Attachment of the Proceeds of Crime Section 107

Section 107, BNSS 2023 — the substance

(1) Where a police officer making an investigation has reason to believe that any property is derived or obtained, directly or indirectly, as a result of a criminal activity or from the commission of any offence, he may, with the approval of the Superintendent of Police or Commissioner of Police, make an application to the Court or the Magistrate of such jurisdiction for the attachment of such property.

(2) If the Court or the Magistrate has reasons to believe, whether before or after taking evidence, that all or any of such properties are proceeds of crime, it may issue a notice upon such person calling upon him to show cause within a period of fourteen days as to why an order of attachment shall not be made.

(3) Where the notice specifies any property as being held by any person on behalf of such person, a copy of the notice shall also be served upon such other person.

(4) After considering the explanation, if any, and the material fact available, and after giving a reasonable opportunity of being heard, the Court or the Magistrate may pass an order of attachment in respect of those properties found to be the proceeds of crime. Where the person does not appear or represent his case within the fourteen days, the Court may proceed to pass an ex parte order.

(5) Where the Court or the Magistrate is of opinion that the issuance of notice would defeat the object of the attachment or seizure, it may by an interim order passed ex parte direct attachment or seizure, and such order shall remain in force till an order under sub-section (6) is passed.

(6) If the Court finds the attached or seized properties to be the proceeds of crime, it shall by order direct the District Magistrate to rateably distribute such proceeds of crime to the persons who are affected by such crime.

📖 Attorney General for India v. Amratlal Prajivandas, (1994) 5 SCC 54 (nine Judges)

Facts: A statute provided for the forfeiture of illegally acquired property held by persons convicted or detained under certain laws, and by their relatives and associates. Its validity was challenged on the footing that it visited innocent persons with the consequences of another’s wrongdoing.

Held: The Bench of nine Judges held that a law providing for the forfeiture of illegally acquired property is not a punishment but a measure to deprive a person of the gains of unlawful activity, and that the object is legitimate: a person should not be permitted to retain what he has obtained by crime. The Court held that where such a law extends to property held by relatives and associates, it does so on the footing that the property is in truth that of the person concerned, held through another — and that the statute is valid so long as it affords the person in whose name the property stands a genuine opportunity to establish that it is his own and not the proceeds of the unlawful activity. The Court emphasised that the burden and the opportunity matter: the provision must permit the claimant to show the lawful source of the property, and a scheme which deprives him of that opportunity would stand differently.

Ratio: Forfeiture of illegally acquired property is not a punishment but a deprivation of the gains of unlawful activity, and the object is legitimate. But a person in whose name property stands must have a genuine opportunity to establish that it is lawfully his own.

📖 Vijay Madanlal Choudhary v. Union of India, (2023) 12 SCC 1

Facts: The provisions of a special statute dealing with the attachment and confiscation of the proceeds of crime were challenged, and the Supreme Court examined the meaning of that expression, the nature of an attachment made before conviction, and the safeguards required.

Held: The Supreme Court held that the expression proceeds of crime means property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, and includes the value of any such property — so that property into which the original gain has been converted or transformed is caught, as is property of equivalent value where the original cannot be traced. It held that the existence of a scheduled offence is the foundation: where no such offence is alleged or it has ceased to exist, there can be no proceeds of crime and no attachment. On the nature of attachment before conviction, the Court held that it is a provisional measure intended to prevent the property being dissipated during the proceedings, and is not itself a finding of guilt; but that precisely because it operates before adjudication, it must be attended by procedural safeguards — reasons recorded, a confirmation by an independent authority, and an opportunity to the person affected to be heard.

Ratio: Proceeds of crime means property derived directly or indirectly from criminal activity, including its value where the original cannot be traced, and rests on the existence of the predicate offence. Attachment before conviction is a provisional measure and must be attended by procedural safeguards.

⚠ The questions the section will raise

What standard of proof establishes that property is the proceeds of crime? The section speaks of the Court having reasons to believe, and of properties found to be the proceeds. Whether that requires a prima facie satisfaction or something closer to proof will have to be settled.

What happens to the attachment if the accused is acquitted? The section does not say. An attachment founded on the commission of an offence which the Court has since found not to have been committed by him can hardly survive — but the mechanism for releasing it is not spelt out.

How are the interests of a bona fide purchaser or a secured creditor protected? Sub-section (3) protects a person holding on behalf of another, but not one who acquired the property for value and in good faith before the attachment.

And how is rateable distribution to be worked out among victims whose losses differ in kind and in amount, and who may not all be before the Court? The section gives the District Magistrate the task without giving him the criteria.

The position stated shortly

1. Section 107 is entirely new. The Code contained no general provision for attaching property derived from criminal activity during an investigation.

2. A police officer with reason to believe that property is derived or obtained, directly or indirectly, as a result of criminal activity may, with the approval of the Superintendent or Commissioner of Police, apply to a Court or Magistrate for attachment.

3. The Court may issue a show cause notice requiring an answer within fourteen days; and where the property is held by another on his behalf, that person must be served separately.

4. An order may be made only after considering the explanation and the material, and after a reasonable opportunity of being heard — though an ex parte order may follow if the person does not appear within the fourteen days.

5. An interim ex parte attachment is permissible only where notice would defeat the object, and lasts only until the final order.

6. Proceeds of crime means property derived directly or indirectly from criminal activity, or the value of any such property — so converted property and equivalent value are both caught.

7. Where the properties are found to be proceeds of crime, the Court shall direct the District Magistrate to rateably distribute them to the persons affected by the crime, within sixty days.

8. Forfeiture to the Government occurs only where there are no claimants — so the section is a victim restitution provision as much as a law-enforcement one.

9. Forfeiture of illegally acquired property is not a punishment but a deprivation of the gains of unlawful activity; but a person in whose name property stands must have a genuine opportunity to establish it is lawfully his: Amratlal Prajivandas.

10. Attachment before conviction is a provisional measure to prevent dissipation, and precisely because it operates before adjudication it must be attended by procedural safeguards: Vijay Madanlal Choudhary.