Introduction
The Karnataka High Court recently adjudicated upon a writ petition titled Dr. Natesha D.B. v. ED[i], filed by the former Commissioner of the Mysore Urban Development Authority (‘MUDA’), challenging the legality of search and seizure operations conducted at his residence by the officers of the Enforcement Directorate (‘ED’), under the Prevention of Money Laundering Act, 2002 (‘PMLA’). The case raises critical questions about procedural safeguards under the PMLA, particularly the necessity of detailing a ‘reason to believe’ before initiating search and seizure actions. The Petitioner contended that the ED’s actions were jurisdictionally flawed, arbitrary, and in violation of statutory mandates.
This ruling is particularly significant in the context of ongoing judicial scrutiny of investigative agencies’ powers under the PMLA. It revisits the threshold of ‘reason to believe’ as a prerequisite for search and seizure and examines whether investigative actions under s. 17 of the PMLA can be sustained solely on suspicion. Notably, the judgment also addresses the much-debated issue of whether repeated summonses under s. 50 of the PMLA amount to procedural abuse.
Brief Facts
An FIR was registered on 27.09.2024 by the Mysore Lokayukta Police against various individuals, including the former Commissioner of MUDA, who is the Petitioner in the present case, for the alleged illegal denotification and reallocation of land parcels worth Rs. 56 crores. The offences were registered under ss. 120B and 420 of the Indian Penal Code, 1860 (‘IPC’), which correspond to ss. 61(2) and 318(4) of the Bhartiya Nyaya Sanhita, 2023 (‘BNS’), and ss. 9 and 13 of the Prevention of Corruption Act, 1988 (‘PC Act’).
Acting upon this FIR, the ED registered an enforcement case information report (‘ECIR’) on 01.10.2024 under the PMLA, alleging that 14 sites were illegally allotted to an individual during the Petitioner’s tenure in contravention of the Karnataka Urban Development Authorities (Allotment of Sites in Lieu of Compensation for the Land Acquired) Rules, 2009. The ED alleged that the Petitioner played a direct role in selecting the sites for allotment and that procedural violations occurred under his authority.
On 27.10.2024, the Joint Director of ED authorized a search and seizure operation at the Petitioner’s residence under ss. 17(1) and 17(1-A) of the PMLA. Accordingly, from 28.10.2024 to 29.10.2024, ED officials searched the Petitioner’s premises and seized his mobile phone, transferring its data onto a hard disk. During the search, the Petitioner was examined under oath under s. 17(1)(f) of the PMLA.
On 29.10.2024, after the search, the Petitioner was served with a summons under s. 50 of PMLA at 4 PM, requiring him to appear before the investigating officer at 5.30 PM the same day. Further summonses were issued on 07.11.2024, requiring the Petitioner’s presence on 08.11.2024, where he was interrogated from 11 AM to 7 PM.
On 14.11.2024 and 25.11.2024, the ED allegedly summoned the Petitioner vide telephonic calls, and he complied by appearing on 15.11.2024 and 27.11.2024. Aggrieved by the search, seizure, repeated summonses, and alleged procedural violations, the Petitioner filed a writ petition challenging the legality of these actions.
Issues
Whether the authorisation issued for the search and seizure at the Petitioner’s residence on 28.10.2024 and 29.10.2024, and the consequent statement recorded under s. 17 of the PMLA suffered from a lack of jurisdiction?
Whether the search, seizure, and recorded statement were unlawful due to the absence of the requisite ‘reason to believe’ under s. 17(1) of the PMLA and, therefore, amounted to abuse of process of law?
Whether the various summonses issued under s. 50 of the PMLA and the statements recorded thereunder could be sustained in law?
Whether, under the PMLA, property attachment under s. 5 must mandatorily precede search and seizure under s. 17?
Held
The High Court allowed the petition, ruling that the search and seizure were invalid due to non-compliance with statutory requirements under s. 17(1). The Court declared that the repeated summons issued qua the Petitioner were illegal and restrained further coercive action against him. The Court expressly held that the search and seizure at the Petitioner’s residence were vitiated due to the absence of ‘reason to believe’ and were thus illegal. It directed that the statement recorded under s. 17(1)(f) of the PMLA be retracted, and the statements recorded under s. 50, in pursuance of the summonses dated 29.10.2024 and 06.11.2024, be quashed. Liberty was granted to the Petitioner to initiate action under s. 62 of the PMLA against the concerned officer, as whether the impugned search and seizure were vexatious was a matter for trial.
While the Court did not find any jurisdictional fault in the authorization process, it emphasized that s. 17(1) mandates that searches can only be conducted by the Director or an officer not below the rank of Deputy Director authorized by the Director. Since the Joint Director (a rank above Deputy Director) issued the authorization in line with a 2011 circular[ii], the search was deemed jurisdictionally valid.
The Court observed that there was no material evidence indicating that the Petitioner had received any financial consideration or directly benefitted from the alleged illegal allotment of sites. It, therefore, held that the search and seizure were unwarranted and based on mere suspicion.
Regarding the repeated summonses, including telephonic ones, the Court found them coercive and an abuse of process, emphasizing that while s. 50 empowers the ED to summon individuals for statements; this power must be exercised reasonably and not punitively.
The Court also clarified that while property attachment under s. 5 is not a prerequisite for search and seizure under s. 17, a valid ‘reason to believe’ is necessary to sustain such actions. Thus, it was held that since the absence of proceeds of crime had already been established, no basis for attachment under s. 5 existed.
Our Analysis
This ruling is a significant precedent in curbing the misuse of investigative powers by the ED under the PMLA. The Court’s categorical finding that the search and seizure lacked the statutory requirement of ‘reason to believe’ is a strong judicial assertion against arbitrary state action. The judgment reinforces that mere possession of alleged proceeds of crime, without demonstrable control or intent to use them for money laundering, does not justify intrusive investigative measures.
By declaring the search and seizure illegal, the Court has upheld fundamental safeguards guaranteed under A. 21 of the Constitution, ensuring that executive overreach does not trample upon personal liberty and privacy. Notably, the ruling also invalidates the consequential statements recorded under ss. 17(1)(f) and 50 of the PMLA, as they were obtained through a legally flawed process.
This judgment echoes the growing judicial scepticism towards the ED’s unchecked powers, as famously described by Senior Advocate Kapil Sibal when he termed the PMLA a ‘belagam ghoda’ (unbridled horse)[iii]. The ruling validates this characterization, exposing how procedural safeguards have been reduced to mere formalities, enabling the ED to conduct raids and summon individuals without substantive evidence of money laundering.
At a time when the ED’s actions are increasingly questioned for their political and strategic motivations, this ruling serves as a crucial judicial check. It reaffirms that procedural fairness cannot be compromised in the pursuit of enforcement. By striking down these investigative actions, the Court has drawn a firm boundary between legitimate financial crime investigations and the misuse of state machinery for coercion. This decision thus stands as a robust reaffirmation of constitutional protections against the arbitrary and excessive exercise of power by enforcement agencies.
End Notes
[i] Neutral Citation: 2025:KHC:3573, dated: 27.01.2025
[ii] Circular Order (Tech) No. 03/2011 dated 27.09.2011.
[iii] Aishwarya Iyer, PMLA a “Be-lagaam Ghoda”, there is no restraint: Kapil Sibal argues before Supreme Court LawBeat (2022), https://lawbeat.in/top-stories/pmla-be-lagaam-ghoda-there-no-restraint-kapil-sibal-argues-supreme-court.
Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.