Karnataka High Court Roundup: PMLA Can't Attach Mortgaged Property, Passport Details Shielded by RTI

Bengaluru: The Karnataka High Court delivered a series of significant judgments this past week, offering crucial clarifications on the interplay between the Prevention of Money Laundering Act (PMLA) and secured creditors' rights, the limits of information disclosure under the Right to Information (RTI) Act, and the binding nature of exclusive jurisdiction clauses in commercial contracts. Other notable orders addressed procedural fairness in Benami property cases, the severe consequences of parole violations, and the state's accountability for unutilized social welfare funds.

This roundup examines the key rulings from October 20, 2025, providing an in-depth analysis of their legal reasoning and potential impact on legal practitioners, financial institutions, and government bodies.

PMLA vs. Secured Creditors: Mortgaged Properties Not 'Proceeds of Crime'

In a major relief for banks and financial institutions, a division bench of Justice D K Singh and Justice Venkatesh Naik T held that properties mortgaged to a bank for securing a loan cannot be attached by the Enforcement Directorate (ED) under the PMLA. The ruling in Deputy Director v. Asadullah Khan establishes that such assets do not qualify as "proceeds of crime."

The High Court dismissed an appeal filed by the ED, which challenged an Appellate Tribunal's order quashing the provisional attachment of seven properties. The bench affirmed that when a property is used as collateral to obtain a legitimate loan, it cannot be tainted as proceeds of crime merely because the borrower is later accused of money laundering in a separate context. This judgment reinforces the rights of secured creditors, clarifying that the PMLA's attachment provisions cannot override pre-existing, bona fide security interests created in favour of lending institutions. The decision is pivotal for the banking sector, offering a layer of protection against the broad sweep of PMLA actions and ensuring that legitimate commercial transactions are not unduly jeopardized by subsequent criminal investigations against borrowers.

RTI and Privacy: Passport Details Exempt from Disclosure

The court firmly underscored the primacy of an individual's right to privacy in Prakash Chimanlal Sheth v. State of Karnataka & Others . Justice Suraj Govindaraj ruled that a passport copy and related information are personal in nature and cannot be disclosed to a third party under the RTI Act, even if the applicant is a complainant in a cheque dishonour case against the passport holder.

The petitioner had sought the accused's passport details to aid in proceedings under Section 138 of the Negotiable Instruments Act. The court upheld the rejection of the RTI application, citing multiple exemptions under the Act. It found the information exempt under Section 8(1)(h), which protects information that could impede an ongoing investigation. More significantly, the court invoked the right to privacy as enshrined in the K.S. Puttaswamy judgment and the exemption under Section 8(1)(g) of the RTI Act, which protects information whose disclosure could endanger a person's life or physical safety.

Justice Govindaraj observed, “The disclosure of the information like a passport, in my considered opinion, being personal in nature would cause immense harm and injury to a person... it could cause a danger to the life or physical safety of the concerned person.” The court also noted that the information pertained to a Special Branch of the police, an organization exempted from the RTI Act's purview under Section 24(4). While dismissing the petition, the court granted the petitioner the liberty to seek the documents through an appropriate application before the trial court handling the criminal case.

Commercial Disputes: Exclusive Jurisdiction Clause is Sacrosanct

Reinforcing a fundamental principle of commercial law, a division bench held that when parties contractually agree to the exclusive jurisdiction of a specific court, that choice must be honoured, even if a part of the cause of action arises elsewhere. In BABOON INVESTMENTS HOLDING v. M/S. ATRIA BRINDVAN POWER PRIVATE LIMITED , Chief Justice Vibhu Bakhru and Justice C.M. Poonacha set aside an interim injunction granted by a Bengaluru commercial court.

The bench found that the Debenture Trust Deed between the parties explicitly conferred exclusive jurisdiction on the courts in Mumbai. It held that while multiple courts might have jurisdiction based on where the cause of action arises, parties are free to oust the jurisdiction of other courts through a clear contractual agreement. The court stated, “Where more than one Court has jurisdiction, and the parties agree that one or more of those Courts would have exclusive jurisdiction to decide disputes, such agreement is lawful and binding." This ruling serves as a critical reminder for commercial litigators about the importance of carefully scrutinizing jurisdiction clauses before initiating legal proceedings.

Other Key Judgments and Orders

On Parole Violations: In Shakuntala Desai v. State of Karnataka , Justice Sachin Shankar Magadum addressed the issue of convicts overstaying parole. Observing that many are unaware of the stringent penalties, including up to five years imprisonment under Section 58 of the Karnataka Prisons (Amendment) Act, 2022, the court directed prison authorities to proactively sensitize convicts about their legal obligations and the severe consequences of non-compliance. "The underlying legislative intent is to ensure that the limited liberty granted to convicts under parole is not abused," the court remarked.

On Benami Property Act Procedure: Justice Suraj Govindaraj, in Nara Suryanarayana Reddy v. Initiating Officer & Others , mandated a crucial procedural safeguard under the Benami Property Act. The court directed that any notice issued to a 'Benamidar' under Section 24(1) must also be marked to the 'beneficial owner' and explicitly state that the beneficial owner is also required to submit a reply within the same timeframe. This ensures the principles of natural justice are upheld by giving the person with the actual interest in the property a fair opportunity to be heard at the initial stage itself.

On Free Speech and Public Order: The court declined to quash a criminal case against a man accused of circulating WhatsApp audio clips criticizing the state's handling of the COVID-19 pandemic. In ALTHAF HUSSAIN v. State of Karnataka , Justice Sachin Shankar Magadum held that a full trial was necessary to determine if the act, committed during a time of widespread panic, was reckless or malicious enough to attract charges under Sections 153A and 505(2) of the IPC for promoting enmity and causing public mischief.

On AIBE Validity: Recording a decision by the Bar Council of India (BCI), the court in S. Gowri Shankar v. The Karnataka State Bar Council noted the extension of the validity of All India Bar Examination (AIBE) results until March 21, 2026. This move, prompted by delays in enrolment, provides significant relief to numerous law graduates across the country awaiting their official induction into the legal profession.

On Unutilized Beggary Cess: Taking serious note of administrative apathy, a division bench in LETZKIT FOUNDATION v. State of Karnataka questioned the state government over ₹3639.64 crore in unutilized beggary cess collected over four years. Chief Justice Vibhu Bakhru orally remarked, "You cannot take away from the children. Obviously you are keeping 3,000 crore for four years and children are begging on the streets then something is not right.” The court directed the Karnataka State Legal Services Authority (KSLSA) to coordinate with the government to collect and verify data on the fund's deployment and warned of issuing orders to attach accounts if the outstanding amounts are not remitted by local bodies to the designated escrow account.