Karnataka High Court declines to quash ED summons in PMLA builder case

The Enforcement Action

The High Court of Karnataka has declined to quash two summons issued by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA), holding that an interim stay of the underlying police case does not wipe out the money-laundering inquiry built on it. Justice Ravi V Hosmani passed the order on 5 October 2026 in Writ Petition No. 22380 of 2026 (GM-RES), Bharath Reddy and another v. Directorate of Enforcement (neutral citation 2026:KHC:55243).

The petitioners, Bharath Reddy and Rashmi Bharath Reddy, had asked the court to quash summons nos. PMLA/SUMMON/BGZO/2026/5027 and 5028, dated 14 July 2026, issued by an Assistant Director of the ED's Bengaluru zonal office. The summons required them to appear in person and produce records in connection with ECIR no. BGZO/34/2023, according to the judgment.

The court disposed of the petition with observations rather than setting the summons aside. It directed the petitioners to appear before the ED within two weeks "if not already done", offer the documents available to them and seek time for the rest. In the same paragraph it directed the ED "to consider request of petitioners before proceeding further."

The ruling is a procedural one. The court did not examine, and made no finding on, whether any money laundering took place. The petitioners' case, as recorded in the judgment, is that the underlying dispute is a commercial one and that the PMLA proceedings have no legal basis; that position is set out in full below.

How the Scheme Worked

The judgment does not describe a proven scheme. It records an investigation at an early stage and the competing accounts of the two sides. What follows is drawn from the order itself.

According to the petitioners' submissions, the summons reached them via WhatsApp and sought, among other things, their Aadhaar and PAN cards, all sale and purchase documents, MoUs and agreements entered into by M/s. Aryan Hometec concerning projects at Attibele, Anekal Hobli (described as the Aryan Golden Arena and Aryan Fountain Square projects), bank statements from 2015-16 onwards, details of immovable property, and income-tax returns and balance sheets for the same period.

The petitioners argued that the summons related to Crime no. 209/2023, registered by Marathahalli Police Station under Sections 406, 420 and 120B read with Section 34 of the Indian Penal Code. In that FIR, the judgment records, accused no. 1 was the landowner and the first petitioner was the builder, and the petitioners characterised the allegation as a failure to repay a loan, "indicating it to be commercial transaction." The FIR was quashed as against accused no. 1 on the basis of a settlement in Crl.P. no. 1530/2024, and stayed as against the first petitioner by an order dated 5 June 2024 in Crl.P. no. 3387/2024.

The ED's account differed. Its counsel submitted that the summons was issued with reference to the ECIR and that the documents sought were listed in an appendix. The ED told the court that the petition wrongly assumed the ECIR rested only on Crime no. 209/2023, and pointed in its objections to an FIR in Crime no. 225/2022 at Puttenahalli Police Station, and in additional objections to FIRs registered by Attibele and Banaswadi police stations. The petitioners replied that the Puttenahalli matter had ended in a compromise on 18 June 2026 and that the later FIRs post-dated the 2023 ECIR.

The chronology recorded in the order is: FIR in 2023, ECIR in 2023, stay of the FIR as against the first petitioner in June 2024, summons in July 2026, hearing reserved on 18 August 2026, and the order on 5 October 2026.

The Law Invoked

The summons was issued under Section 50(2) and (3) of the PMLA, which empower ED officers to summon any person whose attendance they consider necessary to give evidence or produce records, and require that person to attend and state the truth. The petition itself was filed under Articles 226 and 227 of the Constitution, the High Court's writ and supervisory jurisdiction.

The underlying FIR invokes Sections 406 (criminal breach of trust), 420 (cheating) and 120B (criminal conspiracy) read with Section 34 (common intention) of the Indian Penal Code. The ED submitted that these offences are among the predicate, or "scheduled", offences listed in the PMLA schedule. The petitioners relied on the Supreme Court's ruling in P. Chidambaram v. Directorate of Enforcement, which, as the judgment records it, held that PMLA proceedings could be initiated only in the case of scheduled offences.

The court's reasoning drew on Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association (1992), which holds that a stay only "eclipses" proceedings and is not the same as quashing them. On the content of summons, it referred to Vijay Madanlal Choudhary v. Union of India (2023), observing that a missing statement of purpose does not "per se vitiate summons", provided the ED can justify its grounds when challenged in court.

What Happens Next

Under the order, the petitioners are to appear before the ED within two weeks of the judgment, if they have not already done so, furnish what information they have and ask for time for anything further. The ED must consider that request before taking further steps. The judgment does not record any further hearing date in the High Court.

The order is a single-judge ruling and may be challenged before a Division Bench of the High Court by way of a writ appeal, or before the Supreme Court. The judgment does not record whether either side intends to appeal.

The judgment notes that a related question, whether the closure of predicate-offence proceedings removes the basis for continuing PMLA proceedings, was referred by the Supreme Court to a larger bench by an order dated 3 February 2026 in Directorate of Enforcement v. Gagandeep Singh and others, and remains pending. That decision may affect cases like this one.

No one in this matter has been charged with money laundering. A summons or an ECIR records an investigation, not a finding; the people named are presumed innocent, and due process continues.

What It Means

For anyone who receives a PMLA summons, the ruling restates a practical point: a court is unlikely to set aside a bare summons simply because it is brief or because the underlying FIR has been stayed. The judgment notes that a Division Bench of the same court had earlier treated a summons as not, by itself, an adverse order that gives rise to a cause of action, unless it was issued without jurisdiction.

The court also signalled where a summonee's remedy lies. Where the documents sought appear excessive, it observed that a person "can always approach summoning authorities" to explain what is available and seek more time. It added that summons normally should not be issued on "vague or omnibus purposes" and should have a nexus with the investigation.

For homebuyers and investors in real-estate projects, the case is a reminder that disputes between landowners, builders and lenders can travel from a police FIR into a PMLA inquiry. Before booking, buyers can check a project's registration and litigation disclosures on the state RERA portal (Karnataka RERA for projects in Bengaluru) and look for any reported proceedings involving the promoter. None of this implies any wrongdoing by the parties in this case, which remains at the investigation stage.

FAQ

Has the court held that the people named are guilty?

No. The judgment concerns only whether two ED summons should be quashed. A summons, an ECIR or an FIR contains allegations, not findings of guilt; the accused are presumed innocent until proven guilty, and due process continues. The court made no finding on whether any offence was committed, and the FIR has been stayed as against the first petitioner.

What exactly did the court order?

The High Court disposed of the writ petition with observations. It directed the petitioners to appear before the ED within two weeks, if not already done, provide available information and documents, and seek time for anything further. It directed the ED to consider that request before proceeding further.

Why did the stay of the FIR not help the petitioners?

Relying on the Supreme Court's 1992 ruling in Shree Chamundi Mopeds, the court held that a stay only suspends proceedings and cannot be equated with quashing. Because the FIR in Crime no. 209/2023 has been stayed, not quashed, as against the first petitioner, and pre-dates the ECIR, the court held the PMLA inquiry could continue.

Can the order be appealed?

Yes. A single-judge order in a writ petition can ordinarily be challenged before a Division Bench of the High Court through a writ appeal, and a further challenge can lie to the Supreme Court. The judgment does not record whether any party intends to appeal.

Where can I read the official judgment?

The full text of the order dated 5 October 2026 in WP No. 22380 of 2026, Bharath Reddy v. Directorate of Enforcement, is available on Indian Kanoon, linked below, with neutral citation 2026:KHC:55243.

This report is based on the official Karnataka High Court order dated 5 October 2026 in WP No. 22380 of 2026. It was surfaced via coverage in LiveLaw.