The Karnataka High Court recently quashed an Enforcement Directorate (ED) money laundering investigation naming Congress leader KY Nanje Gowda, stating that the agency was not a 'super cop' to investigate every case. [YB Ashwathanarayan v. Union of India].

Justice MI Arun said that the ED could only prosecute as long as a foundational criminal offence is pending.

"The power of the ED is derivative and not original. It cannot initiate an investigation suo motu based on a standalone suspicion of money laundering. If there is no existence of the predicate offence, then in that event, proceedings under PMLA cannot exist; meaning even when the predicate offence is terminated in favour of the accused therein, the proceedings under PMLA cannot continue."

The Court further emphasised on the separation of powers between organs of government to outline the authority of the ED under the Prevention of Money Laundering Act (PMLA).

"Law recognizes the requirements of checks and balances. The ED is not a super cop to investigate anything and everything which comes into its notice. Section 48 of the PMLA envisages the authorities under the Act. Once appointed under the PMLA, they are bound by the restraints imposed on them by the PMLA. Section 66(2) of PMLA envisages that if the ED is of the opinion that it is having certain materials which constitute a scheduled offence, then in that event, the same should be forwarded to the concerned agency. The Act does not expressly empower the ED or the authorities under the PMLA to prefer a private complaint in respect of a scheduled offence and on the strength of it, thereafter, take up investigation against the accused therein under the provisions of PMLA."

The ED had taken cognizance of a land scam case where Chairman of the Malur Land Grant Committee Gowda and several others were accused of granting 80 acres of land to 38 persons in an illegal manner by abusing their official position.

Before the ED's investigation began, Gowda was appointed as Chairman of the Kolar and Chikkaballapur Milk Union Ltd (KOMUL). The agency allegedly discovered certain material relating to a recruitment scam of KOMUL employees. In connection with the recruitment scam, the ED issued summons to YB Ashwathanarayan.

The earlier land scam case that triggered the ED's investigation was dismissed by the trial court since the required government sanction to continue prosecution against a public servant had not been taken.

Despite the land scam case having been dismissed, the ED did not release Ashwathanarayan's seized properties and filed a fresh complaint before a special court for MPs and MLAs to force a Lokayukta probe into the recruitment allegations.

Noting that the jurisdictional police had filed a closure report in the land scam case, the Court said,

"In fact, maintaining law and order is the responsibility of the State and not the Centre. It is the duty of the concerned agency to examine the same and to take a decision whether to prosecute the matter further or not. The ED is not like any other person to file a complaint under Section 200 Cr.P.C./223 of BNSS. It has to exercise only those powers expressly conferred on it by the PMLA."

The Court held that allowing the ED to prefer a private complaint would be in contravention of the PMLA that requires a predicate offence to be in existence for the ED to have jurisdiction and prosecute under the PMLA.

"Allowing the ED to prefer a private complaint, when the other government authorities deem it inappropriate to initiate any proceedings against anybody, will amount to permitting the ED to act as a super cop and it goes against the philosophy of the Act which requires a predicate offence to be in existence for the ED to initiate proceedings as contemplated under the PMLA. If the ED is permitted to file a private complaint, it will be in a position to file a private complaint against any person by itself and take up investigation against them."

Senior Advocate Kiran S Javali and advocates Mahendra Gouda and Mayank Jain appeared for YB Aswathanarayan, KN Gopala Murthy, Nagesh N and KY Nanje Gowda.

Additional Solicitor General SV Raju and advocate Anuparna Bordoloi appeared for the ED.

Advocate Thammaiah HN appeared for Dr Raju Krishna.

Advocate BS Prasad represented the Karnataka Lokayukta Police.