Bona Fide Third-Party Property under PMLA: Purchasers, Families and Independent Claimants

Property may be attached while legally owned or possessed by someone who is not accused of the scheduled offence or money-laundering. PMLA does not make non-accused status an automatic shield, but it requires a fair inquiry into source, consideration, notice and the nature of the claimant’s interest.

The first issue is the property’s character

If the asset is directly derived from criminal activity relating to a scheduled offence, transfer to another person does not necessarily erase its tainted character. The enquiry then turns to when and how the claimant obtained the interest and what relief the statutory scheme permits.

If the asset was purchased from lawful funds before the alleged offence, inherited independently or held under a genuine pre-existing arrangement, ED must explain whether it invokes direct proceeds, indirect proceeds or equivalent value. Ownership alone is not proof of laundering.

Good faith and consideration

A bona fide purchaser should demonstrate real consideration, market-consistent value, bank payment, due diligence, registration, possession and lack of collusion or notice. Family transfers, gifts or undervalued transactions attract closer scrutiny because they may conceal beneficial ownership, but relationship alone is not conclusive.

The Axis Bank principles

In Deputy Director, Directorate of Enforcement v. Axis Bank, 2019 SCC OnLine Del 7854, the Delhi High Court developed an influential framework for legitimate third-party interests and equivalent-value attachment. The nature and timing of the interest matter, and the adjudicatory process must distinguish genuine claimants from arrangements designed to frustrate confiscation.

Procedural rights

The claimant should enter the Section 8 proceedings promptly, request relied-upon documents, file title and source material, and seek a property-specific determination. Appeal lies under Section 26. Where final confiscation or restoration is considered, the Special Court’s powers and the claimant provisions must be applied on evidence.

Beneficial ownership remains central

Nominal title will not defeat attachment if the accused funded, controlled and enjoyed the asset. Conversely, ED should not infer beneficial ownership from surname, proximity or occupation without a financial and factual trail.

The correct question is not simply whose name appears on the deed, but whether the claimant’s interest is genuine, independently funded, lawfully acquired and unconnected with the alleged proceeds.

Sources

Delhi High Court, Deputy Director, Directorate of Enforcement v. Axis Bank, 2019 SCC OnLine Del 7854.

Prevention of Money-Laundering Act, 2002, Sections 2(1)(u), 5, 8 and 26: https://www.indiacode.nic.in/handle/123456789/15402

Prevention of Money-laundering (Restoration of Confiscated Property) Rules, 2016.

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