Property Bought in 2005 Cannot Be ‘Proceeds of Crime’ of 2020: Bombay High Court Quashes PMLA Process Against CA

“Existence of Proceeds of Crime is a Sine Qua Non – No Nexus, No Offence Under Section 3 PMLA”, In a significant ruling on the scope of money laundering prosecutions, the Bombay High Court on 23 February 2026 quashed the issuance of process under the Prevention of Money Laundering Act, 2002 (PMLA) against a Chartered Accountant, holding that property purchased years before the alleged generation of “proceeds of crime” cannot form the basis of prosecution under Sections 3 and 4 of the Act.

Justice Ashwin D. Bhobe, exercising inherent powers under Section 482 Cr.P.C. (now Section 528 BNSS), set aside the Designated Court’s order dated 16.09.2021 issuing process against the Applicant (Accused No. 11) in PMLA Special Case No. 1089 of 2021, observing that the essential ingredient of “proceeds of crime” was absent.

The prosecution originated from an FIR dated 21.04.2021 registered by the CBI alleging offences under Section 7 of the Prevention of Corruption Act, 1988 and Section 120-B IPC, pertaining to the period 2020–2021. The allegation was that Rs. 4.70 crores were collected from bar owners between December 2020 and February 2021 and subsequently laundered through shell companies and routed to a trust.

An ECIR was registered by the Directorate of Enforcement on 11.05.2021. The Applicant, a Chartered Accountant, was arrayed as Accused No. 11 in the complaint. The allegation against him centered on his association with M/s Premier Port Links Pvt. Ltd., which had purchased approximately 20 acres of land at Dhutum Village between 2005 and 2007. It was alleged that loans amounting to Rs. 2.20 crores were infused into the company by an entity linked to the principal accused’s family and that the Applicant facilitated such transactions.

The Designated Court issued process against all accused by a brief order stating that “there are prima-facie sufficient grounds to proceed” under Section 3 punishable under Section 4 PMLA.

The principal question before the High Court was whether the material on record disclosed the essential ingredients of Section 3 PMLA, namely involvement in any process or activity connected with “proceeds of crime.”

The Court emphasized that under Section 2(1)(u), “proceeds of crime” means property derived or obtained as a result of criminal activity relating to a scheduled offence. The existence of such proceeds is foundational.

Justice Bhobe categorically observed:

“The existence of proceeds of crime is a sine qua non of the offence under Section 3 of the PMLA, 2002.”

The Court noted that the alleged proceeds of crime were generated between December 2020 and February 2021, while the property attributed to the Applicant had been purchased between 2005 and 2007. Even assuming that certain funds were transferred to the Trust account from 2013, the acquisition of the land predated such transactions.

The Court held: “The property at Dhutum Village, acquired between 2005 and 2007, ex facie, cannot be said to have any connection with the proceeds of crime, as the acts constituting the scheduled offence took place during the period 2020-2021, i.e. after its acquisition.”

Thus, the temporal disconnect destroyed the foundational requirement of nexus between the property and the alleged criminal activity.

Continuing Offence Argument Rejected in Context

The Enforcement Directorate relied upon Vijay Madanlal Choudhary v. Union of India and Pavana Dibbur v. Directorate of Enforcement to argue that money laundering is a continuing offence and is not dependent on the date of commission of the scheduled offence.

The High Court acknowledged the principle that the offence under Section 3 may be continuing and that a person need not be an accused in the scheduled offence to be prosecuted under PMLA.

However, drawing from Pavana Dibbur, the Court underscored that:

“The conditions precedent for attracting the offence under Section 3 PMLA are that there must be a scheduled offence and that there must be proceeds of crime in relation to the scheduled offence.”

The Court found no material demonstrating that the land acquired in 2005-2007 was derived from, or connected to, proceeds of crime generated in 2020-2021. Nor was there any material indicating that the Applicant knowingly dealt with tainted funds.

Mechanical Issuance of Process Criticised

The High Court also scrutinized the Designated Court’s order issuing process. Relying on Sunil Bharti Mittal v. CBI (2015) 4 SCC 609, the Court reiterated that taking cognizance requires application of mind and that “sufficient ground for proceeding” must be reflected in the order.

Justice Bhobe held: “The order dated 16.09.2021… does not indicate that the Designated Court applied its mind to the material, if any, available against the Applicant.”

“No reasons are found in the order… to conclude that there is prima facie ground to proceed against the Applicant.”

Accordingly, the issuance of process was held to be mechanical and legally unsustainable.

Exercise of Inherent Powers to Prevent Abuse

Finding that the uncontroverted material did not disclose commission of offences under Sections 3 and 4 PMLA against the Applicant, the Court invoked its inherent jurisdiction under Section 482 Cr.P.C. (now Section 528 BNSS) to prevent abuse of process.

The Court concluded: “The ingredients of the offence under Sections 3 and 4 of the PMLA, 2002, are not established against the Applicant.”

The impugned order dated 16.09.2021 issuing process was quashed and the complaint under PMLA was set aside qua the Applicant. The interim application was disposed of and no costs were awarded.

The ruling reinforces a crucial doctrinal safeguard in PMLA jurisprudence: without demonstrable “proceeds of crime” linked to a scheduled offence, prosecution under Section 3 cannot stand. While money laundering may be a continuing offence, there must first exist property derived from criminal activity relating to a scheduled offence.

By holding that property purchased long before the alleged generation of tainted funds cannot automatically be treated as proceeds of crime, the Bombay High Court has drawn a clear boundary against expansive and unsupported application of PMLA.

Date of Decision: 23 February 2026