Property Purchased Before Scheduled Offence Cannot Be Treated as Proceeds of Crime: Bombay Hon’ble High Court Quashes PMLA Proceedings Against Accused

Case: Kishore v. Directorate of Enforcement

2026 SCC Online Bom 1437

Introductory Facts

The Bombay High Court was dealing with a challenge to an order taking cognizance and issuing process against the Applicant under Sections 3 and 4 of the Prevention of Money Laundering Act, 2002 ("PMLA"). The Enforcement Directorate alleged that the Applicant had assisted the “Deshmukh family” in laundering proceeds of crime through a company known as M/s. Premier Port Links Pvt. Ltd. The principal allegation related to lands purchased between 2005 and 2007, whereas the scheduled offence was alleged to have been committed during the period 2020-2021.

Submissions by the Parties

The Applicant contended that the prosecution itself alleged that the proceeds of crime were generated only between the months of December 2020 and February 2021. The only allegation against him was that M/s. Premier Port Links Pvt. Ltd. had purchased certain properties at Dhutum Village between 2005 and 2007. Since those properties were acquired nearly fifteen years before the alleged generation of proceeds of crime, they could not possibly constitute proceeds of crime or be connected with money laundering. The Applicant further argued that there was no material showing that he had knowledge of any alleged tainted funds.

The Enforcement Directorate opposed the application and argued that the Applicant was closely associated with the principal accused. It was submitted that M/s. Premier Port Links Pvt. Ltd. had received loans from another company allegedly linked to the Deshmukh family and that the Applicant had facilitated transactions used for layering and routing of tainted funds. Relying upon Vijay Madanlal Choudhary v. Union of India, the ED argued that money laundering is a continuing offence and that the Designated Court had rightly issued process against the Applicant.

Observations of the Hon'ble Court

The Hon’ble High Court closely examined the complaint and found that the prosecution's own case was that the proceeds of crime were generated between December 2020 and February 2021 through alleged collections from orchestra bar owners. Even if the prosecution's assertion regarding earlier transfers to the trust account of the principal accused was accepted, those transfers dated back only to 2013.

The Court emphasized that under the PMLA, the existence of "proceeds of crime" is a sine qua non for the offence of money laundering. Property can qualify as proceeds of crime only if it is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence already accomplished.

Applying this principle, the Court held that the lands purchased by M/s. Premier Port Links Pvt. Ltd. between 2005 and 2007 had no conceivable connection with the alleged proceeds of crime, since the scheduled offence itself was alleged to have occurred much later, during 2020-2021. Even on the prosecution's own version, the properties pre-dated the alleged criminal activity by several years.

The Court relied upon the Supreme Court's decision in Pavana Dibbur v. Directorate of Enforcement, where it was observed that property acquired before the commission of the scheduled offence cannot, ex facie, be linked to the proceeds of crime.

Significantly, the Hon’ble High Court noted that the ED could not point to any material demonstrating either a connection between the Dhutum Village properties and the alleged proceeds of crime or the Applicant's involvement in the laundering activity.

The Court further found that the Designated Court had mechanically issued process without properly applying its mind to the material against the Applicant. The order did not disclose any reasons demonstrating the existence of "sufficient ground for proceeding," a requirement emphasized by the Supreme Court in Sunil Bharti Mittal v. CBI.

Holding that the essential ingredients of offences under Sections 3 and 4 of the PMLA were not made out against the Applicant, the Hon’ble High Court concluded that continuation of the proceedings would amount to an abuse of process. Accordingly, it quashed both the order issuing process and the PMLA complaint insofar as the Applicant was concerned.

Takeaway: The judgment reiterates a fundamental principle under the PMLA—property acquired prior to the commission of the scheduled offence cannot ordinarily be treated as "proceeds of crime." The decision also serves as a reminder that courts must independently scrutinize the material before issuing process and cannot mechanically summon an accused in money laundering proceedings.