Background of the Case
The Karnataka High Court considered a batch of five connected writ petitions challenging proceedings initiated by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA), against Congress leader K.Y. Nanje Gowda and others.
The petitions raised two important questions concerning the limits of the ED's powers: whether the agency could continue money laundering proceedings after the underlying scheduled offence had been closed for want of government sanction, and whether it could independently file a private criminal complaint when the competent investigating agency declined to act on information supplied by it.
Justice M.I. Arun held that the ED's powers under the PMLA are dependent on the existence of a scheduled offence and that the statute does not empower the agency to act as an independent investigating authority for offences under other laws.
Allegations Relating to the Land Grant Committee
The matter originated from allegations concerning the functioning of the Land Grant Committee at Malur in Kolar district, when K.Y. Nanje Gowda was its Chairman.
It was alleged that Gowda, in collusion with other members of the committee, had recommended the grant of approximately 80 acres of land to 38 persons by abusing their official positions and acting illegally.
Based on these allegations, social activist K.C. Rajanna filed a private complaint, bearing PCR No.15366/2022, before the Chief Metropolitan Magistrate, Bengaluru, alleging offences under Sections 468, 464, 465, 471, 420 and 120B of the Indian Penal Code, 1860. A criminal case was subsequently registered as Crime No.489/2022.
Gowda was thereafter appointed Chairman of the Kolar and Chikkaballapur Milk Union Ltd. (KOMUL).
ED Initiates Money Laundering Investigation
Treating the alleged land scam as a scheduled offence under the PMLA, the Enforcement Directorate registered ECIR No.BGZO/41/2023 and commenced an investigation.
During the investigation, the ED conducted searches at the premises of several persons. In the course of these searches, the agency claimed to have discovered material indicating alleged irregularities in the recruitment of employees at KOMUL.
This gave rise to a separate set of allegations concerning a recruitment scam, referred to in the judgment as the Job Scam Case.
The ED also issued summons to Y.B. Ashwathanarayan in connection with the material allegedly discovered during the investigation.
Closure of the Land Scam Case
Meanwhile, the jurisdictional police filed a closure report in Crime No.489/2022.
The complainant filed a protest petition challenging the closure report. However, since the allegations concerned a public servant and the requisite government sanction for continuing the prosecution had not been obtained, the trial court dismissed the proceedings for non-prosecution.
The closure of the underlying criminal case became central to the subsequent challenge before the High Court.
Despite the termination of the land scam proceedings, the ED continued its investigation under the PMLA. It also initiated proceedings before the Adjudicating Authority under Section 17(4) of the Act.
By an order dated June 6, 2024, the Adjudicating Authority confirmed the seizure of articles in proceedings bearing O.A. No.1132/2024.
Ashwathanarayan challenged the confirmation order and sought the return of the seized articles. He also questioned the legality of the ECIR and the consequential proceedings initiated by the ED.
ED Files Private Complaint Concerning Recruitment Allegations
During its investigation into the alleged land scam, the ED had forwarded information concerning the suspected recruitment irregularities at KOMUL to the jurisdictional police or competent authority under Section 66(2) of the PMLA.
However, the concerned authorities did not initiate criminal proceedings based on the information supplied by the ED.
The agency subsequently filed a private complaint bearing PCR No.32/2024 before the competent court, seeking a direction for investigation by the Lokayukta Police.
The complaint alleged offences under Sections 7, 11, 12 and 13 of the Prevention of Corruption Act, 1988, along with Sections 120B, 420, 464, 465, 468 and 471 of the IPC.
The complaint was filed under Section 200 of the Code of Criminal Procedure, 1973, seeking investigation into the alleged recruitment irregularities.
The ED's action resulted in further proceedings before the Special Court dealing with criminal cases involving elected MPs and MLAs in Karnataka.
Aggrieved by these developments, K.Y. Nanje Gowda, Y.B. Ashwathanarayan, K.N. Gopala Murthy, Nagesh N. and Dr. Raju Krishna C. approached the Karnataka High Court through connected writ petitions.
Arguments of the Petitioners
The petitioners contended that the ED could not continue its investigation under the PMLA after the underlying scheduled offence had been closed.
According to them, the existence of a scheduled offence was fundamental to establishing the existence of proceeds of crime. Once the underlying criminal proceedings had attained finality, the ED could not independently continue investigating alleged proceeds of crime arising from that offence.
They further argued that Section 66(2) of the PMLA merely authorised the ED to forward information concerning violations of other laws to the competent investigating authorities.
The provision did not empower the ED to initiate a private complaint concerning a separate scheduled offence and subsequently use that complaint as the foundation for its own money laundering investigation.
The petitioners therefore challenged both the continuation of the land scam-related proceedings and the ED's private complaint concerning the alleged recruitment scam.
Arguments of the Enforcement Directorate
The ED opposed the petitions and contended that the closure of the underlying criminal case on technical grounds, rather than on an examination of the allegations on merits, would not prevent it from continuing its investigation under the PMLA.
According to the agency, the investigation had originally commenced on the basis of an existing scheduled offence. Its subsequent closure for want of sanction did not automatically extinguish the ED's jurisdiction to investigate the alleged money laundering offence.
Regarding the recruitment scam, the ED argued that Section 66(2) required it to forward information to the concerned authorities but did not prevent it from taking further legal steps when those authorities failed to act.
It was further contended that any person could set criminal law in motion by filing a private complaint under Section 200 of the CrPC or Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023. The ED claimed that it was equally entitled to exercise this right.
Questions Before the High Court
The Court identified two principal questions for consideration:
1. Whether the ED could continue investigating alleged proceeds of crime under the PMLA when the underlying scheduled offence had been closed on a technical ground, such as the absence of requisite government sanction.
2. Whether the ED could file a private complaint under Section 200 of the CrPC or Section 223 of the BNSS when the competent investigating agency failed to initiate proceedings after receiving information under Section 66(2) of the PMLA, and subsequently initiate proceedings under the PMLA on the basis of that complaint.
Court's Observations on the Requirement of a Scheduled Offence
The High Court examined Sections 3 and 2(1)(u) of the PMLA, which respectively define the offence of money laundering and proceeds of crime.
Section 3 criminalises involvement in processes or activities connected with proceeds of crime, including concealment, possession, acquisition, use and projecting such property as untainted.
Section 2(1)(u) defines proceeds of crime as property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence.
The Court observed that the existence of a scheduled offence was essential for an investigation into the existence of proceeds of crime under the PMLA.
In this connection, the Court relied on the Supreme Court's decision in Vijay Madanlal Choudhary and Others v. Union of India and Others, (2023) 12 SCC 1.
The Supreme Court had explained that the offence under Section 3 was dependent upon the wrongful and illegal gain of property resulting from criminal activity relating to a scheduled offence. In the absence of proceeds of crime satisfying Section 2(1)(u), the authorities under the PMLA could not initiate prosecution.
The High Court also referred to V. Senthil Balaji v. Deputy Director, Directorate of Enforcement, 2024 SCC OnLine SC 2626, particularly paragraph 21, which emphasised that the existence of a scheduled offence was a necessary condition for alleging the existence of proceeds of crime.
Applying these principles, the High Court held that the ED's powers were derivative and not original. Its jurisdiction under the PMLA could not be exercised on the basis of an independent suspicion of money laundering without the necessary foundation of a scheduled offence.
The Court observed:
"The power of the ED 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; meaning even when the predicate offence is terminated in favour of the accused therein, the proceedings under PMLA cannot continue."
Effect of Closure of the Land Scam Proceedings
Applying the above legal principles to the facts, the Court noted that the private complaint concerning the alleged land scam had been closed for want of sanction from the competent authority.
The closure had attained finality, and there was no possibility of the accused persons being convicted in those proceedings.
Consequently, the Court held that the ED could not continue its investigation or inquiry into the alleged proceeds of crime arising from the scheduled offences forming the basis of the land scam case.
It therefore found that the continuation of the PMLA investigation in those circumstances could not be sustained.
Section 66(2) PMLA Does Not Authorise Independent Investigation by ED
The Court next examined the legality of the ED filing a private complaint concerning the alleged recruitment irregularities at KOMUL.
Section 66(2) of the PMLA provides a mechanism for forwarding information to the concerned authorities when the ED comes across material indicating violations of other laws during its investigation.
The High Court held that the provision required the ED to communicate such information to the competent agency rather than assume the investigative powers of that agency.
The Court emphasised that when legislation prescribes a particular manner of exercising a statutory power, the authority concerned must act within that prescribed framework.
It further observed that Section 48 of the PMLA identifies the authorities under the Act and that those authorities are bound by the limitations imposed by the statute.
The Court held that the PMLA did not expressly confer upon the ED or its authorities the power to file a private complaint concerning a scheduled offence and subsequently initiate an investigation against the accused persons under the PMLA on the strength of that complaint.
ED Cannot Act as a Super Cop
Rejecting the ED's contention that it could independently initiate a private complaint when the competent investigating agency failed to act, the Court emphasised the importance of maintaining the separation of powers and institutional checks and balances.
The Court observed that the ED could exercise only those powers expressly conferred upon it by the PMLA. It could not assume the functions entrusted to other investigating agencies merely because it disagreed with their decision not to initiate proceedings.
In this regard, the Court made the following significant observation:
"The ED is not a super cop to investigate anything and everything which comes into its notice."
The Court further clarified:
"The ED is not like any other person to file a complaint under Section 200 Cr.P.C./223 of BNSS. It has to exercise only those powers expressly conferred on it by the PMLA. Filing of a private complaint by the ED is not contemplated under the PMLA."
The Court reasoned that permitting the ED to file private complaints whenever other government authorities declined to initiate proceedings would effectively place the agency above the other investigating authorities.
It would also allow the ED to independently initiate criminal proceedings against individuals and subsequently use those proceedings as a foundation for action under the PMLA, a course of action not contemplated by the statutory scheme.
The Court observed that maintaining law and order was primarily the responsibility of the State and that the competent investigating agency had to examine the information and decide whether further prosecution was warranted.
Reliance on Supreme Court's Decision in Vijay Madanlal Choudhary
The High Court also referred to paragraphs 151 and 211 of Vijay Madanlal Choudhary.
The Supreme Court had explained that when the ED discovers material indicating the commission of a scheduled offence, it may forward the information to the jurisdictional police under Section 66(2) of the PMLA.
Upon receiving such information, the jurisdictional police must proceed in accordance with the applicable criminal procedure, including registration of an FIR where the information discloses a cognizable offence.
The Supreme Court had also clarified that the powers conferred upon the authorities under the PMLA for searches, seizures, attachment and adjudication did not make them general criminal investigating authorities responsible for maintaining law and order.
The Karnataka High Court found that these principles supported its conclusion that the ED could not independently assume the role of the agency responsible for investigating the alleged recruitment offences.
The Court also distinguished Mukesh Singh v. State (Narcotic Branch of Delhi), (2020) 10 SCC 120, observing that the decision concerned the NDPS Act and was not applicable to the statutory framework of the PMLA.
Court's Findings on the Conduct of Investigating Agencies
The Court further observed that accepting the ED's arguments would effectively require it to presume that the jurisdictional police and sanctioning authority had failed to discharge their respective duties, while treating the ED's assessment as necessarily correct.
A similar problem arose in the recruitment scam allegations. The ED had forwarded information to the Lokayukta Police, but the latter had not initiated criminal proceedings based on the information received.
The Court held that the ED could not place itself on a higher pedestal by assuming that the concerned authorities had failed in their duties and independently initiating proceedings against the persons concerned.
It reiterated that the statutory scheme contemplated the initiation of prosecution concerning scheduled offences by the respective prosecuting agency or another competent third party, and not by the ED or authorities constituted under the PMLA in the manner attempted in the case.
Final Decision
Allowing all five connected writ petitions, the Karnataka High Court granted relief to the petitioners and set aside the impugned proceedings to the extent they concerned them.
The Court passed the following directions:
1. The order dated June 6, 2024, passed by the PMLA Adjudicating Authority in O.A. No.1132/2024 was quashed insofar as it concerned the petitioner in W.P. No.18821/2024.
2. The respondents were directed to return the articles seized, if any, from the petitioner in W.P. No.18821/2024.
3. ECIR No.BGZO/41/2023/2849 dated November 30, 2023, the summons issued pursuant thereto and consequential proceedings, including the show-cause notice dated February 16, 2024, in O.A. No.1132/2024, were quashed insofar as they concerned the petitioners in W.P. Nos.8914/2024 and 22460/2025.
4. The proceedings in PCR No.32/2024 pending before the Additional City Civil and Sessions Judge, Bengaluru, were quashed insofar as they concerned the petitioners in W.P. Nos.22460/2025, 4630/2025 and 5168/2025.
5. The ECIR dated November 30, 2023, and consequential summons dated January 9, 2024, challenged in W.P. No.22460/2025, were also quashed.
All pending interlocutory applications were disposed of.
Legal Significance of the Decision
The decision reiterates the statutory limitations governing the powers of the Enforcement Directorate under the Prevention of Money Laundering Act.
It underscores that the ED cannot function as a general investigating agency for every offence that comes to its notice. Its powers must remain within the framework prescribed by the PMLA.
The ruling also highlights the importance of the scheduled offence as the foundation for establishing proceeds of crime and initiating proceedings under the PMLA.
Further, the judgment clarifies the scope of Section 66(2) of the Act by distinguishing the ED's authority to forward information to the competent investigating agency from the power to independently initiate prosecution for offences under other laws.
The decision is particularly relevant to cases involving parallel investigations under the PMLA and other criminal statutes, where questions arise concerning the continuation of money laundering proceedings after the underlying scheduled offence has been terminated.
Case Details
Case Name: Dr. Raju Krishna C. v. The Union of India and Connected Matters
Court: High Court of Karnataka, Bengaluru
Date of Decision: November 6, 2026
Case Numbers:
W.P. No.18821 of 2024
W.P. No.8914 of 2024
W.P. No.4630 of 2025
W.P. No.5168 of 2025
W.P. No.22460 of 2025
Coram/Judge: Justice M.I. Arun
