Telangana HC examines legality of ED arrest in illegal surrogacy and money laundering case under PMLA.

News Citation : 2026 LN (HC) 344

The Enforcement Directorate cannot invoke the stringent arrest powers under the Prevention of Money Laundering Act merely on suspicion, vague allegations, or mechanical reproduction of statutory language, the High Court for the State of Telangana has observed while hearing a major challenge to the arrest of a fertility specialist accused in an alleged illegal surrogacy and child trafficking network. The Court examined the scope of arrest powers under Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA), and extensively discussed constitutional safeguards relating to personal liberty, procedural fairness, and judicial scrutiny of arrests under special statutes.

The case arose from a writ petition filed by Dr. Pachipala Namratha alias Athaluri Namratha, a fertility specialist currently lodged in Chanchalguda Central Jail, challenging her arrest by the Enforcement Directorate (ED) on February 12, 2026. The petition was heard by a Division Bench comprising Justice P. Sam Koshy and Justice Narsing Rao Nandikonda. The petitioner sought quashing of her arrest, remand orders, and all consequential proceedings, alleging that the ED had violated Section 19 of the PMLA as well as Articles 14, 21, and 22 of the Constitution of India.

According to the petition, the controversy began with a complaint lodged at Gopalapuram Police Station in July 2025, leading to registration of an FIR under various provisions of the Bharatiya Nyaya Sanhita, 2023. Multiple subsequent FIRs relating to alleged illegal surrogacy practices, trafficking of newborns, and irregular fertility procedures were later transferred to the Central Crime Station and supplemented with offences under the Surrogacy (Regulation) Act, 2021 and the Juvenile Justice (Care and Protection of Children) Act, 2015. On the basis of these predicate offences, the ED registered an Enforcement Case Information Report (ECIR) in September 2025 and initiated proceedings under the PMLA.

The ED subsequently carried out search and seizure operations at the petitioner’s clinic and residential premises and recorded statements under Section 50 of the PMLA. The petitioner alleged that her statements were obtained under coercion and without meaningful legal assistance. She further argued that when she appeared before ED officials in February 2026 pursuant to summons, she was abruptly arrested under Section 19 of the PMLA without compliance with mandatory statutory safeguards.

Senior Advocate Naga Muthu, appearing for the petitioner, mounted a detailed constitutional challenge to the arrest. He argued that the power of arrest under Section 19 of the PMLA is an exceptional power that cannot be exercised merely to facilitate investigation. Relying heavily on the Supreme Court’s judgment in Arvind Kejriwal v. Directorate of Enforcement, counsel contended that ED officers are legally required to form an independent and bona fide “reason to believe” based on admissible material indicating that the accused is guilty of money laundering. Mere suspicion or unverified allegations, it was argued, cannot satisfy the statutory threshold.

The petitioner further argued that the so-called “grounds of arrest” supplied by the ED were vague, generalized, and amounted to a verbatim reproduction of statutory language without specifying the petitioner’s exact role, the alleged proceeds of crime, or any identifiable laundering activity. The Court was referred to the specific paragraph in the arrest memo where the ED merely stated that the petitioner was involved in “concealment, possession, use of proceeds of crime and acquisition of assets” without disclosing concrete particulars. According to the petitioner, this demonstrated complete non-application of mind and rendered the arrest illegal.

The petitioner also relied on the landmark Supreme Court decision in Pankaj Bansal v. Union of India to argue that the “grounds of arrest” must be furnished in writing and must contain personalized factual allegations sufficient to enable the accused to seek bail and oppose remand effectively. It was contended that constitutional protections under Article 22(1) would become meaningless if arrest memos merely reproduced generic allegations without disclosing the foundational facts relied upon by the investigating agency.

Another major issue raised before the High Court concerned the existence of “proceeds of crime,” which forms the core ingredient of an offence under the PMLA. The petitioner argued that offences under the Surrogacy (Regulation) Act are not scheduled offences under the PMLA and therefore cannot automatically trigger money laundering proceedings. Counsel asserted that the ED had failed to identify, quantify, or trace any actual proceeds of crime linked to a scheduled offence as required under Section 2(1)(u) of the PMLA.

The petition emphasized that mere allegations of illegal surrogacy or baby selling do not by themselves attract the PMLA unless the alleged criminal activity falls within the scheduled offences listed in the statute. Reliance was placed on the Supreme Court’s ruling in Vijay Madanlal Choudhary v. Union of India, where the Court held that only property derived from criminal activity relating to a scheduled offence can constitute “proceeds of crime.” The petitioner argued that ED authorities were conducting a “roving inquiry” without establishing any legally sustainable predicate offence.

The legality of the remand order passed by the Special PMLA Court at Nampally was also challenged. The petitioner argued that the Special Court mechanically authorized custody without independently scrutinizing whether the mandatory safeguards under Section 19 had been complied with. Referring again to the Supreme Court’s observations in Arvind Kejriwal and Pankaj Bansal, counsel argued that remand courts are duty-bound to form a “secondary opinion” regarding the legality of the arrest and cannot simply accept the ED’s assertions at face value.

On the other hand, the ED strongly defended the arrest and opposed the writ petition. The agency contended that the investigation had uncovered a sustained and organized pattern of fraudulent surrogacy practices extending over several years. According to the ED, complaints against the petitioner had been pending before the Telangana State Medical Council since 2014, and one earlier inquiry allegedly revealed that a child handed over to an infertile couple through surrogacy was not biologically related to them. The ED informed the Court that the petitioner’s medical licence had been suspended for five years in 2016 but she allegedly continued fertility operations through other establishments.

The ED further alleged that financial investigations, bank records, property transactions, statements recorded under Section 50 of the PMLA, and material seized during searches revealed substantial financial flows connected to illegal surrogacy arrangements. The agency argued that there existed “monumental material” justifying the arrest and that the petitioner’s challenge was merely an attempt to circumvent the stringent bail conditions under Section 45 of the PMLA.

Responding to the allegation that the “grounds of arrest” and “reasons to believe” were identical, the ED argued that similarity in wording does not automatically establish non-application of mind. The agency relied on observations made by the Supreme Court in the Arvind Kejriwal judgment itself, where the Court had noted that the two documents in that case were substantially identical. The ED also cited a Punjab and Haryana High Court decision holding that similarity in facts recorded in the two documents is not by itself illegal.

The ED additionally maintained that judicial review in matters involving arrest under special statutes like the PMLA is extremely limited. Citing the Supreme Court’s recent judgment in Radhika Agarwal v. Union of India, the agency argued that courts should ordinarily examine only whether statutory safeguards were formally complied with and should not assess the sufficiency or adequacy of evidence at the stage of arrest.

The matter has attracted significant legal attention because it directly concerns the evolving jurisprudence surrounding Section 19 of the PMLA and the balance between investigative powers and constitutional liberty. In recent years, the Supreme Court has repeatedly emphasized that arrest under the PMLA cannot become routine or mechanical and that the ED must strictly comply with procedural safeguards. The Telangana High Court’s examination of these issues is therefore likely to influence future challenges involving ED arrests, especially in cases where the existence of predicate offences and proceeds of crime is disputed.

The proceedings are also important in the broader context of alleged irregularities in India’s surrogacy and fertility sector. The allegations in the present case involve claims of child trafficking, fraudulent surrogacy arrangements, manipulation of medical records, and unlawful financial transactions linked to fertility services. If substantiated, the case could have serious implications for fertility clinics, surrogate arrangements, regulatory oversight, and enforcement under the Surrogacy (Regulation) Act, 2021.

The High Court’s observations reiterate that constitutional protections under Articles 21 and 22 remain applicable even in prosecutions under stringent economic offences legislation. The Court underscored that arrest powers under the PMLA cannot be exercised casually and that statutory safeguards are intended to ensure fairness, accountability, and judicial oversight. The final outcome of the case is expected to shape the legal standards governing ED arrests and remand proceedings under the anti-money laundering framework.

Case Reference: Dr. Pachipala Namratha @ Athaluri Namratha v. Union of India & Anr. | Case No.: W.P. No.6550 of 2026 | Appearance: Mr. Naga Muthu, Senior Counsel, appearing on behalf of Mr. Y. Soma Srinath Reddy for the petitioner; Mr. Dominic Fernandes, Senior Standing Counsel for the Enforcement Directorate, for the respondents.