ED’s search and seizure operations are not independent ‘civil actions’: Karnataka High Court

In a setback to the Enforcement Directorate (ED), the Karnataka High Court on Wednesday (August 5) declared that the search and seizure actions under Section 17 of the Prevention of Money Laundering Act (PMLA) cannot be treated as independent civil proceedings detached from the criminal investigation that gives them birth.

“Proceedings under Section 17 do not arise spontaneously. They are consequential to the registration of an Enforcement Case Information Report (ECIR). The ECIR itself is consequential to the existence of a predicate offence. 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 observed.

Justice M. Nagaprasanna passed the order while rejecting ED’s preliminary objection to hear the two petitions, filed by online gaming company Gameskraft Technologies Pvt. Ltd. challenging ECIRs, on the criminal jurisdiction of the High Court.

The ED had contended that proceedings under Section 17 partake the character of civil actions and must therefore be challenged only before benches exercising civil writ jurisdiction of the court not under criminal jurisdiction under Section 482 of the Code of Criminal Procedure (CrPC).

The proceedings under Section 17 — search, seizure, and freezing of properties — culminate in attachment and confiscation before the Adjudicating Authority, which are civil in nature, and such proceedings are entirely different from investigation into the offence of money laundering, the ED had argued.

Proceeds of crime

Rejecting ED’s argument, the court said that one cannot lose sight of the object with which the ED has been constituted while pointing that the PMLA is not designed merely to regulate property as 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.

The court further said that “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 independent of the predicate offence would be to breathe life into a body devoid of its skeletal frame, the court said.

“A search undertaken under Section 17 of the PMLA is not an independent civil exercise; it is a consequence of the ECIR, a continuation of the investigative process and is a statutory measure adopted to secure the proceeds of crime during the pendency of investigation into the offence of money laundering,” the court clarified.

Grave consequences

Refusing to accept ED’s other contention that ECIR is a mere “internal administrative document”, not 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, arrest under one of the most stringent penal statutes in the country and prosecution carrying grave consequences.

“To describe such a document (ECIR) 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 said.