Pavana Dibbur v. Directorate of Enforcement: standalone Section 3 liability and the Section 120-B limit on scheduled offences

The Supreme Court's decision of 29 November 2023 in Pavana Dibbur v. Directorate of Enforcement — 2023 INSC 1029, in Criminal Appeal No. 2779 of 2023 — is the leading ruling on two distinct questions about the scheduled-offence predicate under the Prevention of Money Laundering Act, 2002. A two-judge Bench of Justices Abhay S. Oka and Pankaj Mithal, in a judgment authored by Justice Oka, decided both a question that widens the reach of the Act and one that narrows it. The two holdings are best read together, because each polices a different edge of PMLA jurisdiction.

The facts

The Enforcement Directorate filed a complaint before the Special Court for PMLA Cases at Bengaluru, in which the appellant, Pavana Dibbur, was shown as accused no. 6. The Special Court took cognisance on 17 March 2022. The appellant moved the High Court of Karnataka under Section 482 of the Code of Criminal Procedure to quash the complaint; the High Court declined by order of 27 September 2022, and the appellant carried the matter to the Supreme Court.

The allegations concerned two immovable properties — a first property acquired in 2013 and a second acquired later from the principal accused. The ED's case was that both had been acquired out of proceeds of crime, and that the appellant had allowed her bank accounts to be used to conceal siphoned funds. Crucially, the appellant was not named as an accused in the charge sheets filed in the scheduled offences, and — as it turned out — the only Schedule entry the ED had invoked against the relevant conduct was Section 120-B of the IPC.

Standalone Section 3 liability: you need not be an accused in the predicate offence

The appellant's first line of attack was that, because she was not named in the charge sheets for the scheduled offences, she could not be prosecuted under Section 3. The Court rejected that argument. Section 3 fixes liability on anyone who is knowingly involved in a process or activity connected with the proceeds of crime — including a person who enters the picture only after the scheduled offence has been committed, by assisting in the concealment or use of those proceeds. Such a person need not have been an accused in the predicate offence at all.

The Court grounded this in paragraph 270 of Vijay Madanlal Choudhary v. Union of India, which had already recognised that persons involved in laundering proceeds of crime are a distinct class from those who commit the predicate offence. The offence of money laundering is independent; what it requires is not that the launderer be a predicate-offence accused, but that a scheduled offence exists and that proceeds of crime have been generated by it.

That last qualification carries a protective corollary the Court was careful to spell out. A PMLA accused who was never part of the predicate proceedings nonetheless takes the benefit if those proceedings collapse: if all the accused in the scheduled offence are acquitted or discharged, or if the scheduled-offence proceedings are quashed in their entirety, the launderer's case falls with them, because the scheduled offence — and hence the proceeds of crime — no longer exists.

The Section 120-B limit: conspiracy is not a self-standing predicate

The appellant's decisive argument went to the interpretation of the Schedule itself. Part A of the Schedule includes Section 120-B of the IPC — criminal conspiracy. The Additional Solicitor General argued that the mere inclusion of Section 120-B meant that a conspiracy to commit any offence, scheduled or not, became a scheduled offence. If accepted, that reading would have allowed the ED to bootstrap almost any allegation into the PMLA simply by adding a conspiracy charge.

The Court refused. It reasoned from the structure of the Schedule. Many offences capable of generating proceeds — theft under Section 379, dishonest misappropriation under Section 403, criminal breach of trust under Section 405 — are deliberately kept out of Parts A and B, and become scheduled offences under Part C only where they carry cross-border implications. Section 132 of the Customs Act qualifies only above a one-crore threshold. If Section 120-B were a self-standing predicate, all of these carefully drawn limits would collapse: a conspiracy to commit an offence Parliament had chosen to exclude would nonetheless drag the conspirators into the PMLA, and even a customs offence worth a lakh could be reached by pleading conspiracy.

Reading the point through the rule that penal statutes are strictly construed — and that, where two reasonable interpretations exist, the one avoiding penal consequences is preferred — the Court held that the ED's reading would render the Schedule "meaningless or redundant" and might even attract the vice of manifest arbitrariness. Section 120-B, it observed, is not an aggravated offence; it incorporates the principle of vicarious liability and, where no specific punishment is prescribed, treats a conspirator as an abettor. It cannot silently expand the class of scheduled offences the legislature took care to enumerate.

Disposition

Applying that rule to the facts, the Court found that the charge sheets in the alleged scheduled offences contained no allegation of a conspiracy to commit any offence that was itself in the Schedule; apart from Section 120-B, no scheduled offence had been invoked. It followed that, as against this appellant, "the scheduled offence does not exist at all," and she could not be prosecuted under Section 3. The Court also held that the first property, acquired before the acts constituting the scheduled offence, could have no connection with the proceeds of crime, while the question whether the second property was bought with tainted money could be decided only at trial. On the controlling ground, however, the appeal was allowed: the High Court's order was set aside and the PMLA complaint was quashed insofar as the appellant was concerned.

Why the ruling matters

Pavana Dibbur has become the go-to authority on the entry point to a PMLA prosecution. Its first holding confirms that the Act reaches launderers who never touched the predicate crime — a significant width. Its second holding supplies the counterweight: the ED cannot manufacture a predicate out of thin air by invoking conspiracy. The two together produce a clean threshold test — identify the scheduled offence; ask whether it exists independently of Section 120-B; and, where conspiracy is pleaded, ask whether its object is itself a scheduled offence.

The distinction from Farooq Abdullah v. Union of India is worth drawing precisely. There, the Jammu & Kashmir and Ladakh High Court quashed the ED's charge sheets because no predicate scheduled offence was sustainable at all, and expressly applied the Pavana Dibbur conspiracy rule in doing so. Pavana Dibbur itself addresses the anterior and more general questions — whether standalone Section 3 liability is possible, and what it takes for Section 120-B to count as a predicate. It is the source rule; Farooq Abdullah is one high-profile application of it. Read against Vijay Madanlal Choudhary, which upheld the Act's broad architecture, Pavana Dibbur polices where that architecture may lawfully begin.

Related on Valkya

• Vijay Madanlal Choudhary v. Union of India: how the Supreme Court upheld the PMLA framework
• Farooq Abdullah v. Union of India: JKCA charge sheets quashed for want of a scheduled offence
• Prem Prakash v. Directorate of Enforcement: how the Supreme Court reaffirmed 'bail is the rule' under the PMLA

Sources

1. Supreme Court of India — Pavana Dibbur v. Directorate of Enforcement, 2023 INSC 1029, Criminal Appeal No. 2779 of 2023, judgment dated 29 November 2023 (full text): https://www.livelaw.in/pdf_upload/4256820228150148657judgement29-nov-2023-506861.pdf
2. Cyril Amarchand Mangaldas Dispute Resolution Blog — "Section 120B of IPC cannot be treated as a standalone offence to attract prosecution under PMLA: Supreme Court": https://disputeresolution.cyrilamarchandblogs.com/2024/01/section-120b-of-ipc-cannot-be-treated-as-a-standalone-offence-to-attract-prosecution-under-pmla-supreme-court/
3. LexOrbis / Lexology — "ED cannot initiate PMLA proceedings if criminal conspiracy is not for commission of any scheduled offence": https://www.lexology.com/library/detail.aspx?g=bb86ee4c-cc04-4ee0-856b-28e4b0fff431