Adv. Adithya Karthik K, BBA, MBA, LL.B., LL.M. (Corporate & Commercial Law), PGD IP Law
Transactions, Capital Markets & Regulatory
Published [date]. Last reviewed [date]. Law stated as at this date.
For an ordinary operating company, the Prevention of Money-Laundering Act, 2002 now does its real work long before anyone is convicted of anything. A provisional attachment of an unencumbered asset worth INR 10 crore carries an illustrative cost of about INR 50 lakh over the first year, five per cent of the value of the asset, made up of lost borrowing capacity, counterparty reaction and the cost of producing records. That cost lands on the balance sheet at the start of the process, not the end, and the Supreme Court has spent 2024 to 2026 tightening how the process begins rather than whether it can begin.
The structure has not moved since Vijay Madanlal Choudhary v. Union of India on 27 July 2022. That judgment kept the offence under section 3 independent of the predicate case, revived the twin conditions for bail in section 45, held that an ECIR is not an FIR and need not be supplied, held that officers of the Directorate are not police officers so that section 50 statements are admissible, and sustained the reverse burden in section 24.
What has moved is the entry point. In Prabir Purkayastha (2024 INSC 414, 15 May 2024) the Court read section 19(1) of the PMLA as verbatim identical to section 43B(1) of the UAPA and called the duty to give written grounds of arrest "sacrosanct" and incapable of breach in any situation. In Arvind Kejriwal v. Directorate of Enforcement (2024 INSC 512, 12 July 2024) the Court held that "reason to believe" under section 19 means a conviction of the mind founded on evidence, that an officer who ignores exculpatory material commits an error of law, and that section 19 sets a higher bar than section 41 of the Code. In February 2025 Radhika Agarwal (2025 INSC 272) carried that same discipline across to arrests under section 104 of the Customs Act and the GST Acts.
Two 2026 decisions matter more to a board than any of the bail rulings. In Nav Nirman Builders and Developers (2026 INSC 130, 6 February 2026) the Supreme Court held that while an appeal against confirmation of attachment under section 8(3) is pending before the Appellate Tribunal, the Special Court cannot order confiscation under section 8(7). In Arun Suri (2026:DHC:1391-DB, 16 February 2026) the Delhi High Court held that ancestral and inherited property enjoys no immunity, because the statute carves out no exception, and that where the tainted property cannot be discovered the Directorate may attach untainted property equivalent in value.
Three thresholds decide most corporate questions.
The first is the Schedule. Part A offences have no monetary floor. Part B offences count only where the total value involved is one crore rupees or more, under section 2(1)(y). Neither the CGST Act nor the Income-tax Act appears in the Schedule at all. The link to tax exposure is indirect and runs through Part A: cheating and forgery under the penal code, section 447 of the Companies Act, the SEBI Act, and section 135 of the Customs Act. A pure evasion allegation does not open a money laundering file. An allegation that invoices were fabricated does.
The second is section 70. Where the contravention is by a company, every person who at the relevant time was in charge of and responsible to the company for the conduct of its business is deemed guilty along with the company. Section 70(2) reaches any director, manager, secretary or other officer with whose consent or connivance, or by reason of whose neglect, the offence occurred. The proviso is the only exit: the person must prove the contravention happened without his knowledge, or that he exercised all due diligence to prevent it. Explanation 1 treats a firm as a company and a partner as a director. Explanation 2 permits the company to be prosecuted on its own.
The third is ten per cent. Under rule 9(3) of the Maintenance of Records Rules as amended in 2023, a beneficial owner of a company is a natural person with more than ten per cent of shares, capital or profits, with the same figure for partnerships, fifteen per cent for unincorporated associations, and ten per cent or more for trust beneficiaries. An operating company is not itself a reporting entity under section 2(1)(wa). Its banks, its intermediaries, its real estate agents and its practising professionals are. So the ten per cent test is applied to the company by someone else, using records the company supplies.
Section 5(1) allows attachment for up to 180 days. A complaint goes to the Adjudicating Authority within thirty days under section 5(5), the Authority gives notice of not less than thirty days under section 8(1), and on confirmation the attachment continues for up to 365 days of investigation or the pendency of proceedings under section 8(3)(a). The asset is frozen for transfer, not for use: section 5(4) preserves enjoyment of attached immovable property. That distinction is where the cost sits.
Attached asset, illustrative INR 10,00,00,000
Window modelled 365 days (180 days to confirmation
under s.8(3), plus 185 days to a
first appellate hearing)
Secured borrowing it would support
at an assumed 60% loan to value INR 6,00,00,000
Assumed premium on replacement
unsecured funding, 300 bps 6,00,00,000 x 3.00% = INR 18,00,000
Assumed operating contribution,
8% p.a. of value INR 80,00,000
Assumed contribution lost, 15%
(lender and counterparty reaction;
use of the asset is preserved) 80,00,000 x 15% = INR 12,00,000
Assumed record production,
valuation and representation
through adjudication and first
appeal INR 20,00,000
= one year carrying cost INR 50,00,000
= as a share of attached value 5.0%Change the loan to value and the number moves, but the shape does not. The dominant cost is not the loss of the asset. It is the loss of the asset as collateral, for a period fixed by statute and extended by the appellate queue.
The summons under section 50 is the first. A person summoned is bound to attend in person or through an authorised agent, bound to state the truth, and bound to produce documents. In Kanhaiya Prasad (2025 INSC 210) the Court confirmed that Article 20(3) does not protect a person summoned as a witness, because there is no formal accusation at that stage. Companies routinely send a finance manager with a carton of papers and keep no schedule of what left the building. That schedule is later the only reliable record of what the Directorate holds.
The second is the thirty-day reply to the Adjudicating Authority's notice, which asks the noticee to indicate the sources of income, earnings or assets out of which the property was acquired. Thirty days is not enough to reconstruct a source-of-funds trail for an asset bought twelve years ago. Either that trail exists in retrievable form or the reply is weak.
The third is retention. Section 12 requires transaction records for five years from the transaction and identity records for five years after the relationship ends, and section 13 allows a penalty of not less than ten thousand rupees and up to one lakh rupees for each failure. Those duties bind the company's bankers and intermediaries, who discharge them by asking the company for beneficial ownership data. Where the answer given to a bank diverges from the company's own register, the divergence is itself the finding.
Manufacturing. The scheduled offence usually arrives through section 135 of the Customs Act in Part A, or through a cheating and forgery overlay on an input credit chain. Plant and land are immovable, visible and attachable, and after Radhika Agarwal the customs and GST arrest that starts the sequence now has to meet recorded reasons to believe with the threshold computation shown.
Technology and services. There is little attachable Indian plant, which is precisely the problem. Where value has moved offshore, the second limb of section 2(1)(u) and the reasoning in Arun Suri allow attachment of Indian property equivalent in value, including property acquired before the alleged offence and property inherited.
Infrastructure and real estate. Real estate agents are within the designated professions in section 2(1)(sa), so the reporting obligation sits inside the transaction chain. Project-level relief has emerged at the edges: substitution of attached property was allowed in M3M India on conditions of clear title, absence of encumbrance, indemnity and disclosure of the source of substitute funds, and restitution to innocent homebuyers was allowed under the second proviso to section 8(8) in Udaipur Entertainment World in October 2025.
Three things.
The larger bench reference on the need and necessity to arrest under section 19, made in July 2024 and recorded in Arvind Kejriwal v. CBI (2024 INSC 687), does not appear to have been answered. Until it is, the standard applied to an arrest varies with the bench.
Section 70 has no apex ruling. The Directorate's own 2025 legal bulletin digests no Supreme Court or High Court decision on the section, and none has surfaced in 2026. The nearest authority, C. Manoharan (Madras High Court, 22 November 2024), sidesteps section 70 by treating a director's liability as personal under section 3 rather than derivative. Our position is that boards should not wait. The due diligence defence in the proviso is evidentiary, and it is won or lost by what the board minutes, the delegation of authority and the approval trail already say. It cannot be constructed afterwards.
Attachment of untainted property divides practitioners. One view is that section 5 still requires the specific property to be at risk of concealment. The other, which Arun Suri and the tribunal line support, is that the second limb of section 2(1)(u) is a value test. We take the second view, and we think the practical consequence is unavoidable: any unencumbered Indian asset of the group should be assumed to be within reach, and the group's collateral planning should be built on that assumption rather than on the hope of a tracing argument.
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Adv. Adithya Karthik K, BBA, MBA, LL.B., LL.M. (Corporate & Commercial Law), PGD IP Law
Transactions, Capital Markets & Regulatory
Published [date]. Last reviewed [date]. Law stated as at this date.
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