Supreme Court Half Yearly Digest 2025: Prevention of Money Laundering Act, [PMLA] 2002

Accused's right to access all relevant materials, relied upon or not, to ensure a fair trial - Procedural denials of document access cannot override the constitutional right to a fair trial under Article 21. The prosecution's concern about roving inquiries was dismissed, as courts can assess document relevance and reject frivolous requests. The appeal was allowed, granting the accused access to unrelied upon documents and reinforcing their procedural and constitutional rights under the PMLA framework. (Para 56) Sarla Gupta v. Directorate of Enforcement, 2025 LiveLaw (SC) 541 : 2025 INSC 645 : (2025) 7 SCC 626

Applicability of Cr.P.C. to PMLA - The Court clarified that Section 57 of the Code of Criminal Procedure (Cr.P.C.), which incorporates the requirement of Article 22(2), applies to PMLA proceedings by virtue of Section 65 of the PMLA. There is no inconsistency between the PMLA and Cr.P.C. in this regard. Directorate of Enforcement v. Subhash Sharma, 2025 LiveLaw (SC) 137

Duty of Courts to Uphold Fundamental Rights - The Court reiterated that when a court finds that the fundamental rights of an accused have been violated during or after arrest, it is the court's duty to release the accused on bail. The illegality of the arrest vitiates the detention, and bail cannot be denied based on the twin conditions under Section 45 of the PMLA. The Supreme Court dismissed the appeal, finding no error in the High Court's order granting bail to the respondent. The Court emphasized the importance of upholding constitutional rights and the rule of law in criminal proceedings. The appeal was dismissed, and the respondent's bail was upheld. Directorate of Enforcement v. Subhash Sharma, 2025 LiveLaw (SC) 137

Illegal Arrest and Bail - Violation of Fundamental Rights - The Supreme Court upheld the High Court's decision to grant bail to the respondent in a case under PMLA. The High Court had found that the arrest was illegal due to a violation of Article 22(2) of the Constitution of India, which mandates that an arrested person must be produced before a magistrate within 24 hours of arrest. The respondent was detained at Airport pursuant to a Look Out Circular (LOC) issued by the Directorate of Enforcement (ED). The ED took physical custody of the respondent on March 5, 2022, but he was formally arrested only on March 6, 2022, and produced before a magistrate later that day. The Court found that the respondent was not produced before a magistrate within 24 hours of being taken into custody, rendering the arrest illegal. The Court emphasized that the failure to produce the respondent before a magistrate within 24 hours violated his fundamental rights under Articles 21 (right to life and personal liberty) and 22(2) of the Constitution. Consequently, the arrest was deemed vitiated, and the respondent was entitled to bail. Directorate of Enforcement v. Subhash Sharma, 2025 LiveLaw (SC) 137

In an effort to combat illegal activities and money laundering, the Central Government through the PMLA and the Rules, 2005, mandated that all financial and banking institutions conduct client identity verification, maintain comprehensive records, and report relevant information to the Financial Intelligence Unit – India. Pursuant to the same, the Reserve Bank of India issued the Master Direction on Know your Customer (KYC), 2016 . The Master Direction on KYC prescribes the framework for Customer Due Diligence (CDD) procedures and outlines the digital KYC process under Chapter VI and Annex I, respectively. Additionally, Clause 18 of the MD on KYC introduced the Video based - Customer Identification Process (V-CIP) enabling remote customer verification through secure, real-time video interaction. As a result, multiple sectors – including banking, telecommunications, insurance, and mutual funds – have adopted digital KYC as a mandatory component of their CDD or Customer Identification Program (CIP) obligations, thereby facilitating identity verification of prospective customers in compliance with regulatory requirements. (Para 12) Pragya Prasun v. Union of India, 2025 LiveLaw (SC) 507 : 2025 INSC 599 : (2025) 7 SCC 191

In cases involving serious economic offences under the PMLA, such as illegal diversion and layering of funds leading to revenue losses, judicial intervention at a preliminary stage must be exercised with caution. Proceedings should not be quashed absent compelling legal grounds. Where allegations suggest significant financial misconduct, a trial is imperative to establish the full extent of wrongdoing and ensure accountability. The cascading effect of such offences necessitates a thorough judicial process to protect state revenue and legitimate investment sectors. (Para 31) Pradeep Nirankarnath Sharma v. Directorate of Enforcement, 2025 LiveLaw (SC) 311 : 2025 INSC 349 : AIR 2025 SC 1940

Offence of money laundering under PMLA is a continuing offence. Act of money laundering does not conclude with a single instance but extends so long as proceeds of crime are concealed, used, or projected as untainted property. Legislative intent of PMLA is to combat money laundering, which involves transactions spanning over time. Continued utilization and concealment of proceeds of crime, even in recent times, extends the offence. Money laundering is an ongoing activity as long as illicit gains are possessed, projected as legitimate, or reintroduced into the economy. Proceedings initiated under PMLA for continuing offences are valid. (Para 24 & 25) Pradeep Nirankarnath Sharma v. Directorate of Enforcement, 2025 LiveLaw (SC) 311 : 2025 INSC 349 : AIR 2025 SC 1940

Powers of NCLAT to Review Decisions of Statutory Authority under PMLA – The National Company Law Appellate Tribunal (NCLAT) lacks jurisdiction to exercise judicial review over decisions of statutory authorities under the Prevention of Money Laundering Act, 2002 (PMLA), as such matters fall within the realm of public law. In the present case, the NCLAT, in its order dated 17.02.2020 in Company Appeal No. 957 of 2019, erroneously stayed and declared illegal a Provisional Attachment Order (PAO) dated 10.10.2019 issued by the Directorate of Enforcement (ED) under Section 5 of PMLA, post the approval of a Resolution Plan by the National Company Law Tribunal (NCLT) on 05.09.2019 under the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLAT's reliance on Section 32A of IBC, inserted w.e.f. 28.12.2019, to hold that the ED lacked power to attach assets of a Corporate Debtor post-approval of the Resolution Plan was held to be beyond its jurisdiction. As per the Supreme Court's ruling in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka & Ors. [(2020) 13 SCC 308], neither NCLT under Section 60(5) nor NCLAT under Section 61 of IBC can review decisions under public law, including those under PMLA. Appeals under Section 61 are limited to orders passed by NCLT and, in cases of Resolution Plan approvals under Section 31, only on grounds specified in Section 61(3). Consequently, the NCLAT's findings on the PAO were declared coram non judice, being without legal authority and jurisdiction, especially as the issue was sub judice before the Supreme Court in related appeals. (Para 24 - 31) Kalyani Transco v. Bhushan Steel and Power Ltd, 2025 LiveLaw (SC) 524 : 2025 INSC 622

Section 19, 45 - The Supreme Court in Pankaj Bansal v. Union of India, (2024) 7 SCC 576 interpreting Article 22(1) of the Constitution of India and Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA), held that the requirement to inform an arrested person of the grounds of arrest is a fundamental right and must be meaningfully fulfilled to serve its constitutional and statutory purpose. The Court emphasized two key aspects of Section 19(1): (1) the authorized officer must record in writing the reasons for believing the arrestee is guilty of an offence under the PMLA, and (2) the arrestee must be informed of these grounds as soon as possible. The Court clarified that providing written grounds of arrest to the arrestee is essential to avoid disputes over compliance and to enable the arrestee to seek legal counsel and challenge the arrest under Section 45 of the PMLA for bail. Failure to furnish written grounds could lead to immediate release, as seen in V. Senthil Balaji v. State, (2024) 3 SCC 51. The Court further noted that oral communication or mere reading of voluminous grounds is insufficient, as it does not allow the arrestee, often in a distressed state, to effectively comprehend or recall the grounds for pursuing legal remedies, thereby rendering the constitutional protection under Article 22(1) and statutory mandate under Section 19(1) ineffective. (Para 10) Vihaan Kumar v. State of Haryana, 2025 LiveLaw (SC) 169 : 2025 INSC 162 : AIR 2025 SC 1388 : (2025) 5 SCC 799

Section 19 - Arrest under Special Acts – Judicial Review – Safeguards and Standards - In Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929, held that arrests under the PMLA are subject to stringent safeguards under Section 19, ensuring accountability and preventing arbitrary actions by authorized officers. The officer must have material-based "reasons to believe" the person is guilty of money laundering, and the arrestee must be informed of the grounds of arrest promptly. Courts, when reviewing such arrests under special statutes like PMLA, UAPA, Customs Act, GST Acts, etc., should exercise judicial review sparingly, limiting scrutiny to compliance with statutory and constitutional safeguards, such as the officer's authorization, existence of material supporting the belief, and communication of arrest grounds. The sufficiency or adequacy of material forming the basis of the officer's belief is not subject to judicial review, as such arrests occur at a nascent stage of investigation. The scope of judicial review varies by case context, and parameters applicable to service-related cases do not extend to arrests under special statutes. Arrests under such Acts serve investigative purposes, including securing information, preventing interference, and maintaining law and order, as noted in Adri Dharan Das v. State of W.B., (2005) 4 SCC 303. Special Acts like PMLA aim to protect financial systems and national sovereignty, necessitating cautious judicial interference to avoid frustrating their objectives. Courts should avoid magnifying minor procedural lapses, as frequent interference may embolden offenders and undermine societal and national interests, particularly given the complex nature of modern crimes facilitated by technological advancements. (Para 9 -12) Radhika Agarwal v. Union of India, 2025 LiveLaw (SC) 255 : 2025 INSC 272 : (2025) 6 SCC 545

Section 24 - Entitlement to Unrelied Documents - Whether an accused under the PMLA is entitled to access a list of unrelied upon documents and statements collected by the Directorate of Enforcement (ED) during investigation but not relied upon in the prosecution complaint. Held, an accused under the PMLA is entitled to a list of statements, documents, material objects, and exhibits not relied upon by the ED. This ensures the accused has knowledge of such materials to apply for their production under Section 91 CrPC (Section 94 BNSS) at the defence stage. Courts should adopt a liberal approach in allowing such applications, denying them only in exceptional circumstances due to the reverse burden under Section 24 PMLA. (Para 30, 55) Sarla Gupta v. Directorate of Enforcement, 2025 LiveLaw (SC) 541 : 2025 INSC 645 : (2025) 7 SCC 626

Section 24 - Safeguarding PMLA Burden - Given the reverse burden under Section 24 PMLA, denying access to unrelied upon documents hampers the accused's ability to discharge this burden, necessitating liberal construction of Section 233(3) CrPC to protect the accused's rights. (Para 50, 51, 55) Sarla Gupta v. Directorate of Enforcement, 2025 LiveLaw (SC) 541 : 2025 INSC 645 : (2025) 7 SCC 626

Section 24 - The burden lies on the accused to prove that the proceeds of crime are not involved in money laundering, as the court presumes involvement unless proven otherwise. (Para 13) Union of India v. Kanhaiya Prasad, 2025 LiveLaw (SC) 201 : 2025 INSC 210 : AIR 2025 SC 1028

Section 44(1)(b) – Bharatiya Nagarik Suraksha Sanhita, 2023; Section 223(1) – Pre-Cognizance Hearing – Held, under Section 223(1) of the BNSS, a Special Court is required to grant the accused an opportunity to be heard before taking cognizance of a complaint filed by the Enforcement Directorate under Section 44(1)(b) of the PMLA. The proviso to Section 223(1) of the BNSS mandates that a Magistrate shall not take cognizance of an offence without providing the accused such an opportunity. In a complaint filed under Section 44(1)(b) of the PMLA post-July 1, 2024, the Special Judge's failure to afford this pre-cognizance hearing renders the cognizance order liable to be set aside. The Court set aside the Special Court's cognizance order dated November 20, 2024, for non-compliance with this mandatory requirement, which was not present in the erstwhile Code of Criminal Procedure, 1973. The Court held that the provisions of Chapter 16 (Sections 223 to 226) of the BNSS apply to PMLA complaints, and the absence of a pre-cognizance hearing justified quashing the order. The appeal was partly allowed, directing the appellant to appear before the Special Court for a hearing as per the proviso to Section 223(1). Issues regarding the scope of the pre-cognizance hearing and cognizance in supplementary complaints were left open for the Special Court to decide. Kushal Kumar Agarwal v. Directorate of Enforcement, 2025 LiveLaw (SC) 642 : 2025 INSC 760

Section 45 - Bail - Trial Delay and Prolonged Custody - Prolonged detention under stringent laws like PMLA, coupled with delays violating the right to a speedy trial under Article 21, warrants bail. The Court distinguished Assistant Director v. Kanhaiya Prasad, 2025 LiveLaw (SC) 201 where bail was canceled due to shorter custody (less than seven months) and no trial delay, clarifying that the twin conditions under Section 45 of PMLA were not universally overriding when trial delays and prolonged detention were evident. The appeal was allowed, and bail was granted. [Paras 4, 5] Udhaw Singh v. Enforcement Directorate, 2025 LiveLaw (SC) 229 : 2025 INSC 247

Section 45 - Money Laundering is not an ordinary offence, having a transnational impact on financial systems, sovereignty, and integrity of nations. Casual or cryptic bail orders ignoring Section 45's rigours are unjustifiable. Twin conditions - i) reasonable grounds to believe the accused is not guilty, and (ii) the accused is not likely to commit any offence while on bail—are mandatory, even for bail applications under Section 439 of Cr.P.C. (Para 17, 21) Union of India v. Kanhaiya Prasad, 2025 LiveLaw (SC) 201 : 2025 INSC 210 : AIR 2025 SC 1028

Section 45 - Production at Bail Stage - At the bail stage under Section 45 PMLA, the accused can invoke Section 91 CrPC to seek production of unrelied upon documents. The ED may object if disclosure prejudices ongoing investigations, but courts may deny production only if satisfied that disclosure would harm the investigation. (Para 52, 55) Sarla Gupta v. Directorate of Enforcement, 2025 LiveLaw (SC) 541 : 2025 INSC 645 : (2025) 7 SCC 626

Section 50 - Mandatory Document Disclosure - Upon taking cognizance of a prosecution complaint, the Special Judge must provide the accused with: (i) Copies of the complaint and statements recorded by the Special Judge before cognizance. (ii) Documents and statements under Section 50 PMLA produced with the complaint, including those filed subsequently until cognizance. (iii) Copies of supplementary complaints and documents. (iv) A list of unrelied upon documents, statements, and material objects. (Para 55) Sarla Gupta v. Directorate of Enforcement, 2025 LiveLaw (SC) 541 : 2025 INSC 645 : (2025) 7 SCC 626

Section 50 - Money laundering is an independent offence, and the accused need not be involved in the predicate offence to be summoned under PMLA. The protection against self-incrimination under Article 20(3) does not apply to statements recorded under Section 50 of PMLA when a person is summoned as a witness, as no formal accusation exists at that stage. (Para 18, 22) Union of India v. Kanhaiya Prasad, 2025 LiveLaw (SC) 201 : 2025 INSC 210 : AIR 2025 SC 1028

The argument that proceedings under the PMLA are invalid due to the amount involved not meeting the statutory threshold of Rs. 30 lakhs (prior to amendment) is rejected. The determination of the threshold must be based on the entirety of the transaction and the overall financial trail, not isolated instances. The alleged proceeds of crime, including land allotment fraud, hawala transactions, and illegal gratification, significantly exceeded the threshold. The totality of evidence, even on a prima facie assessment, indicated that the proceeds of crime were substantially higher than the statutory limit, rendering the appellant's reliance on the threshold baseless. (Para 26 - 29) Pradeep Nirankarnath Sharma v. Directorate of Enforcement, 2025 LiveLaw (SC) 311 : 2025 INSC 349 : AIR 2025 SC 1940

The Court set aside the High Court's ruling that the prosecution is not obligated to provide unrelied upon documents at the pre-trial stage, holding that such denial violates the accused's rights under Article 21. (Para 56) Sarla Gupta v. Directorate of Enforcement, 2025 LiveLaw (SC) 541 : 2025 INSC 645 : (2025) 7 SCC 626

The PMLA was enacted to implement the international resolutions and declarations made by the General Assembly of United Nations, and prevent money laundering as also to provide for confiscation of properties derived therefrom or involved in money laundering. The subject matter of PMLA therefore is traceable or relatable to the Entry-13 of Union List (List-I) of Seventh Schedule. (Para 35) National Spot Exchange Ltd. v. Union of India, 2025 LiveLaw (SC) 577 : 2025 INSC 694 : (2025) 8 SCC 393

The Supreme Court allowed the Enforcement Directorate's appeal, set aside the High Court's order, and remanded the case to the High Court for fresh consideration by a different bench, without expressing an opinion on the merits. The Court stressed that non-compliance with Section 45's mandatory requirements renders bail orders legally unsustainable. Courts must uphold PMLA's objectives by rigorously applying these conditions, given the serious nature of money laundering offences. (Para 17, 21) Union of India v. Kanhaiya Prasad, 2025 LiveLaw (SC) 201 : 2025 INSC 210 : AIR 2025 SC 1028