Justice Khanwilkar: "It ceases to be proceeds of crime where there is acquittal in law, whatever form, not necessarily on merits. Otherwise, it will be a very confusing situation with the discretion being given to the ED officer. The ED officer cannot sit over that, whether the acquittal is in any form, whether it is by the magistrate or by the Supreme Court. He cannot be permitted to sit over any decision of acquittal by a court of law, even if it is acquittal by withdrawal of prosecution"

ASG: "The issue is not acquittal, the issue is whether predicate offence has been committed or not"

Justice Khanwilkar: "That is a fact, but the question is whether that fact has been established against him that he was involved in the Commission of the predicate offence"

ASG: "Merely by acquittal it cannot be said that the predicate offence has not been committed. There has to be a finding that the predicate offence has not been committed"

Justice Khanwilkar: "The Schedule appended to the Act refers to cheating case. That is predicate offence. If the court ultimately finds it is a civil dispute and there is no ingredients of cheating after full fledged trial?"

ASG: "then my case goes because that is on merits"

Justice Khanwilkar: "that is what we are saying- acquittal by court of law in whatever form known to law...The point is that once there is acquittal, it ceases to be proceeds of crime. The property cannot be proceeded against under any of the provisions of the Cr. P. C., it has to be returned to the owner"

ASG: "Suppose the acquittal is without a finding that no predicate offence has been committed..."

Justice Khanwilkar: "That is not relevant. Proceeds of crime is necessary for money-laundering; the property must continue to have the colour of the proceeds of crime when this offence is registered under the PMLA or action is initiated under the PMLA.That is what we are hinting that in a case of acquittal before coming into force of the Act or even thereafter, it ceases to be proceeds of crime...Money laundering is in respect of proceeds of crime. Your jurisdiction is only in respect of proceeds of crime under this Act. You are not concerned with the predicate offence"

ASG: "For proceeds of crime, it has to be linked to a scheduled offence. The finding in the trial is not that there is no scheduled offence. If there is a finding that there is no scheduled offence, then I have to go home lock, stock and barrel"

Justice Khanwilkar: "Then you are stretching it too far. That is not the law. The law is that you take action in respect of proceeds of crime- it is then that you attach it or prosecute that person. It cannot be against just any amount"

ASG: "If the court acquits the person without the finding that scheduled offence has not taken place, then my case still remains. That is my submission"

Justice Khanwilkar: "That will be the wrong test to be applied. For the purpose of this Act, you need to see if the amount recovered is proceeds of crime. Only then money laundering will follow"

ASG: "The rider is that it has to be held that scheduled offence has not taken place. If there is scheduled offence, but you have compounded the scheduled offence, then that is still proceeds of crime. Proceeds of crime do not cease to be proceeds of crime when there is a technical acquittal which is not on merits"

Justice Khanwilkar: "That seems to be a doubtful proposition. We will have to examine it"

ASG: "It is not necessary that one compounds with all the accused, suppose compounding is with only 2 out of 4. For two, there is acquittal, for remaining two, there can be conviction. So mere proceeding on acquittal does not lead us anywhere unless there is a finding that predicate offence has not taken place"

Justice Khanwilkar: "When you are taking action under PMLA, it has to be based on proceeds of crime, it cannot be anything else. And proceeds of crime is something which is connected to accused"

ASG: "Proceeds of crime is not connected to the accused, it is connected to the predicate offence. Say, one accused dies, with one accused there is compounding, another becomes an approver, against another one prosecution is withdrawn. Take a case where proceedings are quashed against the accused under 482 or 226 by the High Court. He is not acquitted but proceedings are quashed because the court says no case is made out. But the court says so far as other accused are concerned, the proceedings will go on"