Criminal proceedings under PMLA cannot be sustained where predominantly civil commercial disputes have been settled.

In brief

The question

1. Whether the summoning order was sustainable given the trial court's failure to assign reasons for discarding the applicants' objections.

The court held

The Court held that the proceedings were maliciously instituted with an ulterior motive to resolve civil grievances through criminal coercion.

It also directed

Direct Answers: (1) an unreasoned summoning order is unsustainable; (2) property acquired prior to the alleged crime cannot be attached as proceeds of crime; and (3) PMLA cannot be used as a shortcut for civil recovery.

The Court allowed the application, quashed the cognizance order dated 30.01.2026, and terminated the entire proceedings arising out of ECIR No. ECIR/LKZO/43/2023.

01Facts

The applicants, a real estate company and its directors, were accused in FIR No. 336/2022 by Punjab National Bank (PNB) for allegedly defrauding the bank regarding home loans for four buyers where sale deeds were not executed and accounts turned NPA.

¶ 3, 6

Following a High Court direction in a bail matter, the Enforcement Directorate (ED) registered ECIR/LKZO/43/2023, merging multiple FIRs and alleging money laundering of Rs. 9.948 Crores.

¶ 4, 17

The ED attached various properties, including a flat purchased by the applicant in 2012.

¶ 35

The applicants demonstrated that one PNB loan account was regular, two were settled with "No Dues Certificates," and the fourth was under an active One Time Settlement (OTS).

¶ 33

The Special Judge took cognizance on 30.01.2026 without addressing the applicants' detailed written objections.

¶ 2, 23

02Issues

i.1. Whether the summoning order was sustainable given the trial court's failure to assign reasons for discarding the applicants' objections.

¶ 48, 53

ii.2. Whether a property acquired long before the alleged scheduled offence (2012) can be categorized as "proceeds of crime" under Section 2(u) of the PMLA.

¶ 36, 44, 60

iii.3. Whether criminal proceedings under the PMLA are maintainable when the underlying disputes are predominantly civil/commercial and largely settled.

¶ 57, 58, 62

03Law Applied

Sections 2(u), 3, 5, and 8 of the Prevention of Money Laundering Act, 2002 (PMLA) regarding the definition of proceeds of crime and the offence of money laundering.

¶ 38-41

Vijay Madanlal Choudhary v. Union of India, establishing that direct or indirect links to scheduled offences are mandatory for property to be "proceeds of crime".

¶ 42, 43

Pavana Dibbur v. ED, affirming that property acquired before the criminal activity cannot be connected to proceeds of crime.

¶ 44

Regarding the "color of criminality" in civil disputes, the court cited Indian Oil Corpn. v. NEPC India Ltd. and Sarabjeet Kaur v. State of Punjab.

¶ 29, 30

The requirement of a "reasoned order" as a principle of natural justice was rooted in Kranti Associates (P) Ltd. v. Masood Ahmed Khan.

¶ 50

Provisions in the judgment · 21 · Linked ones open on LawLens

Code of Criminal Procedure, 1973 Section 482 Section 250 Section 156 Section 155 Section 227 Section 228

Prevention of Money-Laundering Act, 2002 Section 2 Section 3 Section 4 Section 5 Section 8 Section 23 Section 50 Section 66

Indian Penal Code, 1860 Section 409 Section 420 Section 504 Section 506 Section 467 Section 468 Section 471

04Reasoning

The Court observed that the trial court acted as a "mouthpiece" for the prosecution by issuing a summoning order that failed to objectively consider the applicants' objections, violating the mandate for reasoned judicial decisions.

¶ 53, 55

Upon analyzing the PNB transactions, the Court found that the dispute was essentially commercial: accounts were either regular or settled via OTS, meaning the "criminality" used to invoke PMLA was non-existent.

¶ 33, 58

The Court specifically scrutinized the attachment of the 2012 flat, concluding it could not be "proceeds of crime" as it was acquired a decade before the alleged 2022 offence.

¶ 47, 60

It found that the ED falsely inflated the "proceeds of crime" by including settled amounts and quashed FIRs.

¶ 61

The Court reasoned that the complainants were "weaponizing" criminal law to bypass civil remedies for project delays.

¶ 62, 63

05Holding

The Court held that the proceedings were maliciously instituted with an ulterior motive to resolve civil grievances through criminal coercion.

¶ 63

¶ 53, 60, 59

The Court allowed the application, quashed the cognizance order dated 30.01.2026, and terminated the entire proceedings arising out of ECIR No. ECIR/LKZO/43/2023.

¶ 64

LawLens.Allahabad High Court

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