The Bombay High Court has delivered a pivotal clarification on the temporal relationship between the generation of proceeds of crime and the alleged laundering activity under the Prevention of Money Laundering Act, 2002. The judgment underscores that for an offence under Section 3 of the PMLA to be made out, the property in question must be derived from a scheduled offence that occurred prior to the accused’s involvement. This ruling reinforces the statutory requirement that proceeds of crime cannot be retroactively created by subsequent criminal acts.
Background & Facts
The Dispute
The Applicant, Kishore Dewani, an advocate, was named as Accused No. 11 in a PMLA Special Case filed by the Directorate of Enforcement. The prosecution alleged that he participated in money laundering by permitting his company, M/s. Premier Port Links Pvt. Ltd., to hold land purchased between 2005 and 2007, which was later allegedly used to integrate tainted funds. The predicate offence was a corruption case involving Anil Deshmukh, wherein Rs. 4.7 crores were allegedly collected from bar owners between December 2020 and February 2021.
Procedural History
- 21.04.2021: FIR registered under Section 7 of the Prevention of Corruption Act, 1988, against Anil Deshmukh and others.
- 11.05.2021: ECIR recorded under PMLA, naming Kishore Dewani as Accused No. 11.
- 16.09.2021: Designated Court issued summons against the Applicant, holding that the property at Dhutum Village was linked to proceeds of crime.
- 29.12.2021: Supplementary charge-sheet filed, but no new material implicating the Applicant was added.
- 23.02.2026: Bombay High Court heard the application under Section 482 Cr.P.C. seeking quashing of proceedings.
Relief Sought
The Applicant sought quashing of the complaint and summons issued against him in PMLA Special Case No. 1089 of 2021, arguing that the property in question was acquired years before the scheduled offence occurred, and that he had no knowledge of or involvement in the alleged laundering.
The Legal Issue
The central question was whether Section 3 of the Prevention of Money Laundering Act, 2002 can be invoked against a person for allegedly laundering proceeds of crime when the property allegedly involved was acquired well before the scheduled offence was committed.
Arguments Presented
For the Petitioner
The Applicant’s counsel, Mr. Sunil Manohar, argued that the land at Dhutum Village was purchased between 2005 and 2007, nearly 15 years before the scheduled offence occurred in 2020-2021. He emphasized that proceeds of crime, as defined under Section 2(1)(u), must be derived from a scheduled offence already accomplished. He cited Pavana Dibbur v. Directorate of Enforcement to assert that property acquired prior to the commission of the predicate offence cannot be treated as proceeds of crime. He further contended that the Applicant was neither a director nor a shareholder of the company at the time of purchase, and that the supplementary charge-sheet contained no new evidence linking him to the laundering.
For the Respondent
The ED and State contended that the Applicant facilitated the laundering process by allowing his company to hold assets that were later used to integrate tainted funds. They relied on Vijay Madanlal Choudhary v. Union of India to argue that the offence of money laundering is continuing in nature and that involvement in any stage of the laundering process - placement, layering, or integration - suffices for liability. They pointed to paragraph 12.11 of the complaint, which alleged the Applicant permitted a Rs. 2.2 crore loan from a Deshmukh-linked entity and later transferred shares at nominal value, suggesting complicity.
The Court's Analysis
The Court undertook a meticulous analysis of the statutory framework under Section 3 and Section 2(1)(u) of the PMLA. It held that the definition of proceeds of crime is not expansive enough to encompass property acquired before the scheduled offence. The Court emphasized that the phrase "derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence" requires a clear temporal sequence: the scheduled offence must precede the acquisition or use of the property.
"The property purchased by M/s. Premier Port Links Pvt. Ltd. in the years 2005-2007, unarguably, cannot be said to have any connection with the proceeds of crime, as the acts constituting the scheduled offence took place after its acquisition, i.e. after December 2020 and up to February 2021."
The Court distinguished Vijay Madanlal Choudhary, noting that while the Supreme Court recognized the continuing nature of money laundering, it did not permit the retroactive transformation of legitimate assets into proceeds of crime. The Court further held that the Designated Court’s order failed to apply its mind to the temporal disconnect between the property acquisition and the scheduled offence, violating the requirement under Sunil Bharti Mittal v. CBI that judicial orders must reflect reasoned application of mind.
The Court also rejected the ED’s reliance on the loan transaction and share transfer as evidence of laundering, noting that the Applicant had invested an equal amount and that no evidence showed the loan proceeds were used to launder tainted funds. The absence of any material linking the Rs. 2.2 crore loan to the Rs. 4.7 crore proceeds of crime rendered the allegations speculative.
The Verdict
The Applicant succeeded. The Bombay High Court quashed the complaint and summons against him in PMLA Special Case No. 1089 of 2021. The Court held that proceeds of crime cannot be established retroactively and that no prima facie case was made out against the Applicant under Section 3 of the PMLA.
What This Means For Similar Cases
Property Acquired Before Scheduled Offence Is Not Proceeds of Crime
- Practitioners must challenge PMLA proceedings where the property in question predates the scheduled offence.
- The burden shifts to the prosecution to prove a direct, temporal link between the scheduled offence and the property allegedly laundered.
- Merely alleging that tainted funds were later deposited into an account holding pre-existing assets is insufficient.
Judicial Scrutiny of Summoning Orders Is Mandatory
- Courts must examine whether the order issuing summons reflects a reasoned application of mind to the material against each accused.
- Blanket summoning of all persons named in an ECIR without individualized scrutiny violates Sunil Bharti Mittal.
- Orders lacking reasoning or based on speculative connections are liable to be quashed under Section 482 Cr.P.C.
No Automatic Liability for Corporate Directors
- Mere directorship or shareholding in a company that holds property does not attract PMLA liability.
- Prosecution must establish specific, active involvement in concealment, possession, or use of proceeds of crime.
- Passive ownership or historical association with a company cannot substitute for proof of mens rea under Section 3.
