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2026 Supreme(Online)(Kar) 3741
THE HIGH COURT OF KARNATAKA
B M Shyam Prasad, J
Zo Pvt. Ltd. – Appellant
Versus
Directorate of Enforcement – Respondent
WP No. 962/2026
Important Points
Subject
Criminal Law - Prevention of Money Laundering
Act Referred
Headnote
(B) Writ jurisdiction - Scope - High Court under Article 226 can examine whether freezing order was without jurisdiction or based on no material, but where an order for continuance under Section 20 has been passed and the matter is before the Adjudicating Authority, the Court may relegate the petitioner to that forum rather than examining merits of subjective satisfaction. (Paras 7, 8)
Facts of the case:
The petitioner, a subsidiary of Winzo Private Limited, challenged a search and seizure conducted at its outsource accounting firm's office on 30.12.2025 and the consequent freezing of its bank accounts, mutual fund investments, and fixed deposits under Section 17(1A) of the PMLA. The respondent investigated ECIR/BGZO/25/2025. The petitioner sought a declaration that the search and seizure were illegal and void. During pendency, the respondent passed an order for continuance of freezing on 22.01.2026, which was not challenged by the petitioner. The petitioner argued that the freezing order was without jurisdiction because the respondent was aware of an unsecured loan of Rs.231 Crores from the holding company prior to the search. The petitioner sought permission to operate its accounts to pay employee salaries.
Findings of Court:
The Court held that the freezing order dated 30.12.2025 under Section 17(1A) was potentially based on information furnished prior to the search, and whether further information was gathered during the search was a question of fact for the Adjudicating Authority. Since the respondent had already passed an order for continuance under Section 20, the petitioner could challenge it before the Adjudicating Authority rather than in writ proceedings. However, the Court directed the respondent to permit the petitioner to pay salaries to employees for January, February, and March 2026, subject to verification, in light of the Delhi High Court's precedent in M/s Art Housing Finance (India) Limited v. Directorate of Enforcement.
Issues: The main issues were: (i) whether the High Court should intervene when the Authority under Section 20 had already passed a continuation order, and (ii) whether the Court should permit operation of the frozen account for paying employee salaries.
Ratio Decidendi: The Court ruled that where a freezing order under Section 17(1A) is followed by a continuation order under Section 20, the proper remedy for the aggrieved party is to challenge it before the Adjudicating Authority, not before the High Court under Article 226. However, the Court may, in its discretion, direct the respondent to allow the petitioner to use frozen funds for paying salaries, as such a direction balances the interests of justice and the purpose of the PMLA. Result : Petition disposed of with directions.
For the Appellants/Petitioners: Sajan Poovayya, Rohan Kothari
For the Respondents: Madhu N Rao
| Table of Content |
|---|
| 1. petition challenging search and seizure and freezing under pmla. (Para 1 , 2) |
| 2. scheme of freezing under section 17(1a) and continuation under section 20 pmla. (Para 3 , 4) |
| 3. arguments on jurisdiction of freezing order and subjective satisfaction. (Para 5 , 6) |
| 4. court's decision on jurisdiction and remedy before adjudicating authority. (Para 7 , 8) |
| 5. direction to permit salary payments from frozen account. (Para 9 , 10 , 11) |
ORAL ORDER
The petitioner, a subsidiary of M/s. Winzo Private Limited [the Holding Company], has filed this petition for a declaration that the search and seizure at the office of M/s FinAdvantage Consulting [P] Limited [the petitioner's outsource accounting firm] is illegal and void calling in question the panchanama drawn during the search and seizure and the order dated 30.12.2025 [Annexure-A] under Section 17[1A] of the Prevention of Money Laundering Act, 2002 [for short, 'the Act'].
2. This Court, on 19.01.2026, has heard Sri.Sajan Poovayya, the learned Senior Counsel for the petitioner, on the petitioner's limited request for an order to operate the accounts under the impugned order dated 30.12.2025 to disburse the salaries and contractual/statutory dues. This Court has permitted the petitioner to file, with the respondent, the details of the employees to whom the petitioner proposes to defray the salaries observing, on 27.01.2026, that the respondent must have an opportunity. The petitioner has filed those details, but the respondent has not considered them as it would rather invite the decision of this Court on merits.
3. The petitioner’s grievance is examined in the light of the scheme under the Act on freezing under Section 17[1A] thereof. The order to freeze an account must be when the officer, who is authorized to conduct the search and seize the records or property, is of the opinion that it is not practical to seize the property, (Where it is not practicable to seize such order or property, the officer authorized under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned.). The authorized officer who directs freezing will have to apply, as contemplated under Section 17[4] of the Act, with the Adjudicating Authority under Section 8 of the Act and for the continuation of the freezing, the officer authorized by the Director must, in exercise of power under Section 20 of the Act, (Where any property has been seized under section 17 or section 18 or frozen under sub-section (1A) of Section 17 and the officer authorized by the Director in this behalf, has, on the basis of material in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such property is required to be retained for the purposes of adjudication under section 8, such property may, if seized, be retained or if frozen, may continue to remain frozen, for a period of not exceeding one hundred and eighty days from the day on which such property was seized or frozen, as the case may be.), record reasons to believe why there must be continuance and after recording the reasons for belief may continue the freezing for a period not exceeding 180 days. On the expiry of the continuation of freezing, the person concerned must be at liberty to operate their account as envisaged under Section 20[3], (On the expiry of the period specified in sub-section(1), the property shall be returned to the person from whom such property was seized or whose property was ordered to be frozen unless the Adjudicating Authority permits retention or continuation of freezing of such property beyond the said period.) of the Act unless the Adjudicating Authority permits further continuation.
4. During the pendency of this petition, the Officer who is authorized has passed an order for continuance on 22.0
