Quashing PMLA Cases – When Can High Courts Intervene?
The Prevention of Money Laundering Act (PMLA) confers broad powers upon enforcement agencies to investigate and prosecute offences involving the laundering of illicit proceeds. However, over time, courts have underscored that these powers are not unfettered. For a valid invocation of PMLA, strict compliance with statutory preconditions is essential. This includes the existence of a scheduled offence as defined in the Act and the presence of identifiable proceeds of crime. Without satisfying these fundamental elements, any action initiated under PMLA, be it attachment, arrest, or prosecution, fails the legal test.
Courts have particularly emphasized that PMLA proceedings cannot stand independent of a live and sustainable predicate offence. Suppose the scheduled offence is under investigation, stayed, or dismissed, and there is no credible material linking the alleged proceeds to that offence. In that case, the enforcement of PMLA becomes procedurally and constitutionally suspect. Moreover, judicial scrutiny has distinguished between mere suspicion and concrete, demonstrable evidence. The absence of a clear nexus between the alleged offence and the property sought to be attached or investigated renders the process vulnerable to being quashed.
This evolving jurisprudence reflects the judiciary's commitment to maintaining a balance between effective law enforcement and individual rights. Courts have cautioned against the premature use of coercive measures such as property attachment or custodial interrogation, particularly where foundational requirements are not satisfied. The emerging principle is that PMLA cannot be used as a tool for speculative investigation, and a clear evidentiary trail must back enforcement actions. Ultimately, the consistent message from the judiciary is that the extraordinary powers under PMLA must operate within the limits of legality, fairness, and constitutional discipline.
Grounds for FIR (First Information Report) under PMLA and Its Unique Framework
An FIR is a formal written document prepared by the police when they receive information about the commission of a cognizable offence. It sets the criminal law in motion and forms the basis of investigation. Under Indian criminal procedure, an FIR must disclose the commission of a cognizable offence under Section 154 of the Code of Criminal Procedure, 1973, and is a mandatory prerequisite before investigation begins in such cases.
The registration of an FIR under PMLA is inherently derivative and not autonomous, unlike typical criminal statutes. Uniquely, PMLA proceedings cannot be initiated in isolation; they are contingent upon the existence of a scheduled offence listed under the Act. The foundational requirement is that a predicate offence, such as fraud, corruption, or narcotics-related crimes, must be registered by a competent authority under the relevant law.
Only when such a scheduled offence is established and there are proceeds of crime derived from it, can the Enforcement Directorate (ED) initiate action under PMLA. The ECIR (Enforcement Case Information Report), while functionally like an FIR, is not governed by the CrPC and is treated as an internal document. This dual-layered structure, which predicates an offence plus laundering nexus, makes the PMLA distinct in terms of its jurisdictional threshold and enforcement mechanics.
Legal Framework for Quashing PMLA Proceedings
Under PMLA:
- Section 3 defines the offence of money laundering.
- Section 2(1)(u) defines proceeds of crime.
- Section 44 permits the trial of PMLA offences along with scheduled offences.
- Section 45 imposes twin bail conditions and procedural rigour.
The PMLA offence is derivative; it cannot exist in a vacuum. Without a scheduled offence, and unless the ED can trace proceeds of crime to such an offence, PMLA action cannot be sustained. This principle was settled by the Supreme Court of India in Vijay Madanlal Choudhary v. Union of India, (2022) 10 SCC 60, para 254, where the Court held:
"In the absence of a scheduled offence, there can be no offence of money laundering."
The Court further reiterated in para 187(v)(d) that if the scheduled offence is quashed, PMLA proceedings automatically fall.
Building on this, courts have recognized that the threshold for initiating or sustaining prosecution under PMLA is not merely procedural, but also jurisdictional. If the predicate offence is quashed, stayed, or lacks prima facie merit, then continuation of PMLA proceedings becomes legally unsustainable.
Furthermore, the structure of PMLA, as interpreted by courts, does not permit retrospective justification of action through post-facto findings. The High Courts have repeatedly held that mere registration of an ECIR or invocation of PMLA does not automatically shield enforcement actions from judicial scrutiny. Lack of evidentiary linkage, abuse of process, or absence of jurisdictional facts have been accepted as valid grounds for quashing such proceedings.
Guardrails of Justice: How High Courts Are Shaping PMLA Application
Several key judicial decisions have significantly influenced the evolving application of the Prevention of Money Laundering Act. These rulings by various High Courts not only reaffirm procedural safeguards but also clarify the boundaries within which investigative powers must operate.
1. Rashmi Metallics Ltd. v. Enforcement Directorate
Citation: 2022 SCC OnLine Cal 2316 : (2023) 238 AIC 398 (Cal)
Facts:
ED initiated proceedings based on allegations of tax irregularities and shell companies. However, there was no FIR, charge sheet, or investigation under any scheduled offence. The only material was an Income Tax survey report.
Held (paras 1–2, 24.6–24.7):
"The absence of a predicate offence robs the ED of its jurisdiction. PMLA cannot be invoked in anticipation of a scheduled offence."1
2. Hygro Chemicals Pvt. Ltd. v. Union of India
Citation: 2023 SCC OnLine TS 4457 (Telangana High Court, Hyderabad)
Facts:
ED initiated an ECIR based on findings under FEMA and Customs Act. However, no FIR or prosecution under any scheduled offence was filed.
Held (referenced in Rajiv Channa v. Union of India, 2024 SCC OnLine Del, para 40):
"Proceedings under PMLA must flow from the existence of a scheduled offence. Mere regulatory infractions cannot trigger criminal prosecution under the Act."2
3. RP Infosystem Ltd. & Anr. v. Enforcement Directorate
Citation: 2023 SCC OnLine Cal 1494
Facts:
Action was initiated based on a CBI (Central Bureau of India) FIR that was later quashed. Despite this, ED continued with attachments and summons under PMLA.
Held (paras 1–2):
"Once the scheduled offence ceases to exist, the PMLA proceeding is without foundation and is liable to be quashed."
Comparative Legal Insight
These rulings confirm the following key principles:
- No PMLA without a predicate offence.
- Regulatory violations cannot attract PMLA unless they are tied to a scheduled criminal statute.
- Courts have jurisdiction to quash ECIRs lacking a legal foundation.
- Judicial scrutiny ensures protection against coercive misuse.3
Relevant Supreme Court Judgments Supporting Quashing Jurisdiction
1. Vijay Madanlal Choudhary v. Union of India
(2022) 10 SCC 60
Para 254:
"In the absence of a scheduled offence, there can be no offence of money laundering."
Para 187(v)(d):
Quashing the predicate offence results in the collapse of PMLA proceedings.4
2. State of Haryana v. Bhajan Lal
1992 Supp (1) SCC 335
Although paragraph numbers were not used in this older judgment, it laid down seven classic categories under which criminal proceedings may be quashed under Section 482 of the CrPC.
3. Anand Kumar v. Directorate of Enforcement
2023 SCC OnLine SC 1024
the judgment held:
"Without actual proceeds of crime derived from a scheduled offence, PMLA proceedings are rendered infructuous."5
In conclusion, recent High Court and the Supreme Court of India rulings strongly reaffirm the importance of procedural safeguards and uphold the constitutional balance in PMLA proceedings, establishing key legal principles that now serve as guiding standards for quashing:
- No PMLA without a predicate offence: Proceedings cannot commence unless a scheduled offence is prima facie made out and under active investigation or trial.
- Linkage to proceeds of crime is essential: Vague allegations, financial irregularities, or regulatory infractions without connection to a scheduled offence do not meet the statutory threshold.
- Dependency doctrine applies: If the predicate offence is quashed, compounded, or closed, then PMLA proceedings automatically fall for want of jurisdiction.
- Abuse of process can justify quashing: Courts will not hesitate to intervene where ED's action is premature, excessive, mala fide, or violative of natural justice.
The decisions in Rashmi Metallics, Hygro Chemicals, and RP Infosystem collectively signal a calibrated judicial response, one that recognises the importance of financial crime control but insists on constitutional fidelity, proportionality, and legal rigor. This evolving jurisprudence ensures that enforcement of PMLA remains accountable, just, and within the bounds of statutory intent.
However, the evolving jurisprudence surrounding PMLA enforcement reflects a consistent judicial commitment to preserving procedural safeguards and ensuring constitutional discipline. Courts have clarified that PMLA proceedings cannot be sustained without a demonstrable and ongoing predicate offence, and that mere financial misconduct without a direct link to proceeds of crime is insufficient.
The doctrine of dependency implies that proceedings under the PMLA cannot stand if the underlying scheduled offence fails to sustain. Moreover, courts are justified in intervening where the Enforcement Directorate's actions are found to be premature, disproportionate, or driven by malafide intent. Collectively, these legal standards reinforce that the extraordinary powers under PMLA must be exercised with legality, proportionality, and due process. Judicial oversight thus functions not just as a case-specific remedy but as a systemic check on arbitrary or excessive enforcement, safeguarding the rule of law in the realm of financial crime.
Footnotes
1. https://indiankanoon.org/doc/77490328/?utm_source
2. https://csis.tshc.gov.in/hcorders/2022/wp/wp_44343_2022.pdf?utm
3. indiankanoon.org/doc/160906755/?utm_
4. https://indiankanoon.org/doc/14485072/
5. https://indiankanoon.org/doc/88839734/
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