Section 23 PMLA and Interconnected Transactions: When One Proved Link Can Affect the Whole Chain

Section 23 of the Prevention of Money-Laundering Act, 2002 addresses a recurring evidentiary problem: laundering may be implemented through a sequence rather than a single transaction. Cash may enter one account, be divided among entities, converted into instruments, routed through purported loans or invoices, and ultimately used to acquire apparently legitimate property. Section 23 permits the law to examine that arrangement as a connected whole—but only after its statutory trigger is proved.

The statutory rule

Section 23 applies where money-laundering involves two or more interconnected transactions and one or more of those transactions is or are proved to be involved in money-laundering. In that event, for adjudication or confiscation under Section 8 or for the trial of the money-laundering offence, it shall be presumed that the remaining transactions form part of those interconnected transactions, unless the contrary is proved to the satisfaction of the Adjudicating Authority or Special Court.

Four features follow directly from the text:

1. There must be two or more transactions. 2. The transactions must be interconnected, not merely similar or contemporaneous. 3. At least one transaction must first be proved to be involved in money-laundering. 4. The presumption concerns the remaining transactions in that proved chain and is rebuttable.

Section 23 is therefore not a presumption that every dealing of an investigated person is tainted. Nor does an allegation of complexity activate it. The authority invoking the section must define the asserted chain and prove the gateway transaction.

The proceeds-of-crime foundation remains indispensable

Section 23 must be read with Sections 2(1)(u) and 3 PMLA. “Proceeds of crime” means property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, including the statutory value formulations. Section 3 concerns knowing involvement in a process or activity connected with such proceeds.

In Vijay Madanlal Choudhary v Union of India, (2023) 12 SCC 1, the Supreme Court held that the existence of proceeds of crime is quintessential to action under the Act. Its analysis of the neighbouring presumption in Section 24 also insists upon foundational facts: scheduled criminal activity, property derived or obtained from it, and the person’s connection with a process or activity concerning that property.

That reasoning supplies an important limit when Section 23 is invoked. A presumed relationship among transactions cannot manufacture proceeds of crime where the prosecution has not established property derived from scheduled criminal activity. Section 23 assists proof across a genuine laundering chain; it does not dispense with the statutory origin of the property.

What can establish interconnection?

The Act does not define “interconnected.” The conclusion must therefore be reasoned from evidence rather than labels. Relevant connecting facts may include:

- direct tracing of the same funds from one transaction to the next; - common beneficial ownership or effective control; - coordinated timing, amounts and counterparties; - circular transfers or immediate onward movement; - common instructions, communications, devices or authorised signatories; - purported contracts without corresponding goods, services or commercial risk; - back-to-back loans, invoices, securities or demand drafts; - common false narration or documentation; and - conduct showing that separate legal entities were used to execute one financial design.

No single indicator is invariably decisive. Common directors may exist in a legitimate corporate group. Similar payments may arise from a genuine recurring business. Use of the same bank is ordinarily neutral. The inference becomes stronger when multiple indicators converge and the money trail explains how one transaction enabled or concealed the next.

Rohit Tandon: a factual illustration, not a final Section 23 trial ruling

Rohit Tandon v Directorate of Enforcement, (2018) 11 SCC 46, decided on 10 November 2017, arose from refusal of bail. The alleged arrangement concerned cash deposits in several company accounts following demonetisation, followed by demand drafts issued in fictitious names. The record included bank statements, call-detail analysis, recovered instruments and statements recorded under Section 50 PMLA.

The Supreme Court’s discussion, particularly paragraphs 4 to 7 and 18 to 22, records why the material was treated as showing a prima facie coordinated operation. It referred to specific deposits, accounts, participants, communications and instruments, rather than merely asserting that many transactions had occurred. The Court dismissed the appeals on the bail question under the law then being applied.

Rohit Tandon should be used carefully. It is a useful factual example of how transactions may be connected through documentary and communication evidence, but it was not a final trial judgment comprehensively construing every element of Section 23. Its observations at the bail stage do not eliminate the need for proof at adjudication or trial. The constitutional and statutory bail landscape has also developed through later decisions and amendments; Section 23 should not be converted into an automatic bail presumption.

No conclusive Supreme Court formula for “interconnected”

As of this review, no located Supreme Court judgment lays down an exhaustive, generally applicable test defining “interconnected transactions” under Section 23 or resolves every question about the quality and standard of the gateway proof. Vijay Madanlal sustains the wider PMLA architecture and insists upon the proceeds-of-crime foundation. Rohit Tandon illustrates a documented transaction network at the bail stage. Neither judgment authorises a mechanical rule that common parties or proximity alone prove interconnection.

Courts should therefore derive the test from the statutory text, ordinary evidentiary principles and the facts of the particular financial chain, while avoiding claims of settled appellate law where none exists.

The gateway transaction must be proved

The words “is or are proved to be involved in money-laundering” matter. Section 23 distinguishes proof from suspicion. Before shifting the burden concerning the remaining transactions, the order should identify:

- the particular gateway transaction or transactions; - the evidence proving involvement in money-laundering; - the identified proceeds of crime; - the scheduled criminal activity from which those proceeds are said to derive; - the remaining transactions said to form the chain; and - the factual links connecting every disputed transaction to that chain.

A transaction table or fund-flow chart may assist, but the chart is an aid, not evidence by itself. Each arrow should be supported by bank records, documents, testimony, device material or another admissible source. An unexplained gap cannot be filled merely by drawing a line.

Rebutting the presumption

The affected person may rebut the presumption by demonstrating that a disputed transaction had an independent and legitimate origin, purpose or ownership. Useful evidence may include contemporaneous contracts, invoices, delivery records, market-price material, tax filings, loan documentation, board approvals, banking instructions, audited accounts and evidence from independent counterparties.

The rebuttal should address the prosecution’s asserted links directly. Showing that a company conducts legitimate business generally may not explain a specific circular transfer. Conversely, the existence of one tainted transaction does not prevent proof that another transaction, although close in time, was commercially independent and funded from an identifiable lawful source.

Section 23 and third parties

The section can materially affect purchasers, lenders, secured creditors, shareholders and counterparties who are not charged with money-laundering. Their knowledge and bona fides may differ from those of an accused, yet property proceedings can affect their interests.

The Adjudicating Authority or Court must therefore examine title, consideration, source of funds, timing and actual connection to the chain. The mandatory language of the presumption after its trigger is established does not make the rebuttal hearing ceremonial. A genuine third-party interest must be assessed on its evidence and under the applicable provisions governing attachment, confirmation, confiscation and restoration.

Avoiding duplication in valuation

One corpus may pass through several accounts without becoming new proceeds on every transfer. Transactional turnover and the value of alleged proceeds are different concepts. Section 23 creates an evidentiary bridge between connected transactions; it does not expressly direct that the same money be counted repeatedly.

Any attachment, confiscation or complaint should state whether it concerns the original property, property indirectly derived from it, a converted asset or a statutory value equivalent. Otherwise, repeated movement of the same ₹1 crore could be presented misleadingly as several crores of separate proceeds. The correct analysis follows the property and applies the governing statutory value rule without duplication.

Relationship with Section 24

Sections 23 and 24 are separate presumptions. Section 23 concerns the remaining transactions in an interconnected chain after one or more transactions have been proved to involve money-laundering. Section 24 concerns the involvement of proceeds of crime and distinguishes a person charged under Section 3 from any other person.

An order should identify which presumption it invokes, what facts activate it and what issue is presumed. Combining both sections in a single sentence without that analysis risks shifting a burden broader than Parliament prescribed.

Procedural fairness in adjudication and trial

Because Section 23 can extend an established taint across multiple transactions, meaningful disclosure and an opportunity to rebut are essential. The notice or complaint should set out the alleged chain with enough particularity for the affected person to answer it. The deciding authority should address material documents supporting lawful source or commercial independence.

At trial, Sarla Gupta v Directorate of Enforcement, 2025 INSC 645, paragraphs 48 to 55, confirms the importance of a genuine opportunity to obtain and lead defence material where PMLA places a serious negative burden on the accused. Although Sarla Gupta discusses Section 24, its fair-trial reasoning is relevant when a rebuttable PMLA presumption requires access to documents in order to answer the prosecution case.

Practical decision framework

For each invocation of Section 23, the following sequence promotes legal discipline:

1. Identify the scheduled criminal activity and the alleged proceeds. 2. Define each transaction and the complete asserted chain. 3. Prove at least one gateway transaction as involved in money-laundering. 4. State the evidence establishing interconnection. 5. Apply the presumption only to the remaining transactions within that chain. 6. Give each affected person a practical opportunity to rebut. 7. Decide the rebuttal transaction by transaction. 8. Quantify property without counting the same corpus repeatedly.

Conclusion

Section 23 is designed for genuine layering, not evidentiary shortcuts. Once a laundering transaction is proved and a real chain is demonstrated, the remaining connected transactions may be presumed involved unless the contrary is established. But the provision does not erase the scheduled-offence and proceeds-of-crime foundations, prove interconnection by assertion, or convert every financial relationship into laundering. Its legitimacy depends upon a precisely defined chain, proved gateway transaction, reasoned links and a meaningful opportunity to rebut.

Sources

Prevention of Money-Laundering Act, 2002, Sections 2(1)(u), 3, 8, 23 and 24: https://www.indiacode.nic.in/bitstream/123456789/2036/1/A2003-15.pdf

Vijay Madanlal Choudhary v Union of India, SLP (Criminal) No. 4634 of 2014 and connected matters, decided 27 July 2022, (2023) 12 SCC 1, especially the proceeds-of-crime and statutory-presumption analysis: https://api.sci.gov.in/supremecourt/2014/19062/19062_2014_3_1501_36844_Judgement_27-Jul-2022.pdf

Rohit Tandon v Directorate of Enforcement, Criminal Appeal Nos. 1878–1879 of 2017, decided 10 November 2017, (2018) 11 SCC 46, especially paragraphs 4–7 and 18–22: https://api.sci.gov.in/supremecourt/2017/25283/25283_2017_Judgement_10-Nov-2017.pdf

Sarla Gupta v Directorate of Enforcement, Criminal Appeal No. 1622 of 2022 with Criminal Appeal No. 730 of 2024, decided 7 May 2025, 2025 INSC 645, paragraphs 48–55: https://api.sci.gov.in/supremecourt/2019/31507/31507_2019_4_1501_61468_Judgement_07-May-2025.pdf

Disclaimer: This article provides general legal information and does not constitute advice for any particular investigation, attachment, adjudication or trial. Later amendments and judgments should be checked against the facts and procedural stage of the matter.

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