Existence of Predicate Offence Is Sufficient to Trigger ED Action Under PMLA: Karnataka High Court Validates Arrest of Accused in Online Betting Scam

“A ₹30,000 FIR Can Reveal a ₹100 Crore Crime – ED Need Not Wait for Conviction to Act Under PMLA” - In a significant ruling that clarifies the scope of the Enforcement Directorate’s powers under the Prevention of Money Laundering Act, 2002 (PMLA), the Karnataka High Court on 15 October 2025 upheld the arrest of a sitting MLA's husband by the ED, rejecting the challenge that it was unconstitutional and unsupported by a valid predicate offence. Justice M.I. Arun, deciding the Writ Petition No. 26754 of 2025 (GM-RES), held that once a predicate offence exists—however minor—the ED can proceed under the PMLA if there is material indicating money laundering.

The Court emphasized that “once the requirements under Section 19 are met, and there exists a scheduled offence, the ED is not required to wait for a conviction or finality of the predicate FIR to exercise its arrest powers.”

The petitioner, R.D. Chaitra, had challenged the arrest of her husband, KC Veerendra, by the ED on the grounds that the foundational requirement of a ‘scheduled offence’ was absent, since most predicate FIRs had either been quashed, closed, or ended in acquittal. The only surviving FIR, she argued, was a petty matter involving a sum of ₹30,000 for cheating under Section 420 IPC, based on which an Enforcement Case Information Report (ECIR) was registered in 2022. It was further alleged that the arrest, made in September 2025, was in violation of the rights under Articles 14, 19 and 21 of the Constitution, and was abuse of PMLA’s coercive machinery.

Rejecting these submissions, the Court held that: “There exists a predicate scheduled offence under the PMLA, 2002 and there is sufficient material in possession of the respondent which gives reason to believe that the petitioner’s husband is guilty of money laundering.”

The Court clarified that so long as the predicate offence—here, FIR No. 218/2022—has not been quashed by a competent court, it remains valid in the eyes of law to support ED’s action under the PMLA. Even the quantum of money involved in the scheduled offence cannot be the sole measure to determine the gravity or scope of money laundering.

“Proceeds of crime are not restricted to the sum mentioned in the FIR. The laundering may extend far beyond the initial figure, and often unravels through financial layering and concealment,” the Court observed.

The ED had relied upon the existence of a complex web of transactions, shell companies, mule accounts, and alleged links to online betting platforms and foreign casinos operated by the accused through associates. The Court noted that the 'reasons to believe' recorded under Section 19 of the PMLA were not merely speculative or mechanical but based on substantial material, including statements recorded under Section 50 of the Act, bank transactions, corporate structures allegedly used to launder funds, and seizure of huge amounts of cash, jewellery and property documents.

Referring to Supreme Court precedents including Vijay Madanlal Choudhary and D.K. Basu v. State of West Bengal, the Court noted that “the arrest under PMLA must comply with procedural safeguards, but once those are met, the Court will not interfere unless mala fides or patent illegality is shown.”

The petitioner had also argued that ED had no reason to arrest when most other FIRs had already failed. But the Court dismissed this contention, holding that “even a single pending FIR, provided it is a scheduled offence under the PMLA, is sufficient for ED action.” The bench further observed:

“The magnitude of proceeds of crime need not correlate directly to the initial quantum of cheating alleged in the FIR. The alleged ₹30,000 loss in the FIR is a trigger; it has unveiled a deeper nexus of financial irregularities allegedly involving hundreds of crores.”

Addressing the challenge to the arrest itself, the Court noted that the grounds of arrest were duly communicated, the accused’s rights were respected, and there was no violation of procedural fairness. The Court stated:

“The materials placed before this Court clearly demonstrate the link between the accused and the alleged online betting network and proceeds of crime. His denial of all allegations and alleged non-cooperation with investigators further justifies the need for custodial interrogation.”

The Court also declined to interfere merely because the remand order was passed by the Special Court and not challenged separately, reiterating that once statutory procedure is followed, judicial review under Article 226 is limited in scope.

The ruling also sets an important precedent on the distinction between registration of ECIR and arrest under PMLA. The Court reiterated that:

“Registration of ECIR is not equivalent to an FIR. The ECIR is an internal document of the ED, and merely registering it does not result in automatic arrest. Arrest under Section 19 must follow satisfaction of ‘reason to believe’ based on material evidence linking the accused to laundering.”

Importantly, the Court held that the writ petition was premature on several counts. The ‘B’ report in the only surviving FIR had not yet been accepted by the Magistrate. Therefore, the scheduled offence continued to exist in law.

“If and when the B-report is accepted and the FIR is closed, the petitioner’s husband is at liberty to move an appropriate application to quash the proceedings. But as of today, the foundational requirement under the PMLA is satisfied,” the Court clarified.

Ultimately, dismissing the petition, the Court stated: “There is no illegality or infirmity in the arrest of the petitioner’s husband by the ED under Section 19 of the PMLA. The challenge to the ECIR and subsequent arrest is not sustainable in the facts and circumstances of the case.”

Arrest Valid, Writ Dismissed – But Liberty Reserved to Seek Bail or Quashing if Predicate FIR Fails

The Karnataka High Court, through this judgment, has reaffirmed the legality of ED action based on a subsisting scheduled offence, even if other predicate FIRs have been quashed or failed. The ruling clarifies that quantum of initial cheating is not determinative of money laundering, and the ED can investigate and arrest based on reasonable belief supported by evidence.

The Court did not preclude the petitioner’s husband from approaching the competent court for bail or moving to quash proceedings, particularly if the pending ‘B’ report is accepted and the predicate offence ceases to exist.

Date of Decision: 15 October 2025