Smt. Jayamma W/O. Late Sri. Kalegowda Vs Directorate of Enforcement (Karnataka High Court)
The Karnataka High Court considered a challenge to a provisional attachment order issued by the Directorate of Enforcement (ED) under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA). The petitioner contended that the ED had failed to comply with the requirements of the second proviso to Section 5(1) before attaching certain sites allotted by MUDA.
The Court first examined the objection regarding maintainability of the writ petition. Although the PMLA provides a statutory mechanism of adjudication and appeal, the Court held that a writ petition can still be entertained where the challenge concerns a jurisdictional defect. The Court observed that the grievance raised by the petitioner related to non-compliance with the procedural safeguards prescribed under the second proviso to Section 5(1) of the PMLA, which constituted a jurisdictional issue.
The Court noted that the adjudication process under Section 8 of the PMLA is concerned with determining whether the attached property is involved in money laundering and whether attachment should be confirmed. However, it does not provide a forum to examine whether the mandatory procedural requirements under the second proviso to Section 5(1) were followed before the provisional attachment order was issued. Therefore, the statutory remedy was not considered an efficacious remedy for the specific grievance raised.
The Court observed that, as on the date of the provisional attachment order, the requirements of the first proviso to Section 5(1) were admittedly not fulfilled because no final report under Section 173 Cr.P.C. had been forwarded in relation to the predicate offence. Consequently, the ED sought to justify the attachment under the second proviso to Section 5(1), which permits immediate attachment only where the competent officer records reasons to believe, based on material in possession, that non-attachment would likely frustrate proceedings under the Act.
Upon examining the provisional attachment order, the Court found that the ED had discussed material relating to the alleged commission of money laundering but had failed to record any specific material demonstrating why immediate attachment was necessary. The Court held that merely reproducing the statutory language and stating that non-attachment would frustrate proceedings was insufficient compliance with the law.
The Court emphasized that where a statute prescribes a particular procedure for exercising power, that procedure must be strictly followed. It held that there must be application of mind to the facts and material showing that failure to attach the property would likely frustrate proceedings under the PMLA. A copy-paste reproduction of statutory language could not substitute for a genuine recording of reasons.
The Court further noted that the sites in question had been allotted through sale deeds executed on 14.06.2024 and that katha had not yet been transferred. Since the properties could not be freely dealt with or transferred in the absence of mutation entries, the Court found no objective material supporting the apprehension that non-attachment would frustrate proceedings or enable dissipation of the alleged proceeds of crime.
According to the Court, there is a clear distinction between material indicating a prima facie case of money laundering and material establishing the necessity for immediate attachment under the second proviso to Section 5(1). The latter requirement had not been satisfied in the present case.
The Court rejected the contention that the subsequent confirmation order passed by the Adjudicating Authority rendered the writ petition infructuous. It held that if the foundational provisional attachment order is legally defective, all consequential proceedings based upon it would also fail.
Accordingly, the Karnataka High Court set aside the provisional attachment order dated 09.06.2025 and all consequential proceedings affecting the petitioner. However, liberty was reserved to the authorities to initiate fresh proceedings in accordance with law if circumstances satisfying the second proviso to Section 5(1) of the PMLA were made out.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
