The Karnataka High Court has said that the Enforcement Directorate (ED) is not a super cop to investigate anything and everything which comes into its notice and once a predicate offence is dismissed for any reason, proceedings under the Prevention of Money Laundering Act (PMLA) cannot continue.

The court also held that ED does not have powers under the PMLA to file a private complaint before the magistrate court seeking investigation against persons suspected to be involved in a scheduled offence, when information shared by it with the local police/authorities is not acted upon.

Justice M I Arun held thus while quashing money laundering proceedings against Congress leader K Y Nanje Gowda and others and directed the ED to return the seized articles to a petitioner.

The bench said, “The ED is not a super cop to investigate anything and everything which comes into its notice. Section 66(2) of PMLA envisages that if the ED is of the opinion that it is having certain materials which constitute a scheduled offence, then in that event, the same should be forwarded to the concerned agency.”

It added : “The Act does not expressly empower the ED or the authorities under the PMLA to prefer private complaint in respect of a scheduled offence and on the strength of it, thereafter, take up investigation against the accused therein under the provisions of PMLA.”

Further, the court has made it clear that the power of ED under the PMLA Act 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.

Justice Arun also emphasised that maintaining law and order is the responsibility of the State and not the Centre and filing of a private complaint by the ED is not contemplated under the PMLA.

The Land Scam/Job Scam Case Against Congress Leader—

Gowda was the Chairman of the Land Grant Committee of Malur, Kolar District when certain allegations were made against him that he, in collusion with other Members of the Land Grant Committee, had recommended grant of land measuring about 80 acres for about 38 persons and that the same was done by abusing their official position, in an illegal manner.

Social activist K C Rajanna had filed a private complaint before the Chief Metropolitan Magistrate, Bangalore in 2022, against Gowda and others based on which a case came to be registered, for offences under Sections 468, 464, 465, 471, 420 and 120B of the Indian Penal Code, 1860. Thereafter, Gowda was appointed as Chairman of Kolar and Chikkaballapur Milk Union Ltd. (hereinafter referred to as 'KOMUL').

Following the registration of the crime, ED, treating the same as a predicate offence, took up the matter for investigation and registered the complaint in 2023. In its investigation, ED found certain materials, which according to ED amounted to scam pertaining to recruitments of employees to KOMUL—'Job scam case'.

Under Section 66 (2) of the PMLA Act, ED shared the material regarding the Job scam case with local police. In the interregnum, the land scam case got dismissed for non-prosecution and the local police did not deem it fit to act upon information shared by the ED, in regards to the Job scam case.

Following which, the ED in 2024, filed a private complaint seeking that the case (Job scam case) be referred to Lokayukta Police for investigation alleging offences under the Prevention of Corruption Act.

The petitioners argued that once a predicate offence is closed, either on merits or on technical grounds, the ED cannot continue investigation under the provisions of PMLA. Further, ED is only empowered to share information with relevant police/authority and it is not empowered to present a private complaint and take up the matter for investigation alleging that the accused therein are benefitted by the proceeds of crime.

The agency countered the contention, submitting that once the investigation is taken up based on the existence of a predicate offence and the same gets closed on technical grounds and not on merits, still the ED is empowered to investigate into the offence of money laundering under the provisions of PMLA.

Moreover, when the concerned authority does not act upon the information received under Section 66(2) of the PMLA, then in that event any person is empowered to set into motion the criminal proceedings.

Court Findings:

The bench first referred to the Apex Court order in the case of Vijay Madanlal Choudhary and Others Vs. Union of India and Others and said for an investigation or an inquiry to be made as to the existence of 'proceeds of crime' or laundering of the money obtained through proceeds of crime can be made only if there is pre-existence of a predicate offence and not otherwise.

Te role of ED under PMLA commences only after a primary law enforcement agency registers a FIR or a formal criminal complaint regarding scheduled/predicate offence.

“In the instant case, admittedly, the private complaint filed in respect of the Land Scam Case has been closed for want of sanction from the competent authority. Thus, under the given facts and circumstances of the case, the action of the ED continuing the investigation or inquiry into the existence of proceeds of crime derived from the scheduled offences alleged in the Land Scam Case cannot be sustained.”

Similarly, as regards the ED filing a private complaint for investigation in the job scam case, the court said, “Our Constitution envisages separation of powers between different organs of government. The reason being that one institution in the country does not become supreme so that it is in a position to abuse the powers conferred on it. Law recognizes the requirements of checks and balances.”

Following which it held : “The ED is not like any other person to file a complaint under Section 200 Cr.P.C./223 of BNSS. Filing of private complaints by the ED is not contemplated under the PMLA.”

It added : “Allowing the ED to prefer a private complaint, when the other government authorities deem it inappropriate to initiate any proceedings against anybody, will amount to permitting the ED to act as a super cop and it goes against the philosophy of the Act.”

Accordingly, it allowed the batch of petitions.

Case No:

Appearance: Senior Advocate Kiran Javali, Advocates Mayank Jain, Madhur Jain, Arpit Goel, Mahendra Gowda for Petitioners.

Additional Solicitor General S.V. RAJU, a/w Advocate Anuparna Bordoloi for R1, R2.