Gauhati High Court Clarifies ‘Reason to Believe’ for Provisional Attachment Under PMLA Need Not Be Confidential or Excluded from Order

Background and Challenge
In this writ petition under Article 226 of the Constitution, the petitioner challenged a Provisional Attachment Order (PAO) dated 30.03.2026 issued by the Deputy Director, Directorate of Enforcement, under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA). The PAO provisionally attached three plots of land belonging to the petitioner, holding that the order would remain in force for 180 days or until an order by the Adjudicating Authority under Section 8(3) of the PMLA, whichever is earlier. The petitioner also sought to restrain the respondents from taking coercive steps pursuant to the PAO and challenged a related summons issued by the Special Court under the PMLA.

Petitioner’s Submissions
The petitioner, represented by senior counsel, raised four main grounds: (1) that ‘reason to believe’ must be formed and recorded prior to initiation of proceedings and should not be part of the PAO as it is confidential; (2) that only property traceable as ‘proceeds of crime’ (PoC) can be attached, and mere equivalence in value is insufficient if the PoC is not traceable; (3) that property purchased prior to the alleged commission of the scheduled offence cannot be attached; and (4) that the Authorized Officer must be satisfied, based on material, of the urgency and risk of alienation before attaching property. The petitioner argued that these elements were lacking, rendering the PAO unsustainable in law.

Enforcement Directorate’s Response
The Enforcement Directorate countered that the Authorized Officer had reached satisfaction based on material in his possession, forming a valid ‘reason to believe’ that PoC existed and was at risk of being concealed or transferred. The reasons were recorded in writing prior to the PAO and included in the order. The Directorate argued there was no statutory bar to including the reasons in the PAO and that doing so aligned with principles of natural justice. The Directorate also contended that the petitioner should pursue the statutory remedy before the Adjudicating Authority rather than invoking writ jurisdiction.

Court’s Analysis on Maintainability and Jurisdiction
The Court reviewed the statutory scheme of the PMLA, emphasizing that while alternative remedies exist before the Adjudicating Authority and Appellate Tribunal, writ jurisdiction may be invoked where jurisdictional errors or violations of fundamental rights are alleged. The Court noted that provisional attachment is a preventive, not punitive, measure, but it does affect the constitutional right to property under Article 300A. If a jurisdictional error is established, writ relief may be warranted.

Reason to Believe and Attachment of Property
The Court examined the statutory requirements under Section 5(1) of the PMLA, which mandate that the Authorized Officer must have ‘reason to believe’, based on material in possession, that a person is in possession of PoC and that such PoC is likely to be concealed or transferred. The Court found that the Authorized Officer had adequate, reliable, and verifiable material to form such belief, including evidence of fraudulent availment and utilization of Input Tax Credit (ITC) through shell entities, with the petitioner’s entity being a beneficiary of such transactions. The Court held that the conditions precedent for passing the PAO were satisfied.

Attachment of Property Purchased Prior to Scheduled Offence
The petitioner argued that the attached properties were purchased before the commission of the scheduled offence and thus could not be attached. The Court, relying on Supreme Court precedents, clarified that the definition of PoC under Section 2(1)(u) of the PMLA is broad enough to include property equivalent in value to the PoC, even if the actual asset is no longer available. Thus, properties purchased prior to the offence can be attached if they represent the value of PoC.

Disclosure of ‘Reason to Believe’ in the PAO
The central issue was whether the ‘reason to believe’ must be kept confidential and excluded from the PAO. The Court conducted an extensive review of statutory provisions, rules, and judicial precedents, including the evolution of the concept of ‘reason to believe’ in tax and forfeiture laws. The Court found no statutory restriction in the PMLA or its rules requiring the ‘reason to believe’ to be kept confidential or excluded from the PAO. On the contrary, the Court held that including the reasons in the PAO aligns with principles of natural justice and fair play, enabling the affected person to understand the basis of the attachment and challenge it effectively.

Reference to Larger Bench
The Court noted a contrary view expressed by a coordinate bench in Aftabuddin Ahmed, which held that the ‘reason to believe’ is confidential and should not be furnished to the affected person. To ensure judicial consistency, the Court referred the following questions to a larger bench: (i) whether the ‘reason to believe’ recorded by the Authorized Officer is confidential and/or must be furnished to the affected person; and (ii) whether including such reasons in the PAO causes any jurisdictional error.

Conclusion
The Court concluded that the inclusion of the ‘reason to believe’ in the PAO does not render the order illegal or jurisdictionally defective. The writ petition was found to be without merit, and the matter was referred to the Chief Justice for constitution of a larger bench to resolve the issue of disclosure of ‘reason to believe’ in PAOs under the PMLA.