Arrest Under PMLA Without Fresh Material or Prior Section 50 Summons Is Legally Invalid

01Facts

The petitioners are Directors/Founders of M/s Games Kraft Technologies Pvt. Ltd., an online gaming platform

In 2024, a predicate offence (FIR 722/2024) was registered for cheating, but the police filed a 'B' report (closure report) which was accepted by the court on 05-07-2025

p. 7

Despite this, the Enforcement Directorate (ED) registered an ECIR and conducted searches in November 2025

p. 7

The Karnataka High Court stayed that ECIR on 22-01-2026 because the predicate offence was closed

p. 8

Subsequently, three new FIRs were registered in Telangana for similar allegations of gaming fraud

pp. 8-9

Based on these, the ED registered a new ECIR (No. 07/2026) on 23-02-2026

p. 9

Without issuing any prior summons under Section 50, the ED conducted searches on 07-05-2026 and arrested the petitioners in the early hours of 08-05-2026

p. 9, 22

The petitioners challenged the legality of their arrest via writ petitions

p. 9

02Issues

i.1. Whether the arrest of the petitioners satisfied the mandatory requirements and "reasons to believe" under Section 19 of the PMLA

p. 10

ii.2. Whether the ED can justify an arrest based on "stale" material already in its possession from a previous stayed investigation without fresh incriminating evidence

p. 12, 132

iii.3. Whether the "necessity of arrest" is a jurisdictional prerequisite that must be satisfied before depriving a citizen of liberty under the PMLA

p. 96, 130

03Law Applied

The court applied Section 19 of the Prevention of Money Laundering Act (PMLA), 2002, which mandates that an officer must have "material in possession" and "reason to believe" that a person is guilty of an offence to effect an arrest

p. 57, 62

It relied on the Supreme Court's interpretation in Vijay Madanlal Choudhary v. Union of India, which categorized Section 19 safeguards as "stringent"

pp. 67-68

It further applied Pankaj Bansal v. Union of India, which held that mere non-cooperation or evasive replies do not justify arrest

pp. 82-83

The court also integrated the "necessity to arrest" doctrine from Arvind Kejriwal v. Directorate of Enforcement, emphasizing that the existence of power to arrest is distinct from the justification for its exercise

pp. 89-90

It cited Arnab Manoranjan Goswami v. State of Maharashtra regarding the High Court's duty to protect personal liberty under Article 226 even during the pendency of bail applications

p. 129

Provisions in the judgment · 39 · Linked ones open on LawLens

Prevention of Money-Laundering Act, 2002 15 provisions

Section 2 Section 3 Section 4 Section 9 Section 13 Section 17 Section 19 Section 44 Section 45 Section 50 Section 62 Section 65 Section 66 Section 70 Section 73

Bharatiya Nyaya Sanhita, 2023 Section 316 Section 318 Section 319

Bharatiya Nagarik Suraksha Sanhita, 2023 Section 528

Information Technology Act, 2000 Section 66

Code of Criminal Procedure, 1973 Section 41 Section 91 Section 154 Section 164 Section 167 Section 437 Section 438 Section 439

Indian Penal Code, 1860 Section 193 Section 228 Section 419 Section 420

Prevention of Corruption Act, 1988 Section 13

Customs Act,1962 Section 102 Section 104 Section 132 Section 133 Section 135 Section 136

04Reasoning

The court found that the "grounds of arrest" provided by the ED were substantially identical to the allegations in the 2024 investigation, which was already stayed by the High Court

pp. 124-126

The ED failed to show any fresh incriminating material discovered during the May 2026 search that was not already in its possession during the November 2025 search

pp. 126-127

Specifically, the court noted that if the ED did not find arrest necessary in 2025 based on the same material, it could not claim a "necessity to arrest" in 2026 simply by attaching the material to new FIRs

p. 132

The court emphasized that the ED bypassed the investigative mechanism of Section 50 (summons) and moved directly to arrest without any demonstrable attempt at securing cooperation

p. 131

It reasoned that "reason to believe" must be founded on objective facts demonstrating guilt, not "recycled suspicion" or administrative convenience

p. 128, 130

The court rejected the ED’s argument that judicial review is barred by the pendency of a bail application, holding that the legality of the arrest is a fundamental jurisdictional question

p. 130

05Holding

The court allowed the writ petitions and declared the arrest of the petitioners illegal for violating the mandate of Section 19 PMLA and Article 21 of the Constitution

pp. 133-134

The court held that the arrest was unsupported by fresh tangible material and that the "necessity of arrest" was not established

p. 133

Consequently, the petitioners were ordered to be set at liberty forthwith

p. 134

The court clarified that the ED remains free to issue summons under Section 50 and continue its investigation in accordance with law

p. 133

LawLens.Karnataka High Court

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