The Karnataka High Court ruled that the ED's arrest of three Gameskraft executives under the PMLA was illegal.
The court said an arrest must be based on fresh material, new circumstances or new conduct, not on allegations already known to investigators.
While quashing the arrests, the court allowed the ED to continue its investigation by following due process under the PMLA.
The Karnataka High Court has declared the arrest of three directors and office-bearers of Gameskraft Technologies Private Limited by the Directorate of Enforcement as contrary to law, holding that an arrest cannot be justified on the basis of allegations that remain unchanged.
Justice M. Nagaprasanna delivered the ruling on Tuesday while allowing petitions filed by Deepak Singh, Vikash Taneja and Prithvi Raj Singh, who challenged the legality of their arrests on May 8.
The executives were arrested a day after the ED carried out searches under Section 17 of the Prevention of Money Laundering Act (PMLA) at their residences in Bengaluru and Gurugram.
'Arrest Must Be Based On Fresh Material'
In its order, the court observed that the power to arrest is distinct from the power to investigate and cannot be exercised solely because an investigation is continuing.
"The necessity to arrest must arise from new circumstances, new material, or new conduct; it cannot spring from the ashes of allegations that have remained unchanged," the court said.
Justice Nagaprasanna noted that the material relied upon by the ED to justify the arrests substantially overlapped with evidence already available from earlier proceedings.
"The material that animated the earlier case, the searches and seizures conducted, and material relied upon to justify arrest under the new case, are reflections of the same underlying allegations," the court observed.
It added that relying on material already in the agency's possession was contrary to the framework of Section 19(1) of the PMLA.
Court Notes No Prior Summons
The petitioners argued that the fresh case had been registered to overcome an interim stay granted by the court in connection with an offence registered in 2024.
Opposing the plea, the Additional Solicitor General submitted that the ongoing investigation related to three separate FIRs registered by the Telangana Cyber Police in February 2026 and was unaffected by the earlier stay order.
The court, however, noted that it was an admitted fact that no summons had been issued to the petitioners under Section 50 of the PMLA before their arrests.
"It is an admitted position that no summons under Section 50 was ever issued to the petitioners before their arrest. Their liberty was curtailed even before the search proceedings had reached fruition," the court observed.
While declaring the arrests illegal, the High Court clarified that the Enforcement Directorate is free to continue its investigation by following the procedure prescribed under law.
The court said the agency may exercise its powers under Section 50 of the PMLA, issue summons and proceed further in accordance with due process.
