Quashing of Predicate Offence FIR No Ground to Wipe Out Money Laundering Charges: Supreme Court

The Supreme Court has held that mere quashing of an FIR by way of compromise in the predicate offence does not obliterate the existence of proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA).

A Bench of Justices M M Sundresh and Prasanna B Varale said that in proceedings under the PMLA, what is relevant is the existence of proceeds of crime generated from the predicate offence and their subsequent use in money laundering.

Court made the observations while allowing an appeal filed by the Directorate of Enforcement (ED) and setting aside the bail granted to accused Bhupesh Arora. It also rejected the bail application of Rohit Vij, holding that the seriousness of the allegations, the potential for fleeing the country and the fact that the investigation was still underway weighed against the grant of bail.

Why does quashing of the predicate offence FIR not end PMLA proceedings?

Court said the high court erred in granting bail to Arora primarily on the basis of the quashing of an FIR in the predicate offence. It noted that there were numerous other FIRs and emphasised that what is relevant in proceedings under the PMLA is the existence of proceeds of crime.

"In our considered view, the high court was not correct in dealing with the factual issues, apart from taking note of the FIR(s) quashed by compromise. Mere quashing of an FIR, by a compromise per se, will not obliterate the existence of the proceeds of crime," the Bench said.

The Bench explained that the court must be concerned with the crime that creates proceeds for the subsequent act of money laundering punishable under the PMLA.

The ED had contended before the Court that the high court committed an error by relying on the quashing of a single FIR, that too on the basis of a compromise, and thereafter holding that Arora could not be proceeded against in the predicate offence.

How was the alleged money laundering carried out?

According to the prosecution, members of the public invested money through the 'LOXAM' app, believing that it belonged to a French multinational. The money was transferred to a virtual account held by M/s Xindai Technologies Pvt Ltd.

Xindai allegedly distributed the money across its 29 virtual accounts. Three parallel shell entities, namely Betench, Xitamin and Skhalita, allegedly followed a similar process with the collections received by them.

From there, the money was transferred into 38 physical accounts, including an IndusInd Bank account allegedly operated directly by Arora, and subsequently into around 35 mule accounts.

The mule accounts then remitted the money through RTGS to M/s Ranjan Moneycorp Pvt Ltd and M/s KDS Forex Pvt Ltd. These were the only RBI-licensed entities in the chain, according to the prosecution. The ED alleged that their licences enabled the tainted money to enter a regulated channel.

This was allegedly the stage at which Vij facilitated the layering of the proceeds of crime. The funds were subsequently layered through other shell entities allegedly controlled by Arora.

Vij allegedly converted the RTGS credits into US dollars and UAE dirhams by purchasing foreign currency from other money changers. He allegedly retained 0.3 to 0.7 per cent as commission, while his two companies withdrew around Rs 75 crore in cash.

Once the money was converted into foreign currency in cash, the trail allegedly ended. The prosecution alleged that the currency was handed over to Sahil Bajaj, Pankaj Wadhwa and Anurag Aggarwal against a token, namely the serial number of a currency note.

They allegedly carried the money to Dubai and China through hawala operators and cryptocurrency. In short, the prosecution's case was that the victims' money entered the chain as bank credits and eventually left the country as cash dollars.

Why did Court deny bail to the accused?

Court said the allegations were serious and that further investigation was required, particularly as the alleged money laundering was likely to span across the country and involved a very large amount.

"Having gone through the allegations made, which are quite serious, we are of the considered view that further investigation is certainly required, as the extent of money laundering is likely to span across the country. The amount stated to be involved is also very huge," the Bench said.

The ED submitted that the proceeds of crime involved might be much more than the amount indicated in the prosecution complaint, which was stated to be more than Rs 2,000 crore.

It also argued that the conduct of both accused persons did not warrant bail as they were flight risks and had allegedly made attempts to flee the country.

Court observed that the high court ought not to have granted bail to Arora, particularly in view of the fact that he had entered the country during the currency of a Red Corner Notice, which was stated to have been quashed on a technical plea.

Court therefore set aside the bail granted to Arora and rejected Vij's bail plea, particularly as the investigation had not yet been completed and the nature of the allegations did not warrant his release.

"Certainly, the rigour of Section 45 of the PMLA has to be pressed into service for both the accused persons," the Bench said.

Court directed the ED to complete the investigation within five months and granted Arora two weeks' time to surrender.

Case Title: Directorate of Enforcement Vs Bhupesh Arora 

Bench: Justices M M Sundresh and Prasanna B Varale 

Date of Judgment: September 29, 2026