Unaccounted Money Is Not Automatically Proceeds of Crime under PMLA

PMLA is not a general law against every unexplained asset, accounting irregularity or tax default. Its central statutory expression—“proceeds of crime”—requires property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence.

The missing link problem

Cash may be unrecorded, income may be undisclosed, or an asset may exceed known earnings. Those facts can trigger tax, company-law, foreign-exchange or other consequences. They do not by themselves establish that the property arose from a PMLA scheduled offence.

In Vijay Madanlal Choudhary, the Supreme Court distinguished proceeds of crime from property merely used in crime and stressed the connection with criminal activity relating to a scheduled offence. Yash Tuteja v. Union of India states the logical consequence: without a scheduled offence there can be no proceeds of crime and no Section 3 offence.

Tax offences and the Schedule

Whether a tax-related allegation can support PMLA depends on the precise offence invoked and its presence in the Schedule, including any value threshold. A general accusation of tax evasion should not be treated as a substitute for identifying the scheduled provision. Forgery, cheating, corruption or another scheduled offence may independently alter the position if properly alleged and supported.

Property-specific tracing

ED should identify the criminal activity, gross receipt, legitimate expenditure where legally relevant, resulting property, subsequent movement and present asset. An unexplained bank deposit cannot simply be multiplied through every later transfer. The prosecution must avoid confusing turnover with proceeds and possession with generation.

The defence burden

Once foundational facts and the statutory presumption arise, a claimant should provide a credible lawful source. Tax returns are relevant but not conclusive: an entry in a return does not legalise criminal proceeds, while absence from a return does not itself prove a scheduled crime. Contracts, ledgers, counterparties, banking trails and contemporaneous records matter.

The distinction protects the structure of PMLA. Serious financial irregularities should be addressed under the correct law; the exceptional powers of PMLA apply only when scheduled criminal activity generates identifiable proceeds.

Sources

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

Supreme Court of India, Yash Tuteja v. Union of India, 2024 INSC 301: https://api.sci.gov.in/supremecourt/2023/14771/14771_2023_8_68_52049_Judgement_08-Apr-2024.pdf

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

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