Why in News?
Al-Falah University has been in news in connection with the recent Delhi Blast which took place on November 10th, 2025. Several individuals involved in the blast were found to be associated with the university as faulty or staff and since then the entire university is under scrutiny upon which some very significant things have come out in open. The same university is in the news now because the Enforcement Directorate arrested the Chairman of the Al-Falah Group. This arrest is part of an investigation under the Prevention of Money Laundering Act, 2002. The investigations began when the allegations arose that the university made misleading representations about its regulatory status and eligibility under the UGC framework, thereby allegedly misleading and inducing the students to enrol and pay fees. The case escalated from FIRs registered for cheating and conspiracy, which are scheduled offences under PMLA, which led the ED to examine whether the funds collected constituted “proceeds of crime” and whether there was subsequent diversion or laundering of those funds through related entities, bringing the institution and its management under serious criminal and regulatory scrutiny.
Legal Take on the News
The recent arrest of the Chairman of the Al-Falah Group by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 has highlighted the scope and application of PMLA beyond conventional financial frauds. Allegations arising out of an educational institution have turned into a full-fledged money-laundering investigation involving arrest, custodial interrogation, and potential attachment of properties.
This case is legally significant because it involves several established principles of PMLA jurisprudence that constitutional courts continue to refine.
PMLA depends on a Scheduled Offence: Section 2(1)(y)
A fundamental feature of the PMLA framework is that the proceedings under the Act are derivative in nature. The Enforcement Directorate does not acquire jurisdiction in isolation. Its powers arise only when FIRs related to cheating, forgery and criminal conspiracy are filed by the Delhi Police, for these are scheduled offences under the Act.
The Supreme Court, in Vijay Madanlal Choudhary v. Union of India (2022), clearly stated that money laundering is dependent on the existence of a prior offence and the generation of proceeds from the crime. Without the existence a scheduled offence and the alleged criminal proceeds arising from it, the PMLA proceedings cannot stand as the ED has no jurisdiction to proceed.
UGC compliance versus criminal intent
The factual allegations relate to representations concerning regulatory status under the University Grants Commission Act, 1956, focusing on the distinction between recognition under Section 2(f) and eligibility for grants under Section 12(B). From a criminal law perspective, this distinction is vital. Courts have consistently held that
regulatory non-compliance or false claims alone, do not constitute cheating. Criminal liability arises only when there is dishonest intention right at the inception, leading to inducement and wrongful gains. Pure regulatory breaches usually fall within administrative or civil domains unless criminal mens rea is clearly established.
Proceeds of crime cannot be presumed: Section 2(1) (u)
The structure of any PMLA prosecution stands tall on the concept of “proceeds of crime” under Section 2(1)(u). In this case, the ED claims that fees and funds collected due to alleged misrepresentation is what constitutes criminal proceeds. However, the Supreme Court has stated that merely receiving or holding money does not automatically invoke PMLA. In Prakash Industries Ltd. v. Directorate of Enforcement (2022), the Court highlighted that laundering activity must be independently shown. There must be evidence of concealment, layering, diversion, or projection of tainted money as clean or untainted property. The element of laundering cannot be inferred just because of the existence of a scheduled offence.
Arrest & Necessity of Arrest: Section 19
The arrest in this case has been made under Section 19 of the PMLA. The provision under this section permits arrest only when an authorised officer has “reason to believe”, based on evidence or material in possession, that the person is guilty of an offence under the Act. The reasons must be recorded in writing and communicated to the accused. In Pankaj Bansal v. Union of India (2023), the Supreme Court held that furnishing the grounds of arrest in writing is mandatory, not a mere procedural formality and non- compliance would vitiate the arrest. This judgment significantly strengthened the procedural safeguards against arbitrary arrests under PMLA.
The Supreme Court has repeatedly stated that arrest is not necessary in evert case thus not a default step in every criminal investigation. In Satender Kumar Antil v. CBI (2022), the Court established that the arrest must satisfy the test of necessity and proportionality, even in serious economic offences. This principle is quite significant in PMLA cases where investigations are largely document-centric and the accused has cooperated to summons.
Custodial arrest cannot be used as a tool of coercion or punishment.
Custodial interrogation must be justified
ED custody is granted only to facilitate custodial interrogation for specific investigative purposes. Courts now closely examine whether custodial interrogation is genuinely necessary or if the investigation can proceed on the basis of documents already seized. Where evidence is primarily documentary and financial records are in the custody of the
investigating agency, prolonged ED custody is often seen as disproportionate and unnecessary. This approach comes from the constitutional emphasis on personal liberty and fairness in criminal investigation.
Property attachment carries a reverse burden: Section 45
Alongside the arrest, the ED may initiate provisional attachment proceedings under Section 5 of the PMLA. Although described as preventive, attachment has serious civil and economic implications. Once the attachment is made, Section 24 shifts the burden onto the accused to prove that the property is not derived from proceeds of crime. In Vijay Madanlal Choudhary v. Union of India (2022), while upholding the constitutional validity of this reverse burden, the Supreme Court also emphasised that the ED must first establish a prima facie nexus between the
alleged offence and the property attached. Attachment cannot be based on speculation or broad allegations.
No automatic liability for trustees or chairpersons
Another important legal aspect concerns the liability of office-bearers like chairpersons or managing trustees. Indian criminal law does not recognise vicarious liability unless explicitly stated in the statute. Thus, mere designation or title or institutional position is not enough, the prosecution must establish active involvement, control over financial decisions, knowledge of the alleged laundering, and a clear link between the individual and the handling of tainted funds.
Bail under PMLA remains fact-specific: Section 45
Bail under PMLA is governed by Section 45, which prescribes the twin conditions (the twin conditions being, First, that the court must be satisfied that there are reasonable grounds for believing that the accused is not guilty of the offence of money laundering and Second, that the court must be satisfied that the accused is not likely to commit any offence). However,the Supreme Court in Nikesh Tarachand Shah v. Union of India (2017) invalidated the original
twin conditions as unconstitutional, leading to a more balanced bail jurisprudence. Subsequent decisions have consistently emphasised that bail cannot be denied automatically. Factors such as cooperation with investigation, absence of flight risk, health, and the nature of evidence play a decisive role. Pre-trial detention cannot become a
substitute for punishment.
Conclusion
The ED’s actions against the Chairman of the Al-Falah Group shows an increasingly unclear line between regulatory governance and criminal enforcement under PMLA. The outcome will ultimately depend on whether the alleged regulatory violations meet the strict statutory requirements of proceeds of crime and laundering activities.
As constitutional courts continue to tighten the safeguards against the excessive use of coercive powers or misuse of the coercive powers, this case is likely to be an important reference in the evolving jurisprudence on arrest, attachment, and personal liberty under the PMLA.
