High Court Strikes Down ED Arrests in Gaming Fraud Probe | Biz Flow Kit
Gameskraft Founders Arrested in Alleged Rs. 100 Crore Online Rummy Money Laundering Case; Karnataka High Court Declares ED Arrests Illegal
The Karnataka High Court has held that the power of arrest under Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA) cannot be exercised mechanically or merely to facilitate investigation, reiterating that personal liberty cannot be curtailed in the absence of fresh and tangible material demonstrating involvement in money laundering. The Court consequently declared the petitioners’ arrest illegal and directed their immediate release.
The controversy arose after the Enforcement Directorate (ED) registered a fresh ECIR by incorporating FIR No. 29 of 2026 through an addendum, even though the original foundation of its investigation had culminated in a ‘B’ report. The ED alleged that the petitioners were involved in an online gaming fraud involving collusive gameplay, use of bots and manipulation across gaming platforms.
Examining the legality of the arrests, the Court noted that the allegations relied upon by the ED were substantially the same material that had been available to the agency several months earlier. The Court found that merely assigning a new procedural label through a fresh ECIR could not create a new necessity for arrest when no such necessity existed earlier.
“If the ED did not find arrest necessary when the material was first available, a subsequent procedural development cannot by itself justify deprivation of personal liberty.”
The Court undertook an extensive examination of Section 19 of the PMLA and clarified that the provision operates independently of the general arrest powers available under Section 41 of the Code of Criminal Procedure. While Section 41 permits arrest for purposes such as proper investigation or prevention of further offences, Section 19 does not authorize arrest merely to facilitate investigation. The statutory requirement of “reasons to believe” must be satisfied on the basis of material demonstrating involvement in money laundering.
Relying on the decisions in Prabir Purkayastha and Arvind Kejriwal, the Court emphasized that “grounds of arrest” must be specific to the individual concerned and cannot be based on assumptions or generalized allegations. The belief of the arresting officer must emerge from an objective assessment of all available material, including evidence favourable to the accused.
“The arresting officer cannot selectively rely upon incriminating material while ignoring exculpatory or exonerating evidence available on record.”
Another significant factor weighed against the ED was its failure to invoke statutory mechanisms available under Section 50 of the PMLA before resorting to arrest. The Court noted that no summons had been issued to secure the petitioners’ cooperation and observed that arrest is intended to be a measure of last resort rather than the starting point of an investigation.
Rejecting the contention that pending bail proceedings prevented judicial review of the arrests, the Court relied upon the Supreme Court’s decision in Arnab Goswami and held that constitutional courts remain duty-bound to protect individual liberty whenever unlawful detention is alleged.
“Deprivation of liberty even for a single day is one day too many.”
Holding that the arrests were unsupported by any fresh tangible material capable of establishing an inference of guilt under the PMLA, the High Court allowed the writ petitions, quashed the arrests and directed the immediate release of the petitioners.
At the same time, the Court clarified that the Enforcement Directorate’s statutory powers remain intact and that the agency is free to continue its investigation in accordance with law, including by issuing summons under Section 50 of the PMLA wherever warranted.
To Read Full Judgment, Download PDF Given Below.
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