The Karnataka High Court sought a detailed ED response to a partnership firm’s plea challenging search, seizure and freezing under PMLA. The case questions ED powers, Section 17 ‘reason to believe’, and requirement of a live predicate offence existence.
KARNATAKA: The Karnataka High Court has sought a detailed response from the Enforcement Directorate (ED) on a plea filed by a partnership firm questioning the legality of search, seizure, and freezing actions initiated under the Prevention of Money Laundering Act, 2002 (PMLA).
The case raises significant questions regarding the scope of ED’s powers, the necessity of “reason to believe” under Section 17 of the PMLA, and the existence of a live predicate offence to sustain money laundering proceedings.
The matter is being heard by Justice M. Nagaprasanna, who issued notice to the central agency and scheduled further hearing later this month.
Factual Background of the Case
The petitioner, Puppy Tours and Travels LLP, has approached the High Court challenging multiple coercive actions undertaken by the Enforcement Directorate. These include search and seizure operations carried out over several days, freezing of bank accounts, retention of seized valuables and records, and issuance of a show cause notice dated September 29, 2025.
The ED proceedings arises from allegations relating to “betting and gambling activities”, which the agency claims generated proceeds of crime subsequently laundered in violation of Section 3 of the PMLA (Offence of money-laundering).
According to the petitioner, these allegations are rooted in multiple FIRs registered over the past decade or more under various provisions of law, including Section 420 of the Indian Penal Code (cheating).
Arguments of Parties
When the matter was taken up, the High Court considered two connected petitions one directly challenging the search and seizure operations, and another assailing the show cause notice and consequential proceedings.
Petitioner: During the hearing, counsel appearing for Puppy Tours and Travels LLP strongly questioned the legality of the ED’s actions. It was argued that the search conducted by the agency lacked any lawful foundation, as there was no material available against the petitioner on the date the search was initiated.
The petitioner contended that the mandatory requirement of “reason to believe” under Section 17(1) of the PMLA had not been satisfied. According to the plea, neither the search authorization nor the freezing orders disclosed any cogent reasons justifying such intrusive measures.
It was further submitted that the freezing of bank accounts was carried out mechanically and without recording reasons, rendering the action arbitrary and violative of statutory safeguards.
The petitioner’s counsel also informed the court that parallel proceedings arising from the same matter were listed before the concerned adjudicating authority under the PMLA on February 5. In view of this, the petitioner sought a stay on further proceedings before the authority until the High Court adjudicates the legality of the ED’s actions.
Respondent: Opposing the plea, counsel for the Enforcement Directorate submitted that there existed a live predicate offence pending investigation before the Cyber Cell in Madhya Pradesh. On this basis, the ED argued that its actions under the PMLA were justified and legally sustainable.
However, this assertion was disputed by the petitioner, who maintained that the existence of a pending case alone does not automatically confer jurisdiction on the ED unless it results in proceeds of crime and satisfies the statutory threshold under the PMLA.
Claims of the Petitioner: In its writ petition, Puppy Tours and Travels LLP has sought a declaration that the search, seizure, and freezing operations conducted by the ED between August 22 and September 9, 2025 are illegal, unconstitutional, and bad in law. The plea also challenges the continued retention of seized properties and documents.
Additionally, the petitioner has assailed the show cause notice issued on September 29, 2025, as well as all proceedings emanating from it, on the ground that the foundational requirements for invoking PMLA provisions were absent.
Legal Questions Involved:
- Whether the Enforcement Directorate can initiate and continue PMLA proceedings in the absence of a live predicate offence ?
- Whether search and seizure under Section 17 of the PMLA can be sustained without recording valid “reason to believe” ?
- Whether freezing of bank accounts without disclosing reasons violates statutory safeguards and principles of natural justice ?
- Whether proceedings before the adjudicating authority should be stayed pending judicial scrutiny by the High Court ?
Order Of the Court:
After hearing submissions from both sides, Justice Nagaprasanna dictated the following order:
“The learned counsel accepts notice for ED in both matters. Objections be filed at least on the interim prayer by the next date. List the matter on January 29 in fresh matters list”.
The court thus granted time to the Enforcement Directorate to file its objections, particularly in response to the interim relief sought by the petitioner, and fixed the matter for further hearing on January 29.
The plea filed by Puppy Tours and Travels LLP presents a strong challenge to the Enforcement Directorate’s exercise of powers under the PMLA, particularly in cases where predicate offences are either non-existent or have been closed.
Case Title: PUPPYS TOURS AND TRAVELS LLP Vs UNION OF INDIA AND ANOTHER WP 964/2026 and KC NAGARAJA Vs UNION OF INDIA AND ANOTHER WP 966/2026