Linking Predicate Offence and PMLA Proceedings: The Epicentral Role of Vijay Madanlal Judgement

Background:
 

The Prevention of Money-Laundering Act, 2002 (‘PMLA’/’Act’) was enacted to prevent and combat money laundering. The Act confers wide powers on the Enforcement Directorate (‘ED’) to attach, seize and confiscate any property derived from money laundering and to prosecute persons involved in such activities.
 

The offence of money laundering, as provided under Section 3, refers to the involvement in any process or activity connected with the proceeds of crime. ‘Proceeds of crime’ includes any property derived directly or indirectly from a criminal activity relating to a scheduled offence and therefore, it is evident that the offence of money-laundering is fundamentally anchored to the existence of a scheduled offence, also referred to as the ‘predicate offence’. 
 

The authors, in this article, will be examining the evolving paradigms of judicial interpretation on initiation or continuation of proceedings under PMLA if the predicate offence does not survive. This analysis gains significance in the backdrop of the judgement of the Hon’ble Supreme Court in Vijay Madanlal Choudhary v. Union of India[1] (‘Vijay Madanlal’). It is particularly pertinent to analyze whether the dictum laid down in Vijay Madanlal operates as an absolute rule or whether its application depends on the specific facts and circumstances of each case.
 

Legal provisions dealing with effect of trial in predicate offence on proceedings under PMLA
 

Section 8(5) of the PMLA (as introduced) provided that if a person accused of a scheduled offence is acquitted on the conclusion of a trial, then any attachment or retention of property under PMLA would automatically lapse. 
 

However, vide the 2013 Amendment[2], Section 8(5) and Section 8(6) were substituted and the reference to the trial in the predicate offence was removed. Instead, the provisions now refer to the trial for the offence of money laundering under PMLA. Section 8(5) and Section 8(6) of PMLA provide that the Special Court can order confiscation or release of the property involved in money laundering/proceeds of crime depending upon the conclusion of the trial for the offence under PMLA. Therefore, the focus has shifted from the trial of the scheduled offence to the trial of the money laundering offence under PMLA. 
 

Further, Section 44 of PMLA deals with the offences triable by Special Courts. It is noteworthy that vide Finance (No.2) Act, 2019 an Explanation was inserted in Section 44 w.e.f 01.08.2019. Explanation (i) to Section 44 provides that the jurisdiction of the Special Court while dealing with the offence of money laundering shall not be dependent upon any orders passed in respect of the scheduled offence, and the trial of both sets of offences by the same court shall not be construed as joint trial. 
 

It may also be noted that the said amendments seemingly diminished the nexus between proceedings under PMLA and the predicate offence. This led to divergent views from various High Courts. 
 

The Hon’ble Supreme Court in the Vijay Madanlal judgment attempted to reconcile these contrarian holdings. The Hon’ble Court conclusively held that if the accused is acquitted, discharged or if the scheduled offence is quashed by a competent court, the basis for a money laundering charge ceases to exist. 
 

Decisions by judicial fora post the Vijay Madanlal judgment
 

Despite the clarity offered by the Hon’ble Supreme Court in Vijay Madanlal, certain judicial decisions continue to reflect slight deviations. In this light, a question that arises is how a mechanical application of these principles be avoided when the courts deal with unique cases of discharge, acquittal and other forms of disposal involving nuanced facts?
 

Before addressing the above question, it is important to understand the difference between discharge, acquittal and quashing. 
 

The basis of quashing stems from the inherent powers of the High Court vested by Section 482 of CrPC (now Section 528 of BNSS). This provision empowers High Courts to quash FIRs/criminal proceedings to prevent abuse of the process of any court or otherwise to secure the ends of justice. 
 

On the other hand, acquittal and discharge, though often confused, are distinct concepts. Discharge occurs at the preliminary stage itself based on the evidence presented by the prosecution to determine whether sufficient grounds exist to proceed with the criminal proceedings. In contrast, acquittal happens on the merits of the case after the conclusion of the trial when the prosecution fails to establish guilt beyond any reasonable doubt.
 

In this background, the authors have tried to discuss different situations in which the issue of the effect of a trial in the predicate offence on proceedings under PMLA may arise.
 

The authors believe that primarily the following situations may arise: 
 

1. Quashing of the predicate offence on merits or discharge/acquittal of all accused 
    
2. The predicate offence is quashed on technical or procedural grounds (other than merits)
    
3. One or more accused are discharged or acquitted in the predicate offence

(a) Quashing of predicate offence on merits or discharge or acquittal of all accused in the predicate offence
 

The authors believe that wherever the proceedings related to the predicate offence are quashed by High Court or the Supreme Court or where all the accused are either discharged or acquitted in the predicate offence, the predicate offence would not survive. Therefore, in such cases, since the predicate offence is not alive, the proceedings under PMLA will also lapse, provided the quashing or discharge or acquittal is on merits.
 

In cases of both discharge and acquittal, where the order contains findings that there is no predicate offence, PMLA proceedings cannot be initiated even against an individual who is not an accused in the scheduled offence. In other words, such an individual equally derives the benefit of the discharge or acquittal of the other accused. 
 

However, in Vilelie Khamo[3], the Supreme Court has held that the mere discharge of a person in the predicate offence would not, by itself, justify the quashing of summons issued under PMLA. 
 

Further, the Supreme Court in Pavana Dibbur v. The Directorate of Enforcement[4]held that where a person, though accused in the scheduled offence, is later found to have aided in the concealment of the proceeds of crime or to have become involved after the commission of the scheduled offence, such a person cannot claim the benefit of the acquittal of the others in the scheduled offence. The Supreme Court also held that when the prosecution for the scheduled offence concludes with the acquittal or discharge of all accused persons, or when the proceedings for the scheduled offence are entirely quashed, the scheduled offence ceases to exist. Consequently, no prosecution under Section 3 of the PMLA can be sustained, as there would be no proceeds of crime. 
 

Although these rulings do not expressly contradict Vijay Madanlal, they certainly offer a judicial inclination to consider the underlying nature of the proceedings. The authors believe that the proceedings under PMLA will not survive if the predicate offence has been quashed on substantive grounds or merits. 
 

(b) The predicate offence is quashed on technical or procedural grounds
 

The authors believe that if the predicate offence is quashed on technical or procedural grounds and there is no finding on the commission of the predicate offence, the proceedings under PMLA may continue.
 

In Vijayraj Surana v. Assistant Director, Enforcement Directorate [5], the CBI’s FIR was quashed because the SFIO was already investigating the matter and had the exclusive jurisdiction to do so. Since Section 447 of the Companies Act, 2013 is a scheduled offence under PMLA, an ECIR was also filed by the ED, which the Petitioner sought to have quashed because the FIR was quashed. In this context, the Hon’ble Court held that when an FIR is quashed on mere technicalities or procedural irregularities, it cannot ipso facto quash the ECIR. The Hon’ble Court had remarked that a blanket application of the principle laid down in Vijay Madanlal without due regard for the facts of every case shall render both such judgement as well as the very object of PMLA ineffective. The Hon’ble Court had also observed that where PMLA proceedings reveal prima facie ‘proceeds of crime’, the approach of quashing an ECIR on the ground that the FIR was quashed was unjustified. 
 

The Hon’ble Madras High Court in Assistant Directorate v. The State and Ors[6], considered a case where the state police had filed a closure report even though the proceeds of crime were still active. In this case, the accused was in possession of unaccounted cash and attempted to justify it using falsified lottery tickets and sale documents. Despite the presence of ample evidence to implicate the accused, the state police filed a closure report, which was challenged by the ED. The Hon’ble Court held that once the proceeds of crime are traced, PMLA proceedings become a stand-alone process and only for the mere initiation of the same a predicate offence is required. Therefore, since the closure of the predicate offence in this case resulted in the miscarriage of justice, it was set aside. 
 

(c) One or more accused are discharged or acquitted in the predicate offence
 

The authors believe that there may be situations wherein one or more accused are discharged or acquitted in the predicate offence; however, the proceedings continue against other accused. In such situations, whether such persons were involved in any activity or process related to the proceeds of crime needs to be looked into. Thereafter, the proceedings may continue against such persons under PMLA (it being an independent offence) and against the property derived from the offence of money laundering.
 

The Petitioner in the case of Niket Kansal[7] was discharged from the predicate offence; however, charges were framed against the other accused in the predicate offence. Despite this discharge, the ED continued proceedings under PMLA, alleging that the Petitioner's property constituted ‘proceeds of crime.’ In this case, the High Court of Jammu & Kashmir emphasized that determining the validity of an ECIR requires a case-by-case analysis, considering the stage of investigation, grounds for discharge, evidentiary material gathered by the ED, and the presence of ‘proceeds of crime’. The Hon’ble Court held that mechanically quashing the ECIR upon discharge from the predicate offence would undermine the objectives of PMLA. In this case, the discharge was limited to only certain accused, while charges against the remaining accused continued to be in effect. This is a relevant fact as it evidences that the predicate offence has not been fully extinguished. 
 

Similarly, the Telangana High Court[8] held that if there are multiple accused and the proceedings under the scheduled offence are quashed qua one or more accused and the proceedings against the other accused are continuing, PMLA proceedings do not automatically terminate, as the scheduled offence still exists. 
 

Conclusion
 

It is pertinent to note that what emerges from the decisions post-Vijay Madanlal is not defiance of the ruling in Vijay Madanlal, but rather a conscious approach towards its application. This scrutiny, focused on contextual application in the light of discharge, acquittal or quashing, as the case may be, advances the statutory objectives of PMLA. 
 

These judgements do not reflect inconsistency but instead embody a pragmatic reconciliation of judicial principles with statutory intent. Since the Parliament has not clarified on the consequences of the predicate offence being quashed, the principles in Vijay Madanlal shall continue to provide the roadmap for determining the validity of PMLA proceedings in the event of discharge from the scheduled offence. 
 

[The authors are Associate partner, Principal Associate and Associate, respectively, in Direct Tax practice at Lakshmikumaran & Sridharan Attorneys]

[1] 2022 SCC OnLine SC 929

[2] Prevention of Money-laundering (Amendment) Act, 2012, w.e.f 15.02.2013

[3] SLP [CRL.] No. 15189/2024

[4] (2023) 15 Supreme Court Cases 91

[5] W.P.Nos.14782, 14786 & 14787 of 2024 andW.M.P.Nos.16016 to 16024 of 2024

[6] Crl.O.P. No. 28289 of 2023

[7] CRM(M) No. 140/2025

[8] CRIMINAL PETITION No. 15518 OF 2024