Predicate Offence Pending, Summons Under PMLA Justified: Karnataka High Court Dismisses Challenge to Enforcement Directorate Proceedings
Sanchayita Lahkar
The Karnataka High Court, Division Bench of Justice V. Kameswar Rao and Justice S. Rachaiah, dismissed a writ appeal challenging summons issued under Section 50(2) of the Prevention of Money Laundering Act, 2002, observing that “the authorities are justified in summoning any person whose attendance is necessary for investigation purpose.” It was held that “Section 50(2) uses the expression ‘any person’ and as such, it is immaterial whether the appellant is an accused or not as long as the predicate offence is pending in the jurisdictional Court.”
The appellant served as Chairman of the Shivamogga District Cooperative Central Bank from 1997 to 2020. FIR No.325/2014 was registered by Doddapete Police Station, Shivamogga, in relation to fraudulent gold loan disbursements of approximately ₹63 crore. The original charge sheet filed under Sections 471 and 120B of the Indian Penal Code did not name the appellant. He was later included in a supplementary charge sheet under Sections 409 and 202 read with Section 36 IPC.
Additionally, FIR No.4/2014 was registered under Sections 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988. Based on these, the Directorate of Enforcement registered ECIR No. BGO/05/2021 and issued summons to the appellant under Section 50(2) of the PMLA.
The appellant filed WP No.22780/2023 before the High Court challenging the summons dated 06.10.2023, contending that the offences presently alleged against him were not scheduled offences under the PMLA. It was also submitted that FIR No.16/2021, which involved scheduled offences, had already been quashed. According to the appellant, the summons lacked jurisdiction as no scheduled offence remained pending against him. He further argued that the ED was acting without disclosing the ECIR or providing sufficient grounds for its inquiry.
The appellant also objected to the clubbing of WP No.22780/2023 (his challenge to the PMLA proceedings) with WP No.22989/2023 (a petition filed by other accused persons challenging the predicate offence). It was submitted that the joint hearing caused prejudice and contravened procedural safeguards. The Single Judge dismissed the writ petition on 20.02.2024. The appellant then filed WA No.497/2024 under Section 4 of the Karnataka High Court Act, challenging the dismissal.
The appellant submitted that the Single Judge had erred in upholding the summons and that the present appeal was maintainable as the court had jurisdiction under Article 226. It was contended that since the earlier FIR involving scheduled offences was quashed, the ED could not proceed against him under the PMLA.
In response, the Directorate of Enforcement submitted that the investigation under PMLA was based on FIR Nos. 325/2014 and 4/2014, and that the appellant was summoned as a person of interest. It was submitted that his role as Chairman of the Bank during the disbursal of the gold loans was under inquiry and that the ECIR had been registered in accordance with law. The respondents contended that issuance of summons under Section 50(2) of the Act did not require the person to be named as an accused in the predicate offence.
The Division Bench first addressed the preliminary issue of maintainability. It recorded that although the writ petition was filed under Article 226 read with Section 482 Cr.P.C., and the impugned order was passed under Section 482, the court would proceed to examine the matter on merits, keeping the question of maintainability open.
The court then examined the scope of powers under Section 50(2) of the PMLA and recorded: “Section 50(2) uses the expression ‘any person’ and as such, it is immaterial whether the appellant is an accused or not as long as the predicate offence is pending in the jurisdictional Court.”
It was further recorded: “To understand the generation of the said proceeds of crime and to detect the money trail, it would be necessary to understand the modus operandi followed by the staff of the Bank. Being Chairman, the appellant would be aware of the processes followed. That apart, the respondents also want the appellant to produce the documents which are in his exclusive possession.”
Regarding the appellant’s argument on discharge and quashing of earlier FIRs, the court stated: “Existence of proceeds of crime is not in dispute. The learned Single Judge is justified in coming to a conclusion that the respondent-Authority is well justified in summoning the appellant to record his evidence in the course of investigation.”
The Bench recorded that the summons was not an adverse order: “The summons does not make any allegations against the appellant and merely requires him to appear before the Authority. There is no adverse order against the appellant. Under such circumstances, there was no cause of action to file a writ petition.”
Addressing the objection to joint hearing of the two writ petitions, the court recorded: “There is nothing in the impugned order of the learned Single Judge which depicts that such an objection was taken by the appellant during the hearing of the petitions. In the absence of any objection, the writ petition having been heard and decided, surely the plea… is an afterthought and is liable to be rejected.”
The Bench also observed: “It necessarily follows that a challenge to summons is not maintainable.”
The Division Bench recorded: “We hold that the present appeal filed by the appellant is totally misconceived; the learned Single Judge is justified in rejecting the writ petition.” The court accordingly dismissed the appeal and all pending applications.
Advocates Representing the Parties
For the Petitioners: Sri Jayakumar S. Patil, Senior Advocate; Sri Varun Jayakumar Patil, Advocate
For the Respondents: Sri Aravind Kamath, Additional Solicitor General of India; Sri Madhukar M. Deshpande, Central Government Counsel
Case Title: Sri R. M. Manjunath Gowda v. Directorate of Enforcement & Another
Case Number: WA No. 497 of 2024
Bench: Justice V. Kameswar Rao and Justice S. Rachaiah
[Read/Download order]
