Introduction
The immense fortunes generated by vast, illicit enterprises often rely on seemingly minor criminal acts—forgery, cheating, and conspiracy—to facilitate the flow of billions through a high-profile, unregulated activity like illegal sports betting. When the authorities finally move to dismantle such a racket and seize the wealth, a complex legal challenge emerges: Can the entire fortune be attached under anti-money laundering laws, even if the primary “downstream” activity generating the visible wealth isn’t explicitly listed as a crime in the statute? This consequential legal question was recently settled by the Delhi High Court, delivering a judgment that significantly broadens the scope of the Enforcement Directorate’s (ED) power to combat financial crime.
In a landmark decision, the High Court affirmed in Naresh Bansal and Ors. Versus Adjudicating Authority and Anr1., that the “ED’s power to provisionally attach property derived from illegal activities, even when the core “downstream” activity itself is not a separate ‘predicate offense’ under the of Money PMLA2”.
The specific issue at hand centered on a petitioner alleged to have facilitated an international cricket betting racket worth over ₹2,400 crore by distributing essential, illicit Super Master IDs. When the ED attached his assets worth ₹20 crores, arguing they were ‘proceeds of crime,’ the petitioner challenged the action, contending that since cricket betting is not a scheduled offense under the PMLA, the proceeds could not be attached.
This article delves into the High Court’s far-reaching interpretation of the PMLA, specifically examining the scope of Section 2(1)(u), which defines ‘proceeds of crime,’ and how the court meticulously traced the wealth—not just to the betting—but to the underlying scheduled offenses like forgery, cheating, and criminal conspiracy used to enable the racket.
This article will explore the legal principles that allowed the court to conclude that the ‘taint attached to the property at its very inception… persists throughout its subsequent use,’ giving rise to the ED’s authority to attach property generated even from activities not explicitly scheduled under the Act.
The core challenge in combating financial crime is often structural: how do law enforcement agencies effectively trace and seize wealth when criminals deliberately layer their activities to obscure the source of funds? This complex question necessitates a deep dive into the Prevention of Money Laundering Act (PMLA), 2002, and its foundational legal principles, specifically the doctrine of the ‘tainted property.’
What is the fundamental safeguard ensuring the state’s power to attach property isn’t exercised arbitrarily? The entire machinery of attachment under the PMLA hinges on the concept of the ‘reason to believe,’ a judicial imperative that must be satisfied at two critical stages. Under Section 5(1) of the PMLA, the Director/Assistant Director (D/AO) must provisionally attach property constituting ‘proceeds of crime’ only after recording a ‘reason to believe,’ based on material in possession, that the property is likely to be concealed or dissipated.
This act would frustrate the proceedings, and therefore requires action. Significantly, a legislative development, the deletion of the erstwhile clause ‘b’ to Section 5(1)by the 2013 Amendment, removed the mandatory requirement that a person must have been charged with a scheduled offense. This clarifies that the filing of a chargesheet is no longer a condition precedent for initiating attachment proceedings. Similarly, the Adjudicating Authority (AA), when issuing a Show Cause Notice (SCN) under Section 8(1) of the PMLA to initiate adjudicatory proceedings, must also possess a ‘reason to believe’ that the person has committed the offense of money laundering or is in possession of proceeds of crime.
But what defines this essential threshold of ‘reason to believe’? As this Court meticulously observed, relying on the Supreme Court’s pronouncement in Radhika Agarwal v. Union of India3 and elaborated upon in the Directorate of Enforcement through Deputy Director v. Poonam Malik4, this belief must be an objective, evidence-based satisfaction founded on tangible material; it cannot, by any measure, be equated with mere suspicion. The authority must possess sufficient and cogent material to form this requisite belief, and crucially, the material must demonstrate a clear nexus between the evidence collected and the inference drawn regarding the person’s involvement in money-laundering.
If the procedural safeguard of ‘reason to believe’ is met, how broad is the net cast by the PMLA to capture illegal assets? The true expansive power lies within the definition of the property itself. The definition of ‘property’ (Section 2(1)(v))must be interpreted in a broad and expansive manner to align with the rapidly evolving commercial world, including modern intangible assets such as digital rights and incorporeal interests, as established in Directorate of Enforcement v M/s Hi-Tech Mercantile India Pvt. Ltd. & Ors5.
Once property is defined, what constitutes ‘proceeds of crime’ when the activity generating the visible profit is not itself a scheduled crime? This is where the doctrine of “Fruit of a poisoned tree” takes center stage, driven by the wide scope of Section 2(1)(u), which defines ‘proceeds of crime.’ As highlighted in ED v. Prakash Industries6, the provision is not limited to properties directly obtained from a scheduled offense but also includes any property derived indirectly therefrom. The phrase “directly or indirectly” reflects the intent to capture subsequent layers and transformations used to legitimize illicit gains.
The definitive legal conclusion reached by the courts is that even if a downstream activity, such as cricket betting, is not a scheduled offence, the profits generated remain traceable to the original tainted property, especially when that activity is the final manifestation of a chain of criminality intricately interwoven with preceding scheduled criminal acts. These preceding acts could be offenses like forgery, cheating, and criminal conspiracy. This is because the taint attached to the property at its very inception, which originated from a criminal activity relatable to a scheduled offence, persists throughout its subsequent use.
Finally, does the effectiveness of the PMLA rest on the rigidity of its adjudicatory structure, or does the statute allow for functional expediency? The composition of the Adjudicating Authority (AA) is defined by Section 6(2), which specifies a Chairperson and two members. However, the statute provides for functional flexibility through Section 6(5)(b) and Section 6(7), allowing the Chairperson to constitute Benches with one or two members. If the word ‘shall’ in Section 6(2) were interpreted to prohibit single-member benches, it would nullify the intent behind these later subsections, violating the fundamental principle of statutory interpretation, ut res magis valeat quam pereat. This Latin phrase translates to “that the subject matter may survive rather than perish.”
The court, in line with Enforcement Directorate v. Karvy India Reality Limited and Others7, confirmed the validity of a single-member bench, noting that the AA performs quasi-judicial functions and that sufficient checks and balances exist. A notable check is the appeal to the Appellate Tribunal (AT) under Section 26, which is presided over by a retired Chief Justice. Moreover, since the issuance of the SCN under Section 8(1) is triggered by three pre-conditions set out in the alternative, using the word “or,” the SCN merely being the first step in the quasi-judicial process (audi alteram partem or the right to be heard), the absence of a prior provisional attachment is not a jurisdictional pre-requisite to validate the notice.
Conclusion
The High Court’s authoritative pronouncements solidify a critically expansive interpretation of the PMLA, transforming it from a mere punitive statute into a far-reaching instrument of financial governance. By validating the attachment of assets derived from non-scheduled ‘downstream’ activities, provided the wealth can be traced back through a ‘chain of criminality’ rooted in predicate offenses like forgery or conspiracy, the judiciary has made the defense of technical legality significantly weaker for organized crime.
The principle that the ‘taint attached to the property at its very inception persists throughout its subsequent use’ ensures that criminals cannot cleanse their profits simply by routing them through an activity that hasn’t made the statutory schedule. This broad approach, complemented by the affirmation of the Adjudicating Authority’s flexible composition and the relaxed requirement regarding the filing of a chargesheet, has effectively maximized the ED’s operational reach. The message is unequivocal: where the source of wealth is poisoned, the fruit, regardless of its final appearance, will be seized.
Moving forward, this judgment opens critical questions regarding the future scope and application of the Act. While the ‘reason to believe’ safeguard is crucial, will the ED be tempted to increasingly bypass investigations into the main illicit activity (like betting) to focus solely on peripheral, easier-to-prove offenses (like forgery of documents) to trigger PMLA attachment?
Furthermore, as the definition of ‘property’ expands to include modern intangible assets, how will the courts balance the need for rigorous enforcement with the protection of legitimate digital commerce and new asset classes, especially concerning the requirement to prove a clear nexus? The ultimate challenge for the legal ecosystem lies in ensuring that this expanded power, intended to dismantle complex financial conspiracies and deny criminals their ill-gotten gains, is exercised with the necessary objective discipline and accountability, preventing the ‘tainted property’ doctrine from becoming a tool for arbitrary state action. The journey of the PMLA, therefore, remains one of constant judicial calibration.
Citations
- Naresh Bansal and Ors. Versus Adjudicating Authority and Anr. W.P.(C) 11361/2015
- Prevention of Money Laundering Act,2002
- Radhika Agarwal v. Union of India 2025 SCC OnLine SC 449
- Enforcement through Deputy Director v. Poonam Malik Misc. Appeal (PMLA) 4/2021
- Directorate of Enforcement v M/s Hi-Tech Mercantile India Pvt. Ltd. & Ors.LPA 588 of 2022
- ED v. Prakash LPA 102/2023
- Enforcement Directorate v. Karvy India Reality Limited and Others 2024 SCC OnLine TS 18
Expositor(s): Adv. Anuja Pandit
