ED Can Share Information With Concerned Agencies On Violations Of Other Laws Under PMLA: Karnataka High Court

The Karnataka High Court on Wednesday held that information uncovered by the Enforcement Directorate (ED) during an investigation under the Prevention of Money Laundering Act (PMLA) can be shared with other agencies if it discloses violations of another law.

It ruled that such information is not confined to proceedings under the PMLA alone.

Justice M. Nagaprasanna made the observations while refusing to quash an FIR registered against Micah Mark and five others over allegations that they were associated with the India operations of US-based organisation The Timothy Initiative.

Interpreting Section 66(2) of the PMLA, the court held,

"Section 66 of the PMLA deals with disclosure of information. Sub-section (2) expressly empowers the Director or authorised authority, upon forming an opinion that provisions of any other law stand contravened, to share such information with the concerned agency for necessary action. The statutory architecture is clear: the provision is intended to ensure that information uncovered in the course of investigation under one enactment does not remain siloed where it reveals infractions under another. To accept the contention that such communication is permissible only in relation to offences strictly under PMLA would amount to reading clause (i) of sub-section (1) into irrelevance and rendering the legislative intent nugatory. Statutory interpretation cannot be so myopic as to defeat the plain purpose of the enactment.", the court ruled.

The petitions arose from an FIR registered after the ED alleged that foreign funds routed through debit cards linked to The Timothy Initiative had been withdrawn in India and diverted to Left Wing Extremism affected regions.

Acting on information shared by the ED, the Karnataka Police registered offences under the Bharatiya Nyaya Sanhita (BNS) and the Unlawful Activities (Prevention) Act (UAPA). The accused approached the High Court seeking quashing of the FIR.

Senior Advocate M.S. Shyam Sundar, appearing for Micah Mark, argued that the ED had no authority under the PMLA to share information that led to the registration of offences under other laws. He contended that the agency's powers under the PMLA and the Foreign Exchange Management Act (FEMA) could not be extended beyond those statutes. He also argued that the allegations did not disclose offences under the UAPA.

Senior Advocate S. Basavaraj, appearing for the remaining accused, adopted those submissions and argued that there was no material connecting his clients to the alleged acts. The State and the ED opposed the petitions, submitting that the material collected disclosed a prima facie case warranting further investigation.

Rejecting the challenge, the court held that the ED's communication under Section 66(2) was a detailed account of the alleged flow of funds and suspected violations. It ruled that the ED was entitled to share such information with the jurisdictional police. The court also rejected the contention that FEMA only authorises search and seizure and not disclosure of information, holding that the PMLA and FEMA must be interpreted harmoniously.

"The Directorate, therefore, cannot be faulted for communicating such information to the jurisdictional police. The submission that proceedings under the FEMA empower search and seizure, but not disclosure of information to other agencies cannot be accepted. Statutes operating in cognate fields must be construed harmoniously, not in watertight compartments.", it observed.

The court also rejected the argument that the FIR deserved to be quashed because the allegations under the UAPA were not made out. It held that, at this stage, it was only required to examine whether prima facie material existed to justify an investigation and not determine the guilt of the accused.

"The Courts must therefore be circumspect in stifling investigation, particularly where allegations touch upon issues of economic subversion intertwined with National security. In the teeth of such accusations as observed hereinabove, investigation is not merely permissible - it becomes imperative.", the court observed.

The court also stressed the importance of investigating allegations involving extremist financing, the court observed:

"One of the gravest threats to National security in the present times is, the clandestine funding of extremism. Funding, therefore, becomes the oxygen that enables extremist movements to survive and proliferate. The danger of extremist financing lies not merely in the money transferred, but in the consequences it unleashes. Left unchecked, such funding can transform ideological extremism into organized violence, threatening National unity and public safety. The preservation of National security, therefore, demands robust vigilance against financial channels that sustain extremism."

Accordingly, the court dismissed both petitions. It clarified that the petitioners remain free to avail themselves of all remedies available in law if a final report is filed against them. It also clarified that its observations were confined to deciding the petitions and would not influence the ongoing investigation.

For Petitioner: Senior Advocate Shyam Sundar, Advocate Timothy Charles

For Respondents: B.N. Jagadeesha, SPP, Madhu N. Rao, SPL. PP