Interconnected Transactions under Section 23 PMLA: Scope of the Statutory Presumption

Money-laundering structures rarely use a single transfer. Funds may move through layered accounts, related companies, purchases, loans and returns. Section 23 addresses this evidentiary difficulty by creating a presumption where money-laundering involves two or more interconnected transactions.

How the presumption operates

If one or more transactions are proved to be involved in money-laundering, the Authority or court shall presume that the remaining transactions forming part of the interconnected chain are also involved, unless the contrary is proved.

The provision does not permit ED to describe unrelated dealings as a chain and shift the entire burden. It requires a demonstrated connection and proof that at least one transaction is involved in money-laundering. The scheduled offence and proceeds-of-crime foundation remain indispensable.

What establishes interconnection?

Relevant indicators include common beneficial ownership, coordinated timing, circular movement, identical narration, shared devices or addresses, back-to-back contracts, absence of commercial purpose, common controllers and direct tracing of funds. Mere dealings with the same large company or use of the same bank are ordinarily insufficient without further linkage.

Rebutting the chain

A party should isolate the challenged transaction and prove its independent commercial basis. Contracts, delivery records, tax invoices, market pricing, board approvals, loan repayment schedules and bank trails can demonstrate that similarity or proximity does not equal laundering.

Valuation and duplication

Layering the same corpus through several accounts does not necessarily multiply the value of proceeds each time it moves. ED and courts should distinguish the original proceeds from transactional turnover to avoid double or multiple counting. Section 23 assists proof of involvement; it is not a formula for inflating value.

Judicial discipline

An order invoking Section 23 should identify the proved tainted transaction, explain the links, define the remaining transactions and consider the rebuttal. A network diagram supported by dates and amounts is more legally useful than a broad allegation of complexity.

Section 23 responds to sophisticated layering, but the presumption begins only after evidence supplies a real chain and at least one proved tainted link.

Sources

Prevention of Money-Laundering Act, 2002, Sections 2(1)(u), 3 and 23: https://www.indiacode.nic.in/handle/123456789/15402

Supreme Court of India, Vijay Madanlal Choudhary v. Union of India, 2022 INSC 757.

Supreme Court of India, Rohit Tandon v. Directorate of Enforcement, (2018) 11 SCC 46.

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