Karnataka High Court slams ED over “tentative instructions” in WinZO subsidiary’s plea for release of salaries

The Karnataka High Court on Tuesday slammed the Enforcement Directorate (ED) for opposing a plea by a subsidiary of online gaming platform WinZO seeking permission to operate frozen bank accounts for payment of employee salaries. [Zo Private Limited v. Enforcement Directorate]

Justice BM Shyama Prasad reacted after the agency sought to proceed on what the Court described as “tentative instructions”.

“No tentative instructions. Whatever instructions you have on the next day, we will take it as complete for that purpose and then decide on the request.”

Zo submitted that following the registration of an Enforcement Case Information Report (ECIR) against WinZO and the freezing of the parent company’s accounts, board resolutions were passed by both companies transferring operational responsibilities and salary obligations to the subsidiary to ensure continuity of business and payment of employees.

Relying on those resolutions, Zoe argued that it had been authorised to manage WinZO’s day-to-day operations and to disburse “salaries, wages and other employee-related dues”, and that permitting such payments would not result in any duplication of relief, as the parent company would not seek similar permission if salaries were paid by the subsidiary.

Opposing the plea, the ED questioned whether Zo had the employee strength claimed, pointing out that the company was incorporated only in May 2023 and that its financials did not justify the amounts sought to be released.

The agency also contended that once accounts are frozen under Section 17 of the Prevention of Money Laundering Act (PMLA), any request for release or operation must be addressed before the adjudicating authority under the statute, particularly after the filing of a prosecution complaint alleging large-scale proceeds of crime in the WinZO group.

The core of the legal battle rests on whether the ED followed proper procedure under Section 17(1A) of the PMLA. This provision allows for the freezing of property found during a search if immediate seizure isn't practical.

However, the Court highlighted a glaring timeline discrepancy that could invalidate the agency's actions:

• December 23, 2025: The ED reportedly received the subsidiary's bank account information via email.

• December 30, 2025: The ED conducted the formal search operation.

The Bench observed that because the agency possessed the account information a week before the search, the use of Section 17(1A) might be "out of bounds."

“All this information was made available on 23rd of December. The search is on 30th of December,” the Court recorded.

On that basis, the Bench framed the legal consequence.

“So, you cannot, because you had the information before search, Section 17(1A) jurisdiction is out of bounds. That’s the legal question,” the Court said.

In response, counsel for the ED stated:

“I have limited instructions on that part.”

This prompted a sharp rebuke from the Bench.

“Why do you engage the Court with limited instructions?”

When ED’s counsel sought time, stating that he would obtain further instructions, the Court made its position unequivocal.

“If it’s still something that you have to finalise based on the instructions, then you’re not engaging us.”

The Bench made it clear that it would not hear or decide a serious jurisdictional challenge on the basis of an unfinished or evolving stand by the investigating agency.

The Court directed the ED to complete its pleadings and take a definitive stand on the jurisdictional issue, making it clear that it would proceed on the basis that whatever position was placed before it would be treated as final for the purpose of deciding interim relief.

It also directed Zo to furnish employee details - including names, designations and bank account particulars - while permitting sensitive personal information to be placed in a sealed cover.

The matter has been listed for further hearing later this week.

Zo was represented by Senior Advocate Sajan Poovayya with Advocate Rohan Kothari.

ED was represented by Advocate Madhu N Rao.