By Adv. Aditya Ashtekar, Associate at Lex Credence.
September 29 2026
I. The Changing Architecture Of Financial Transactions
The Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PMLA”), serves a dual purpose, one being preventive in nature and other being penal in nature. The basic scheme of PMLA defines “proceeds of crime” as per Section 2(u) which pertains to any property “derived or obtained, directly or indirectly by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad”.
Taking into consideration the aforementioned definition, the identification of proceeds of crime could often be approached through identifiable assets such as immovable property, money held in account, property acquired from illicit proceeds, securities or any other property into which such proceeds may have been converted. However, with the increased use of financial technologies, payment aggregators, gateways, merchant IDs, settlement accounts, and other
intermediaries which can essentially facilitate the movement of funds belonging to numerous parties across various intermediaries has significantly complicated the position required to determine proceeds of crime.
In light of the above, the Bombay High Court in the case of M/s Coda Payments India Pvt. Ltd V. Directorate of Enforcement (Pronounced on 2nd September 2026) (hereinafter referred to as “Coda Payments Case”) specifically dealt with instances of freezing of bank accounts and payment aggregators of the Appellants and specifically rejected the proposition that gross business turnover, by itself, establishes that the entirety of such turnover constitutes proceeds of crime2 The question, therefore, is no longer simply where the money is held, but which portion of the value moving through that financial infrastructure can properly be identified as proceeds of crime.
II. Identifying The Proceeds Of Crime In A High-Volume Financial System
As mentioned above, Section 2(1)(u) of PMLA defines that proceeds of crime is derived or obtained either directly or indirectly as a result of the criminal activity relating to a scheduled offence.3 In furtherance of the same, the Bombay High Court in the Coda Payments Case cited the judgement of the Supreme Court in the case of Vijay Madanlal & Ors. v. Union of India & Ors4 reiterating that the ‘proceeds of crime’ must be construed strictly and that every property recovered or attached in connection with a ‘scheduled offence’ cannot, merely by reason of such attachment or connection, be regarded as ‘proceeds of crime’. The property must be shown to have been derived or obtained, directly or indirectly, ‘as a result of’ criminal activity relating to a ‘scheduled offence’. The existence of a ‘scheduled offence’, by itself, therefore, does not render every asset or property of the person or entity concerned as “proceeds of crime”.
The significance of this distinction becomes particularly apparent where the entity under investigation is itself engaged in legitimate financial activity. In such cases, the existence of a scheduled offence does not answer the further question of which property held by the entity represents the proceeds of that offence. This distinction assumes greater importance where the entity’s accounts receive and process a large volume of transactions, only some of which may be alleged to have a nexus with criminal activity.
This issue was directly considered by the Bombay High Court in Coda Payments Case, where the Appellate Tribunal had placed reliance on the company having collected approximately ₹2,850 crore and remitted approximately ₹2,320 crore outside India. The High Court, however, held that the gross turnover of approximately ₹2,850 crore could not, by itself, establish that the entirety of such amount constituted proceeds of crime, nor could the foreign remittances, without more, establish that every amount lying in the company’s bank accounts constituted proceeds of crime. The Court further noted that while the underlying FIRs involved approximately ₹25 lakh, the freezing extended to assets of approximately ₹100 crore, and emphasised that such action required a reasoned justification identifying the specific property and the extent to which it was liable to be frozen.
III. The Commingling Problem: When Legitimate Funds And Alleged Proceeds Share An Account
Based on the abovementioned proposition as put forth by the Bombay High Court, the policy question that arises out of the same is, what happens to the legitimate funds and alleged proceeds of the crime which may potentially share the same account and how does the Adjudicating Authority move from constituting the entirety of the bank account as proceeds of crime towards identifying the specific property which is illicit and tainted and is liable to be frozen, as has been held in the Coda Payments Case.7 This is increasingly common in fintech ecosystem where payments from numerous clients and retailers may be received by a single account or settlement system before the money is later moved, settled, or distributed.8 Therefore, the existence of purportedly tainted funds in such an account does not necessarily imply that the account’s whole balance can be classified as proceeds of crime.
This puts forward a practical complexity of tracing and determination of the proceeds of crime. Where an account practically receives thousands of legitimate transactions alongside transactions alleged to have been connected with proceeds from a crime, the court has held that the investigation cannot end with identifying and freezing the entire account through which the alleged funds may pass, it must extend to identifying the transactions or amounts that can be specifically connected with the alleged proceeds of crime.
IV. From Account-Level Intervention To Transaction-Level Intelligence
As we move into a more digitalised financial infrastructure, it becomes even more pertinent for the framework to move towards a more distinct determination of what may constitute as proceeds of crime, since the enactment of the PMLA, the nature of financial transactions and the infrastructure through which value moves has changed significantly. The distinction recognised in Coda Payments Case between “legitimate business receipts, proceeds derived from a scheduled offence and property held in equivalent value to proceeds of crime”10 becomes particularly significant in a financial system where these categories may move through the same accounts and payment infrastructure.
The depth of financial analysis must therefore adapt to the evolving architecture of finance. The transaction and the financial trail should serve as the foundation for determining the precise value or property that is allegedly the proceeds of crime, even though the account may still be the initial point of inquiry. This would necessitate a stronger focus on transaction level tracing, which would include identifying the pertinent transaction, its source and destination, the funds’ subsequent transit, and the property that would eventually reflect such value.
Therefore, consistent with the approach adopted in Coda Payments Case, the authority at the adjudicatory stage should be required to identify the particular property or category of property sought to be frozen and document the connection between such property and the alleged criminal activity, especially in cases where the action goes beyond the identified transactions. Before the coercive measure is applied to the entire account, it is important to take into account the existence and amount of any legitimate business receipts that are present in the account along with claimed proceeds of crime. This would put into practice the statutory scheme as put forth by the Bombay High Court in the Coda Payments Case between property held in equivalent value to proceeds of crime, proceeds from a scheduled offense, and legitimate business receipts.
Therefore, the objective should be to ensure that the PMLA’s enforcement powers are sufficiently precise to match the financial systems they supervise, rather than to weaken them. By allowing authorities to identify, measure, and track alleged proceeds of crime while minimizing the unintentional interruption of legitimate business continuity and third-party funds, a transaction-level method can improve enforcement. In an increasingly digital financial system, greater technological complexity need not result in greater uncertainty in the identification of proceeds of crime; rather, the same transactional infrastructure can provide the basis for more precise and evidence-based enforcement.
This article represents the personal views of the author.