “value” limb is broad—equivalent-value property can be attached even if PoC is not directly available. The Gauhati High Court uses this to reject the “no traceability, no attachment” argument.

C. “Reason to believe”: meaning, standard, and disclosure

• P. Chidambaram v. Directorate of Enforcement, [2019] 9 SCC 24: cited by the petitioner to emphasise Section 5’s structure and the requirement that reasons be recorded in writing. The Court reads it as not supporting the “confidentiality” claim.
• Joti Parshad v. State of Haryana, 1993 Supp[2] SCC 497: used to define “reason to believe” (higher than suspicion/doubt) and to set an objective prudent-person standard.
• Aprajita Kumari v. Joint Director, Enforcement Directorate, [2018] SCC OnLine DEL 13479: invoked by the petitioner for the proposition that reasons must be noted in the file at each stage. The Court is “not persuaded to agree totally,” especially to the extent it is used to argue that reasons cannot be in the PAO.
• Aftabuddin Ahmed and another v. Enforcement Directorate and others, [2024] 4 GLR 566: treated as the coordinate bench view suggesting Section 5 does not stipulate furnishing reasons or making them part of the PAO, drawing on confidentiality inferred from the sealed-envelope forwarding rules. This case creates the intra-court conflict that triggers reference.
• S. Narayanappa v. Commissioner of Income Tax, [1967] 63 ITR 219: relied upon in Aftabuddin Ahmed to support non-disclosure at the initiation stage. The Court distinguishes the income-tax evolution and treats S. Narayanappa as not determinative for PMLA Section 5 procedure today.
• GKN Driveshafts [India] Ltd. v. ITO, [2003] 1 SCC 72 and Nusli N. Wadia v. Assistant Commissioner of Income Tax and another, [2023] 16 SCC 677: used to demonstrate jurisprudential shift from confidentiality to procedural fairness—reasons must be furnished upon request.
• Union of India v. Asish Agarwal, [2023] 1 SCC 617: referenced to highlight codification of pre-notice disclosure and opportunity (Income Tax Act’s Section 148A) as a transparency model.
• Aslam Mohammad Merchant v. Competent Authority and others, [2008] 14 SCC 186 and State of Uttar Pradesh and others v. Aryaverth Chawal Udyog and others, [2015] 17 SCC 324: cited for the principle that where a statute requires “reason to believe,” reasons should appear on the face of the notice or be available in materials.
• Arvind Kejriwal v. Directorate of Enforcement, [2025] 2 SCC 248: although in the arrest context (Section 19), used powerfully for the proposition that “reasons to believe” are jurisdictional conditions and cannot be withheld if the affected person is to effectively challenge the action. The Court analogises—property rights under Article 300A still require meaningful procedural fairness.
• P.P. Abdulla and another v. Competent Authority and others, [2007] 2 SCC 510: relied upon for the proposition that where reasons must be recorded in writing, the State must produce them before court for scrutiny.

D. Attachment’s “draconian” nature and procedural rigor

• M/s Radha Krishan Industries v. State Of Himachal Pradesh, [2021] 6 SCC 771: used to underscore that provisional attachment is “draconian,” justifying careful insistence on statutory preconditions and reviewability.
• Kaushalya Infrastructure Development Corporation Limited v. Union of India and others, [2023] 18 SCC 526: referred to illustrate that non-speaking/boilerplate satisfaction under Section 5(1) can invalidate attachment; courts can require fresh reasoned orders.
• Union of India v. V. Sriharan, [2016] 7 SCC 1: relied upon for the interpretive discipline that courts cannot read restrictions into statutes that the legislature did not provide.

E. Conflicting authorities on pre-offence properties

• Seema Garg v. Deputy Director, Directorate of Enforcement, 2020 SCC OnLine P&H 738: cited by the petitioner to argue that pre-offence acquired property cannot be attached (except foreign-held PoC scenarios). The Court explicitly finds this view “not in alignment” with Vijay Madanlal Choudhary, M/s. Nav Nirman Builders & Developers Pvt. Ltd., and Pavana Dibbur.
• HDFC Bank Limited v. Government of India, Ministry of Finance, [2021] Cri LJ 3969: cited by the petitioner to argue attachment must be of PoC with a material “connect.” The Court distinguishes by relying on the “value” limb of PoC and the demonstrated downstream ITC benefit to the petitioner.

3.2 Legal Reasoning (How the Court Reached Its Conclusions)

A. Writ jurisdiction despite statutory remedies

The Court acknowledges the PMLA’s internal checks: forwarding under Section 5(2), complaint under Section 5(5), adjudication under Section 8, followed by appeals. Yet it treats provisional attachment as a serious interference with Article 300A rights. Therefore, where the petitioner alleges that the PAO was issued without jurisdiction (i.e., without satisfaction of Section 5(1) conditions), the writ court may intervene to prevent a person’s property from being restrained “without authority of law,” even if only provisionally.

B. The “twin conditions” under Section 5(1) and the Second Proviso

The Court carefully enumerates Section 5(1)’s architecture: (i) material in possession; (ii) reasons recorded in writing; (iii) belief that a person possesses PoC; (iv) belief that PoC is likely to be concealed/transferred/dealt with frustrating confiscation. It then separately considers the Second Proviso’s immediacy/urgency threshold (non-attachment likely to frustrate proceedings).

On facts, the Court treats the alleged fake ITC chain as generating PoC; identifies shell entities; relies on absence of e-way bills and mismatched GST returns; and then uses the petitioner’s alleged transactions with two downstream entities (M/s Krishti Enterprise and M/s L.S. & Company) to support the conclusion of possession/use of part PoC (Rs. 52.66 lakh).

C. “Value of any such property”: equivalent-value attachment even if property predates the crime

The pivotal doctrinal move is the Court’s interpretation of Section 2(1)(u): PoC includes not only property “derived or obtained” from criminal activity, but also “the value of any such property.” Following Vijay Madanlal Choudhary and M/s. Nav Nirman Builders & Developers Pvt. Ltd., the Court holds that if the PoC itself is dissipated into the financial system and is not available for attachment, property of equivalent value may be attached—even if that property was acquired prior to the scheduled offence period.

D. “Reasons to believe” are not barred from inclusion in the PAO; disclosure supports natural justice

The Court rejects the petitioner’s thesis that reasons are confidential and must be kept in a separate file and excluded from the PAO. It reasons:

• Neither Section 5(1) nor the PMLA Rules, 2013 prescribe a restriction on PAO contents.
• The PMLA Rules, 2005 (sealed-envelope forwarding) protect integrity/confidentiality of the material/evidence sent to the Adjudicating Authority, not necessarily the reasons from the affected person.
• Excluding reasons from PAO would make it a “barren order,” undermining effective challenge and natural justice.
• Modern administrative law trends (illustrated through income-tax jurisprudence and Arvind Kejriwal in PMLA arrest context) favour furnishing jurisdictional “reasons to believe” to allow meaningful review.

However, acknowledging institutional consistency, the Court notes that Aftabuddin Ahmed and another v. Enforcement Directorate and others, [2024] 4 GLR 566 suggests a contrary position, prompting reference.

3.3 Impact (Potential Future Consequences)

• Broader attachment exposure: If “value-of” attachment is applied robustly, ED may attach equivalent-value assets even where the specific PoC is not traceable—significantly expanding risk for alleged downstream beneficiaries in layered transactions (including tax/ITC fraud contexts).
• Pre-offence asset vulnerability: Individuals cannot assume that assets acquired earlier are insulated if ED plausibly links them to equivalent value of dissipated PoC.
• Procedural transparency debate: The reference to a larger bench makes this judgment a major pivot point in the Gauhati High Court on whether Section 5(1) reasons are confidential or must be disclosed/embedded in the PAO. This will influence:
  • how PAOs are drafted in the region,
  • how quickly affected persons can mount targeted objections before the Adjudicating Authority, and
  • judicial review intensity at the “provisional attachment” stage.
• Natural justice as a structural check: By framing disclosure as aligned with fairness and anti-fishing expedition safeguards, the judgment encourages a culture of reasoned attachments rather than opaque restraints.

4. Complex Concepts Simplified

• Proceeds of Crime (PoC): Under PMLA, PoC is not only the “tainted asset” directly generated from crime, but also (i) its “value,” and (ii) equivalent value property where the PoC is abroad. The “value” limb means the law targets economic benefit, not merely the original asset’s physical trace.
• Layering: The process of moving illicit value through multiple entities/transactions to make the trail difficult to follow (here, alleged multi-entity ITC pass-through with shell firms).
• Provisional attachment: A temporary restraint (up to 180 days) preventing sale/transfer/creation of third-party interests so that the asset remains available for possible confiscation later; it does not itself transfer title to the State.
• “Reason to believe”: More than suspicion. It is an objective belief a reasonable person could form from existing material. Courts usually examine whether there is a rational “live link” between material and belief, not whether the material is finally sufficient to prove guilt.
• Second Proviso to Section 5(1): Enables immediate attachment in urgency situations where waiting could frustrate proceedings (e.g., likely dissipation/alienation).

5. Conclusion

This judgment consolidates three important doctrinal positions (subject to reference on the third):

• Judicial review remains available against a PAO in writ jurisdiction where a credible case of jurisdictional error is alleged, notwithstanding alternative PMLA remedies.
• Equivalent-value attachment is permissible under the “value of any such property” limb of PoC, enabling attachment of assets even if acquired before the scheduled offence period, where PoC is dissipated/unavailable.
• Procedural transparency is favoured: the Court holds there is no illegality if “reasons to believe” are included in the PAO and suggests such disclosure aligns with natural justice—yet, because a coordinate bench in Aftabuddin Ahmed and another v. Enforcement Directorate and others, [2024] 4 GLR 566 indicates the opposite, the Court refers the issue to a larger bench for authoritative resolution.

In the broader PMLA landscape, the decision strengthens ED’s ability to preserve recoverable economic value (not merely traceable assets) while simultaneously pressing the system toward reasoned, reviewable, and procedurally fair attachments—an issue now poised for clarification by a larger bench.