-Khushi Dhingra
A paradox surrounds the Prevention of Money Laundering Act, 2002 [“PMLA”]: it creates an independent prosecution machinery for an offence that cannot, by its own definition, exist in the absence of an underlying scheduled offence. This paradox is most revealed when the Enforcement Directorate [“ED”] prosecutes a money laundering case while the predicate offence proceedings are either: (a) quashed, the accused discharged or acquitted, or (b) stayed, or (c) inactive.
This blog firstly examines the interconnection between the predicate offence and the PMLA trial and then proceeds to a brief discussion on the effect of: (1) quashing, discharge, or acquittal in the predicate offence, and (2) a stay on the predicate offence proceedings. It then critically analyses the Indian jurisprudence on the effect of an inactive predicate offence proceedings, which remains highly uncertain, while drawing lessons from the US jurisprudence.
PMLA as a Derivative Offence by Design
Section 3 of the PMLA defines the offence of money laundering as any process or activity connected with ‘proceeds of crime,’ including its concealment, acquisition, use, and projection as untainted property. The linchpin of this definition is the term ‘proceeds of crime,’ defined under Section 2(1)(u) as property derived, directly or indirectly, from ‘criminal activity relating to a scheduled offence.’ The dependency is absolute. In P. Chidambaram v. Directorate of Enforcement, the Supreme Court (‘SC’) described the scheduled offence as a sine qua non for money laundering. This suggests that the money that is being laundered must first have been generated by the predicate crime. The constitutional bench in Vijay Madanlal Choudhary v. Union of India further held that absent the existence of proceeds of crime, the authorities under the PMLA cannot step in or initiate any prosecution. This yields an inescapable syllogism: no scheduled offence means no proceeds of crime, which further means no money laundering. Yet, the PMLA simultaneously vests investigation and trial in authorities that are entirely separate from those handling the scheduled offence and operate under a mandate that incentivises prosecutorial independence.
Quashing of or Acquittal/Discharge in the Predicate Offence
Courts have correctly affirmed that money laundering is a distinct offence: the PMLA accused need not be named in the predicate case (i.e., the criminal proceedings concerning the scheduled offence that allegedly generated the proceeds of crime), the Special Court may take cognizance without awaiting the predicate trial’s conclusion, and proof of the scheduled offence does not automatically establish money laundering. However, this independence is procedural, not substantive.
Vijay Madanlal Choudhary, at paragraph 187(v)(d), held that final discharge, acquittal, or quashing of the scheduled offence proceedings means there ‘can be no offence of money laundering’ against the accused. In Pavana Dibbur v. Directorate of Enforcement, the SC further held that where the scheduled offence continues against some accused while only certain persons are acquitted or discharged, the PMLA case does not fall, as the predicate offence remains alive in law.
This position preserves the derivative structure of the PMLA by ensuring that the offence of money laundering cannot survive once its legal foundation, which is the scheduled offence/predicate offence, has been extinguished. At the same time, Pavana Dibbur ensures that the focus remains on the continued legal existence of the scheduled offence itself rather than on the culpability of every individual accused.
Stay on the Predicate Offence Proceedings
The Karnataka High Court, in M/s. C Uma Reddy v. Directorate of Enforcement and Nandipi Vijalakshmi v. Deputy Director, Enforcement Directorate, developed a distinction between extinguishment and eclipse of the predicate offence. A quashed or acquitted predicate offence is extinguished; a stayed predicate offence is merely eclipsed, with the offence subsisting in law but its adjudication temporarily suspended. The court’s conclusion that PMLA proceedings must be stayed co-extensively with the predicate stay and automatically revived upon its vacation is both logically consistent and practically sound. This approach prevents the Special Court from adjudicating the existence of the scheduled offence while the predicate offence proceedings are stayed.
The Inactive Predicate Offence
The oft-arising but jurisprudentially most underdeveloped scenario is where the predicate offence proceedings are neither concluded nor formally stayed, but are simply not progressing, which results in Inactive Predicate Offences. This happens in cases where chargesheets are not filed despite FIRs being registered, discharge petitions are pending for years without hearing, and no substantive steps are taken. Meanwhile, the ED proceeds at its own pace under the PMLA, provisionally attaching property and pressing the prosecution. Indian courts have produced two irreconcilable approaches.
The Continuance School
The dominant approach permits the PMLA trial to proceed, subject to the Special Court withholding its final judgment until the predicate proceedings conclude. The SC articulated this most authoritatively in Sidhant Gupta v. Assistant Director, Directorate of Enforcement, directing that the Special Court “shall be at liberty to proceed further with the trial in accordance with law; however, shall not pronounce the final judgment, till the charges are framed in the predicate offence filed by the CBI.” The Madras High Court applied this in Dhara Prasad v. Directorate of Enforcement, and the SC refused to interfere with the HC order. The Telangana High Court in Jagati Publications Pvt. Ltd. v. Enforcement Directorate captured the rationale as- proceeding to judgment without a concluded predicate offence could produce the ‘paradoxical result’ of a money laundering conviction followed by an acquittal of the very scheduled offence that allegedly generated the proceeds.
The Stay School
A more interventionist line of cases holds that the withholding of judgment is an insufficient remedy and that the PMLA trial itself must be stayed where the predicate proceedings have been dormant for an unreasonable period. InS. Martin v. Enforcement Directorate, the SC imposed a stay on PMLA proceedings even at the stage of framing charges.
The most significant articulation of this approach is S. Srividhya & Ors. v. Assistant Director, in which the SC stayed PMLA proceedings in their entirety where no chargesheet had been filed in the predicate offence for over seven years since FIR registration. Srividhya reflects a growing judicial recognition that procedural independence cannot be deployed to subject an accused to a full PMLA trial on the basis of a predicate offence the investigating agency has shown no diligence in pursuing.
This approach also recognizes that prolonged investigative inertia can itself become a source of prejudice. Allowing the ED to continue coercive proceedings while the investigating agency fails to advance the predicate case undermines fairness, prolongs uncertainty, and permits the derivative offence to overshadow the very crime from which it derives. This school, therefore, protects individual liberty more robustly than continuing the PMLA trial, but only by making the ED’s ability to timely prosecute proceeds of crime hostage to the pace of an entirely separate investigation it does not control.
Why the Continuance School’s Remedy Falls Short
The formal permission to proceed to the reserved judgment stage is, at best, impractical, and at worst, a harassment of the accused and a waste of essential legal resources. At the prosecution evidence stage, the ED must prove, as is the case with all criminal trials, beyond reasonable doubt (as a foundational fact), that the property in question was derived from a scheduled offence. It has no jurisdiction to try that offence, and must rely either on a prior conviction or independent evidence sufficient to establish its commission.
Section 24 of the PMLA, which raises a presumption that proceeds are involved in money laundering once certain foundational facts are established, does not bridge this gap. Vijay Madanlal Choudhary at paragraph 99 is unambiguous: Section 24 is triggered only after the prosecution proves the existence of proceeds of crime. The consequence is that the PMLA trial hits a practical ceiling at the framing of charges. The prosecution evidence stage that follows can generate no conclusive findings on the central question, which is the existence of proceeds of crime, if the predicate case remains unresolved.
Borrowing the Jurisprudence from the United States
The contrast with US jurisprudence indicates precisely where the Indian jurisprudence fails to provide an adequate solution. Under 18 U.S.C. § 1956, the US Money Laundering Control Act, the “specified unlawful activity” (‘SUA’) is an element of the money laundering offence to be proven within the money laundering trial itself. No predicate conviction is required. No stay of money laundering proceedings is mandated pending any SUA prosecution. The money laundering trial proceeds to its own conclusion entirely independently of whatever happens, or does not happen, in the SUA case.
Most significantly, an acquittal on the SUA does not preclude or undo a money laundering conviction. The two offences carry distinct elements and are evaluated on their own evidence; a finding in one proceeding does not bind the other. This is the direct inverse of the Indian position under Vijay Madanlal Choudhary, where total extinguishment of the predicate necessarily extinguishes the PMLA prosecution.
In Cuellar v. United States, 553 U.S. 550 (2008), a unanimous Supreme Court analysed the elements of § 1956 on an entirely self-contained basis, holding that a conviction for transporting currency across an international border to conceal its illicit origin requires proof that the transportation was specifically “designed” to affect that concealment, not merely incidental to it. The Court’s analysis proceeded entirely within the money laundering framework, with no reference to any predicate prosecution or its outcome.
India has not adopted this model and, given the constitutional bench’s clear articulation of the PMLA’s derivative character, cannot do so by judicial interpretation alone.
Conclusion
The PMLA was built to pursue a specific harm: the process by which the proceeds of crime are cleansed and returned to the legitimate economy. The scheduled offence is the foundation of that project. Without it, there are no criminal proceeds; without criminal proceeds, there is nothing to launder. An inactive predicate offence trial indicates a vital gap in India’s money laundering law and raises the larger question of the independence of both trials.
India adopts a model where both trials are independent but simultaneous. However, this produces more problems than it solves. The US model offers one answer: treat the predicate as an element within the money laundering trial, remove the dependency, and let the prosecution prove its case or fail on its own evidence. Whether India moves in that direction legislatively or instead directs Special Courts to tether PMLA proceedings to the fate of the predicate case, the prevailing jurisprudence of letting the PMLA trial proceed but reserving judgement serves no one well, least of all the statute’s stated purpose.
The author is a fifth-year B.A., LL.B. (Hons.) student at National Law Institute University, Bhopal.
