The Delhi High Court quashed an ED investigation under PMLA, stating the agency cannot continue proceedings after the original criminal case is closed. The court struck down an addendum to include an old FIR, calling it a 'colourable exercise of power.'
Court Slams ED for Continuing PMLA Probe Post Case Closure
The Delhi High Court has strongly pulled up the Enforcement Directorate for attempting to keep a PMLA investigation alive after the criminal case on which it was originally based had been closed, holding that the agency cannot continue coercive proceedings on the basis of a "fictitious" concept of proceeds of crime when the underlying scheduled offence no longer survives.
Justice Anish Dayal, in a detailed 115-page judgment, quashed the ED proceedings arising from ECIR against members of the Aristo group and also struck down an August 2025 addendum through which the agency sought to bring an old 2019 FIR within the ECIR.
The Court held that once the competent court accepts a cancellation report concerning the scheduled offence, the ED cannot continue its PMLA proceedings unless the predicate offence is subsequently revived by a superior court.
Addendum Struck Down as 'Colourable Exercise of Power'
The Court went a step further while examining the ED's August 20, 2025 addendum. It found the move was affected by "illegality and procedural impropriety" and, in the circumstances of the case, "bears the imprint of a colourable exercise of power."
The High Court noted that the original ECIR was registered in December 2021 solely on the basis of an FIR registered by the Economic Offences Wing (EOW). The EOW subsequently filed a cancellation report on December 8, 2022, after its investigation found no offence had been made out. The forensic examination had also found the disputed signatures on share-transfer forms and cheques to be genuine.
The Additional Chief Judicial Magistrate at Patiala House Courts accepted the cancellation report and dismissed the protest petition on June 12, 2025, bringing the investigation into the second FIR to an end.
Despite this, more than two months later, the ED added the FIR to the ECIR as an additional scheduled offence. The High Court found this sequence particularly significant. It noted that the first FIR had been registered nearly six years earlier and that the ED had not treated it as an independent basis for a PMLA investigation during this period, despite the dispute having been litigated before various courts.
The Court observed that if the ED genuinely believed that the first FIR disclosed a scheduled offence generating proceeds of crime, "nothing prevented it" from taking action under the law at the appropriate time. The fact that no ECIR was registered on its basis for almost six years assumed significance while examining the timing and purpose of the impugned addendum.
Court Notes Disparities in FIRs
The Court also rejected the attempt to use the first FIR to revive an ECIR whose original foundation had already disappeared. It held that the two FIRs involved materially different allegations, accused persons, property and underlying transactions. The second FIR concerned alleged fraudulent share transfers and bank transactions, whereas the first FIR related to allegations of wrongful confinement, removal of jewellery and alleged incorrect representation before passport authorities.
The Court said that although it was not necessary to give a final finding on whether the two FIRs constituted the "same transaction", the differences between them significantly weakened the ED's claim of a nexus.
'Ghost of a Scheduled Offence' Argument Untenable
Crucially, the Court rejected the ED's contention that the pending challenge to the cancellation report allowed it to continue the PMLA investigation. It observed that until a superior court actually sets aside the cancellation order, the scheduled offence cannot be treated as continuing to exist.
The Court described the ED's argument that the "ghost of a scheduled offence" could continue to support the ECIR as untenable, observing that such an approach would subvert the foundation of the PMLA and permit misuse of the statutory process.
Final Ruling and Quashing of Proceedings
The High Court further made it clear that the ED cannot use its powers under the PMLA without a surviving scheduled offence and proceeds of crime. It observed that once the scheduled offence is extinguished by a competent court, the ED cannot legitimately continue exercising its civil or coercive powers under the PMLA. Allowing such action, the Court said, would mean permitting the agency to pursue proceeds of crime even when, in law, no underlying crime survives.
The Court also held that the petitioners were entitled to invoke the High Court's writ jurisdiction under Article 226 and need not be forced to pursue the alternative remedy before the PMLA Adjudicating Authority.
Consequently, the Court directed that the ED cannot initiate or continue proceedings under the ECIR in connection with the FIR unless the predicate offence is revived by a competent superior court. All consequential and coercive proceedings were quashed, and status quo ante was ordered to be restored. The August 20, 2025 addendum incorporating the FIR was also held legally unsustainable, with all consequential and coercive proceedings arising from it quashed.
The petitioners were represented by Senior Advocates Siddharth Agarwal, Dayan Krishnan and N. Hariharan. The ED was represented by Special Counsel Anurag Jain, assisted by advocates Sagar Singh and Vaishali Gujjar. Senior Advocate Vikas Singh appeared for the complainant, while Senior Advocate Mahesh Jethmalani appeared for intervenor Rajeev Sharma. (ANI)
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