The Karnataka High Court has made scathing observation against the Enforcement Directorate, the central anti-money laundering probe agency, while quashing Enforcement Case Information Report (ECIR) against a Karnataka Congress MLA KY Nanjegowda. The High Court noted that the Enforcement Directorate’s powers under the Prevention of Money Laundering Act (PMLA) are “derivative and not original” and that proceedings under the statute cannot continue when the predicate or scheduled offence forming their foundation no longer survives.
Justice MI Arun quashed the ECIR and consequential proceedings initiated by the ED against several petitioners, including Karnataka Congress MLA KY Nanjegowda and others connected with him. The High Court set aside proceedings arising from a private complaint filed by the agency.
The High Court quashed an order of the PMLA Adjudicating Authority – confirming the seizure of assets – and directed the return of articles seized from one of the petitioners.
The Court then made the emphatic observation that the “ED is not a super cop to investigate anything and everything which comes into its notice.”
It held that the PMLA does not expressly empower the ED or its officers to file a private complaint regarding a scheduled offence and thereafter use such a complaint as the foundation for initiating money-laundering proceedings against the accused.
What’s The Case Against Congress MLA
The ED was probing alleged irregularities in the recruitment of employees at the Kolar-Chikkaballapur District Cooperative Milk Producers Union Ltd (KOMUL).
Lawyer Mayank Jain appeared for some of the petitioners, including those connected with Congress MLA KY Nanjegowda, in the batch of matters challenging the ECIR, consequential proceedings under the PMLA and the private complaint initiated by the ED.
The High Court also noted that proceedings for the offence of money laundering cannot exist independently of the statutory requirement of a scheduled offence. It held that the ED’s role under the PMLA commences only after a primary law-enforcement agency registers an FIR or a formal criminal complaint concerning a scheduled offence.
High Court on ED’s Powers
The ED’s power, the Court said, “is derivative and not original”, and the agency cannot launch an investigation suo motu merely on the basis of a standalone suspicion of money laundering.
Justice Arun further held that where the predicate offence does not exist, proceedings under the PMLA cannot survive, including in cases where the predicate offence has been terminated in favour of the accused.
In the present case, involving proceedings against KY Nanjegowda and other petitioners, the underlying land scam case had been closed after the requisite sanction for prosecution was not obtained. Since the closure had attained finality, the Court held that the ED’s continuation of an investigation or inquiry into alleged proceeds of crime arising from that case could not be sustained.
In one of its sharpest observations, the High Court rejected the ED’s attempt to initiate a private complaint after the jurisdictional agency did not act upon information supplied under Section 66(2) of the PMLA.
The Court held that where the ED comes across material suggesting violations of another law, Section 66(2) requires it to share such information with the concerned agency. The ED, it said, cannot itself take over the investigation into those offences.
Observing that statutory powers must be exercised only in the manner prescribed by law, the Court said the constitutional scheme of checks and balances cannot permit one institution to become supreme.
Bureau Report
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