PMLA | Quantification Of Proceeds Of Crime Not Required For Arrest; ‘Reason To Believe’ Based On Material Sufficient: Bombay High Court

The Court observed that the quantification of proceeds of crime for attachment or adjudication may vary as the investigation progresses.

The Court was hearing a writ petition challenging the legality of the petitioner’s arrest by the Enforcement Directorate under Section 19 of the PMLA and seeking quashing of successive remand orders passed by the Special Court.

A Bench comprising Chief Justice Shree Chandrashekhar and Justice Gautam A. Ankhad, which dismissed the petition after holding that the arrest was carried out in compliance with statutory safeguards and was supported by material collected during investigation, observed: “The learned senior counsel for the petitioner is not correct in his submission that the “proceeds of crime” was quantified only in the counter-affidavit and, therefore, the ED had no material in its possession at the time of arrest. In our opinion, the existence of material giving rise to a reason to believe that the petitioner is involved in money laundering is the relevant consideration at the stage of arrest. Quantification for the purpose of attachment or adjudication may vary as the investigation progresses”.

Background

The petitioner had joined a City Municipal Corporation as Deputy Director of Town Planning. Between 2019 and 2023, multiple First Information Reports were registered in relation to the alleged illegal construction of 41 buildings on lands reserved for public purposes using forged permissions and fabricated documents.

In July 2024, the Bombay High Court had directed the demolition of these illegal constructions. The demolition exercise carried out in February 2025 affected approximately 2,500 families.

Following these developments, the Enforcement Directorate registered an Enforcement Case Information Report (ECIR) in February 2025 based on the earlier FIRs relating to illegal constructions.

During the course of the investigation, statements of several individuals were recorded under Section 50 of the PMLA and search operations were conducted at the petitioner’s premises in Mumbai and Hyderabad. During these searches, the ED recovered unaccounted cash amounting to ₹8.23 crores and diamond-studded jewellery valued at ₹23.28 crores.

Based on this material, the ED shared information with the State authorities, which led to the registration of a separate FIR under the Prevention of Corruption Act. An addendum incorporating the said FIR was added to the ECIR shortly thereafter.

The petitioner was subsequently arrested by the ED in August 2025 and was remanded to custody pursuant to orders of the Special Court. Challenging the legality of the arrest and remand orders, the petitioner approached the High Court under Articles 226 and 227 of the Constitution.

Court’s Observation

The High Court began by examining the scope of judicial review over arrests made under special statutes such as the PMLA. Relying on the Supreme Court’s decision in Radhika Agarwal v. Union of India, the Court observed that judicial review of arrest under special legislation must be exercised with caution and only in cases involving manifest arbitrariness or gross violation of statutory safeguards.

The Bench observed that the requirement under Section 19 of the PMLA is that the authorised officer must have “reason to believe” based on material in his possession that the person is guilty of the offence of money laundering. The adequacy or sufficiency of the material forming such a belief is ordinarily not subject to judicial scrutiny at the early stage of investigation.

Examining the facts of the case, the Court noted that the ED had recorded statements of multiple individuals under Section 50 of the PMLA, conducted search operations and recovered substantial unaccounted cash and jewellery from the petitioner’s premises. These materials, along with digital records and communications recovered during the investigation, constituted tangible material forming the basis for the officer’s belief that the petitioner was involved in money laundering.

The Court also rejected the petitioner’s contention that the absence of his name in the earlier FIRs rendered the PMLA proceedings invalid. Referring to the Supreme Court’s judgment in Vijay Madanlal Choudhary v. Union of India, the Bench reiterated that money laundering is an independent offence involving processes or activities connected with the proceeds of crime derived from a scheduled offence.

The Court held that the definition of “proceeds of crime” under Section 2(1)(u) of the PMLA is wide and includes property derived directly or indirectly from criminal activity relating to a scheduled offence. The recovery of unaccounted cash and jewellery, coupled with witness statements and other evidence collected during the investigation, provided sufficient foundation for the authorised officer to form a prima facie belief regarding the commission of the offence.

Addressing the argument that the proceeds of crime were quantified only in the ED’s counter-affidavit, the Court held that such quantification is not a prerequisite for arrest under the statute. The Bench observed that the relevant consideration at the stage of arrest is the existence of material giving rise to a reason to believe that the accused is involved in money laundering, and that the precise quantification of proceeds of crime may evolve during the course of investigation.

The Court further noted that the petitioner had been informed of the grounds of arrest, produced before the Special Court, and remanded to custody in accordance with the procedure prescribed under law. The statutory safeguards under the PMLA had therefore been complied with.

The Bench also observed that issues relating to the sufficiency of evidence, the nexus between the seized assets and the alleged offence, and the evidentiary value of statements recorded under Section 50 of the PMLA are matters that would ordinarily arise during trial or in bail proceedings rather than in a writ petition challenging arrest.

Conclusion

The Bombay High Court held that the arrest of the petitioner under the PMLA was carried out in compliance with statutory safeguards and was supported by material collected during the investigation. The Court found no manifest arbitrariness or illegality warranting interference in the exercise of writ jurisdiction.

Accordingly, the writ petition challenging the legality of the arrest and remand orders was dismissed. The Court clarified that its observations were confined to the adjudication of the writ petition and would not prejudice the rights of the parties in any subsequent proceedings, including bail applications before the trial court.

Cause Title: Y. Shiva Reddy v. Directorate of Enforcement (Neutral Citation: 2026:BHC-AS:11569-DB)

Appearances

Petitioner: Vikas Pahwa, Senior Advocate with Kathyaeni Ramshetty, Hrishikesh Mundargi, Soma Srinath, Shashi Preetham and Riya Arora, Advocates

Respondents: Anil C. Singh, Additional Solicitor General; J.P. Yagnik, Additional Public Prosecutor; Advocates Chaitanya Pendse, Aditya Thakkar, Krishnakant Deshmukh, Rajdatta Nagre, Adarsh Vyas, Rama Gupta, Advocates

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