ED Cannot Attach Innocent Party’s Property If Money Laundering Proceeds Are Already Substituted: J&K High Court Unfreezes Golden Palms Project After ₹47 Crore Deposit

In a landmark ruling Jammu & Kashmir and Ladakh High Court held that a private landowner’s project cannot be subjected to continued attachment under the Prevention of Money Laundering Act, 2002 (PMLA) once the alleged “Proceeds of Crime (POC)” invested in the project by another tainted entity are fully substituted by a third-party bona fide deposit.

Allowing the writ , Justice Wasim Sadiq Nargal directed the Enforcement Directorate (ED) to release the attachment on the commercial project “Golden Palms” located at Narwal Bypass, Jammu, which was partially constructed by M/s Adarsh Build Estate Ltd. (M/s ABEL)—an entity involved in a massive ₹25,000 crore ponzi scam under investigation by the ED and the Serious Fraud Investigation Office (SFIO).

The Court held: “It is now this amount of ₹47,16,44,221 which has to become the attached property subject to confiscation and shall be deemed to have replaced mention of the petitioner’s Golden Palms project wherever made in the Provisional Attachment Order.”

“Golden Palms Project Not Product of Crime, But a Victim of It” — Landowner’s Bona Fide Acts Acknowledged

The dispute arose when ED Jaipur issued Provisional Attachment Order No. 03/2022 dated 25.03.2022, freezing four floors of the Golden Palms commercial complex and a ₹11 lakh fixed deposit in the name of M/s Pee Bee Associates, alleging that the construction used ₹47.16 crore of laundered money by M/s ABEL, a company linked to Mukesh Modi, the mastermind behind Adarsh Credit Cooperative Society Ltd. (ACCSL) fraud.

The Court found that M/s Pee Bee Associates had acted entirely bona fide, having entered into a Development Agreement in 2013, years before any criminal allegations surfaced against M/s ABEL in 2018.

Justice Nargal emphasized: “In 2013, there was no occasion or scope for the petitioner to foresee that by 2018, the developer M/s ABEL would be embroiled in money laundering investigations. The petitioner cannot be condemned merely for entering into a contract with a company that was later found culpable.”

“Attachment Cannot Cover Property Not Owned or Controlled by the Accused” — Legal Interest of ABEL Was Limited to Profit

Addressing the nature of the Golden Palms project, the Court underscored that land ownership remained with M/s Pee Bee Associates, and that M/s ABEL only had a financial interest, which was limited to recovering investment and profit post-completion.

Justice Nargal held: “The only right of M/s ABEL vis-à-vis the project was financial return on investment. It never held any ownership, title or legal control over the land or built-up area. Therefore, the project could not be treated as proceeds of crime under Section 2(u) of PMLA.”

The judgment relied on Section 5(1) PMLA and its Explanation, which allows a "person interested" in attached immovable property to continue enjoying it unless proven complicit.

“Golden Palms Is Not Tainted — Only the Money Invested May Be” — Court Clarifies Scope of ‘Proceeds of Crime’

In rejecting the ED’s justification for continuing the attachment despite the deposit of ₹47.16 crore by the petitioner, the Court noted:

“What came to suffer attachment was not Golden Palms per se, but the proceeds of crime valued at ₹47.16 crores. That amount has now been substituted and stands attached. The property must be released.”

Drawing an analogy, the Court observed: “Had the same funds been lying in a bank account, ED would have simply attached the account. It would not have attached the bank building or made its directors co-accused.”

“Law Does Not Prevent Substitution of Attached Property by Monetary Value” — ED’s Objection to Deposit Rejected

The ED had argued that PMLA does not allow for substitution of attached property by equivalent monetary deposit and sought to maintain the project's attached status despite accepting the deposit.

The Court decisively rejected this stance: “Even without a court order, the ED could not have legally refused to accept ₹47.16 crores volunteered by the petitioner to recover proceeds of crime traceable to M/s ABEL. The ED’s own communication dated 08.10.2024 acknowledged the receipt and promised detachment, which it later tried to avoid.”

“Order Dated 06/10/2023 Is Lawful and Binding” — Court Refuses ED’s Application to Vacate Earlier Order

The ED filed CM No. 5058/2024, seeking vacation of the earlier order dated 06.10.2023, which had directed detachment upon deposit of ₹47.16 crores. The Court termed this plea “misconceived and bereft of legal basis.”

Justice Nargal noted: “The petitioner complied with the court’s directive. The money was received and acknowledged by ED. The law does not contemplate unjust enrichment through continued attachment after restitution of alleged proceeds.”

Golden Palms Project Declared Free from Attachment under PMLA

In a comprehensive direction, the Court held: “Consequently, the petitioner’s Golden Palms project, be in its present status and/or in its future developed status, shall be free from effects of PMLA, 2002 in the context of and by reference to the respondent No.3-M/s ABEL.”

The eviction notice dated 12/08/2024, issued by ED under the PMLA (Taking Possession of Attached Properties) Rules, was also declared non est and set aside.

ED Directed to Submit ₹47 Crores to Special PMLA Court as Attached Asset of ABEL

The Court further ordered that: “The amount of ₹47,16,44,221 paid by the petitioner shall now be treated as the attached property under Provisional Attachment Order No. 03/2022. The same shall be submitted by ED before the Special PMLA Court, Jaipur, and all references to the Golden Palms property shall be deemed substituted.”

Innocent Parties Cannot Be Made to Suffer Attachment for Acts of Tainted Developers

The judgment underscores a foundational principle of property law and criminal jurisprudence—that a third party’s lawful asset cannot be penalized merely for having been partially constructed using funds traceable to criminal activity, especially when:

• The land was never owned or controlled by the accused

• The investment preceded any criminal taint

• The investor-petitioner substituted the proceeds voluntarily

The case presents a strong precedent on protecting innocent real estate stakeholders from blanket attachment orders and recognizes that restitution of equivalent monetary value can suffice under PMLA, even if not expressly provided.

Date of Decision: 22 September 2025