Court’s decision
The Delhi High Court granted regular bail to the applicant in ECIR/STF/17/2022, holding that the stringent twin conditions under Section 45 of the Prevention of Money Laundering Act, 2002 stood satisfied. The Court found that the Enforcement Directorate’s case was premised largely on “guilt by association” with Popular Front of India and Social Democratic Party of India, without specific and concrete evidence linking the applicant to laundering “proceeds of crime” derived from a scheduled offence. The Court concluded that mere leadership position in an organisation, absent proof of personal involvement in money laundering, does not attract Section 3 PMLA.
Facts
The applicant sought regular bail under Section 439 CrPC read with Sections 45 and 65 of the Prevention of Money Laundering Act, 2002 in connection with ECIR dated 21.09.2022. He was arrested on 03.03.2025 and remained in custody since then.
The investigation originated from ECIR dated 02.05.2018, based on multiple FIRs registered by the National Investigation Agency and State Police under IPC, Explosive Substances Act, Arms Act, and Unlawful Activities (Prevention) Act. Subsequently, a fresh ECIR dated 21.09.2022 was registered on the basis of FIR RC-14/2022/NIA/DLI dated 13.04.2022.
Notably, the applicant’s name did not figure in the FIR or earlier prosecution complaints. He was arrayed as an accused for the first time in the 7th Supplementary Prosecution Complaint dated 15.06.2025.
The ED alleged that as a founding member of PFI and later National President of SDPI, the applicant facilitated acquisition, concealment and projection of proceeds of crime, and knowingly participated in laundering approximately ₹32.94 crore.
Issues
The primary issue before the High Court was whether the applicant satisfied the twin conditions under Section 45 of PMLA:
- Whether there were reasonable grounds to believe that he was not guilty of the offence of money laundering; and
- Whether he was unlikely to commit any offence while on bail.
A central legal question was whether funds collected by SDPI could be treated as “proceeds of crime” within the meaning of Section 2(1)(u) of PMLA, in the absence of clear linkage with a scheduled offence.
Applicant’s arguments
The applicant contended that he had been falsely implicated and that there was no legally admissible material demonstrating his involvement in any process or activity connected with proceeds of crime.
It was argued that he ceased association with PFI in 2018, long before PFI was declared unlawful in September 2022. SDPI, where he served as National President, has never been declared an unlawful association.
The defence emphasised that there was no identified money trail linking him to any scheduled offence, no quantification of specific proceeds of crime attributable to him, and no evidence of placement, layering or integration of illicit funds.
It was further argued that mere collection of donations, even if unlawful under some other statute, does not automatically constitute proceeds of crime under Section 3 PMLA.
Respondent’s arguments
The Enforcement Directorate opposed bail, asserting that the applicant was a founding member of PFI and continued to exercise influence through SDPI, allegedly functioning as its political front.
It was contended that PFI raised funds domestically and internationally for terrorist activities, and SDPI acted as a conduit for layering and projecting such funds as legitimate donations.
The ED relied on seized documents, statements under Section 50 PMLA, and allegations of cross-border fundraising. It also invoked Section 66(2) PMLA, arguing that a person need not be an accused in the predicate offence to be prosecuted for money laundering.
The ED emphasised the mandatory nature of the twin conditions under Section 45 and argued that the gravity of the offence and the applicant’s influential position militated against bail.
Analysis of the law
The Court examined Section 3 PMLA and the definition of “proceeds of crime” under Section 2(1)(u). Referring to Vijay Madanlal Choudhary v. Union of India and Pavana Dibbur v. Enforcement Directorate, it reiterated that property must be “derived or obtained” as a result of criminal activity relating to a scheduled offence to qualify as proceeds of crime.
The Court emphasised that there must first exist a scheduled offence and identifiable proceeds flowing from it. Mere suspicion or association with an organisation allegedly involved in unlawful activity is insufficient.
The Court noted that while money laundering is an independent offence, it is still contingent upon the existence of proceeds of crime arising from a scheduled offence already accomplished.
Precedent analysis
Relying on Vijay Madanlal Choudhary, the Court highlighted that authorities cannot assume property to be proceeds of crime without demonstrating derivation from a scheduled offence.
The Court also referred to Pavana Dibbur, clarifying that while an accused need not be named in the predicate offence, there must nonetheless be proceeds of crime connected to such offence.
Applying these principles, the Court found that the ED’s allegations lacked prima facie material demonstrating that the funds received were generated from completed scheduled offences.
Court’s reasoning
The Court observed that the ED’s case was substantially founded on the applicant’s association with PFI and leadership role in SDPI. However, PFI was a lawful organisation during the applicant’s tenure from 2009 to 2018, and SDPI continues to be a lawful political party.
The Court held that mere association or leadership position does not establish laundering of proceeds of crime. There was no prima facie evidence that funds received were generated from commission of scheduled offences.
The allegation that funds were collected from unknown sources and utilised for unlawful activities did not automatically convert them into “proceeds of crime” under PMLA.
The applicant’s 18-day travel to UAE in 2016 was found insufficient to establish cross-border laundering nexus.
The Court concluded that the twin conditions under Section 45 were satisfied and that continued incarceration was unwarranted.
Conclusion
The Delhi High Court granted regular bail to the applicant, holding that the essential ingredient of “proceeds of crime” was not prima facie established. The Court clarified that its observations were confined to bail and would not prejudice trial proceedings.
Implications
This ruling significantly clarifies the evidentiary threshold required to invoke Section 3 PMLA. It underscores that “guilt by association” cannot substitute proof of proceeds of crime.
The judgment reiterates that collection of funds, even if allegedly unlawful, does not ipso facto constitute money laundering unless such funds are derived from scheduled offences.
It also reinforces the principle that the stringent twin conditions under Section 45 must be applied in a reasoned and evidence-based manner.
Case law references
- Vijay Madanlal Choudhary v. Union of India (2023) 12 SCC 1 — Proceeds of crime must be derived from scheduled offence.
- Pavana Dibbur v. Enforcement Directorate (2023 SCC OnLine SC 1586) — Person need not be accused in predicate offence but proceeds must exist.
- Union of India v. Kanhaiya Prasad (2025 INSC 210) — Twin conditions under Section 45 PMLA are mandatory.
FAQs
1. Can a person be arrested under PMLA without being named in the predicate offence?
Yes. However, the prosecution must still establish existence of proceeds of crime derived from a scheduled offence.
2. Does mere association with a banned organisation amount to money laundering?
No. There must be specific evidence showing involvement in processes connected with proceeds of crime.
3. Are donations automatically treated as proceeds of crime under PMLA?
No. Donations become proceeds of crime only if they are derived from criminal activity relating to a scheduled offence.