Mere possession of site that was allegedly allotted illegally to accused in criminal case will not constitute offence of money laundering: Karnataka High Court

The ED had contended that though D.B. Natesh was not treated as an accused this stage of investigation, his role, as the then commissioner of MUDA, was vital as the illegally allotted sites are treated as ‘proceedings’ of crime, and the process of allotment, presided over by Mr. Natesh, constitutes ‘assisting’ a process or activity connected with the proceeds of crime, and hence, constitutes a reasonable cause for the purposes of conduct of search and seizure under Section 17 of the PMLA.

Mere possession of a site that was allegedly allotted illegally to an accused in connection with a scheduled offence does not, by itself, constitute an offence under the Prevention of Money Laundering Act, 2002 (PMLA), unless the essential ingredients of the offence of money laundering, as defined under Section 3 of the Act, are satisfied, stated the High Court of Karnataka.

“Simply holding the proceeds by chance or accident does not mean the person was involved in generating or hiding them as part of money laundering. There must be clear evidence of control or intent over the property to meet the requirements of the PMLA. This ensures the law is applied fairly and prevents arbitrary actions,” the court observed.

Justice Hemant Chandangoudar made these observations in his verdict of quashing the actions of the Enforcement Directorate (ED) against D.B. Natesh, a former commissioner of Mysuru Development Authority (MUDA). The ED had searched the residence of Mr. Natesh and recorded his statement in connection with the case of alleged illegal allotment of 14 sites to Parvathi, wife of Chief Minister Siddaramaiah.

These observations could come to the aid of Ms. Parvathi and Minister for Urban Development Byrathi Suresh, to whom the ED had recently issued notices, which were stayed by the High Court on January 28, asking them to appear for recording their statements.

The ED had contended that though Mr. Natesh was not treated as an accused this stage of investigation, his role, as the then commissioner of MUDA, was vital as the illegally allotted sites are treated as ‘proceedings’ of crime, and the process of allotment, presided over by Mr. Natesh, constitutes ‘assisting’ a process or activity connected with the proceeds of crime, and hence, constitutes a reasonable cause for the purposes of conduct of search and seizure under Section 17 of the PMLA.

The ED had also alleged that Mr. Natesh himself had selected the sites to be allotted to Ms. Parvathi and that the proposal for site allocation was not put up by the Site Allotment Section of the MUDA, and the search was conducted on the basis of the ‘reasonable belief’ that the petitioner, as the former commissioner of MUDA, may be in possession of the proceeds of crime or any records related to money laundering.

However, from the contents of information submitted by the ED in a sealed cover on the reasons recorded for conducting search and recording Mr. Natesh statement, the court observed: ‘Except that of improper allotment of sites in favour of Parvathi, and that the petitioner is close to realtors’, the reasons recorded do not indicate involvement of the petitioner in any act constituting money laundering.