Introduction
Real estate has historically been the preferred vehicle for money laundering in India, and the structural reasons for this preference are deeply embedded in both the regulatory architecture governing property transactions and the informal norms of the real estate market. Property transactions permit the integration of cash generated from criminal activity into the legitimate economy in a form that is simultaneously a store of value, a productive asset, and a vehicle for further appreciation. The mechanisms are well documented: under-registration of sale consideration to allow payment of a portion in unaccounted cash, benami ownership through family members or employees, holding through layers of private limited companies and special purpose vehicles, and, increasingly, through complex structures that exploit the gaps between PMLA’s proceeds of crime framework and the RERA (Real Estate Regulation and Development Act) disclosure regime. This article examines the overlap between PMLA, the Prohibition of Benami Property Transactions Act 1988 (as amended in 2016), and RERA’s disclosure requirements, and considers the challenges posed by shell company layering in real estate transactions.
Legal Framework
The PMLA’s application to real estate is straightforward in principle: where property is purchased using proceeds of crime, the property is itself proceeds of crime and is subject to attachment under Section 5 and confiscation under Section 8. The Adjudicating Authority under PMLA exercises jurisdiction over the property regardless of whether it has been registered in the accused’s name or in the name of a third party (benami holder).
The Prohibition of Benami Property Transactions Act, 1988, comprehensively amended in 2016 to give it greater enforcement force, operates in parallel with PMLA. Section 2(9) of the Benami Act defines a “benami transaction” as a transaction where property is transferred to one person but the consideration is paid by another; the beneficial owner is typically the person who paid the consideration and controls the property. Benami transactions are prohibited under Section 3 of the Benami Act, and property found to be benami is liable to confiscation by the Initiating Officer (typically a designated income tax authority) and confirmed by the Adjudicating Authority under the Benami Act, a separate body from the PMLA Adjudicating Authority.
The dual adjudication mechanism creates significant coordination challenges. Where the same property is identified as both benami and as PMLA proceeds of crime, both the Benami Act’s Adjudicating Authority and PMLA’s Adjudicating Authority may assert jurisdiction, and their orders may conflict. There is no statutory mechanism for coordination between the two proceedings, though in practice the Income Tax Department and ED coordinate informally. The absence of a formal coordination mechanism has generated litigation about which confiscation order takes precedence.
RERA, enacted in 2016 and implemented progressively across states, imposes obligations on real estate promoters to disclose the source of funds for their projects. Section 4 of RERA requires a promoter, at the time of registration, to furnish a declaration about the legal title to the land, the encumbrances thereon, and the arrangements for financing the project. While RERA’s intent is consumer protection, the disclosure requirement about financing arrangements has AML relevance: projects financed partly through unaccounted funds would necessarily involve false disclosure of the financing source, creating a predicate offence (cheating or fraud) in addition to any PMLA exposure.
The Ministry of Corporate Affairs’ beneficial ownership framework under the Companies Act, 2013, specifically Section 89 (declaration by shareholders) and Rule 9 of the Companies (Significant Beneficial Ownership) Rules, 2018, requires companies to identify and maintain records of significant beneficial owners (those holding 10% or more of the shares or exercising significant influence or control). This framework is directly relevant to real estate held through companies.
Judicial Developments
The Supreme Court’s decision in Ganpati Dealcom Pvt. Ltd. v. Union of India (2019), which upheld the constitutional validity of the 2016 amendments to the Benami Act, established the foundation for aggressive enforcement of benami property laws alongside PMLA. The Court held that the retrospective application of the amended provisions to transactions entered into before 2016 did not violate Article 20(1) of the Constitution (protection against ex post facto laws) because the original 1988 Act already prohibited benami transactions; the 2016 amendment merely enhanced the enforcement mechanism.
Subsequently, however, a Constitution Bench of the Supreme Court in Union of India v. Ganpati Dealcom (2022) reversed the position on retrospectivity, holding that the penal provisions of the 2016 Benami Amendment cannot be applied retrospectively to transactions completed before August 2016. This ruling significantly limited the scope of Benami Act proceedings for pre-2016 transactions, creating pressure on the ED to rely more heavily on PMLA for pre-2016 benami structures.
In Ashok Kumar v. Union of India (2021), the Delhi High Court addressed a case where the same property was attached under both PMLA and the Benami Act. The Court held that the two statutes operate with different objectives (one targeting money laundering, the other targeting the legal mechanism of benami holding) and that both can apply to the same transaction. However, confiscation under one statute should be sufficient to achieve the state’s objective, and confiscation under both would amount to unjustified double deprivation.
The treatment of bona fide third-party purchasers in the real estate context has received judicial attention in cases involving ED attachment of properties that have passed through multiple sales. The Bombay High Court, in a 2023 case involving the attachment of a residential apartment several steps removed from the alleged predicate offence, held that a purchaser who has paid full market value and conducted due diligence is not disentitled to protection merely because the seller earlier in the chain held the property as benami. This ruling offered some comfort to genuinely innocent purchasers but was limited to its specific facts.
Contemporary Issues and Analysis
Shell company layering in real estate represents one of the most sophisticated and difficult-to-trace money laundering techniques in the Indian context. A typical structure involves an individual who has criminal proceeds establishing or acquiring a shell company (often a dormant company incorporated years earlier with nominal paid-up capital and no business activity). The shell company receives investments from a further upstream shell, which in turn received funds from an offshore entity in a low-tax, limited-disclosure jurisdiction (Mauritius, British Virgin Islands, Cayman Islands). The upstream funds are characterised as foreign direct investment or as loans from foreign entities. The shell company then purchases real estate, which is held as a company asset. The individual exercises de facto control over the property through directorship or through a power of attorney, while on paper the property is an asset of a company with no direct connection to the individual.
The Ministry of Corporate Affairs’ strike-off proceedings against shell companies, significantly intensified after 2016, have disrupted some of these structures by de-registering companies that fail to file annual returns. However, shell company structures are frequently reconstituted; struck-off companies’ assets do not automatically become subject to PMLA proceedings unless the ED independently traces the connection.
The beneficial ownership regime under Companies (SBO) Rules is in principle capable of piercing shell company structures by requiring identification of the natural persons who ultimately control or benefit from the company. In practice, the self-declaration mechanism is inadequate: companies with nominee shareholders or circular shareholding structures can structure their declarations to avoid identifying the true beneficial owner. The MCA’s database of beneficial ownership declarations is not currently integrated with the ED’s investigation systems or with FIU-IND’s financial intelligence database.
RERA’s financing disclosure requirement has not been systematically used as an AML tool. The State Real Estate Regulatory Authorities (RERAs) do not share promoter financing declaration data with FIU-IND or the ED as a matter of routine. Where a promoter has financed a project partly through hawala funds or unaccounted cash, the false disclosure in the RERA registration goes undetected unless the ED independently investigates the project’s finances.
The under-registration phenomenon, where immovable property is registered for a consideration lower than the actual transaction price to reduce stamp duty and permit payment of the difference in cash, remains widespread despite the income tax’s Section 56(2) which deems the circle rate as the transaction value for tax purposes and the Registration Act’s enforcement powers. The cash component of real estate transactions constitutes a classic integration mechanism: criminal proceeds converted to cash are absorbed into an otherwise legitimate property purchase without generating a banking transaction that would trigger STR obligations.
Comparative and International Perspective
The United Kingdom’s Registration of Overseas Entities Act 2022 represents the most significant recent comparative development in real estate AML. The Act requires all overseas entities that own or intend to acquire land in the UK to register with Companies House and disclose their beneficial owners. Failure to register or providing false information is a criminal offence. The Register of Overseas Entities, once fully operational, has begun to surface previously opaque ownership structures, including properties held by individuals from jurisdictions with high money laundering risk.
India has no equivalent of the UK’s beneficial ownership register for real estate specifically. The Registration Act 1908, which governs property registration, requires disclosure of the parties to the registered instrument but not of the ultimate beneficial owner where the purchaser is a company or trust. A proposal to amend the Registration Act to require beneficial owner disclosure at the time of registration has been discussed in law reform circles but not legislated.
The EU’s Sixth Anti-Money Laundering Directive (6AMLD), which member states were required to implement by June 2021, extended criminal liability for money laundering to legal entities (not merely natural persons) and expanded the list of predicate offences. It also required EU member states to ensure that real estate agents, lawyers, and accountants involved in real estate transactions are subject to AML obligations, including STR filing requirements, when handling transactions above a threshold value.
India’s PMLA already applies to real estate developers and agents as reporting entities, but the implementation of STR filing by this sector has been inconsistent. Estate agents frequently lack compliance infrastructure, and the FIU’s outreach to the real estate sector on AML obligations has been limited.
Practical and Policy Implications
For real estate developers, the PMLA reporting entity obligations require implementation of a formal AML compliance programme, including KYC of purchasers for transactions above the prescribed threshold (currently Rs. 10 lakh in cash or high-value property transactions), monitoring of suspicious transactions, and filing of STRs. In practice, many small and mid-sized real estate businesses operate without any formal compliance programme, relying instead on the argument that their transactions are already documented through RERA filings and registration records.
The bank financing of real estate, which typically involves detailed due diligence by the bank on the purchaser, creates a natural AML checkpoint for properties purchased through mortgage financing. However, all-cash purchases of real estate, which remain prevalent in commercial real estate, luxury residential, and agricultural land transactions, are outside the banking system’s oversight and therefore depend entirely on the reporting entity obligations of the estate agent or developer.
Suggestions and Reforms
A national beneficial ownership register for real estate, integrated with the RERA database and the MCA’s beneficial ownership database, would significantly reduce the opacity of shell company-layered real estate holdings. All property registrations should require disclosure of the ultimate beneficial owner (the natural person who ultimately controls or benefits from the property) where the purchaser is a legal entity. The Registrar of Properties should be required to share this data with FIU-IND.
The RERA financing disclosure requirement should be extended to require promoters to disclose the identity of all investors (not merely the promoter entity) in residential and commercial projects above a specified size, with FIU-IND given access to this data for analytical purposes.
The Benami Act Adjudicating Authority and the PMLA Adjudicating Authority should be merged or formally coordinated through a statutory protocol that designates a single forum for property with concurrent benami and PMLA character, eliminating the double-proceedings problem.
Conclusion
Real estate’s role as India’s primary money laundering vehicle reflects structural features of the property market that create opportunities for cash integration, anonymous ownership, and value appreciation that other asset classes do not offer to the same degree. The legal framework, spanning PMLA, the Benami Act, RERA, and the Companies Act, creates multiple overlapping regulatory obligations but significant enforcement gaps, particularly in beneficial ownership transparency and reporting entity compliance in the real estate sector. Addressing these gaps requires not only better coordination between existing enforcement agencies but also structural reforms to the registration and beneficial ownership disclosure framework that would make the opacity currently available to illicit actors less accessible.
