Karnataka HC: ED's search, seizure under PMLA cannot be divorced from criminal proceedings

In a significant ruling, the Karnataka High Court has held that the Enforcement Directorate's (ED) search and seizure operations under the Prevention of Money Laundering Act (PMLA) cannot be treated as independent civil proceedings. The court emphasised that these actions are intrinsically linked to the criminal investigation from which they arise.

Justice M. Nagaprasanna delivered the order on Wednesday while rejecting the ED's preliminary objection against hearing two petitions filed by online gaming company Gameskraft Technologies Pvt. Ltd. The company had challenged Enforcement Case Information Reports (ECIRs) registered against it. The ED had argued that proceedings under Section 17 of the PMLA are civil in nature and should be challenged only before civil writ jurisdiction benches, not under the criminal jurisdiction of the High Court under Section 482 of the Code of Criminal Procedure (CrPC).

Dismissing this argument, the court observed that proceedings under Section 17 do not arise spontaneously. They are consequential to the registration of an ECIR, which itself is consequential to the existence of a predicate offence. The court stated: “The search, seizure, freezing and retention of property are therefore not isolated civil actions divorced from criminal proceedings; they constitute successive statutory steps flowing from the very registration of the predicate offence. To sever one link from the other would be to dismantle the legislative scheme itself.”

The court further noted that one cannot lose sight of the object with which the ED has been constituted. The PMLA is not designed merely to regulate property; it is enacted to identify, trace, preserve and ultimately confiscate proceeds of crime generated from criminal activity. “The jurisdiction of the ED is thus inextricably intertwined with criminality. Attachment of property is merely an instrumentality employed in aid of prosecuting the offence of money laundering. It cannot, therefore, be artificially divorced from the criminal proceedings that give it life,” the court said.

In a vivid analogy, the court remarked: “The predicate offence is the skeleton; the ECIR is the flesh and blood that envelopes it. A skeleton without flesh may remain incomplete; but flesh and blood without a skeleton is an anatomical impossibility.” To hold that proceedings under the PMLA can survive independently of the predicate offence would be to breathe life into a body devoid of its skeletal frame, the court added.

The court also rejected the ED's contention that an ECIR is a mere “internal administrative document” akin to a First Information Report and hence cannot be challenged before the criminal jurisdiction of the court. Justice Nagaprasanna pointed out that an ECIR authorises search, seizure, attachment of property, deprivation of liberty, and arrest under one of the most stringent penal statutes in the country. “To describe such a document as merely administrative, yet simultaneously permit it to unleash the full coercive apparatus of the criminal law is to embrace a contradiction that constitutional adjudication cannot countenance,” the court observed.

The ruling clarifies that search proceedings under Section 17 are a continuation of the investigative process, not an independent civil exercise. This decision reinforces the constitutional safeguards available to individuals and entities facing money-laundering investigations and underscores that the ED's powers cannot be exercised in isolation from the criminal law framework.