Are Gift Transfers Immune? Examining ED’s Power to Attach Assets Under PMLA

The attachment of gifted assets has emerged as one of the most complex and consequential aspects of enforcement under the Prevention of Money LaunderingAct, 2002 (PMLA).

As financial crimes, bank frauds, and cross-border laundering schemes have grown in sophistication, the Enforcement Directorate (ED) increasingly encounters a pattern where accused individuals transfer assets often high-value immovable property, to spouses, children, or close associates through gift deeds, settlement instruments, or undervalued conveyances.

However, Gift transfers do not immunize tainted assets. But the answer is not merely statutory; it reflects a multi-layered legal framework that blends preventive enforcement, evidentiary presumptions, constitutional safeguards, and judicial principles of nexus and proportionality.

This article examines these dimensions in depth, demonstrating how the law treats gifted properties, how courts assess such attachments, and what risks, protections, and policy imperatives arise.

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Understanding “Proceeds of Crime” (POC)

The conceptual anchor for ED’s attachment powers is the statutory construct of “proceeds of crime.” POC is not limited to cash or direct earnings from the crime; it includes property indirectly derived, layered, converted, or substituted. This deliberately broad definition reflects the reality that laundering rarely retains the same physical asset it is transformed across jurisdictions, financial instruments, shell entities, and personal relationships.

Critically, the definition also extends to value, not merely physical assets, allowing ED to trace the economic equivalent of tainted property even where it has been dissipated or is held abroad. This value-centric structure enables the law to address the evolving techniques of laundering, where offenders often attempt to disguise POC by transferring them to relatives through gift deeds or nominal transfer arrangements. Such transfers do not interrupt the chain of taint because the law concentrates on origin, not merely ownership.

How can ED Attach Gifted Properties?

A. Section 2(1)(u) - Proceeds of Crime (POC): The statutory definition of “proceeds of crime” is intentionally expansive. It encompasses property derived or obtained directly or indirectly from criminal activity, including assets that have been layered, converted, substituted, or transferred to any person. This formulation enables the Enforcement Directorate (ED) to reach assets gifted to relatives or third parties. Further, the provision recognises value-equivalent attachment, permitting ED to attach other assets when the original POC has been dissipated, concealed, or taken outside India.

B. Section 2(1)(v) – Definition of “Property”: The definition of “property” under PMLA includes every conceivable form of asset—movable or immovable, tangible or intangible—and extends to assets located outside India. By not linking the definition to the identity of the owner, the law enables ED to attach foreign or domestic properties gifted to third parties, so long as they constitute POC or its equivalent value.

C. Section 5 - Provisional Attachment: Section 5 empowers ED to provisionally attach property upon recording “reason to believe” that the asset constitutes POC and is likely to be concealed or transferred. Importantly, the statute does not restrict attachment to property held by the accused. Thus, gifted assets fall within the scope of provisional attachment, provided ED establishes a prima facie nexus with POC. The attachment remains provisional until adjudication and is designed as a preventive measure to preserve the value of illicit assets.

D. Section 8 - Adjudication and Confirmation of Attachment: All provisional attachments must undergo scrutiny before the Adjudicating Authority. A formal notice is issued to the property holder including gift recipients requiring disclosure of the source of acquisition and supporting documentation. Attachment attains finality only upon confirmation by the Authority, ensuring statutory oversight and procedural fairness.

E. Section23 - Presumption in Interconnected Transactions: Where a series of transactions appear interconnected, Section 23 permits a presumption that all such transactions form part of a money-laundering operation. This is relevant to gifts executed during or immediately after the commission of a scheduled offence. The presumption, unless rebutted, supports attachment by treating the gifted asset as part of a broader laundering chain.

F. Section 24 - Reverse Burden of Proof: A defining feature of the PMLA framework is the reverse burden placed upon the person in possession of the property. Once ED presents foundational material indicating that a gifted asset represents POC, the donee bears the statutory burden to establish that the property was acquired legitimately and is untainted. In the context of gift transfers where no consideration passes this provision becomes particularly significant, as donees must independently justify the legitimacy of the asset.

Judicial Position on Attachment of Gifted Assets

Indian courts have repeatedly examined whether gifted or transferred properties can be attached under PMLA, and their jurisprudence has steadily articulated two controlling legal principles: nexus and timing.

Courts have consistently held that the ED must demonstrate a reasonable connection between the asset and the proceeds of crime. This means the attachment cannot be sustained merely because a person is accused; rather, ED must show that the property gifted or otherwise was directly or indirectly derived from the alleged criminal activity or represents its economic value.

The Supreme Court in Vijay Madanlal Choudhary reaffirmed that the existence of proceeds of crime is a sine qua non for any action under PMLA, effectively placing a judicial filter on attachments that lack material linking the property to the alleged offence.

Another important theme emerging from decisions such as Seema Garg and Pavana Dibbur is that the transfer of property to a relative whether by gift, settlement, or undervalued transfer does not break the chain of taint. If ED can show that the transfer was intended to conceal or shield the asset from enforcement, courts have upheld such attachments.

Policy Rationale

Gift deeds are attractive concealment instruments because they circumvent financial transactions and do not require consideration. By empowering ED to look beyond the form of ownership and focus on the source of acquisition, Parliament created a statutory scheme that neutralizes these strategies. The ability to attach gifted assets strengthens deterrence, enhances recovery prospects for public funds, and aligns India’s PMLA regime with FATF recommendations on asset freezing and value confiscation.

Risks, Concerns & Overreach

Despite its preventive purpose, the attachment of gifted properties is not without risks. One concern is the potential impact on innocent donees, often family members, who may have no knowledge of the alleged offence. The reverse burden under Section 24 of the PMLA imposes a significant evidentiary obligation on these individuals, requiring documentation, proof of financial independence, and explanation of the circumstances of the gift. Another area of concern is the use of the “equivalent value” clause, which courts and scholars warn can be misused to target unrelated clean assets under the cover of substituted value. Judicial commentary has stressed the need for ED to demonstrate actual unavailability of original POC before resorting to equivalent-value attachment.

Safeguards in Law

PMLA balances strong attachment powers with several statutory and judicial safeguards. The requirement for ED to record written reasons for attachment, the mandatory filing of a complaint before the Adjudicating Authority, and the need for confirmation under Section 8 all function as checks on administrative excess. High Courts retain jurisdiction under Articles 226 and 227 to review attachments for arbitrariness, non-application of mind, or lack of nexus. Additionally, appellate remedies before the Appellate Tribunal and the Supreme Court provide multi-tiered scrutiny.

Conclusion

Gift transfers do not grant immunity against attachment under PMLA. ED is legally empowered to attach gifted properties if they represent proceeds of crime or equivalent value, and the statutory framework supported by judicial interpretation makes it clear that ownership structure does not limit the reach of enforcement. As laundering techniques evolve, and gift transfers remain a preferred method of concealing illicit wealth, the interplay between ED’s powers and judicial oversight will continue to shape India’s anti-money laundering jurisprudence.

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