Karnataka HC Holds ED Cannot Continue PMLA Probe After Predicate Case Ends

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 10.11.2026

Karnataka HC Holds ED Cannot Continue PMLA Probe After Predicate Case Ends

The Karnataka High Court has held that the Enforcement Directorate cannot continue a money-laundering inquiry once the underlying scheduled offence has ended, and cannot file a private complaint to create a predicate case for PMLA action.

Background: land-grant allegations and a later recruitment case

The proceedings began with allegations relating to grants of land in Malur, Kolar district. K.Y. Nanje Gowda, then Chairman of the Malur Land Grant Committee, was alleged to have acted with other committee members to recommend grants of about 80 acres of land to around 38 persons by abusing official position.

A private complaint, PCR No. 15366/2022, alleged offences of forgery, cheating and criminal conspiracy under the Indian Penal Code. Crime No. 489/2022 was registered on that basis. The ED treated this matter as the predicate, or scheduled, offence and registered ECIR No. BGZO/41/2023.

During searches undertaken in this investigation, the ED said it found material indicating alleged irregularities in employee recruitment at Kolar and Chikkaballapur Milk Union Ltd. (KOMUL). The Court referred to this as the “Job Scam Case.” On the basis of that material, the ED issued summons to Petitioner and took steps under the PMLA, including proceedings before the Adjudicating Authority.

Closure of the predicate offence

The land-grant case did not proceed to prosecution. The jurisdictional police filed a closure report, against which the complainant filed a protest petition. However, because the allegations concerned a public servant, prior government sanction was required for continuation of the prosecution.

As sanction was not obtained, the trial court dismissed the land-grant case for non-prosecution. The High Court recorded that this decision had attained finality.

The Court held that, in these circumstances, a conviction for the alleged scheduled offences could not arise. The ED’s continued investigation into whether there were proceeds of crime derived from the land-grant allegations was therefore unsustainable.

Core issue: can PMLA proceedings survive without a predicate offence?

The Court examined Section 3 of the PMLA, which criminalises involvement in processes connected with “proceeds of crime,” and Section 2(1)(u), which defines those proceeds as property derived or obtained from criminal activity relating to a scheduled offence.

Relying on the Supreme Court’s decisions in Vijay Madanlal Choudhary v. Union of India and V. Senthil Balaji v. Deputy Director, Directorate of Enforcement, the Court held that a scheduled offence is indispensable to a money-laundering case.

The Court’s key findings were:

• The offence under Section 3 is not independent of the underlying scheduled offence.
• Property can be treated as “proceeds of crime” only when it is linked to criminal activity relating to a scheduled offence.
• The ED’s power under the PMLA is derivative, not original.
• The ED’s role begins after a competent law-enforcement agency registers an FIR or a formal criminal complaint concerning a scheduled offence.
• The ED cannot launch a PMLA investigation solely on a stand-alone suspicion of money laundering.
• If the predicate offence ends in favour of the accused, PMLA proceedings based on that offence cannot continue.

The High Court accordingly concluded that the closure of the land-grant case prevented the ED from continuing its PMLA inquiry arising from that case.

Section 66(2) does not permit the ED to create a predicate case

The Court also considered the ED’s actions concerning the alleged recruitment irregularities at KOMUL.

The ED had shared the information it collected with the competent agency under Section 66(2) of the PMLA. That provision requires PMLA authorities to furnish information to the agency concerned when they find material suggesting a contravention of another law.

When the jurisdictional authority did not initiate criminal action on that information, the ED filed PCR No. 32/2024 under Section 200 of the Code of Criminal Procedure. It sought investigation by the Lokayukta Police into alleged offences under the Prevention of Corruption Act and the Indian Penal Code, including conspiracy, cheating and forgery.

The Court held that this was beyond the ED’s statutory authority.

According to the Court, Section 66(2) creates an information-sharing duty, not an independent power to prosecute or investigate alleged predicate offences. If the ED finds material suggesting a separate scheduled offence, it must refer that material to the appropriate agency. The competent agency must then decide whether a case should be registered and prosecuted.

The Court observed that the PMLA does not expressly authorise the ED to file a private complaint under Section 200 CrPC or Section 223 of the Bharatiya Nagarik Suraksha Sanhita for a scheduled offence, and then proceed under the PMLA on the strength of that complaint.

In a notable observation, the Court stated that the ED is not a “super cop” with authority to investigate every issue that comes to its notice. Permitting it to file a private complaint where the competent state agency had not acted would undermine the statutory framework, separation of functions, and institutional checks and balances.

Why the Court rejected the ED’s argument

The ED argued that it could continue its investigation because the land-grant case had closed on a technical ground rather than after a merits-based adjudication. It also argued that, like any other person, it could initiate a private complaint if the agency that received information under Section 66(2) did not act.

The High Court rejected both contentions. It held that the actual legal status of the predicate case mattered: the land-grant complaint stood closed and the absence of sanction meant prosecution could not proceed.

On the recruitment allegations, the Court found that accepting the ED’s position would effectively allow it to override the determination of police, Lokayukta authorities and sanctioning bodies. That outcome was not contemplated by the PMLA, which requires the predicate offence to originate through the relevant prosecuting agency or another legally competent complainant, not the ED acting under its PMLA powers.

Relief granted by the High Court

The High Court allowed all five writ petitions and passed the following orders:

• The 6 June 2024 order of the PMLA Adjudicating Authority in O.A. No. 1132/2024 was quashed insofar as it concerned Petitioner in W.P. No. 18821/2024.
• The respondents were directed to return articles, if any, seized from Petitioner in W.P. No. 18821/2024.
• ECIR No. BGZO/41/2023/2849 dated 30 November 2023, related summons and consequential proceedings, including the 16 February 2024 show-cause notice in O.A. No. 1132/2024, were quashed insofar as they concerned the petitioners in W.P. Nos. 8914/2024 and 22460/2025.
• PCR No. 32/2024, pending before the Additional City Civil and Sessions Judge, Bengaluru, was quashed insofar as it concerned the petitioners in W.P. Nos. 22460/2025, 4630/2025 and 5168/2025.
• The ECIR and the consequential summons challenged in W.P. No. 22460/2025 were quashed.
• All pending interlocutory applications were disposed of.

Significance of the ruling

The ruling reinforces that a PMLA case depends on a legally sustainable predicate offence and identifiable proceeds of crime. The ED cannot use money-laundering proceedings to replace the criminal investigation of an underlying scheduled offence.

It also clarifies the scope of Section 66(2) of the PMLA. The provision permits the ED to share information with the appropriate authority, but does not give it authority to independently file a private complaint to establish a predicate offence when the competent agency has not initiated proceedings. The decision therefore draws a clear limit: without a subsisting scheduled offence, there can be no continuing PMLA action founded on that offence.

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Source: Karnataka High Court

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