PMLA | Stay Of Predicate Offence Not Equivalent To Quashing: Karnataka High Court Refuses To Quash ED Summons

The Karnataka High Court has held that an interim order staying proceedings in a predicate offence acts only as a “temporary eclipse” and cannot be equated with the quashing of a case, thereby keeping Enforcement Directorate (ED) proceedings under the Prevention of Money Laundering Act (PMLA) alive.

Justice Ravi V Hosmani was hearing a writ petition filed by builders, accused of cheating and criminal breach of trust, challenging summons issued under Section 50 of PMLA.

Referring to the Apex Court ruling in Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association (1992), the Court observed, “Ratio in Shree Chamundi Moped's case (supra) is emphatic about difference between consequences of stay of an order and quashing of order. It is observed that stay of order/proceedings would not efface them but only eclipse them and cannot be equated with situation where they are quashed.”

The Court further observed that while the failure to inform a noticee of the reasons and consequences of non-compliance with a PMLA summons would amount to violation of principles of natural justice, these procedural thresholds have been moderated by the Supreme Court in Vijay Madanlal Choudhary vs Union of India (2023).

“While it cannot be contended or presumed that grounds of protection traceable to fundamental rights, especially Articles 14, 19 and 21 of CoI are totally waived and authorities under PMLA would under normal circumstances require to inform summonee of purpose of summoning and even documents/information required to be furnished by him must have nexus with ECIR or proceedings under PMLA, even consequences of default are required to be mentioned. Normally, summons cannot be issued on vague or omnibus purposes,” the Court said.

However, the Court added, “At same time, absence of above would not per se vitiate summons, unless ED fails to demonstrate grounds for summoning before Courts in case of challenge, without need for disclosure of same to summonee if same would frustrate purpose of inquiry/investigation.”

Background

The petition was filed by Bharath Reddy and Rashmi Bharath Reddy challenging the summons issued on July 14, 2026, under Section 50(2) and (3) of the PMLA. The summons required their physical appearance along with extensive financial records.

Appearing for the petitioners, counsel contended that the underlying predicate offence registered by the Marathahalli Police Station had already been quashed against the first accused and the land owner, following a settlement, and stayed as against the first petitioner, who is a builder and arrayed as the second accused in the case.

Relying on several Supreme Court rulings, including in P. Chidambaram v. Directorate of Enforcement, the petitioners argued that PMLA proceedings cannot survive independently when the predicate offence proceedings are rendered non-existent or stayed.

Rejecting the petitioners' argument, the High Court dismissed their petition and directed them to appear before the respondent authorities within two weeks.

Appearance: Adv MADHU N. RAO for Respondents