Supreme Court to Examine ED's Powers Under PMLA for Non-Scheduled Offences

Background

The Supreme Court on February 9 issued a stay on a Delhi High Court ruling from November 2025. This action has reignited a crucial debate regarding the extent of the Enforcement Directorate (ED)'s powers under the Prevention of Money Laundering Act (PMLA). Specifically, the case questions how far the ED can go in tracing and attaching "proceeds of crime" when the initial illegal activity is not a scheduled offence under the PMLA.

The Delhi High Court had previously upheld the ED's decision to attach assets allegedly linked to an international online cricket betting operation. The petitioners (those challenging the ED's action) argued that income from betting is not, by itself, a scheduled offence (a specific list of serious crimes that trigger the PMLA). They contended that the ED should not be able to treat such income as tainted money simply by linking it to another, separate scheduled offence like forgery.

A bench of the Supreme Court led by Justices M M Sundresh and N Kotiswar Singh will now examine this complex issue.

Key Points

1. The Core Dispute: The central question before the Supreme Court is whether income from an activity not explicitly listed as a scheduled offence in the PMLA can still be considered "proceeds of crime" if another scheduled offence (like forgery or cheating) appears somewhere in the chain of how that money was generated or moved.

2. Origin of the Case:

   • The dispute began with an ED investigation into "large scale hawala transactions and illegal international cricket betting operations" conducted through the UK-based website Betfair.com.
   • Investigators claimed the petitioner acted as a middleman, distributing betting login IDs within India.
   • These IDs allegedly allowed the creation of multiple betting accounts without proper KYC (Know Your Customer) checks, leading to "anonymous, unregulated and unverifiable" wagering.
   • Commissions allegedly ranged from Rs 30 to Rs 110 per US dollar.
   • A separate investigation by the Mumbai Detection Crime Branch had also uncovered a similar racket, with one firm generating approximately Rs 2,400 crore through illegal betting, of which Rs 60 crore was allegedly paid to the petitioner.
   • Based on this evidence, the ED issued a Provisional Attachment Order in September 2015, freezing movable and immovable assets worth about Rs 20 crore as suspected "proceeds of crime."

3. What the PMLA Says about Property Attachment:

   • The PMLA allows the ED to act only when money is linked to a scheduled offence.
   • Section 2(1)(u) of the PMLA defines "proceeds of crime" as any property derived or obtained, directly or indirectly, from criminal activity relating to a scheduled offence.
   • Section 5 grants the ED the power to provisionally attach property if it has "reason to believe" that the property represents proceeds of crime and is likely to be concealed or transferred. This is done via a Provisional Attachment Order.
   • Ordinarily, such attachment requires a police report or complaint related to the scheduled offence. However, a second proviso to Section 5 allows for immediate attachment of "any property of any person" if necessary to prevent the assets from being moved or hidden before legal proceedings.
   • The petitioners argued that this second proviso was ultra vires (beyond the legal power or authority), as it allowed attachment without the safeguard of a "predicate offence" (the underlying scheduled offence). The Delhi High Court rejected this argument, stating the proviso prevents asset dissipation and individual interests are protected through subsequent adjudication.

4. Delhi High Court's Reasoning:

   • The Delhi High Court dismissed the petitions, describing the PMLA as a "self-contained and comprehensive statute" with its own layered appellate system (from the Adjudicating Authority to the Appellate Tribunal and then to the High Court).
   • The High Court stated that allowing litigants to bypass this system and directly invoke writ jurisdiction (Article 226 of the Constitution, which allows High Courts to issue writs) would "clog the judicial system" and undermine the legislative intent. It held that Article 226 is a "carefully guarded constitutional safety valve" for exceptional cases like fundamental rights violations.
   • On the definition of "proceeds of crime," the High Court adopted a broad interpretation. It ruled that even if cricket betting itself is not a scheduled offence, property can still qualify as "proceeds of crime" if it is derived "directly or indirectly" from a scheduled offence.
   • The court noted that the betting infrastructure in this case allegedly relied on acts like forgery, cheating, and criminal conspiracy (all of which are scheduled offences) to procure SIM cards and digital access.
   • The High Court famously used the analogy: "Fruit of a poisoned tree," meaning once criminality enters the financial chain, the gains become tainted.
   • It also found that the ED had met the statutory threshold of "reason to believe" for attachment, based on tangible material, not "mere suspicion."

Exam Relevance

• GS Paper: This topic is highly relevant for GS-2 (Indian Constitution, Polity, Governance, Judiciary) and GS-3 (Indian Economy, Internal Security, Money Laundering).

• Likely Question Angles:

  1. Role and Powers of Enforcement Directorate (ED): Discuss the powers of the ED under the PMLA, including asset attachment, and the constitutional safeguards against potential misuse.
  2. Prevention of Money Laundering Act (PMLA): Analyze the key provisions of the PMLA, its effectiveness in combating financial crimes, and the challenges in its implementation. Evaluate the definition of "proceeds of crime" and "scheduled offence" in the context of emerging financial crimes.
  3. Judicial Review and Separation of Powers: Examine how the judiciary balances the State's interest in preventing financial crimes against an individual's right to property and due process, especially during the investigation stage. Discuss the scope of writ jurisdiction (Article 226) in challenging statutory procedures.
  4. Interpretation of Statutes: How courts interpret terms like "proceeds of crime" and the implications of a broad versus narrow interpretation for law enforcement agencies and individual rights.
  5. Combating Financial Crimes: Discuss the evolving nature of financial crimes (e.g., online betting, hawala) and the legislative and enforcement challenges in tackling them in the digital age.
  6. Constitutional Validity: Critically analyze the constitutional validity of specific provisions of the PMLA, such as the second proviso to Section 5, in light of fundamental rights.