The Madras High Court has ordered an interim stay of operation of the summons issued by the Enforcement Directorate (ED) to five District Collectors in Tamil Nadu in an alleged money laundering case related to sand mining.
The division bench comprising Justice SS Sundar and Justice Sunder Mohan, expressed concerns over the nature of the ED’s summons, characterising it as a “fishing enquiry”.
It stressed that the summons appeared to be an attempt to conduct a broad investigation without specific evidence of any registered criminal activity by the state agencies.
The court found the nature of enquiry initiated by the summons as prima facie outside the jurisdiction of the ED as per Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA). Consequently, it granted an interim stay on the summons.
However, the court clarified that its observations on the interim relief would not influence the final disposition of the main writ petitions.
The main writ petitions, filed by the Tamil Nadu government along with the Additional Chief Secretary to the Government, Water Resources Department, and the District Collectors of Vellore District, Trichy District, Karur District, Thanjavur District and Ariyalur District seek to quash the summons issued to the district collectors.
The common prayer in these petitions revolves around a declaration asserting that the ED’s powers, particularly concerning investigations into money laundering offenses within a state’s territorial limits, without the state’s consent, violate the principles of federalism and separation of powers.
The court scheduled a hearing for December 21 on the main writ petitions.
While seeking interim relief, Dushyant Dave, senior counsel challenging the constitutionality of the proceedings, argued that the ED, under the guise of exercising powers granted by the PMLA, had unfairly targeted the District Collectors to pressurise and demoralise the state administration.
In response, the Assistant Director of the ED filed an objection affidavit, arguing that the investigations were initiated based on information that indicated collusion between officials, local mafia, and illegal mining activities in Tamil Nadu.
The Additional Solicitor General contended that the FIRs outlined in the Enforcement Case Information Report (ECIR) justified the issuance of summons to the District Collectors. He also challenged the maintainability of the writ petitions by the State Government stating that it was not a person aggrieved in the present matters.
At the outset, the court held that the writ petitions by the State Government were maintainable, considering the allegations of invasion into state jurisdiction and potential violations of federalism.
However, it clarified that the determination on maintainability was a prima facie view, subject to further proceedings in the main writ petitions.
Emphasising the essential requirement of identifying proceeds of crime under the PMLA, the court stated that the ED could not prosecute individuals based on a notional basis or assumption of a scheduled offense unless registered with the jurisdictional police.
The court highlighted that the ED’s inquiry into the District Collectors focused on quarry sites where permissions for sand mining were granted, stressing that it was not related to assistance required for an offence under the PMLA.
“The enquiry is not relating to any assistance required for an offence under the PMLA, 2002. From the nature of enquiry, this Court finds that the investigation of the respondent is not in relation to existing proceeds of crime, but to find out whether schedule offence has been committed in the district,” court underscored.
Therefore, the court held that it was prima facie convinced that without identifying the proceeds of crime, the ED was trying to fish out the possible commission of offence under the schedule.
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