INDIA Trends and Developments Contributed by: Vijayendra Pratap Singh, Priyank Ladoia, Arjun Narang and Puneet Dhanoa, AZB & Partners
The Statutory Mechanism for Asset Restoration: Deconstructing Sections 8 (7) and 8 (8) of the PMLA The PMLA contains an important but underutilised mechanism for the restoration of attached property, provided under Sections 8 (7) and 8 (8). In situations where the money-laundering trial cannot proceed or be completed – such as in cases of the accused’s death, the accused absconding or other reasons – the special court is empowered to pass appropriate orders for confiscation or release of the property. Further, the special court is empowered to order res - toration of property (in whole or in part) to a claimant with a legitimate interest who has suffered a quanti - fiable loss due to the offence of money laundering. The special court must be satisfied that the claimant acted in good faith, took reasonable precautions and was not involved in the money-laundering offence. The provision thus protects bona fide third parties including financial creditors by allowing restitution of tainted assets, and it may be invoked even during the pendency of the trial. In the insolvency context, the aforesaid provisions have acquired renewed significance as they provide a statutory pathway through which assets attached under the PMLA may be made available for the benefit of creditors/resolution applicants. However, a likely hurdle to restitution of assets under Section 8 (8) of the PMLA can arise on account of Rule 3A of the Prevention of Money-Laundering (Restora - tion of Confiscated Property) Rules, 2016. Rule 3A states that, for the special court to exercise power of restoration of property and entertain an applica - tion under the second proviso to Section 8 (8) of the PMLA, it is mandatory for the charges under Section 4 of the PMLA to have already been framed. Only after the framing of charges is done can an application for restitution be filed – this requirement was recently reaf - firmed by the Supreme Court in Nav Nirman Builders & Developers Pvt Ltd v Union of India , 2026 INSC 130. Considering that trials under the PMLA are often lengthy and a considerable period of time is typically required before the stage for framing of charges is reached, the requirement imposed by the Supreme
considerable emphasis on finality, predictability and value maximisation. Objectives and enforcement mechanism under the PMLA The PMLA operates in a fundamentally different domain, being a penal statute aimed at combating money laundering and depriving offenders of the pro - ceeds of crime. The Directorate of Enforcement (ED) is the investigating agency under the PMLA, and is empowered under Section 5 of the PMLA to provision - ally attach property believed to constitute proceeds of crime, subject to confirmation by the adjudicating authority. The attachment mechanism under the PMLA serves a dual purpose – ie, it ensures that: • suspected tainted assets are preserved pending investigation and adjudication, thereby preventing their dissipation; and • the attached property remains secured and trace - able as material evidence of the alleged money- laundering offence, enabling the ED to establish the trail of proceeds of crime. The PMLA also provides for eventual confiscation by the central government following prosecution and conviction by the special court under the PMLA. However, the attachment under the PMLA creates fric - tion when the assets of a corporate debtor undergoing CIRP – which are essential for preserving the going- concern value of the corporate debtor – are simultane - ously subject to PMLA proceedings. Under the PMLA, the adjudicating authority may release the property where a person satisfies the adju - dicating authority that their acquisition is bona fide, legitimate and for fair market value paid therefor. A bona fide third party is one who can demonstrate by cogent evidence that they acquired a lawful interest in the property for adequate consideration, or in the case of a financial creditor that it acquired the interest prior to commission of the predicate offence or had no complicity in the money-laundering offence and exercised strict due diligence.
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