Quashing of Predicate Offence Does Not Automatically Nullify PMLA Prosecution: Telangana High Court Refuses to Discharge Accused in ₹50 Crore Money Laundering Case

“Money Laundering Is an Independent Offence—Trial Must Continue Even If Predicate Case Against One Accused Is Quashed” – Telangana High Court ruled that the quashing of a predicate offence against an individual accused does not lead to the automatic termination of proceedings under the Prevention of Money Laundering Act, 2002 (PMLA), especially when other accused and foundational facts remain pending. Dismissing the plea of a real estate developer and his company, the Court affirmed the independent character of offences under PMLA, insisting that judicial scrutiny through trial is necessary in serious economic offences.

Justice K. Lakshman observed, “The offence of money laundering is not concerned with the predicate offence’s procedural fate alone, but with whether a person has dealt with the proceeds of crime. That issue remains to be tried.”

The case relates to the ₹50 crore alleged bribe transfer routed through various corporate entities, part of a larger corruption scandal involving alleged quid pro quo arrangements between politicians and private businesses. The petitioners—Byappanahalli Prabhakar Reddy Kumar (Petitioner No.1) and M/s Cornerstone Property Investments Pvt. Ltd. (Petitioner No.2)—sought quashing of proceedings in Special Case No. 3 of 2021 before the CBI-cum-PMLA Court, Nampally, based on a prior Supreme Court judgment dated October 3, 2024, which had quashed the predicate offence against Petitioner No.1.
The petitioners contended that once the Supreme Court found no material to prosecute Petitioner No.1 under IPC Sections 120B, 420, and PC Act, the linked PMLA case also must fall.

Rejecting the contention, the High Court held that the money laundering offence, though dependent on the existence of a predicate offence for identifying “proceeds of crime,” is not subordinate to the fate of one accused in that predicate case.

Quoting extensively from Vijay Madanlal Choudhary v. Union of India, the Court reiterated: “It is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence that constitutes proceeds of crime. The offence under PMLA is committed not by mere involvement in the predicate offence, but by dealing with such proceeds.”

The Court clarified that even if one accused is acquitted or discharged in the predicate offence, as long as the scheduled offence exists against other co-accused, PMLA proceedings remain valid.
“Unless the predicate offence is quashed entirely qua all accused, the PMLA prosecution does not automatically terminate,” the Court held.

Specific Allegations Warranting Trial
The Enforcement Directorate (ED) alleged that Petitioner No.1, through his company M/s Cornerstone, received ₹50 crore from M/s Walden Properties (owned by co-accused I. Shyam Prasad Reddy) and routed it to three other companies—M/s Gilchrist Investments, M/s Alpha Villas, and M/s Alpha Avenues—which eventually transferred it to M/s Jagati Publications, linked to Y.S. Jagan Mohan Reddy.

The Court noted: “Petitioner No.1 was a conduit in laundering the bribe. Mere absence of charges in the predicate offence does not exonerate him from the offence of money laundering. His role in facilitating the transaction remains to be tested during trial.”

Furthermore, the Court emphasized that serious financial crimes demand deeper scrutiny: “Economic offences corrode the integrity of institutions. Courts must be cautious before truncating such prosecutions at a preliminary stage unless legal grounds are compelling.”

Clarification on the Scope of PMLA Jurisdiction
In a doctrinal clarification, the Court explained: “An accused in a PMLA case need not be an accused in the scheduled offence. If a person, even post facto, assists in hiding or moving the proceeds of crime, he is liable under Section 3 PMLA.”

The Court cited Pavana Dibbur v. ED and Pradeep Nirankarnath Sharma v. ED, to hold that assistance in concealment, layering, or integration of proceeds of crime, even by those outside the core offence, squarely attracts prosecution under PMLA.

The High Court concluded: “In the present case, the role of the petitioners in the transfer of ₹50 crore is not denied. The source, destination, and chain of transfer all require judicial examination. Dismissing the trial would frustrate the very object of the PMLA.”

Accordingly, the Court dismissed the petition seeking quashing of the money laundering proceedings. The accused must now face trial to determine whether they knowingly facilitated the circulation of illicit funds.

This ruling strengthens the enforcement architecture under the PMLA and draws a firm line between quashing a predicate offence for lack of individual evidence and absolving wider financial facilitators without full trial scrutiny.

Date of Decision: April 21, 2025