PMLA Prosecution Can't Continue If Person Exonerated Of Predicate Offence After Full Investigation: Calcutta High Court

"If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed, there can be no offence of money laundering against him or any one claiming such property being the property linked to the scheduled offence through him," Calcutta High Court, in a significant ruling dated May 22, 2026, held that a prosecution under the Prevention of Money Laundering Act (PMLA) cannot be sustained against a party that has been exonerated of the predicate offence after a full-fledged investigation.

A single-judge bench of Justice Suvra Ghosh observed that while money laundering is a standalone offence, it is fundamentally contingent on the existence of "proceeds of crime" derived from a scheduled offence. The Court quashed the prosecution complaint against Louis Dreyfus Company India Private Limited, noting that the CBI had already concluded the company was not a beneficiary of the alleged criminal activity.

The case originated from a 2014 CBI investigation into alleged circular trading and siphoning of funds involving three Letters of Credit (LCs) issued by the Central Bank of India, causing a loss of ₹234.57 crores. While the CBI filed charge sheets against several individuals, it did not arraign the petitioner company, Louis Dreyfus, concluding that no diversion of funds was established against it. However, the Enforcement Directorate (ED) subsequently filed a prosecution complaint against the company under Section 3 of the PMLA, primarily relying on the statement of a co-accused.

The primary question before the court was whether a PMLA prosecution can continue against a person who was specifically exonerated by the investigating agency of the predicate offence. The court was also called upon to determine the evidentiary value of a co-accused’s statement under Section 50 of the PMLA as the sole basis for initiating a trial.

PMLA Prosecution Dependent On Existence Of Proceeds Of Crime

The Court emphasized that the PMLA only steps in when "proceeds of crime" as defined under Section 2(1)(u) exist. Justice Suvra Ghosh noted that the offence under Section 3 is inextricably linked to wrongful gain from a scheduled offence. The bench observed that the authorities under the 2002 Act cannot prosecute any person on a notional basis or on the assumption that a scheduled offence has been committed.

"The offence of money laundering is an independent offence regarding the process or activity connected with the proceeds of crime... This offence has otherwise nothing to do with the criminal activity relating to a scheduled offence except proceeds of crime derived or obtained as a result of that crime."

Exoneration By CBI Negates Money Laundering Charges

The Court distinguished between a person not being named in an FIR and a person being explicitly exonerated after a full investigation. It was noted that the CBI, being the expert agency for the predicate offence, had investigated the exact same transactions and concluded that the petitioner was not a beneficiary. The Court held that since the CBI found no criminality in the petitioner's involvement in the scheduled offence, the money involved could not be termed "proceeds of crime."

"Since the CBI has exonerated the petitioner from the allegations of his involvement in any criminal activity relating to the scheduled offence, he cannot be accused of indulging in any activity connected to such proceeds of crime."

Prosecution Cannot Start With Statement Of Co-Accused

Regarding the ED’s reliance on the statement of co-accused Manoj Kumar Jain, the Court applied the principles laid down in Kashmira Singh v. State of Madhya Pradesh. It held that a statement recorded under Section 50 of the PMLA can only be used to lend support to other evidence and cannot be the foundation of a prosecution. The bench observed that the proper approach is to first marshal all other evidence excluding the confession and then see if a conviction can be based on it.

"The prosecution cannot start with a statement of co-accused to establish its case. The proper way to approach a case is, first marshal the evidence against the accused excluding the confession altogether from consideration."

Validity Of Warehouse Transactions In Commercial Trade

The Court rejected the ED’s contention that the transactions were mere "paper transactions" or "circular trading." It noted that the petitioner purchased commodities through warehouse trust receipts under The Warehousing (Development and Regulation) Act, 2007. The Court held that such receipts are conclusive proof of sale under the Sale of Goods Act, and physical movement of goods is not a mandatory prerequisite for the legality of such commercial transactions.

ED Cannot Transgress Into Domain Of Predicate Investigating Agency

The bench remarked that the grounds of suspicion raised by the ED were merely a reiteration of the subject matter already investigated by the CBI. It held that once the jurisdictional agency (CBI) had cleared the petitioner of siphoning funds, the ED could not continue to prosecute on the same premise. The Court concluded that allowing the proceedings to continue would be a clear abuse of the process of the law.

"The material available insofar as the petitioner is concerned does not make out a case for the petitioner to stand trial. Allowing the proceeding to continue against him shall amount to abuse of the process of the Court."

The High Court allowed the criminal revision and quashed the PMLA proceedings pending before the City Sessions Court, Calcutta, specifically against Louis Dreyfus Company. The Court ordered the immediate release of the petitioner and discharge of bail bonds, while clarifying that the trial would continue against other accused persons.

Date of Decision: 22 May 2026