The Allahabad High Court has granted bail to an accused in a money laundering case under the Prevention of Money Laundering Act, 2002 (PMLA), holding that the Enforcement Directorate (ED) failed to establish the existence of a valid scheduled offence after the predicate FIRs relied upon had culminated in closure reports.
The bench of Justice Vikram D. Chauhan observed that where the foundational scheduled offences no longer survive, the allegation of proceeds of crime arising from those offences becomes doubtful, making continued incarceration unjustified.
The Enforcement Directorate had initiated ECIR based on six FIRs registered in Himachal Pradesh alleging illegal mining activities involving extraction and transportation of riverbed minerals. According to the prosecution, proceeds generated from the alleged illegal mining were used to purchase Garhwal Stone Crusher in Saharanpur, Uttar Pradesh, thereby laundering the alleged proceeds of crime.
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The ED further alleged that Garhwal Stone Crusher subsequently became involved in illegal purchase and sale of illegally mined minerals from the Yamuna riverbed. Based on information shared by the ED, another FIR was registered in Uttar Pradesh in November 2024, which was later added as a scheduled offence in the ECIR.
According to the ED, the applicant held a 9% partnership in Garhwal Stone Crusher, while co-accused Gian Chand owned a 75% stake. The prosecution alleged that ₹1.60 crore in cash generated from illegal mining was used for purchasing the crusher and that the applicant had contributed ₹20 lakh in cash without explaining its legitimate source.
The applicant argued that he was never named as an accused in the six FIRs registered in Himachal Pradesh. All six predicate FIRs relied upon by the ED had resulted in closure reports, four of which had already been accepted by competent courts. Since no scheduled offence ultimately survived, there could be no “proceeds of crime” under the PMLA. No property belonging to him had been attached by the ED. He had already remained in custody since November 18, 2024, while the trial was likely to take considerable time.
The Enforcement Directorate contended that illegal mining in Himachal Pradesh generated substantial proceeds of crime, which were subsequently invested in Garhwal Stone Crusher in Uttar Pradesh.
It further alleged that Garhwal Stone Crusher itself was engaged in illegal purchase and sale of illegally mined minerals, that excess mineral stock worth approximately ₹62.14 lakh had been seized by GST authorities, and that the applicant was actively involved in the operations of the mining businesses.
The High Court extensively examined the statutory definition of “proceeds of crime” under Section 2(u) of the PMLA and noted that the existence of a scheduled offence is an essential foundation for a money laundering prosecution.
The Court observed that “One of essential ingredients of offence under Section 3 of PMLA Act, 2002 is process or activity connected with proceeds of crime.”
The Court noted that the six FIRs registered in Himachal Pradesh—the very foundation of the ECIR—had all culminated in closure reports, with four already accepted by the jurisdictional courts. Consequently, no scheduled offence survived in those cases.
The Court further observed that the applicant had never been named in those FIRs and was neither the proprietor nor a partner of Jai Maa Jwala Stone Crusher, which allegedly conducted the illegal mining activities.
A significant aspect of the judgment concerns the ED’s allegation that Garhwal Stone Crusher itself represented proceeds of crime because it had allegedly been purchased using funds generated through illegal mining.
Rejecting this contention at the bail stage, the Court held that once the predicate offences themselves had effectively ceased to exist due to closure reports, the purchase of the crusher could not automatically be treated as acquisition of proceeds of crime arising from scheduled offences.
The Court also distinguished between income allegedly generated through tax or regulatory violations, and proceeds of crime arising specifically from a scheduled offence under the PMLA. It observed that the two concepts are legally distinct.
Another important factor considered by the Court was the ED’s inability to specifically identify the property alleged to constitute proceeds of crime.
The Court observed that although the prosecution alleged illegal sale and purchase of minerals by Garhwal Stone Crusher, it failed to identify any assets or property actually derived from those alleged criminal activities.
The Court held that merely alleging illegal mining or possession of excess mineral stock does not satisfy the statutory requirement of identifying proceeds of crime under the PMLA.
The Court further noted that no property belonging to the applicant had been attached by the ED; the attached assets largely related to co-accused Gian Chand; and even in the Uttar Pradesh allegations, no identifiable proceeds of crime attributable to the applicant had been demonstrated.
The Court also relied upon several Supreme Court judgments, including Ramkripal Meena v. Directorate of Enforcement; Union of India v. K.A. Najeeb; Javed Gulam Nabi Shaikh; Manish Sisodia v. Directorate of Enforcement; Kalvakuntla Kavitha; and Prem Prakash v. Union of India. Referring to these decisions, the Court reiterated that prolonged incarceration and the constitutional guarantee of speedy trial remain relevant considerations even in PMLA prosecutions and that the rigours of Section 45 do not create an absolute prohibition on grant of bail.
The Court emphasized that “bail is the rule and jail is the exception,” observing that continued custody should not become a form of pre-trial punishment.
Considering the absence of surviving predicate offences in Himachal Pradesh, the lack of identified proceeds of crime attributable to the applicant, the fact that no assets of the applicant had been attached, parity with co-accused Gian Chand, who had already secured bail, completion of investigation, and the applicant’s incarceration of over eighteen months, the Allahabad High Court granted bail subject to standard conditions, including cooperation with trial, non-interference with witnesses, and restriction on leaving India without prior permission of the trial court.
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