Can the Enforcement Directorate Continue Prosecution on Allegations Rejected by the CBI? The Calcutta High Court Clarifies

Can the Enforcement Directorate prosecute a person for money laundering when the Central Bureau of Investigation, after investigating the underlying scheduled offence, has expressly found no criminal involvement against that person? This question formed the central issue before the Calcutta High Court in Louis Dreyfus Company India Private Limited v. Enforcement Directorate¹, decided on 22 May 2026 by Justice Suvra Ghosh. Holding that the ED could not continue prosecution on the same factual foundation in the absence of independent incriminating material, the Court affirmed that although proceedings under the PMLA are distinct in nature, they cannot be sustained merely upon suspicion, conjecture or allegations already disbelieved in the predicate investigation. The ruling therefore assumes significance as an important judicial limitation on arbitrary money laundering prosecutions and an affirmation of the evidentiary threshold embedded within Section 3 of the PMLA².

The dispute originated from an FIR registered on 31 March 2014 by the Central Bureau of Investigation against Manoj Kumar Jain, Director of M/s Prakash Vanijya Private Limited (PVPL), pursuant to a complaint lodged by the Central Bank of India alleging wrongful loss amounting to approximately ₹234.57 crore. The investigation resulted in charge sheets under Sections 420, 467, 468, 471 and 120B of the Indian Penal Code, 1860, along with Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988, offences which constitute scheduled offences under the Prevention of Money Laundering Act, 2002. On the basis of the scheduled offence, the Enforcement Directorate registered ECIR No. KLZO/9/2016 in September 2016 and subsequently initiated money laundering proceedings against Louis Dreyfus Company India Private Limited (LDCIPL), a multinational commodity trading company.

The ED alleged that Louis Dreyfus had participated in a scheme of circular trading involving transactions between M/s Quality Vintrade Private Limited (QVPL) and PVPL, both allegedly controlled by Manoj Kumar Jain. According to the prosecution, commodities were purchased from QVPL and sold to PVPL on the same date in order to facilitate discounting of three Letters of Credit issued by the Central Bank of India, thereby enabling the alleged laundering of proceeds of crime amounting to ₹22,40,809/-. However, a significant aspect of the case was that Louis Dreyfus had neither been arrayed as an accused in the predicate CBI case nor implicated during the course of the CBI investigation. On the contrary, one of its authorised representatives was cited as a prosecution witness in the charge sheet filed by the CBI, a circumstance that later assumed considerable importance in the Court’s assessment of the sustainability of the PMLA proceedings.

Exoneration in the Predicate Offence Cannot Be Ignored

The Court’s reasoning rested on several interlocking pillars. First and foremost, it engaged with the foundational question of what constitutes “proceeds of crime” under Section 2(1)(u) of the PMLA³ and how that definition shapes the offence under Section 3 of the PMLA. Drawing on the Supreme Court’s authoritative pronouncement in Vijay Madanlal Choudhary & Ors. v. Union of India⁴, the Court recalled that the offence of money laundering is necessarily dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence. If a person is absolved from the allegation of criminal activity relating to the scheduled offence, and it is established that the property in question was rightfully owned, no stretch of imagination can make it “crime property.” The PMLA authorities cannot prosecute any person on a notional basis or on the mere assumption that a scheduled offence has been committed, there must be a live, connected criminal proceeding anchoring the entire exercise. The Supreme Court had further clarified that if the person is finally discharged or acquitted of the scheduled offence, or the criminal case against him is quashed, there can be no offence of money laundering against him or anyone claiming such property through him.

The decisive distinguishing factor, as the Court identified it, was the line between a person who simply never figured in the predicate offence and one who was actively investigated and thereafter exonerated. Louis Dreyfus fell squarely into the latter category. The CBI had specifically investigated the three Letters of Credit (LCs) worth approximately ₹25 crore that formed the basis of the disputed commodity transactions,along with LDCIPL’s role in those transactions, concluding positively that the company was not a beneficiary and that no diversion of funds could be established against it, a conclusion reflected in the very tabulation of beneficiaries in the charge sheet. Since both agencies were operating on identical facts, the E.D. ‘s attempt to revive what the CBI had already weighed and rejected amounted to an unambiguous abuse of process. 

The Co-Accused’s Statement Cannot Carry the Prosecution’s Burden

The Court also dealt decisively with the quality of evidence the E.D. had marshalled. The prosecution complaint rested primarily on the statement of co-accused Manoj Kumar Jain recorded under Section 50 of the PMLA⁵. Relying on the Supreme Court’s ruling in Prem Prakash v. Union of India⁶, as well as the classic formulation in Kashmira Singh v. State of Madhya Pradesh⁷, the Court reiterated that a prosecution cannot be launched principally on the confession of a co-accused. As laid down in Kashmira Singh, the proper approach demands that the court first marshal all evidence against the accused excluding the confession altogether from consideration, and see whether, if it is believed, a conviction could safely be based on it, only then can the confession serve to lend corroborative support to the other evidence. Prem Prakash established this principle in the specific context of PMLA proceedings, making clear that the statement of a co-accused cannot serve as the foundational cornerstone of a prosecution complaint. No such independent material existed here against Louis Dreyfus.

The transactions involved warehouse receipts under the Warehousing (Development and Regulation) Act, 2007, instruments carrying statutory recognition as conclusive proof of sale and not dismissible as mere “paper transactions.” Equally significant, QVPL, the seller in the alleged circular chain, had not been arraigned as an accused in either proceeding. If the seller was untainted in law, the chain of circular trading broke at its very first link. 

The Court applied the standard laid down in Deepak Bhai Jagdish Chandra Patel v. State⁸, holding that while a strong suspicion is sufficient at the stage of framing charges, such suspicion must be supported by material capable of being translated into evidence at trial. Examining the record, the Court found that the ED’s case against LDCIPL rested on the very transactions that had already been investigated by the CBI, which had specifically exonerated the company and found no diversion of funds or beneficiary status. Since the allegations in the money laundering case were merely a reiteration of the predicate offence investigation and no independent prima facie material existed against LDCIPL, the Court held that compelling it to face a prolonged trial would constitute an abuse of process. Consequently, the proceedings in ML Case No. 7 of 2018 were quashed insofar as LDCIPL was concerned, while continuing against the remaining accused persons. 

Conclusion

The decision serves as an important reminder that the PMLA is not a mechanism for reopening findings already reached after a comprehensive investigation by the competent agency. While the statute empowers the Enforcement Directorate to pursue persons beyond those named in the scheduled offence, such power must be exercised on the basis of tangible material demonstrating a genuine nexus with tainted assets. The Calcutta High Court’s ruling underscores that criminal prosecution cannot be sustained merely by recharacterising previously examined transactions or by relying upon allegations unsupported by independent evidence. In doing so, the Court underscored the necessity of maintaining a clear evidentiary foundation for money laundering prosecutions and ensuring that the extraordinary powers under the PMLA remain subject to judicial scrutiny and procedural fairness.

Citations

1. Louis Dreyfus Company India Private Limited v. Enforcement Directorate, CRR 1145 of 2024, decided on 22nd May 2026 ↩︎
2. Section 3, Prevention of Money Laundering Act, 2002 ↩︎
3. Section 2(1)(u), Prevention of Money Laundering Act, 2002 ↩︎
4. Vijay Madanlal Choudhary & Ors. v. Union of India & Ors., 2022 SCC OnLine SC 929 (Supreme Court of India) ↩︎
5. Section 50, Prevention of Money Laundering Act, 2002 ↩︎
6. Prem Prakash v. Union of India, (2024) 9 SCC 784 ↩︎
7. Kashmira Singh v. State of Madhya Pradesh, (1952) 1 SCC 275 ↩︎
8. Deepak Bhai Jagdish Chandra Patel v. State, (2019) 16 SCC 547 ↩︎

Expositor(s): Adv. Aparna Shukla, Intern Divyanshi Srivastava