The act of money laundering is intrinsically linked to criminal proceeds; it is about disguising their illegal origin. If no such criminal proceeds exist, then there can be no basis for a money-laundering offence, because the core element – the “dirty” asset that is to be “cleaned”– is absent.In this sense, the very existence of an offence under the Prevention of Money Laundering Act (PMLA) is contingent upon what qualifies as “proceeds of crime.” To remove ambiguity, the PMLA itself defines proceeds of crime(PoC).When the PMLA was enacted in 2002, its focus was on property directly or indirectly traceable to a scheduled offence. The aim was to prevent offenders from enjoying wrongful gains and ensure that such property could be confiscated through due process. Although initially the Act did not give right to Enforcement Directorate (ED) to attach equivalent property, meaning untainted assets of the accused which has no relation with criminal activity and matches the value of the proceeds of crime, located in India if the actual proceeds had been moved abroad.To stop offenders from escaping their liability by simply relocating the wrongful gains outside India, the Parliament through subsequent amendments allowed attachment of property of equivalent value in India or abroad.Subsequently, in 2019, the definition was clarified further to cover indirectly acquired or reinvested tainted assets, ensuring that all property with a nexus to criminal activity would fall within the net of “proceeds of crime (PoC)”. This expansion removed interpretive doubts and reinforced the legislative intent to make the regime watertight.After successive amendments and judicial interpretations, courts and tribunals have deconstructed the definition of “PoC” under Section 2(1)(u) of the PMLA into three distinct limbs.The above definition may be deconstructed into three parts: –(i). property derived or obtained (directly or indirectly) as a result of criminal activity relating to scheduled offence; or(ii). the “value of any such property” as above; or(iii). if the property of the nature first above mentioned has been “taken or held” abroad, any other property “equivalent in value” whether held in India or abroad.The interpretive dilemma stems from the very wording of Section 2(u) of the PMLA, which defines “PoC.” The first limb is straightforward – it covers property directly derived from criminal activity (the tainted asset). The difficulty begins with the second limb, which uses the phrase “value of such property” without expressly stating whether it can also mean property “equivalent in value.” In contrast, the third limb explicitly empowers attachment of property “equivalent in value,” but only in situations where the tainted property has been taken outside India.This uneven drafting gives rise to the central question: does the Directorate of Enforcement (ED) have power to attach untainted property of equivalent value only when the actual proceeds of crime are held abroad (third limb), or also when they are siphoned off or untraceable within India?Landmark judgmentsIn the absence of an express provision on whether untainted property of equivalent value can be attached domestically, courts have been called upon to interpret the second and third limbs of the definition. There are series of landmark judgements which have clarified the above question. The Delhi high court in the Axis Bank judgement stated that although the expression “equivalent in value” is expressly used only in the third category, the court held that the “value of such property” used in second category must also be understood in the same sense. Thus, both the second and third categories allow attachment of substitute property equal in value to the tainted property and therefore, if ED is unable to trace the actual tainted property, it may legitimately attach other property of the accused equal in value to such PoC. The reasoning of Axis Bank was further substantiated by the Supreme Court in Vijay MadanLal Chowdhary (VMC) (p.68) where the court considered the argument that attachment of property equivalent in value to the PoC should be permissible only when the actual PoC are situated outside India. This argument was rejected as being untenable. The court held that the definition of “PoC” under the PMLA is deliberately wide. It not only covers the property directly derived or obtained from criminal activity relating to a scheduled offence, but also includes “the value of any such property.” This means that attachment of substitute property is not confined to cases where the tainted property is held abroad; it extends to domestic scenarios as well. Further, the Court drew attention to the definition of “property” under Section 2(1)(v) of the PMLA. This definition is expansive enough to include not only the tainted property itself but also its equivalent value. The Court observed that this broad interpretation furthers the legislative intent behind the PMLA. The recent judgment by Delhi high court in Prakash Industries where it took the jurisprudence of the Axis Bank (supra) to state that it would be pertinent to recall that properties which were acquired prior to the enforcement of the Act may not be completely immune from action under the Act. The expression “proceeds of crime” includes not just tainted property directly derived from the offence, but also untainted property of the accused, so long as it is attached as being equal in value to the tainted property or as property of equivalent value held in India or abroad. However, the court underscored that recourse to these two categories arises only in situations where the actual tainted property cannot be traced or discovered. In such circumstances, the authorities may legitimately attach substitute properties that fall within the ambit of “value of any such property” or “property equivalent in value,” thereby ensuring that offenders do not escape liability merely because the direct proceeds of crime remain unavailable. Breaking the consensus: Supreme Court’s contrary viewIn the case of Pavana Dibbur (which came after the above stated judgments) the Supreme Court was directly confronted with the issue in question. The accused had two properties seized, one of which had been acquired from known sources prior to the commission of the scheduled offence. The court held that “proceeds of crime” must be confined to properties derived from the criminal activity relating to the scheduled offence. Accordingly, observing: “The first property cannot be said to have any connection with the proceeds of crime as the acts constituting the scheduled offence took place after its acquisition.”Post-script-Tribunals: Alignment with VMC/Prakash/Axis Bank; Pavana Dibbur declinedIn light of the clarifications by higher courts regarding the ambit of “proceeds of crime,” the Appellate Tribunals have also interpreted the position in line with this jurisprudence. Recent decisions in Sanjay Chaturvedi v. Deputy Director of Enforcement, Delhi reaffirm this approach. Drawing support from Prakash Industries and VMC, it held that even in the absence of direct or indirect proceeds of crime, “any property” could be attached as its value. Concluding strongly, it observed that any accused committing a predicate offence cannot be permitted to enjoy his other properties by siphoning off the proceeds of crime and then taking shelter under the argument that he is not in possession of the tainted property. Importantly, both tribunals declined to follow Pavana Dibbur, noting that the decision had failed to properly consider para 68 of VMC. Since VMC was rendered by a three-judge bench, whereas Pavana Dibbur was only a division bench decision, the Tribunals held themselves bound by VMC.Earlier, in Vishal Mehta v. Deputy Director, the tribunal once again relied on Prakash Industries and VMC to hold that properties can be attached as “value thereof,” even if purchased prior to the commission of the offence. It further clarified that the third part of Section 2(1)(u) is essentially an extension of the second part and explanatory in nature. The tribunal observed that before this insertion, many litigants had argued that if the proceeds of crime were not available in India, properties situated abroad could not be attached as their value equivalent. The amendment, therefore, was introduced only to address such cases where the properties were not available in India. It concluded that properties may still be attached as “value thereof,” whether located in India or abroadThe other sideEven if one accepts the contention that attaching any equivalent property would render the third limb of Section 2(1)(u) redundant, such an interpretation is not practically workable. Consider a situation where the accused has dissipated the proceeds of crime on an extravagant vacation within India itself, leaving nothing traceable. If the ED is then confined to attaching equivalent property only when the proceeds are siphoned abroad, the objectives of the PMLA would be frustrated. The accused could conveniently evade the law by ensuring that the proceeds are exhausted domestically, making them untraceable. Moreover, this would effectively impose an additional burden on the ED to first prove that the proceeds have been moved outside India before attaching equivalent property – something the statute does not expressly require.The need for judicial scrutinyIt now appears to be settled law that even untainted properties may be attached under the PMLA as “value thereof.” The rationale behind this development is not without merit: an accused who has committed a scheduled offence should not be permitted to shield himself by siphoning away the actual proceeds of crime and then continue to enjoy the benefits of his other assets.That said, while the legislative intent underlying these provisions is undoubtedly sound, the exercise of such a wide power carries with it a serious responsibility. The ED must not resort to attaching untainted properties as a matter of convenience. The spirit of the law requires that serious and genuine efforts be made to trace the actual tainted property first.One situation could arise where ED could indiscriminately attach properties such as company assets or secured collateral hampering the rights of victims, creditors, or financial institutions, it may delay legitimate restitution or recovery proceedings by banks and innocent investors. This situation was factored in Axis Bank (supra), where the Court held that the lawful interest of a bona fide third party, who has acted with due diligence, cannot be put in jeopardy merely because of ED’s attachment powers under PMLA. The Court clarified Section 8(8) of the Act, empowers the Special Court to restore property even after confiscation where a bona fide third-party claimant establishes a legitimate interest.However, while the statutory safeguard exists, in practice it is the third parties who bear the burden of litigating before tribunals and courts to vindicate their rights – often in lengthy and complex proceedings. This procedural delay, in itself, may operate as a form of hardship or penalty.Therefore, it is imperative that appellate tribunals and courts remain vigilant. They must closely scrutinise whether, in each case, the ED has made diligent attempts to identify and trace the original proceeds of crime. Only where such efforts demonstrably fail should the agency be permitted to fall back upon attachment of untainted property as “value equivalent.”Without such judicial scrutiny, there is a real risk that the jurisprudence designed to strengthen the fight against money laundering could become a tool of convenience, diluting fairness and undermining the balance between enforcement and rights of the accused.The author is a fifth year law student at Rajiv Gandhi National University of Law, Punjab.