The Karnataka High Court has ruled that the Enforcement Directorate (ED) cannot independently initiate or continue money laundering proceedings without an existing scheduled offence. The Court observed that the agency's powers under the Prevention of Money Laundering Act (PMLA) are limited by the statute and do not make it an independent investigating authority for every suspected offence.
Background
The matter arose from allegations of irregularities in the allotment of approximately 80 acres of land to 38 individuals in Malur taluk. KY Nanje Gowda, who headed the Malur Land Grant Committee, was among those named in the allegations.
The ED initiated proceedings under the PMLA based on the land allotment case. During its investigation, the agency claimed to have found material suggesting irregularities in the recruitment of employees at the Kolar and Chikkaballapur Milk Union Ltd. (KOMUL).
The land case was subsequently closed after the trial court found that the required government sanction to prosecute the public servants had not been obtained. The police had also filed a closure report.
Justice M.I. Arun examined whether the ED could continue its money laundering investigation after the underlying criminal case had ceased to provide a valid foundation. The Court held that the ED's powers under the PMLA were dependent on the existence of a scheduled offence.
The Court observed:
"The power of the ED is derivative and not original. It cannot initiate an investigation suo motu based on a standalone suspicion of money laundering. If there is no existence of the predicate offence, then in that event, proceedings under PMLA cannot exist."
The High Court also examined Section 66(2) of the PMLA, which requires the ED to forward information about offences under other laws to the appropriate investigating agency.
It clarified:
"The ED is not a super cop to investigate anything and everything which comes into its notice. Section 48 of the PMLA envisages the authorities under the Act. Once appointed under the PMLA, they are bound by the restraints imposed on them by the PMLA."
The Court further held that the ED could not independently file a private complaint to initiate proceedings concerning a scheduled offence when the statute did not expressly confer such authority.
The High Court allowed the petitions and quashed the ED proceedings against the petitioners, including the ECIR, related summons, consequential proceedings and the proceedings arising from its private complaint.
It also set aside the relevant attachment order and directed the return of seized articles as applicable.
