The Karnataka High Court (Bengaluru Bench) has held that the existence of a scheduled offence is essential for money laundering proceedings and rules that the ED cannot file a private complaint to create the foundation for a PMLA case when the competent agency chooses not to act. The Court clarified that the offence of money laundering under the PMLA is dependent on the existence of a scheduled offence and cannot continue once the predicate case has come to an end and attained finality.
While quashing money laundering probe against Congress leader, the High Court observed that the ED steps in only after a competent law enforcement agency registers or prosecutes a scheduled offence and cannot independently initiate proceedings based solely on its own suspicion of money laundering. Since the predicate proceedings were dismissed for want of sanction and had attained finality, the Court held that continuation of the ECIR and related PMLA proceedings was unsustainable.
Interpreting Section 66(2) of the PMLA, the Court held that the ED can only share information with the competent agency and has no statutory power to file a private complaint under Section 200 CrPC/Section 223 BNSS to trigger prosecution for the scheduled offence. The Court therefore quashed the order of the Adjudicating Authority confirming seizure of articles. It directed the authorities to return the seized articles to the concerned petitioner.
Briefly, the case arose from allegations of a land grant scam against K.Y. Nanje Gowda, who was accused of abusing his position as Chairman of the Land Grant Committee to facilitate illegal land grants. Based on a private complaint, a criminal case was registered and the Enforcement Directorate (ED) initiated money laundering proceedings by registering an ECIR, treating the land scam as the predicate (scheduled) offence under the PMLA.
During its investigation into the alleged land scam, the ED conducted searches and claimed to have discovered material relating to a separate recruitment irregularities matter in Kolar and Chikkaballapur Milk Union Ltd. (KOMUL), described as the ‘Job Scam Case’. The ED issued summons, initiated proceedings before the Adjudicating Authority under the PMLA, and later shared information regarding the alleged recruitment scam with the competent authorities under Section 66(2) of the PMLA.
Meanwhile, the original land scam proceedings ended after a closure report was filed and the case was dismissed for non-prosecution because the required sanction to prosecute a public servant was not obtained. Despite this, the ED continued its PMLA proceedings. When the authorities did not initiate action on the recruitment scam information shared by the ED, the ED itself filed a private complaint seeking investigation into the alleged offences.
A Single Judge Bench of Justice M.I. Arun observed that the offence of money laundering under the PMLA is dependent upon the existence of a scheduled or predicate offence. The Court relied on the Supreme Court’s decisions in Vijay Madanlal Choudhary and V. Senthil Balaji to hold that “proceeds of crime” can exist only when they arise from criminal activity relating to a scheduled offence. Without such predicate offence, PMLA proceedings cannot survive.
The Court held that the ED’s powers are derivative and not original. The ED can act only after a competent law enforcement agency registers or proceeds with a scheduled offence. It cannot independently set criminal law in motion merely on its own suspicion of money laundering.
On the Job Scam Case, the Court emphasised that Section 66(2) of the PMLA only authorises the ED to share information with the appropriate agency when it discovers violations of other laws. The statute does not empower the ED to file a private complaint for such offences and then use that complaint as the basis for initiating or continuing PMLA action.
In a significant observation, the Court stated that the ED is not a ‘super cop’ entitled to investigate anything and everything that comes to its notice. Permitting the ED to file private complaints where the competent authorities have chosen not to act would place it on a higher pedestal than other law enforcement agencies and would be contrary to the scheme of the PMLA.
The High Court held that when the predicate/scheduled offence ceases to exist and the proceedings attain finality, the ED cannot continue investigation or proceedings under the PMLA based on that offence. The existence of a valid scheduled offence is a sine qua non for money laundering proceedings.
The Court further held that the ED has no statutory power under the PMLA to file a private complaint under Section 200 CrPC/Section 223 BNSS regarding a scheduled offence after merely sharing information under Section 66(2) of the PMLA. Its role is limited to informing the competent agency, which alone must decide whether prosecution should be launched.
