Karnataka High Court sharply criticised the Enforcement Directorate for opposing WinZO subsidiary’s plea to operate frozen bank accounts for employee salaries, with Justice BM Shyama Prasad rejecting “tentative instructions” and directing the agency to present final, complete directions forthwith.
KARNATAKA : The Karnataka High Court expressed strong criticism towards the Enforcement Directorate (ED) for opposing a motion from a subsidiary of online gaming platform WinZO, which sought permission to operate its frozen bank accounts to pay employee salaries.
Justice BM Shyama Prasad reacted sharply after the agency attempted to proceed based 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.”
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Zo indicated that, following the registration of an Enforcement Case Information Report (ECIR) against WinZO and the freezing of the parent company’s accounts, both companies had passed board resolutions transferring operational duties and salary obligations to the subsidiary. This was done to maintain business continuity and enable employee payroll.
Citing these resolutions, Zo contended that it had the authority to oversee WinZO’s daily operations and manage the disbursement of “salaries, wages and other employee-related dues.” The subsidiary asserted that allowing such payments would not lead to any overlap in relief, as the parent company would not request similar permissions if salaries were disbursed through the subsidiary.
However, the ED opposed the request, questioning whether Zo possessed the employee count it claimed. The agency pointed out that the subsidiary was incorporated only in May 2023 and argued that its financials did not support the sums it sought to be released.
The ED argued that once accounts are frozen under Section 17 of the Prevention of Money Laundering Act (PMLA), any requests related to release or operation must be addressed to the adjudicating authority, especially following the filing of a prosecution complaint alleging substantial proceeds of crime within the WinZO group.
The crux of the legal dispute centers on whether the ED adhered to proper procedures under Section 17(1A) of the PMLA, which permits freezing property identified during a search if immediate seizure isn’t feasible.
Nonetheless, the Court noted a significant timeline inconsistency that could undermine the agency’s actions:
- December 23, 2025: The ED received the subsidiary’s bank account information via email.
- December 30, 2025: The ED carried out the formal search operation.
The Bench remarked that since the agency had the account details a week prior to the search, the application of Section 17(1A) might be “out of bounds.”
The Court acknowledged,
“All this information was made available on 23rd of December. The search is on 30th of December,”
Based on this, the Bench outlined the legal implications.
The Court stated,
“So, you cannot, because you had the information before search, Section 17(1A) jurisdiction is out of bounds. That’s the legal question,”
In response, the ED’s counsel noted:
“I have limited instructions on that part.”
This led to a stern response from the Bench,
“Why do you engage the Court with limited instructions?”
When the ED’s counsel requested additional time to obtain further instructions, the Court made its stance clear.
“If it’s still something that you have to finalize based on the instructions, then you’re not engaging us.”
The Bench insisted that it would not hear or resolve a serious jurisdictional challenge based on an incomplete or evolving stance from the investigating agency.
The Court directed the ED to finalize its arguments and take a definitive position regarding the jurisdictional issue, clarifying that it would proceed on the assumption that any statements presented would be treated as conclusive for deciding interim relief.
Additionally, it instructed Zo to provide details about its employees including names, designations, and bank account information while allowing sensitive personal data to be submitted under seal.
The case has been scheduled for further hearings later this week, with Zo represented by Senior Advocate Sajan Poovayya and Advocate Rohan Kothari, while the ED was represented by Advocate Madhu N Rao.
Case Title: Zo Private Limited v. Enforcement Directorate
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