UNIT-2

INTRODUCTION AND OBJECT OF THE ACT

Money laundering is the process by which money earned from criminal activities is converted into
money that appears to have come from lawful and legitimate sources. Money generated through
crimes such as drug trafficking, terrorism financing, corruption, smuggling, arms trafficking,
cybercrime, gambling, and organized crime is commonly called dirty money or tainted money.
Through the laundering process, this tainted money is made to appear clean, allowing criminals to
use it in the formal economy without raising suspicion.
In simple terms, money laundering means converting black money (Number Two money) into
white money (Number One money).
The Prevention of Money-Laundering Act, 2002 (PMLA) was created because the world was
becoming increasingly worried about illegal money being used for organized crime, drug
trafficking, and terrorism. In the 1990s, when global terrorism increased, countries around the
world realized they needed to stop terror financing and prevent illegal money from moving across
borders. Money laundering was now seen not just as a financial crime but as a serious danger to
national security, economic stability, and law and order.
International Conventions and Resolutions (Foundation of PMLA)
The PMLA is based on several important international agreements and resolutions:
• UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances,
1988: This was one of the first international agreements asking all countries to take urgent
steps to prevent the laundering of money earned from drug crimes.
• Financial Action Task Force (FATF), 1989: An international organization was created to
coordinate global efforts against money laundering and develop international standards.
Member countries, including India, had to follow these standards.
• UN Political Declaration and Global Programme of Action, 1998: The United Nations
General Assembly called on all member countries to create domestic laws to effectively
prevent the laundering of drug money and other criminal money.
• UN Special Session - 'Countering the World Drug Problem Together': This session
emphasized the need for all countries to work together globally against money laundering.
• UN Convention against Transnational Organized Crime, 2000 (Palermo Convention):
This major convention clearly stated that laundering of crime proceeds should be made a
criminal offense. It required countries to adopt laws, administrative measures, and
enforcement actions to fight organized crime at the international level.
Domestic Background
At the national level, the Narasimham Committee on Banking Sector Reforms highlighted that
the Indian financial system was vulnerable to money laundering activities. The committee stressed
the need for strong regulatory and supervisory systems.
To fulfill India's international obligations from these conventions and resolutions, and using
Article 253 of the Constitution of India (which allows Parliament to make laws to implement
international treaties and agreements), the Indian Parliament enacted the Prevention of Money-
Laundering Act, 2002.
Primary Object of the Act
The main purposes of the Act are to:
• Prevent money laundering
• Prohibit the use of crime proceeds in the financial system
• Provide for attachment, confiscation, and forfeiture of property derived from or involved
in money laundering
(a) NEED FOR COMBATING MONEY-LAUNDERING, MAGNITUDE OF MONEY-
LAUNDERING, ITS STEPS AND VARIOUS METHODS
Need for a Special Law on Money Laundering
The need for a separate and comprehensive law like the Prevention of Money-Laundering Act,
2002 arises from the unique nature, scale, and consequences of money laundering. The reasons for
having a special law are:
1. Generation of Huge Volumes of Criminal Wealth
Modern crimes such as narcotics trafficking, smuggling, corruption, counterfeiting of currency,
gambling, cybercrime, trafficking in arms and ammunition, and sale of national secrets generate
enormous illegal profits. Such large amounts cannot be openly possessed or used without attracting
attention.
2. Conversion of Tainted Money into Untainted Money
Criminals want to convert illegally obtained or tainted money into apparently legitimate money so
that it can be freely used. In common language, this means converting black money into white
money. Ordinary criminal laws were not designed to prevent this.

3. Misuse of the Banking and Financial System

To use illegal money on a large scale, offenders must route it through banks, financial institutions,
and other formal channels. This exposes the financial system to abuse and makes it necessary to
have a specialized law to regulate, monitor, and control such misuse.
4. Threat to National Security and Public Order
Laundered money is frequently used to finance terrorist activities and organized crime. This poses
a serious threat to national security, public order, and the sovereignty of the State. This makes
money laundering far more dangerous than an ordinary economic offense.
5. Inadequacy of Existing Penal Laws
Before the enactment of the PMLA, Indian laws mainly focused on punishing predicate offenses
or scheduled offenses. There was no comprehensive framework to deal specifically with the
laundering of proceeds arising from such offenses.
6. Deterrence through Attachment and Confiscation
One of the most effective ways to prevent serious crime is to ensure that criminals are deprived of
the economic benefits of their illegal activities. By providing for attachment, confiscation, and
forfeiture of proceeds of crime, the Act strikes at the financial foundations of criminal enterprises.
Magnitude of Money Laundering
Money laundering is a global problem of alarming size. According to estimates of the United
Nations Office on Drugs and Crime (UNODC), the amount of money laundered annually ranges
between 2% and 5% of the global Gross Domestic Product (GDP). In money terms, this equals
approximately USD 2.22 trillion to USD 5.54 trillion every year.
Despite significant global investments in anti-money laundering mechanisms, only a very small
fraction—around 1% of laundered funds—is actually detected and seized by authorities.
Major Sources of Illicit Funds:
• Drug trafficking
• Arms smuggling
• Human trafficking
• Corruption
• Fraud
• Cybercrime
The huge volume of laundered money distorts economic systems, weakens financial institutions,
and perpetuates organized crime and terrorism, making strong anti-money laundering laws
essential.
Magnitude in India
In India, laundering is seen in major financial scams like:
• Harshad Mehta scam
 • Satyam scam
• PNB–Nirav Modi scam
• IMA Ponzi scam
India’s location near drug routes (Golden Crescent and Golden Triangle) and terror-affected
regions increases the risk of cross-border money-laundering and terror financing.
How money laundering works?
There are 3 stages in the process of money laundering –
a) Placement
• This stage represents the initial entry of the “dirty” cash or proceeds of crime into
the financial system.
• In this stage, the criminal releases himself of holding and guarding large amounts
of bulky cash and the money is placed into the legitimate (legal) financial system.
• Money launderers are the most vulnerable at this stage as placing large amounts of
cash into the legitimate financial system may raise suspicions (doubts) of officials
and he may get caught
b) Layering-
• That layering is the most complex stage
• It often involves international movement of funds
• The illegal/dirty money is separated from its source
• It's done through sophisticated layering of financial transactions
• This makes the audit trail difficult to follow
• It separates the link with the original crime
In J. Sekar v. Enforcement Directorate (2022), the Supreme Court said money-laundering is a
continuing offence as long as the proceeds exist or are used.
c) Integration –
• The final stage is where the money is returned to the criminal from what seem to
be legitimate sources.
• Having been placed initially as cash and layered through a number of financial
transactions, the criminal proceeds are now fully integrated into the financial
system and can be used for any purpose.
• For example, the purchases of property, art work, jewelry, or high- end automobiles
are common ways for the launderer to enjoy their illegal profits without necessarily
drawing
Methods and Techniques of Money Laundering
Money launderers use a wide range of methods, which constantly change with developments in
financial systems and technology.
1. Hawala Transactions
Hawala is an informal value transfer system common in India and other countries, where money
is transferred through a network of hawaladars (brokers) without physical movement of funds.
Since transactions occur outside the formal banking system, tracing the source of money becomes
extremely difficult.
2. Structuring or Smurfing
In this method, large amounts of cash are broken into smaller deposits below reporting thresholds.
These deposits are made by several individuals, known as smurfs, across different banks to avoid
detection by authorities.
3. Shell Companies
Shell companies are entities with no real business operations. They are used to receive illegal
money as payments for fictitious goods or services, supported by fake invoices and accounts. This
creates an appearance of legitimate business income.
4. Bulk Cash Smuggling
This technique involves physically transporting large sums of cash across borders to countries with
weak regulatory controls and high bank secrecy, where the money can be deposited and laundered
more easily.
5. Third-Party Cheques and Drafts
Counter cheques and banker's drafts drawn on different institutions are cleared through third-party
accounts. Since these instruments are negotiable, establishing a direct link with the original source
of money becomes difficult.
6. Casinos and Gambling
The cash-intensive nature of casinos makes them vulnerable to laundering. Criminals purchase
chips with illegal cash and later redeem them, showing the proceeds as gambling winnings.
7. Insurance and Investment Products
Launderers invest illegal money in insurance policies or financial instruments and later receive
payouts that appear legitimate. Hedge funds and participatory notes are also misused due to limited
disclosure requirements.
8. Credit Cards and Cyber Methods
Illegal money is used to clear credit card balances or routed through online platforms, digital
wallets, and cybercrime networks. Cyber-enabled laundering has become increasingly common
with the growth of digital transactions.
These diverse and sophisticated methods demonstrate the complexity of money laundering and
justify the need for a comprehensive legal framework like the PMLA.
DEFINITIONS, OFFENCE OF MONEY-LAUNDERING & COGNIZANCE
OF OFFENCES
Definitions

Section 2 of PMLA contains key definitions which form the foundation of the Act. The powers
of the Enforcement Directorate (ED) depend entirely on these definitions. Important terms
include:

• Scheduled offence
• Proceeds of crime
• Property
• Beneficial owner

These terms are intentionally wide so that modern and complex methods of money-laundering
do not escape punishment. Without fulfilling these definitions, no case under PMLA can
proceed.

➢ Scheduled offence – the base of money-laundering (S.2(1)(y))

A “scheduled offence” is the foundation of the offence of money-laundering under the

Prevention of Money-Laundering Act, 2002. Money-laundering does not exist independently; it
arises only when property is generated from a scheduled offence. Therefore, unless an
offence is listed in the Schedule of the Act, proceedings under PMLA cannot be initiated.

Section 2(1)(y) classifies scheduled offences into three parts—Part A, Part B and Part C of the
Schedule.

(i) Offences under Part A of the Schedule

Part A includes serious and grave offences, irrespective of the amount involved. These offences
automatically qualify as scheduled offences.

They include offences under:

• Indian Penal Code (cheating, forgery, criminal breach of trust, counterfeiting)

• Prevention of Corruption Act
• NDPS Act
• Unlawful Activities (Prevention) Act (UAPA)
• Arms Act, Explosives Act
• Wildlife Protection Act
• Companies Act, Customs Act, etc.

Key point:
For Part A offences, no minimum monetary threshold is required. Even a small amount is
sufficient to attract PMLA.
(ii) Offences under Part B of the Schedule

Part B covers certain offences that become scheduled offences only when the value involved is
₹1 crore or more.

Earlier, the threshold was ₹30 lakh, but it was increased to ₹1 crore by the 2015 amendment to
reduce unnecessary prosecution for smaller offences.

(iii) Offences under Part C of the Schedule

Part C deals with offences having a cross-border or international dimension. These include:

• Offences committed outside India

• Offences involving cross-border money movement
• Crimes linked to terrorism financing or transnational organised crime

These offences are included to ensure international cooperation and compliance with FATF
standards.

In Vijay Madanlal Choudhary v. Union of India (2022), the Supreme Court held that the
existence of a scheduled offence is a sine qua non for initiating PMLA proceedings, though final
conviction is not required at the initial stage.

If there is no scheduled offence, there can be no proceeds of crime and hence no offence of
money-laundering. However, final conviction for the scheduled offence is not required at the
investigation stage.

➢ Proceeds of crime [Section 2(1)(u)]

The expression “proceeds of crime” lies at the heart of the offence of money-laundering. The
entire jurisdiction of the Enforcement Directorate (ED) under the PMLA depends on the
existence of proceeds of crime.

Under Section 2(1)(u), proceeds of crime means:

• Any property
• Derived or obtained,
• Directly or indirectly,
• By any person,
• As a result of criminal activity related to a scheduled offence.

Proceeds of crime are not limited to property obtained directly from crime (such as bribe money
or fraud proceeds). They also include property obtained indirectly, for example:

• Investing illegal money into businesses

• Buying shares, gold, or real estate
 • Converting cash into cryptocurrency
• Using crime money to earn further income

The definition further provides that:

• If proceeds of crime are taken or held outside India,

• Then property of equivalent value in India or
• Property held abroad itself can be treated as proceeds of crime.

Even if illegal money is converted into shares, cryptocurrency or foreign property, it remains
tainted.
In Vijay Madanlal Choudhary (2022), the Supreme Court held that changing the form or
location of property does not remove its illegal character.

➢ Meaning of property [Section 2(1)(v)]

The definition of “property” under PMLA is very wide. It includes:

• Movable and immovable property

• Tangible and intangible assets
• Cash, securities, digital assets, crypto-currency
• Intellectual property, rights, interests, claims

➢ Beneficial owner – lifting the corporate veil (S.2(1)(fa))

Money-laundering often uses shell companies and dummy names. To tackle this, PMLA focuses
on the beneficial owner, i.e., the person who:

• Ultimately owns or controls the property, or

• Enjoys the benefits of the property

The law looks beyond the registered owner and identifies the real person behind the asset.
Courts have accepted that beneficial ownership is more important than formal ownership.

Offence of Money-Laundering [Section 3 PMLA]

Section 3 defines the substantive offence of money-laundering. It states that any person who
directly or indirectly attempts to indulge, knowingly assists, knowingly becomes a party to, or is
actually involved in any process or activity connected with the proceeds of crime shall be guilty
of money-laundering.

The provision covers a wide range of activities, including:

• concealment of proceeds of crime,

• possession of illicit property,
• acquisition or use of such property,
 • projecting the proceeds as untainted property

Unlike ordinary criminal offences that occur at a single point in time, money-laundering under
PMLA is a process-oriented and continuing offence. Parliament intentionally drafted Section 3
broadly to capture the complex and evolving nature of financial crime.

Expansion through Amendments

Through successive amendments, especially the 2019 amendment, Parliament further widened
Section 3 by adding the words “or claiming it as untainted property.” This change targets
situations where criminals attempt to legitimise illegal assets through:

• false declarations,
• sham transactions,
• bogus investments,
• fictitious loans or share capital,
• forged or artificially created documents.

This ensures that even sophisticated attempts to give a legal colour to criminal property fall
within the scope of PMLA.

Explanation to Section 3 – Continuing Offence Doctrine

The Explanation to Section 3 clarifies two crucial aspects:

1. Any one activity is sufficient – A person is guilty if he is involved in any one of the
listed activities (concealment, possession, acquisition, use, projection, or claiming as
untainted property). It is not necessary to prove all stages of laundering.
2. Money-laundering is a continuing offence – The offence continues as long as the
person enjoys or benefits from the proceeds of crime, whether by holding, using,
concealing, or projecting it as clean money.

This clarification removes doubts and strengthens enforcement by ensuring that criminals cannot
escape liability merely because the original crime occurred in the past.

Judicial Interpretation of Section 3

Vijay Madanlal Choudhary v. Union of India (2022)

This is the leading constitutional judgment on PMLA. The petitioners, including several
high-profile accused, challenged the wide scope of Section 3. They argued that mere possession
of proceeds of crime without active laundering should not amount to an offence and that the
provision violated Articles 20 and 21 of the Constitution.

The Supreme Court rejected these arguments and upheld the validity of Section 3. The Court
held that money-laundering is inherently a continuing offence because criminal property
remains tainted until it is fully disconnected from the crime. The Court emphasised that
narrowing the scope of Section 3 would defeat the very purpose of PMLA, which is to combat
complex and layered financial crimes.

The Court also relied on international anti-money-laundering standards and noted that PMLA
was enacted to meet India’s obligations under FATF recommendations. It held that possession,
concealment, and enjoyment of illicit assets are as culpable as projecting them as clean. Thus,
laundering continues as long as the accused benefits from the proceeds of crime.

J. Sekar v. Enforcement Directorate (2022)

In this case, the accused argued that PMLA could not apply because the predicate/scheduled
offence was committed before the Act came into force. The Supreme Court rejected this
contention and clarified that PMLA does not punish the original crime, but the subsequent
handling of its proceeds.

The Court held that if a person continues to hold, use, or transfer illicit funds after the
enactment of PMLA, the offence of money-laundering is made out. What matters is not when
the crime occurred, but whether the proceeds remain in circulation within the financial system.
This judgment strongly reinforces the future-oriented and continuing nature of
money-laundering.

Cognizance and Trial under PMLA (Section 44)

Under Section 44 of PMLA, only Special Courts have the authority to handle money-laundering
cases. The Enforcement Directorate (ED) cannot file a regular police report; instead, it must file
a formal complaint, which makes PMLA proceedings different from ordinary criminal cases. If
after investigation, no offence is found, the agency must submit a closure report to the Special
Court.

These Special Courts can also try the predicate offences (the original crimes generating illicit
funds) when they are linked to money-laundering, ensuring consistent and efficient handling of
related cases.

Bail is governed by Section 45, subject to constitutional limitations. Section 66 further enables
information-sharing between agencies, reflecting a coordinated enforcement framework.

Punishment for Money-Laundering – Section 4

Section 4 prescribes rigorous imprisonment of not less than three years, which may extend to
seven years, along with fine. Where the proceeds of crime relate to serious scheduled offences
(such as narcotics offences under Part A, Paragraph 2 of the Schedule), the maximum
punishment may extend to ten years.

The severity of punishment reflects the legislature’s view that money-laundering is not a mere
financial irregularity but a serious threat to the integrity of the financial system and rule of law.
ADJUDICATION &ATTACHMENT, SUMMONS, SEARCHES&
SEIZURES
Attachment and adjudication
The attachment and adjudication process under PMLA is central to India’s fight against
money-laundering. Unlike regular criminal law, where property is usually seized after
conviction, PMLA allows authorities to freeze and restrict assets even before charges are
filed, preventing criminals from hiding or moving illicit funds. This preventive mechanism is
governed by Sections 5 and 8.

Section 5 empowers the Director of Enforcement (ED) or an officer authorized by him (not
below Deputy Director) to attach property suspected to be involved in money-laundering to
prevent its concealment or transfer, ensuring that it remains available for confiscation.

S.5- Attachment of Property Involved in Money-Laundering

1. Provisional Attachment

• The Director may attach property for up to 180 days if there is reason to believe:
o A person possesses proceeds of crime, and
o The property might be concealed, transferred, or dealt with to frustrate
confiscation proceedings.
• Reason for attachment must be recorded in writing, based on material in possession.
• Immediate attachment is allowed if delay may frustrate any proceedings under PMLA.

2. Communication to Adjudicating Authority

• After provisional attachment, the Director forwards the attachment order and
supporting material to the Adjudicating Authority in a sealed envelope.
• The Adjudicating Authority keeps the material for the prescribed period.

3. Termination of Attachment

• The provisional attachment ceases either:

o After 180 days (or extended period), or
o On an earlier order of the Adjudicating Authority under Section 8(3).
• Persons interested in immovable property (owners or claimants) can continue
enjoying the property, subject to restrictions necessary for the investigation.

4. Filing Complaint

• Within 30 days of attachment, the Director must file a complaint before the
Adjudicating Authority, stating facts of attachment.
• This initiates formal adjudication proceedings under Section 8.
In the case of Vijay Madanlal Choudhary v. Union of India (2022). Hundreds of petitioners—
including businessmen, political figures and public servants—challenged the broad powers of
ED to attach assets without FIR, charge-sheet or judicial oversight. They argued that Section 5
allowed arbitrary interference with property rights. The Supreme Court rejected these challenges,
upholding Sections 5 and 8. It reasoned that early freezing of assets is essential to prevent
offenders from using layering and cross-border transfers to frustrate confiscation

In Seema Garg v. ED (2020), the Punjab and Haryana High Court clarified that the ED cannot
attach property of spouses or relatives without a direct connection to the proceeds of crime.
The court emphasized that mere familial relationships or association with the accused do not
justify attachment, ensuring that innocent parties are protected from arbitrary seizures.

Section 8: Adjudication of Property

Section 8 allows the Adjudicating Authority to decide whether the attached, seized, or frozen
property is indeed involved in money-laundering and to order confiscation or release.

1. Notice to the Person

• On receiving a complaint, the Adjudicating Authority serves a notice of at least 30 days

to the person:
o To show sources of income/assets used to acquire the attached property.
o To submit evidence supporting lawful ownership.
• If the property is held on behalf of someone else or jointly, the notice is also served to
those persons.

2. Consideration by Adjudicating Authority

• After examining replies, hearing the parties, and reviewing evidence, the Adjudicating
Authority decides whether the property is involved in money-laundering.
• If others claim the property, they are also given a chance to prove lawful ownership.

3. Confirmation of Attachment

• If adjudicated as involved in money-laundering, the Authority confirms attachment,

retention, or freezing.
• This continues for:
o Investigation period (up to 365 days), or
o Pendency of court proceedings for PMLA or corresponding foreign law.

4. Possession of Property

• The Director or authorized officer takes possession of attached or frozen property.

• If taking possession is not practicable, confiscation order has the same legal effect.

5. Confiscation by Special Court

 • If, on conclusion of trial, the Special Court finds money-laundering committed:
o Property used or involved is confiscated to the Central Government.
• If no offence is found, property is released to the lawful owner.

6. Special Cases

• If the trial cannot be conducted (death of accused, proclaimed offender, etc.), the Special
Court passes orders for confiscation or release based on available evidence.
• Restoration of property to claimants:
o The Special Court can restore confiscated property (or part) to a claimant with
legitimate interest who suffered a quantifiable loss, provided the claimant acted in
good faith and was not involved in laundering.

In Mahanivesh Oils v. ED (2016), the Delhi High Court ruled that once an attachment under
Section 8(3) is confirmed, it remains in effect until the conclusion of the trial, even if the
proceedings are delayed

Summons, Searches & Seizures

Under Section 50 of PMLA, the ED has the power to summon people, require documents,
and record statements under oath, similar to a civil court. Unlike police officers, ED officers
are investigative authorities, so statements recorded under Section 50 are admissible in
evidence and not excluded like police confessions under the Evidence Act. The Supreme Court
in Vijay Madanlal confirmed that ED officers are not police and their role is unique.

In Binod Kumar v. ED (2015), the Supreme Court held that people summoned under Section 50
are not yet accused, so the protection against self-incrimination under Article 20(3) does not
apply.

In Dr. V. C. Subburaj v. ED (2017), the Madras High Court clarified that summons cannot be
ignored, but ED cannot conduct fishing inquiries; there must be a clear link to laundering.

Similarly, in P. Chidambaram v. ED and Ratul Puri v. ED (2019), courts upheld ED’s power to
question high-ranking officials, emphasizing that statements under oath carry civil-court-like
evidentiary weight.

Overall, Section 50 allows ED to gather evidence even against influential people, but cannot be
used for harassment.

Search and seizure under Sections 17 and 18 give ED very strong powers because money-
laundering involves assets that can be easily moved or destroyed. ED may search premises or
persons without prior warrant if there is a “reason to believe” that proceeds of crime or
evidence are concealed. Section 17 requires that reasons be recorded in writing, an inventory of
seized items be made, and supporting documents sent to the Adjudicating Authority within 30
days. Section 18 governs personal searches.
The Supreme Court in Vijay Madanlal upheld these powers but stressed that procedural lapses
can invalidate searches.

In Vikram Seth v. ED (2017), the Delhi High Court stressed that ED must justify its “reason to
believe” and follow strict procedures.

In Ratul Puri v. ED (2019), the Court allowed seizure of indirectly related material if it helps
trace the laundering chain.

The Tarsem Lal v. ED (2024) ruling limited ED’s powers after court cognizance, reinforcing
that judicial supervision is essential.

In Kailash Agarwal v. ED (2020) and Vijay Desai v. ED (2022), courts upheld seizures of
third-party assets and bank accounts but required sealed inventories and prompt hearings before
the Adjudicating Authority.

Together, these cases show that ED’s search and seizure powers are valid, but strict
compliance with procedural safeguards is necessary.

APPELLATE TRIBUNAL, SPECIAL COURTS AND AGREEMENTS WITH FOREIGN

COUNTRIES

The adjudicatory system under the Prevention of Money-Laundering Act, 2002 (PMLA) is
designed in multiple stages to balance strict enforcement with protection of individual rights. The
process usually begins with-

• Provisional attachment of property by the Enforcement Directorate (ED), followed by

• Confirmation by the Adjudicating Authority.
• Against this order, an appeal lies before the Appellate Tribunal under Sections 25 to 42 of
the Act.
• Further appeals can be made to the High Court on questions of law.

This layered mechanism ensures that while the State can prevent misuse or disappearance of
proceeds of crime, property rights under Article 300A of the Constitution are not taken away
arbitrarily.

The Appellate Tribunal

Appellate Tribunal, though not a constitutional court, plays a crucial role in checking misuse of
attachment powers and acts as a safeguard against excessive executive action.

Section 25 empowers the Central Government, to establish an Appellate Tribunal to hear appeals
against the orders of Adjudicating Authority and other authorities under the Act. The Appellate
Tribunal constituted under Smugglers and Foreign Exchange Manipulators (Forfeiture of
Property) Act, 1976 shall be the Appellate Tribunal for hearing appeals against the orders of the
Adjudicating Authority and the other authorities under this Act.
Appeal shall be made within 45 days. However, if there is sufficient cause for delay then appeal
may be allowed even after the expiry of 45 days. Appellate Tribunal shall dispose the appeal
within 6 months.

The importance of the Tribunal’s independent role was clearly explained in Gautam Kundu v.
Directorate of Enforcement (Calcutta High Court, 2010), which arose from the Saradha chit
fund scam. The Court held that the Tribunal cannot simply approve ED’s actions mechanically.
Since attachment under PMLA is a harsh power, the Tribunal must carefully examine whether
the property is actually linked to proceeds of crime. The Court emphasised that the Tribunal must
apply its own mind and cannot act as a rubber stamp. This case firmly established that the
Tribunal has a genuine appellate function and must ensure fairness and proportionality.

Similarly, in Bhawna Seth v. Directorate of Enforcement (Delhi High Court, 2018), the
attachment of a woman’s residential property was challenged on the ground that it was bought
from her independent income. The Court held that PMLA does not allow attachment of assets
belonging to innocent third parties unless a clear and live link with laundering is proved. The
Tribunal was criticised for ignoring this aspect. This judgment strengthened protection for bona
fide third parties and clarified that ED must prove a direct nexus with proceeds of crime.

In Rakesh Manekchand Shah v. ED (Bombay High Court, 2017) related to the NSEL scam,
the Court held that the Tribunal must consider whether attachment is necessary and
proportionate, especially when the attached property is essential for running a lawful business.
The Court observed that the right to trade under Article 19(1)(g) must be balanced with the
objectives of PMLA. Thus, the Tribunal must ensure administrative fairness while deciding
appeals.

Any person aggrieved by the order of Appellate Tribunal may file an appeal with the High
Court within 60 days. However, if there is sufficient cause for delay then appeal may be
allowed even after the expiry of 60 days.

Special Courts

CG has the power to designate, in consultation with the Chief Justice of the High Court, one or
more Courts of Session as Special Courts for trial of offence punishable under Section 4. Appeals
from such special court lies to High Court.

Along with attaching property, the PMLA also provides for criminal prosecution through
Special Courts created under Section 43. These courts are set up only to deal with money-
laundering cases, so that such serious economic offences are handled speedily and by
specialised judges.

Under Section 44, a Special Court has the power to try both the offence of money-laundering
and the related scheduled (predicate) offence together. This is important because money-
laundering does not exist on its own—it arises from another crime like corruption, cheating, or
fraud. Trying both offences together helps the court understand how the illegal money was
generated and how it was later hidden or used.
This approach was clearly seen in the 2G Spectrum case (State v. A. Raja). In this case, the
Special Court examined allegations of corruption and money-laundering together. Although
the accused were eventually acquitted, the case made it clear that Special Courts must trace the
entire financial trail and examine the link between the original crime and the alleged laundering
before deciding liability.

The autonomy of Special Courts was further reinforced in ED v. Shabir Ahmad Shah (Delhi
HC, 2019) concerning terror-funding. The accused argued that since the predicate offences were
old, the PMLA case could not proceed. The Court rejected this argument and held that money-
laundering is a continuing offence. It ruled that Special Courts can proceed independently of the
outcome of the predicate offence trial. This judgment strengthened ED’s ability to prosecute
laundering without waiting for conviction in the scheduled offence.

The supervisory role of Special Courts over ED was highlighted in Yogesh Mittal v.
Directorate of Enforcement (Delhi High Court, 2017). The Court held that once a Special
Court takes control of the case, ED cannot misuse arrest powers repeatedly without justification.
The Special Court must examine the necessity of custody each time. This judgment clearly
established that Special Courts are active protectors of personal liberty under Article 21 and are
not mere procedural forums.

Agreements with foreign countries

Section 56 of the Prevention of Money-Laundering Act, 2002 empowers the Central Government
to enter into agreements with foreign countries for effective enforcement of the Act. These
agreements are mainly meant for cooperation in preventing money-laundering offences,
exchanging information, and assisting in investigation of offences under PMLA or under similar
laws in other countries. Since money-laundering is often a cross-border crime involving foreign
bank accounts, shell companies and overseas transactions, such international cooperation is
essential for tracing proceeds of crime and bringing offenders to justice.

It allowa India to enter into Mutual Legal Assistance Treaties (MLATs) with foreign countries.
These provisions help ED obtain bank records, corporate documents, witness statements and
even extradition of accused persons.

Section 58 deals with assistance to a contracting State. When the Central Government receives a
letter of request from a foreign court or authority asking for investigation into a PMLA offence
or for collection and forwarding of evidence, the Central Government may forward such request
to the appropriate Special Court or authority in India. The request is then executed according to
the provisions of PMLA or any other applicable law in force. This provision ensures that India
provides legal assistance to foreign countries in money-laundering cases in a structured and
lawful manner.

The Act also provides for reciprocal arrangements relating to summons, warrants and transfer
of accused persons. If a Special Court in India wishes to summon an accused person, issue a
warrant of arrest, summon a person to produce documents, or issue a search warrant to be
executed in a contracting State, it may send such summons or warrant in duplicate through
authorities specified by the Central Government. The foreign court or authority will then execute
the request as per its local law.

Similarly, if an Indian Special Court receives a summons, arrest warrant, document production
order or search warrant from a court or authority of a contracting State, it shall execute the same
as if it were issued by an Indian court within its jurisdiction.

In Hasan Ali Khan v. Union of India (Bombay High Court), the Court upheld ED’s use of
MLATs to access Swiss bank accounts and held that foreign secrecy laws cannot be used to hide
proceeds of crime. This case significantly strengthened India’s anti-money laundering
framework.

In the Nirav Modi Extradition Case (UK High Court, 2021–22), the UK court accepted that
offences under the PMLA are similar to money-laundering offences under UK law. Therefore,
the condition of dual criminality was satisfied. The court also held that India had followed proper
legal procedure and safeguards, and hence allowed Nirav Modi’s extradition to India.

SERIOUS FRAUD INVESTIGATION OFFICE, 2003

SFIO is a multi-disciplinary organization under the Ministry of Corporate Affairs, consisting

of experts in the field of accountancy, forensic auditing, law, information technology,
investigation, company law, capital market and taxation for detecting and prosecuting or
recommending for prosecution white-collar crimes/frauds, established under Section 211 of the
Companies Act, 2013.

The Computer Forensic and Data Mining Laboratory (CFDML) was set up in 2013 to
provide support and service to the officers of SFIO in their investigations.

SFIO is headed by a Director as Head of Department in the rank of Joint Secretary to the
Government of India.

Serious Fraud investigation (SFIO) was initially set up by the Government of India by way of a
resolution dated 2nd July, 2003. At that time SFIO did not enjoy a formal legal status.

Although SFIO is not created under the Prevention of Money-Laundering Act, 2002 (PMLA), it
plays a very important and complementary role in India’s anti-money-laundering framework.

SFIO primarily investigates serious corporate frauds, such as diversion of funds, round-
tripping, falsification of accounts, shell companies, and siphoning of public money. These frauds
often generate “proceeds of crime”, which later become the subject matter of investigations by
the Enforcement Directorate (ED) under PMLA. Thus, SFIO acts as the foundation agency that
uncovers the original fraud, while ED traces and confiscates the laundered money.

Under Section 212 of the Companies Act, the Central Government has the power to assign a
case to SFIO when it involves serious fraud, affects public interest, requires investigation by
multiple agencies, or is so complex that specialised expertise is necessary. Once SFIO takes over
an investigation, all other investigating agencies must stop their inquiry and transfer all
records to SFIO, ensuring a single, coordinated investigation.

Section 212(3) gives SFIO officers powers of arrest, similar to senior police officers, but only in
cases involving serious fraud under Section 447 of the Companies Act.

Section 212(8) requires SFIO to complete the investigation and submit its report to the Special
Court,

Section 212(14) provides that the SFIO report shall be treated as a police report under Section
173 of the CrPC, giving it full evidentiary value in court proceedings, including PMLA cases.

The most important case on the powers and legal status of SFIO is Serious Fraud Investigation
Office v. Rahul Modi & Ors. (2019), popularly known as the IL&FS case.
IL&FS collapsed due to a huge financial fraud of about ₹91,000 crore, involving fake accounts,
circular financing and diversion of funds. SFIO arrested senior officials, including former Vice-
Chairman Hari Sankaran.

The accused argued that SFIO officers are not police officers and therefore cannot arrest persons
for fraud under Section 447 of the Companies Act. The Supreme Court rejected this argument. It
held that SFIO is a specialised statutory body created to investigate serious and complex
corporate frauds that threaten the country’s financial system. The Court said that Parliament
deliberately gave arrest powers to SFIO to ensure effective investigation. It also observed that
corporate fraud is a serious economic offence affecting the entire economy. This judgment firmly
established SFIO’s power to arrest and prosecute offenders.

The coordination between SFIO and ED was clearly seen in the Sahara Group case (Subrata
Roy Sahara v. Union of India). The Supreme Court criticised Sahara for creating opaque
financial structures, shell companies and fake investors. SFIO conducted a forensic examination
of accounts and shared its findings with ED and other agencies. The Court observed that such
large-scale corporate frauds naturally link with money-laundering laws. Though not purely a
PMLA case, it showed that corporate fraud and money-laundering are closely connected.

The link between SFIO and PMLA became very clear in the Satyam Computers scam. After
Ramalinga Raju admitted falsifying accounts of nearly ₹14,000 crore, SFIO uncovered fake
revenues, bogus invoices and inflated profits. Based on SFIO’s findings, ED started proceedings
under PMLA. Courts accepted that SFIO reports can be used as predicate offence material for
money-laundering cases. This showed that SFIO often acts as the starting point for PMLA
investigations.

SFIO also played a key role in the Kingfisher–Vijay Mallya case, where it investigated
diversion of bank loans and falsification of financial statements. Although ED led the PMLA
case, courts relied heavily on SFIO reports to establish corporate fraud.
Similarly, in the PNB–Nirav Modi scam, SFIO examined misuse of Letters of Undertaking,
SWIFT manipulation and shell companies, which later formed the basis of ED’s money-
laundering case.
PMLA AMENDMENT, 2019

In 2019, the Indian Parliament passed changes to the Prevention of Money-Laundering Act, 2002,
through the Finance Act, 2019 to make the law stronger and clearer in fighting money-laundering. These
amendments were introduced because authorities like the Enforcement Directorate (ED) faced
difficulties in investigations due to gaps and ambiguities in the original law. The 2019 amendments aimed
to close those loopholes and strengthen criminal and preventive powers under the PMLA

Key Amendments

1. Expanded Definition of "Proceeds of Crime"

The 2019 Amendment expanded what is considered "proceeds of crime". Now it includes:

• Properties and assets created, derived, or obtained through any criminal activity related to
the scheduled offence
• Even if the activity is not directly under PMLA

Before this, the definition was limited. Now, a property will be considered tainted if it relates to
any offence on which a PMLA case has been started. The Enforcement Directorate (ED) can
now proceed against assets of equivalent value located even outside India.

2. Money Laundering Made a Continuing Offence

The 2019 Act clarified Section 3 of PMLA. A person will be guilty of money laundering if they
directly or indirectly:

• Attempted to indulge in
• Knowingly assisted
• Knowingly were a party to
• Actually involved in

Any one or more of the processes or activities of money laundering.

Important Clarification: Money laundering is not a one-time offence. A person is guilty of

money laundering for as long as they are enjoying the "proceeds of crime". This makes it a
continuing offence.

3. Enhanced Powers of ED for Search and Arrest

The Act removed the requirement for ED to follow Section 157 of the Code of Criminal
Procedure (CrPC) before taking action. Now:

• ED can undertake search actions even without a report under Section 157 of CrPC
• ED can make arrests even in the absence of a First Information Report (FIR)
• ED officers do not need police powers under CrPC for investigation
This removes delays but may be open to misuse. The government says it removes unnecessary
procedural difficulties.

4. Closure of Investigation Provision

A new provision was added to Section 44(1). It provides for closure of investigation in cases
where no offence of money laundering is found. The authority must submit a closure report
before the Special Court under PMLA.

5. Changes in Attachment of Property

Important changes were made to Section 5(1):

• The period of stay granted by a Court is now excluded from the 180-day limit for
provisional attachment orders
• An additional 30 days are provided to handle delays in communication of judicial orders

The amended Section 8(8) now allows the Special Court to restore confiscated assets to rightful
claimants even during trial. Earlier, assets could only be restored after completion of trial.

6. Amendment to Section 45 (Bail Provisions)

Section 45 was amended to make bail more difficult:

• Earlier, stringent bail conditions applied only to scheduled offences with more than 3
years imprisonment
• Now, uniform bail conditions apply to all PMLA offences
• For cases involving less than INR 1 crore, courts can apply bail provisions more leniently
• All offences under PMLA are now cognisable (police can arrest without warrant) and
non-bailable

7. Enhanced Reporting Obligations

The 2019 Act introduced Section 12AA, which requires:

• Every reporting entity to take additional steps to examine a client's ownership and
financial position
• Check the sources of funds of the client before starting each transaction
• Record the purpose of the transaction and the intended relationship between parties
• If clients fail to fulfill conditions, reporting entities must not allow the transaction

8. Information Sharing Between Agencies

A new Sub-Section (2) to Section 66 makes it mandatory for ED to share relevant details with
other agencies. This ensures effective information sharing in compliance with Financial Action
Task Force (FATF) recommendations.
PMLA vs IBC Issue

The 2019 Act did not resolve the conflict between PMLA and the Insolvency and Bankruptcy
Code (IBC) regarding attachment of property.

Different Court Decisions:

• PMLA Appellate Tribunal (March 2019): Held that IBC overrides PMLA.
• Delhi High Court (April 2019): Held that PMLA prevails over IBC when it comes to
attachment of properties obtained as "proceeds of crime".
• NCLAT: Said that PMLA and IBC get invoked simultaneously and neither has an
overriding effect over the other.

HOARDING AND PROFITEERING

Hoarding and profiteering are serious socio-economic offences that harm society by exploiting
scarcity of essential goods. Hoarding means illegally storing essential commodities in large
quantities to create artificial shortage, while profiteering means selling such goods at very high
and unjust prices. These practices disturb the normal supply-demand balance of the market and
cause hardship to common people, especially the poor. From an economic perspective, hoarding
reduces the availability of goods in the market even when sufficient stock exists. This artificial
shortage pushes prices up, allowing hoarders to earn excessive profits.

Profiteering usually occurs during emergencies like war, famine or pandemics, when people have
no choice but to buy essential goods at any price. Courts and economists agree that such conduct
cannot be protected under free-market principles because essential goods like food, medicines
and oxygen involve public necessity, not luxury consumption.

In India, the main law dealing with hoarding and profiteering is the Essential Commodities Act,
1955 (ECA), supported by the Prevention of Black Marketing Act, 1980.

Indian courts have repeatedly recognised that hoarding and profiteering are not ordinary business
practices but deliberate acts of economic exploitation that threaten public welfare, social justice
and economic stability.

The constitutional validity of controlling essential commodities was upheld by the Supreme
Court in Harishankar Bagla v. State of Madhya Pradesh (1954). The Court held that in a
welfare State, strict control over essential goods is necessary to ensure fair distribution to the
public. It observed that economic freedom cannot be more important than public interest.

The Supreme Court further explained the nature of hoarding offences in Kumar Food Products
v. State of Haryana (1985). The Court held that hoarding under the Essential Commodities
Act (ECA) is a strict-liability offence, which means intention (mens rea) is not required. Even
careless or negligent storage beyond the permitted limit is punishable. The purpose of the law is
to protect society.
Similarly, in Gopaldas Udhavdas Ahuja v. Union of India (2004), the Court strongly criticised
profiteering in essential medicines and held that charging excessive prices for life-saving drugs is
a serious offence against public health.

During emergency situations, hoarding and profiteering become even more serious. During the
COVID-19 pandemic, courts took strict action against hoarding of oxygen cylinders, medicines
and medical equipment. In Court on its Own Motion v. Union of India (Delhi High Court,
2021), the Court described pandemic-time hoarding as “economic terrorism” and held that such
acts violate not only the ECA, but also the IPC and the Disaster Management Act.

Similarly, in Sion Hospital v. State of Maharashtra (Bombay High Court, 2021), the Court
condemned black-marketing of Remdesivir injections and ordered strict enforcement of the law.

Courts have also recognised modern and indirect forms of hoarding. In Kamal Kishore v. State
of Maharashtra (2012), diversion of subsidised kerosene from the Public Distribution System
(PDS) into the black market was held to be hoarding.

Profiteering is now also controlled under modern laws, especially the GST anti-profiteering
provisions (Section 171 of the CGST Act). This law requires companies to pass on the benefit
of tax reductions to consumers.

In Patanjali Ayurved Ltd. v. Union of India (2020) and Abbott Healthcare v. NAA (2020),
courts supported investigations against companies that did not reduce prices even after getting
tax benefits. The courts held that earning extra profit at the expense of consumers is profiteering
and goes against consumer welfare.

Hoarding and profiteering also come under the Prevention of Money-Laundering Act (PMLA)
when the illegal profits are hidden, transferred, or invested.

In cases like the NSEL Scam and ED v. Sunil Shivhare (2018), courts ruled that money earned
through illegal stockpiling and black-marketing is “proceeds of crime”. This allows the
government to attach and confiscate such property under PMLA. This shows that hoarding is no
longer seen as a small regulatory offence, but as a serious economic crime.

In today’s digital age, hoarding has taken new forms. It now includes online bulk purchasing,
price manipulation using computer algorithms, and profiteering by e-commerce platforms.
Although courts are still developing clear legal rules for these issues, investigations by the
Competition Commission of India (CCI) show growing concern about digital hoarding, cartel-
like behaviour, and unfair market practices.