Kejriwal released: With CBI charges gone, ED case now in spotlight

A Delhi court discharged Arvind Kejriwal and others in the CBI excise case, raising questions about the viability of parallel ED money laundering charges.

With a Delhi court discharging former Delhi chief minister Arvind Kejriwal, former deputy CM Manish Sisodia and 21 others in the Central Bureau of Investigation (CBI)’s excise policy case on Friday, attention turned to the parallel money laundering proceedings, with the accused now expected to move a court seeking quashing of the Enforcement Directorate’s (ED) case under the Prevention of Money Laundering Act (PMLA).

Arvind Kejriwal (Vipin Kumar/HT Photo)

The legal question that is set to dominate the next phase is both technical and consequential: can a PMLA prosecution survive once the predicate offence (the foundational criminal case) has been judicially knocked down?

On Friday, special judge Jitendra Singh cleared 23 accused in the CBI case, holding in a 549-page order that the agency’s material did not even disclose a prima facie case. The court said the alleged conspiracy behind the now-scrapped 2021-22 Delhi excise policy was a “speculative construct resting on conjecture and surmises” and lacked admissible evidence. It found no material to suggest that the policy was manipulated to confer unlawful benefit on any private individual or the so-called “South Group”.

The CBI FIR, registered in August 2022 under IPC conspiracy and cheating provisions along with sections of the Prevention of Corruption Act, formed the very basis of the ED’s money laundering probe. The ED’s ECIR was predicated on that base case, alleging that proceeds of crime generated through manipulation of the excise policy were laundered and routed for political purposes.

With the special court holding that the CBI case does not even cross the threshold of grave suspicion, the accused are now likely to argue that the PMLA proceedings have lost their statutory foundation.

The anticipated challenge rests squarely on the law declared by the Supreme Court over the past three years.

In Vijay Madanlal Choudhary vs Union of India (2022), while upholding the constitutional validity of key PMLA provisions, the top court made a crucial clarification that if a person is finally discharged, acquitted, or if the criminal case relating to the scheduled offence is quashed, “there can be no offence of money-laundering against him”.

The reasoning flows from the statute itself. Section 2(1)(u) defines “proceeds of crime” as property derived or obtained as a result of criminal activity relating to a scheduled offence. If that scheduled offence does not survive judicial scrutiny, the definitional requirement collapses. The court cautioned that ED cannot proceed on an assumption that a scheduled offence exists; the existence of such an offence is a jurisdictional fact.

“In the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against him/her, there can be no action for money-laundering against such a person,” held the three-judge bench.

Later, in Pavana Dibbur v Directorate of Enforcement (2023), the Supreme Court reiterated that while a person need not be named in the predicate FIR to face PMLA charges, the existence of a scheduled offence is indispensable. If the prosecution for the scheduled offence ends in acquittal, discharge or quashing, “no one can be prosecuted” for money laundering because there would be no proceeds of crime. The court clarified that even criminal conspiracy under Section 120B IPC becomes a scheduled offence only if it relates to an offence listed in the PMLA schedule. A broad reading, it warned, would render the schedule redundant.

In May 2024, another bench described PMLA offences as “parasitic”, observing that they “don’t have their own legs to stand” and must rest on a predicate offence. “There has to be a predicate offence somewhere and against someone for you to proceed under PMLA,” the bench told ED.

The Delhi High Court, in Directorate of Enforcement v Akhilesh Singh (2024), applied these principles most emphatically. It held that once the accused was acquitted in the scheduled offence, ED could not continue PMLA proceedings or maintain attachment of properties, even if its appeal against acquittal was pending. Using a structural metaphor, the high court said the scheduled offence is the “foundation”; once acquittal demolishes that foundation, no PMLA “structure” can stand.

In the Delhi excise matter, the development on Friday is a discharge at the threshold stage rather than an acquittal after trial. Therefore, the special court’s finding that the CBI’s material does not disclose even a prima facie case directly undercuts the existence of criminal activity relating to a scheduled offence.

ED’s possible response

ED is expected to argue that Friday’s order is open to challenge and that appellate remedies remain available to the prosecution. It may also contend that money laundering is a distinct offence and that the threshold for its continuation differs procedurally from the underlying case.

However, as the Supreme Court has clarified, while investigation under PMLA may proceed independently in procedural terms, its substantive existence is tethered to a scheduled offence.

The apex court is currently examining, in a separate batch of cases, a broader issue concerning whether PMLA proceedings survive when the predicate offence is quashed for lack of sanction or due to compromise.

According to ED officials who asked not to be identified, the agency is expected to wait for the top court’s hearing of the batch of petitions. “We will wait for the Supreme Court decision which is likely in April, before commenting on the Rouse Avenue court’s decision in the CBI case in excise policy,” said one officer.

A second officer said: “ED’s arrest of all the accused persons and attachments of properties has been upheld by various courts including Delhi High Court. There are no shortcomings in the evidence.”

In its money laundering probe, which was started based on the CBI case, ED had first arrested Kejriwal and even charge-sheeted his party as an accused. ED made 18 arrests in total and filed eight charge sheets against 40 accused. Subsequently, it identified proceeds of crime worth ₹1,100 crore and attached assets amounting to ₹244 crore.

“Ours is a standalone probe which, based on credible testimonies and documentary evidence, establishes conspiracy and generation of proceeds of crime in the excise policy,” this officer added.

The Supreme Court, meanwhile, has sought arguments on the interpretation of “crime” under Section 2(1)(u) and the continuing relevance of the Vijay Madanlal judgment.

That larger reference may eventually settle grey areas. For now, however, the binding position remains that money laundering prosecutions cannot outlive the disappearance of the predicate offence.

Friday’s discharge order has therefore triggered the next legal battlefront. If the accused move swiftly for quashing of the ED case, the Delhi court will have to confront a pointed question – Can “proceeds of crime” legally exist when a competent court has held that the alleged criminal conspiracy and corruption never even crossed the prima facie threshold?