India’s capital markets are witnessing a regulatory shift, marked by increasing application of the Prevention of Money Laundering Act, 2002 (“PMLA”) to matters traditionally overseen by the Securities and Exchange Board of India (“SEBI”). While SEBI has criminal prosecution powers under the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), recent trends show certain securities violations are being treated as predicate offences under the PMLA, attracting the Enforcement Directorate’s (“ED”) investigative and prosecutorial powers.
The recent enforcement action against Alderbrooke Portfolio Management Services Private Limited (“Alderbrooke”) exemplifies this shift. ED’s involvement introduces asset attachment and custodial powers previously uncommon in capital markets enforcement, signalling a recalibration in India’s regulatory framework.
The PMLA is designed to combat the laundering of “proceeds of crime” arising from offences listed in its Schedule. These predicate offences span a wide range of statutes, and notably, the offences of SEBI Act were added via the Prevention of Money Laundering (Amendment) Act, 2009, following the Standing Committee on Finance’s recommendations, and came into effect on June 1, 2009. Specifically, Paragraph 11 of Part A of the Schedule to the PMLA reads as:
“Section 12A read with section 24: Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. Section 24 (Offences)”
Section 12A of the SEBI Act covers fraudulent and unfair trade practices, such as market manipulation, insider trading, misstatements and substantial acquisition of securities or control that induce investors to buy or sell securities. When SEBI initiates criminal prosecution under Section 24 (Offences) of the SEBI Act, typically read with substantive provisions such as Sections 12/12A (Registration of stock brokers, sub-brokers, etc,) etc., it may trigger the jurisdiction of the ED under the PMLA, provided the alleged conduct corresponds to a scheduled offence.
This legal development enables the ED to investigate and attach assets in select capital market offences, provided they involve the generation or use of proceeds of crime. It marks a significant extension of the PMLA’s reach into capital markets, supplementing SEBI’s regulatory framework with the coercive mechanisms of a criminal statute.
On May 25, 2025, the ED issued a press release detailing its search operations at four locations of Alderbrooke in Ahmedabad and Junagadh in connection with an ongoing PMLA investigation. The ED alleged that Alderbrooke had operated as an unregistered portfolio management scheme and collected over ₹24.38 crore from investors without SEBI authorization.
SEBI had earlier filed a criminal complaint under Sections 12 (and 24(1) of the SEBI Act, which served as the predicate offence for the ED’s PMLA action. The ED seized documents and is tracing fund flows to determine if they constitute “proceeds of crime” under Section 2(1)(u) of the PMLA.
This case illustrates how regulatory breaches can lead to both SEBI’s civil actions and criminal proceedings under the PMLA, introducing a dual-track enforcement model.
The judiciary has played a pivotal role in delineating the contours of PMLA’s applicability. In Sunil Kumar Agarwal v. Directorate of Enforcement (2024), the Supreme Court (“SC”) described the PMLA as “parasitic legislation,” i.e., operative only upon a valid predicate offence. Hence, ED’s jurisdiction is contingent on a scheduled offence registered by a competent authority.
In Vijay Madanlal Choudhary v. Union of India (2022), the SC held money laundering to be a continuing offence. Even if proceeds were acquired before being listed in the PMLA Schedule, the continued possession or use will attract prosecution. Thus, PMLA targets laundering, not the underlying offence. This was reaffirmed in Pavana Dibbur v. Directorate of Enforcement (2023).
In Laxmikant Tiwari v. Enforcement Directorate (2024), the Delhi High Court granted bail because no scheduled offence was established at the time of the complaint, highlighting procedural safeguards under Article 21. However, the Court clarified this decision did not affect the complaint’s merits.
This SEBI and ED collaboration reflects a growing regulatory synergy. SEBI’s use of forensic audits, data analytics, and whistleblower inputs enhances fraud detection, often triggering ED criminal investigations under the PMLA.
However, concerns about proportionality and due process arise. Section 45 of the PMLA imposes stringent bail conditions, the “twin conditions”, requiring prior notice to the Public Prosecutor and judicial satisfaction that the accused is not guilty or likely to re-offend. The reverse burden of proof and broad “proceeds of crime” definition can chill legitimate market activity.
The Enforcement Case Information Report (“ECIR”), which initiates ED probes, is not an FIR under the Code of Criminal Procedure, 1973, and is not mandatorily disclosed to the accused. The SC in Vijay Choudhary upheld this but mandated contemporaneous disclosure of arrest grounds.
In Pankaj Bansal v. Union of India (2023), the Court further clarified that written reasons for arrest must be provided, as oral communication alone does not meet the standards of fair process. In Vihaan Kumar v. State of Haryana (2025) the SC reinforced the provision of meaningful, preferably written, communication of arrest grounds for fair process.
- Legal Exposure: SEBI violations listed as scheduled offences under the PMLA, such as unregistered portfolio management schemes or fraudulent practices, may trigger parallel ED enforcement.
- Compliance Imperative: Firms must strengthen controls, conduct regular legal audits, and train staff to spot red flags that may invite ED scrutiny.
- Strategic Response: Early SEBI engagement and prompt legal advice can prevent escalation into PMLA proceedings. Transparent documentation of corrective actions can mitigate risks.
- Reputational Risk: PMLA proceedings, even if resolved without adverse findings, can harm reputation, erode investor trust, and invite regulatory scrutiny.
In the US, the Securities Exchange Commission (“SEC”) and Financial Crimes Enforcement Network operate distinctly but sometimes overlap roles. Securities fraud may trigger anti-money laundering scrutiny, but criminal prosecution usually requires wilful misconduct. The Department of Justice coordinates large investigations, occasionally via task forces.
In the UK, the Financial Conduct Authority (“FCA”) collaborates with the National Crime Agency. Regulatory breaches do not automatically lead to criminal proceedings without clear evidence of fraud or laundering. FCA initiates investigations only upon serious suspicion of misconduct.
India’s model is more integrated. SEBI and ED cooperate closely, and regulatory violations can lead to PMLA criminal probes, blurring regulatory and criminal liability lines into a unified enforcement framework.
PMLA’s application in securities enforcement reflects a deliberate effort to treat serious financial misconduct with due gravity. The law sets thresholds for when SEBI violations amount to money laundering, particularly involving fraud or deception.
The challenge is to apply these standards with discipline and fairness. Enforcement must be proportionate, coordinated, and focused on the misconduct’s substance, not mere technical classification. The Alderbrooke case demonstrates that criminal law invocation should depend on the severity of the wrongdoing, not just the existence of a regulatory breach.
For market participants, the message is clear: while most breaches remain within SEBI’s domain, serious violations involving fraud may also attract PMLA prosecution.
About the authors: Aditya Bhansali is the Founding Partner of Mindspright Legal. Supriya Nair is a Senior Associate at the Firm.
Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.
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