Unexplained assets not enough to invoke PMLA, says Alld HC

Prayagraj: The Allahabad high court has ruled that assets from unexplained or unknown sources of income cannot be presumed to be “proceeds of crime” arising from a scheduled offence under the Prevention of Money Laundering Act (PMLA), 2002.Granting bail to an accused in a money laundering case, the court said the prosecution must establish a clear link between the assets and a scheduled offence. “A person may have assets derived from unknown sources of income. However, it cannot be presumed that the aforesaid assets are derived from a scheduled offence,” the court observed.Justice Vikram D Chauhan made this observation while granting bail to Sanjay Kumar alias Sanjay Dhiman, an accused in a PMLA case.

The court held that, at the stage of deciding the bail application, the prosecution had failed to sufficiently demonstrate identifiable proceeds of crime arising from a scheduled offence. It also took note of the applicant’s prolonged incarceration and the completion of the investigation.The Enforcement Directorate had initiated proceedings based on multiple FIRs relating to alleged illegal mining in Himachal Pradesh.

According to the agency, money generated from the alleged illegal mining was used to buy a stone crusher unit in Uttar Pradesh, which was later allegedly involved in illegal mining-related transactions.During the hearing, counsel for the applicant argued that the accused was not named in any of the FIRs registered in Himachal. The defence also pointed out that investigations in those cases had resulted in closure reports, several of which had already been accepted by the competent courts.

It was further submitted that the applicant had remained in custody since Nov 18, 2024, while the trial had yet to begin in earnest.Opposing the bail plea, the ED contended that the applicant had played a role in laundering funds allegedly generated through illegal mining and that the stone crusher unit in UP had been purchased using those proceeds.Examining the provisions of the PMLA, the HC observed that money laundering necessarily involves “proceeds of crime” derived from a scheduled offence.

“The ‘proceeds of crime’ are assets derived from criminal activity relating to a scheduled offence,” the court observed.The court noted that the FIRs in Himachal, which formed the basis of the Enforcement Case Information Report (ECIR), had culminated in closure reports, with four already accepted by the respective courts. At the bail stage, this weakened the ED’s claim that the alleged funds constituted proceeds of crime arising from scheduled offences.The court also held that merely alleging possession of assets from unexplained sources would not automatically establish that they were proceeds of crime under the PMLA. While such assets could attract action under other laws, the statutory requirements of the PMLA could not be satisfied without establishing their nexus with a scheduled offence.Referring to recent Supreme Court judgments on personal liberty and prolonged incarceration, the HC reiterated that pre-trial detention should not become punitive when there is little likelihood of the trial concluding within a reasonable time.Taking into account the applicant’s period of custody, completion of the investigation, the grant of bail to a co-accused, and the material available at the bail stage, the HC, in its July 1 order, allowed the bail application.