Introduction:

The Karnataka High Court, in a significant ruling, quashed the summons issued by the Enforcement Directorate (ED) to Karnataka Chief Minister Siddaramaiah’s wife, Parvathi, and Minister B S Suresh in connection with the Mysore Urban Development Authority (MUDA) land allotment case. The case, registered under the Prevention of Money Laundering Act (PMLA), revolved around allegations of illegal site allotments and proceeds of crime. Justice M Nagaprasanna, while delivering the judgment, stated that the petitions were allowed, and the summons were quashed. The ruling came after an intense legal battle where senior advocates Sandesh J Chouta, CV Nagesh, and Vikram Huilgol argued for the petitioners, while Additional Solicitor General (ASG) Arvind Kamath represented the ED. The case had drawn considerable attention due to its political ramifications, given the involvement of high-profile figures in Karnataka’s ruling establishment.

Arguments of the Petitioners:

Parvathi’s counsel, Senior Advocate Sandesh J Chouta, contended that his client had already surrendered the sites alleged to be allotted illegally and was neither in possession nor enjoying any proceeds of crime. He argued that the ED acted in haste by registering the Enforcement Case Information Report (ECIR) immediately after the Lokayukta police registered an FIR following court directions. Chouta emphasized that mere existence of proceeds of crime is not sufficient to invoke PMLA provisions; there must be an activity in furtherance of such proceeds. He laid down three essential conditions for an offense under PMLA: (1) a scheduled offense, (2) derivation of proceeds of crime from the offense, and (3) direct or indirect involvement of the accused in processing or using such proceeds. He stressed that since Parvathi had returned the property to MUDA on October 1, 2024, she neither retained nor enjoyed any proceeds of crime, thereby invalidating ED’s jurisdiction in the matter. He further questioned why the ED registered the ECIR in such urgency when the Lokayukta was already investigating the predicate offense. Chouta also expressed concern over the undue scrutiny on his client, arguing that being the Chief Minister’s wife, she had a moral responsibility to address the allegations, but that alone did not justify ED’s intervention. He also referred to the Bharatiya Nyaya Sanhita (BNS) provisions, arguing that when the legality of site allotments was under investigation by another agency, invoking PMLA in haste was unwarranted. He contended that ED could not expand its scope to investigate MUDA’s overall allotment process and summon Parvathi without proper grounds.

Senior Advocate CV Nagesh, appearing for Minister B S Suresh, argued that the allegations pertained to illegal site allotments, which predated his tenure as a minister. He assumed office in June 2023, while the alleged offenses occurred earlier. Nagesh pointed out that the original complaint, which triggered the FIR, did not even remotely mention his client. He questioned the very basis of the summons, arguing that there was no evidence linking Suresh to the alleged proceeds of crime. He also criticized the ED’s broad inquiry, which sought property details of relatives, calling it an arbitrary exercise.

Arguments of the Enforcement Directorate (ED):

ASG Arvind Kamath, representing the ED, opposed the petitions and maintained that the case was one of corruption and unlawful site allotments, which were not limited to the 14 sites under scrutiny. He argued that MUDA had been granting sites in violation of established rules, and ED’s focus was solely on tracing the proceeds of crime, not the accused in the predicate offense. Kamath contended that ED was well within its rights to register an ECIR following the FIR, as no law prohibited it from initiating a parallel probe. He further alleged that during the investigation, one of the witnesses disclosed that he was pressured by the office of the accused to facilitate the allotments. Kamath claimed that multiple individuals had purchased properties in their relatives’ names, suggesting a larger conspiracy. He argued that the allotment of 14 sites was merely the “tip of the iceberg,” hinting at widespread irregularities in MUDA’s land allocation practices.

Defending the ED’s summons, Kamath asserted that the questionnaire issued sought details of properties held by the accused and their relatives to ascertain potential misuse of power. He insisted that such an inquiry was permissible and beyond judicial review. He also dismissed the argument that Parvathi had returned the property, stating that criminal liability under PMLA does not vanish merely because an accused surrenders the illicit asset. Kamath warned that if such a defense were accepted, the entire objective of PMLA would be undermined, allowing offenders to evade scrutiny by merely returning ill-gotten gains. He emphasized that site allotments, if proven illegal, constituted a criminal activity under PMLA.

Kamath also rejected the petitioners’ contention that ED’s summons was beyond its jurisdiction, arguing that the agency was conducting a civil inquiry and had not made any acquisitions. He stated that issuing a summons was a procedural step, not a penal action, and Section 482 of the Criminal Procedure Code (CrPC), which allows quashing of proceedings, did not apply to investigative summons. He further argued that even if the Lokayukta police filed a closure report (B report) in the predicate offense, ED’s investigation into the proceeds of crime could continue until the court officially accepted the closure report.

Court’s Judgment:

After hearing both sides, Justice M Nagaprasanna delivered the verdict, stating, “Allowed and quashed,” thereby invalidating the summons issued by ED. The court took into account the fact that the sites in question were not acquired through direct sale or purchase but were allotted in lieu of land usage, thereby distinguishing the nature of proceeds of crime in this case. The judge also noted that the petitioners were not in possession of the property when the ECIR was registered, reinforcing the argument that they were not enjoying the proceeds of crime.

The court seemed to agree with the petitioners’ contention that the ED acted hastily in registering the ECIR soon after the FIR in the predicate offense. Additionally, it found merit in the argument that the Lokayukta police were already investigating the matter and that ED’s intervention was premature. The judgment also underscored that summons under PMLA must have a concrete basis linking the accused to an activity involving proceeds of crime. Merely being a beneficiary of an allotment, which was later surrendered, did not justify ED’s inquiry under the stringent provisions of the Act.

Furthermore, the court observed that the ED’s scope of inquiry should not overlap with that of the Lokayukta, which was already probing the primary allegations. Since no clear evidence was presented to establish that the petitioners engaged in further activities involving the proceeds of crime, the court ruled that the invocation of PMLA was not justified. The decision reaffirmed that investigative agencies must establish a strong prima facie case before invoking the stringent provisions of PMLA, particularly when another competent authority is already investigating the predicate offense.