Karnataka HC dismisses plea challenging Congress MLA Veerendra Puppy’s arrest by ED, cites pending betting app case

The HC cited the pendency of a police closure report in a cheating case against Veerendra and materials unearthed by the central agency in the course of its preliminary probe as reasons to sustain the money laundering probe against the Chitradurga MLA.

The bench overruled the arguments made on behalf of Veerendra that there was no basis for the ED to take up a money laundering case against him in the absence of any predicate offence from where the proceeds of crime were generated for laundering.

The counsel for Puppy argued that out of seven FIRs cited by the agency as being the basis for the money laundering probe, six were quashed or the accused had been acquitted.

In one FIR registered in Karnataka in 2022, where the MLA was not among the people initially accused of cheating an online betting customer of Rs 30,000, a ‘B’ report (closure report) had been filed by the investigating agency but had not been accepted by the court as yet, the HC was told.

The central agency argued that investigations had revealed a large network of individuals and companies, with Veerendra at its centre, being involved in a huge racket where large sums of money are generated by cheating people on betting apps.

While observing that a predicate offence is essential for launching PMLA proceedings, the HC said that “without a scheduled offence, there can be no proceeds of crime”.

“The powers of the Enforcement Directorate are derived from the predicate offence and it arises only if there exists a scheduled offence and there are proceeds of crime generated from that offence, and not otherwise,” the HC said.

The HC said that of the seven predicate offences cited by the agency against Veerendra, only one registered in Karnataka under sections 419, 420 of the Indian Penal Code (IPC) read with Section 66 of the Income Tax Act is still pending, although a ‘B’ report has been filed but has not been accepted by the court.

“Thus, though the respondent has mentioned the existence of seven criminal proceedings against the husband of the petitioner, six of them having been closed and those FIRs cannot be a ground for proceeding against the husband of the petitioner to arrest him,” the HC said.

‘Requires detailed investigation’

The HC also referred to the ED’s reasons to believe the involvement of Veerendra in money laundering, including the usage of a Mercedes-Benz car worth Rs 75 lakh registered to a firm of the family of the director of a payment gateway, Fonepaisa, which was servicing the betting payments received by the MLA’s betting apps, as a reason to allow the probe.

The HC stated, “the preliminary investigation reveals involvement of the husband of the petitioner in running of the alleged illegal betting apps and being benefited through them, which requires a detailed investigation.”

It also agreed with the central agency’s argument that the money laundering probe cannot be restricted by the quantum of the money indicated in the predicate offence.

The HC had earlier questioned the agency on whether proceeds of crime can exceed the Rs 30,000 indicated in the FIR for a predicate offence of cheating against the MLA. The agency had argued that the proceeds of crime can be more than what is mentioned in an FIR. 

“It has to be considered that there exists a predicate scheduled offence as contemplated under the PMLA, 2002, and there is sufficient material in possession of the respondent which gives sufficient reason to believe that the husband of the petitioner is guilty of an offence punishable under the PMLA, 2002. It justifies the registration of ECIR and arrest of the husband of the petitioner under the PMLA, 2002,” the HC ruled.

The HC stated that if the ‘B’ report in the pending cheating case against the MLA were to be accepted by the trial court, “the husband of the petitioner would be at liberty to make necessary application for quashing of the proceedings against him”.

The case against Veerendra Puppy

On August 22 and 23, the central agency carried out searches at 31 locations linked to Veerendra, as well as his brothers and associates. It also arrested Veerendra in Gangtok in Sikkim on August 23 while he was on a business visit.

The searches on the Congress MLAs’ gambling and gaming businesses came close on the heels of parliament passing a bill to ban online real money-based gaming activities.

The central agency has seized over Rs 150 crore of assets linked to the MLA since his arrest on August 23, including gold, cars and cash.

“ED investigation revealed that K C Veerendra in association with other friends and family members is involved in operations of many illegal online betting websites viz. King567, Raja567 etc and cheating innocent players through the same. Further, the funds collection from players has been routed using several gateways like FonePaisa etc,” it said in a statement.

“The money collected is routed through several mule accounts which are sourced by these betting operators from intermediaries from all across India. ED investigation has revealed a nexus of online betting apps with isolated instances of cybercrime across India, by way of mule accounts creation in the name of individuals in exchange for petty sums,” it added.

The estimated turnover of these betting applications, controlled by Veerendra, is more than Rs 2,000 crore, according to the agency.

Veerendra is considered to be a close associate of Karnataka Deputy CM D K Shivakumar. Among the premises linked to Veerendra that were searched by the agency was that of Anil Gowda, the brother of the Congress’s RR Nagar MLA candidate Kusuma G, a close associate of D K Shivakumar’s brother and former MP D K Suresh.

The HC recently stayed the ED summons and money laundering investigations against Anil Gowda H, an advocate, and alleged associate of Veerendra in betting and gaming businesses.