Karnataka High Court Draws a Boundary Around the ED’s PMLA Powers

Synopsis

The money laundering probe initiated by the Enforcement Directorate (ED) against Congress MLA K Y Nanje Gowda and others has been struck down by the Karnataka High Court. Justice M I Arun believed that the agency's power under the PMLA is derivative and requires the existence of a pending predicate offence and cannot be revived by a private complaint after the pending case was closed. It is said to have implications in other cases, however, there is still a chance of appeal.

The Court's ruling

The Karnataka High Court has quashed the Enforcement Case Information Report and all proceedings under the Prevention of Money Laundering Act against Congress MLA K Y Nanje Gowda and others. The petitions were heard by Justice M I Arun. S V Raju, Additional Solicitor General, appeared for the Union. The court found that the power of the ED is “derived, not original” and that it “can't be a super cop without any offence.”

The jurisdiction and predicate offence

The decision adopts the consensus that money laundering is a "dependent offence". The court has stated that when there is no predicate offence, there can be no PMLA proceedings. That’s the case even if the predicate case ends well for the accused.

The ED had wanted to take steps to go ahead by initiating a private complaint when other authorities had decided not to take the matter forward. The bench said giving this will enable the agency to intervene when government authorities felt it was not appropriate. This would go against an Act that assumes an offence is scheduled, it added.

The PMLA, section 66(2) was also discussed. It has to be shared by the ED with the relevant agency with material it thinks it has which reveals a scheduled offence, in this case, the agency's route, not a licence to proceed alone.

Authorities' investigative jurisdiction

The judgment is a distinction between investigating the fruits of a crime and the commission of a crime. The agency is able to trace funds for a crime under investigation by another agency. It cannot continue to preserve a laundering case, when the foundation has been lost, in the court's opinion.

Wider implications

Legal commentators have pointed out that the reasoning applies to other cases in which the scheduled offence has been closed, discharged or quashed. This is in line with the Supreme Court's previous approach regarding the PMLA and a scheduled offence.

The distance that it travels will ultimately be determined by whether or not the ED appeals, as well as other benches' interpretation of it. This date of judgment could not be checked by itself; it was reported November 7.