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The Karnataka High Court has delivered a significant ruling on the jurisdiction and investigative powers of the Enforcement Directorate, asserting that the federal agency is not a “super cop” empowered to initiate arbitrary inquiries into any matter brought to its notice. Quashing the money laundering proceedings and asset attachment orders against Congress legislator K.Y. Nanjegowda, the court held that the agency must strictly adhere to the procedure established by law before invoking the Prevention of Money Laundering Act. A bench headed by Justice M.I. Arun observed that the Enforcement Directorate cannot treat a matter as fit for investigation on its own volition without the foundational bedrock of a duly registered scheduled offence.
PMLA Actions Tied Strictly to the Predicate Offence
Justice Arun made it clear in the verdict that the powers vested in the Enforcement Directorate under the PMLA are not original or independent in nature. The court observed that these provisions can only be triggered when money laundering is tied directly to a scheduled offence recognised under the statute. A demonstrable legal connection between the primary crime and the alleged proceeds of crime generated from it remains an indispensable prerequisite for the agency to act.
The court noted that mere awareness of a suspicious financial transaction or an alleged irregularity does not confer automatic authority upon the agency to launch an independent money laundering probe. Officials must first confirm that the legal framework governing the predicate offence has been properly satisfied. If the original offence fails to survive judicial scrutiny, collapses, or is dismissed through due legal process, any subsequent proceedings initiated under the PMLA cannot be sustained on their own and must come to an end.
FIR by Primary Agency Essential to Trigger Jurisdiction
Examining the arguments presented by advocate Mayank Jain on behalf of the petitioners, the High Court established an essential boundary regarding the agency’s operational limits. The bench ruled that the Enforcement Directorate’s jurisdiction becomes active only after a primary law enforcement authority, such as the local police, registers a formal FIR or when a competent criminal complaint is filed concerning a scheduled offence. Without an official proceeding initiated by the primary investigative body handling the core offence, the central agency cannot manufacture an independent ground for inquiry.
The bench stressed that statutory powers under anti-money laundering provisions must be exercised strictly within their prescribed statutory boundary. Investigative agencies cannot be permitted to expand their jurisdiction to suit their own convenience. The verdict reiterates that the Enforcement Directorate must work within established legal limits and cannot assume regulatory authority simply by presuming that every financial irregularity represents an act of money laundering.
Relief for Legislator in Milk Union Recruitment Case
Applying these core principles, the High Court granted full relief to Congress MLA K.Y. Nanjegowda and connected individuals by quashing the Enforcement Case Information Report and all consequential proceedings initiated against them. The court set aside the actions that had originated from a private complaint, finding them legally unsustainable. Alongside this relief, the bench annulled the order passed by the PMLA Adjudicating Authority that had affirmed the seizure of assets and personal articles, directing authorities to immediately return all seized properties to the petitioners.
The underlying controversy arose from allegations of corruption and procedural irregularities in employee recruitment at the Kolar-Chikkaballapur District Co-operative Milk Producers Union Limited, commonly known as KOMUL. Suspected discrepancies during the hiring drive prompted the Enforcement Directorate to step in and initiate proceedings under the anti-money laundering law. Mr. Nanjegowda and other affected parties contested the validity of the investigation, the registration of the ECIR, and the property attachment orders before the High Court, which concluded that the enforcement machinery could not operate in the absence of a surviving, lawful scheduled offence.
