Kiran Raj

The Karnataka High Court has quashed the search and seizure conducted by the Directorate of Enforcement (ED) at the residence of a former Commissioner of the Mysore Urban Development Authority (MUDA). The court ruled that the search, carried out under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA), lacked jurisdiction and failed to meet the statutory threshold of “reason to believe.” Consequently, the court also set aside the statements recorded during the search and the subsequent summons issued under Section 50 of the Act.

The petitioner, a former Commissioner of MUDA, filed a writ petition challenging the ED’s actions. He sought a declaration that the search and seizure conducted on October 28-29, 2024, were illegal and unconstitutional. Additionally, he requested the quashing of the statements recorded under Section 17 of the PMLA, as well as the summons issued under Section 50. The petitioner argued that the ED had acted beyond its legal authority and in contravention of constitutional and statutory safeguards.

The ED initiated the investigation following an FIR registered by the Karnataka Lokayukta regarding alleged irregularities in the allotment of sites by MUDA. The Enforcement Case Information Report (ECIR) was registered on October 1, 2024, based on allegations that the petitioner, in his capacity as Commissioner, had played a role in the improper allocation of sites. Acting on this basis, the ED authorized a search at the petitioner’s residence, seizing his mobile phone and extracting its data. The petitioner was also summoned for questioning multiple times.

The petitioner’s counsel contended that the search and seizure were unauthorized as the Joint Director of the ED, who issued the authorization, did not possess the requisite statutory authority under Section 17 of the PMLA. He argued that the provision clearly mandates that only the Director or an officer not below the rank of Deputy Director can authorize such a search. Further, it was submitted that the ED had failed to establish a valid “reason to believe” that the petitioner was in possession of proceeds of crime, as required under Section 17 of the PMLA. The counsel also pointed out that no attachment order had been issued under Section 5 of the Act before conducting the search, making the entire process unsustainable.

The petitioner further argued that the repeated summons issued under Section 50 of the PMLA violated Article 20(3) of the Indian Constitution, which protects individuals from self-incrimination. He contended that the summons were vague and failed to clarify whether he was being treated as an accused or a witness. Moreover, he maintained that despite his repeated compliance with the summons, the investigating agency had failed to gather any incriminating material, rendering the subsequent summons excessive and unnecessary.

The ED, represented by the Additional Solicitor General, defended its actions by asserting that the search and seizure were lawfully conducted. The agency contended that the Joint Director was competent to authorize the search under the PMLA framework. It further argued that the search was based on a valid “reason to believe” that the petitioner was in possession of records or property related to money laundering. The ED maintained that the summons issued under Section 50 were procedural in nature and fell within the investigative powers of the agency. The learned ASG also emphasized that the investigation was at a preliminary stage and that the petitioner’s involvement in the alleged money laundering activities was still under scrutiny.

The Karnataka High Court, while examining the validity of the ED’s actions, focused on the statutory safeguards prescribed under the PMLA. The court observed that Section 17 of the PMLA requires an investigating officer to have a valid “reason to believe” that the person being searched is in possession of proceeds of crime. The provision also mandates that such reasons must be recorded in writing before conducting the search.

The court recorded that the “reason to believe” cited by the ED did not disclose any specific allegation against the petitioner, apart from the alleged improper allotment of sites. The judgment stated, “A perusal of the recorded 'reason to believe' does not disclose any specific allegation against the petitioner except for the alleged improper allotment of sites. There is no material to establish that the petitioner received illegal gratification or was in possession of proceeds of crime.” The court further stated that mere suspicion is not sufficient under the PMLA and that investigative agencies must demonstrate tangible evidence of possession, concealment, or use of proceeds of crime.

On the issue of authorization, the court observed that Section 17 of the PMLA mandates that only the Director or an officer not below the rank of Deputy Director can authorize a search. In the present case, the authorization was issued by the Joint Director, who does not fulfill this statutory requirement. Consequently, the court held that the authorization was technically flawed and lacked jurisdiction.

With respect to the summons issued under Section 50, the court found that they were vague and did not specify the status of the petitioner in the investigation. The court noted that repeated summons, particularly when prior interrogations had not yielded any incriminating evidence, could not be justified. The judgment recorded that “the repeated issuance of summons under Section 50, despite no new material being uncovered, cannot be sustained in law.”

Based on these findings, the Karnataka High Court quashed the search and seizure conducted on October 28-29, 2024, declaring it illegal. The statements recorded under Section 17(1)(f) of the PMLA were also invalidated. The court further set aside the summons issued under Section 50, stating that they lacked clarity and procedural justification. The ED was restrained from summoning the petitioner again without fresh material evidence.

In conclusion, the court found that the ED had failed to meet the statutory requirements prescribed under the PMLA. The lack of a valid authorization, the absence of a well-founded “reason to believe,” and the unjustified issuance of repeated summons rendered the entire investigation against the petitioner procedurally flawed.

Case Title: Dr. Natesha D.B. vs. Directorate of Enforcement
Case Number: WP No. 32956 of 2024
Bench: Justice Hemant Chandangoudar

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