The enforcement of the Prevention of Money Laundering Act, 2002 (passed in the background of India’s commitment to the international community to fight the drug menace and terrorism) has caused much consternation especially after its unusual interpretation by the Supreme Court of India in Vijay Madanlal Choudhary and Ors vs Union of India and Ors. (2022). The Supreme Court of India limited its application to “on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offence”. It also held that “the property must qualify the definition of “proceeds of crime” under Section 2(1)(u) of the 2002 Act”. It went on to hold that “the authority of the Authorised Officer... to prosecute any person for offence of money-laundering gets triggered only if there exists proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act and further it is involved in any process or activity”.
The Court emphatically held that “Not even in a case of existence of undisclosed income and irrespective of its volume, the definition of ‘proceeds of crime’ under Section 2(1)(u) will get attracted, unless the property has been derived or obtained as a result of criminal activity relating to a scheduled offence”.
The law thus declared by the Court, which binds one and all under Article 141, is clear — “If the offence so reported is a scheduled offence, only in that eventuality, the property recovered by the Authorised Officer would partake the colour of proceeds of crime under Section 2(1)(u) of the 2002 Act, enabling him to take further action under the Act...”. In clarity, the Court declared, “Absent existence of proceeds of crime, as aforesaid, the authorities under the 2002 Act cannot step in or initiate any prosecution”.
