Can ED Attach Property Without FIR For Predicate Offence? Supreme Court To Examine In TN Sand Mining Case

The Supreme Court is set to examine the issue of whether the Enforcement Directorate can attach a property in the absence of any FIR in relation to the scheduled offence with which the property is allegedly related. 

The bench of Chief Justice Sanjiv Khanna and Justice Sanjay Kumar was hearing the ED's challenge to the Madras High Court judgment which restrained the ED from carrying out investigation under the Prevention of Money Laundering Act against private contractors in connection with alleged illegal sand mining.

The bench, while issuing notice in the matter, verbally mentioned the need to give a harmonious interpretation to the 1st and 2nd provisos of S.5 of the PMLA. 

"We are primarily going by the reasoning of the High Court, the 1st and 2nd proviso of S.5 has to be harmonized" CJI said. 

S.5 of the PMLA provides powers to the Director or the Deputy Director to attach a property involved in money laundering. 

The first proviso states that "no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country";  

The second proviso provides that the ED has the power to attach a property on the basis of material in possession which furnishes the reason to believe that if such a property is not immediately attached, it may frustrate any proceeding under the PMLA. 

Notably, the Madras High Court observed that the ED had initiated the proceedings under the Prevention of Money Laundering Act without any basis and without identifying any proceeds of crime. It noted that sand mining was not covered under the scheduled offences under the PMLA.

The High Court added that unless a case in the scheduled offence was registered and such an offence generated proceeds of crime, the ED could not have initiated any action. The Court further observed that even if ED's materials were to be accepted, it would only show that they have unearthed large-scale illegal mining that generated illegal money. 

During the hearing, the CJI asked what the course of action would be if the FIR was not registered in the present scenario. 

Additional Solicitor General S. Raju appearing for the ED, answered that the ED would move the Court to file the FIR or seek aid of S. 156 (3) of CrPC which empowers any magistrate to order investigation into a cognisable offence as per the decision in Vijay Madanlal Choudhury v. Union of India.

" It is there in Vijay Mandanlal, if the FIR is not registered, we can take steps"  

Senior Advocate Mukul Rohatgi appearing for the private contractors, informed the bench that the ED's stand is that as per S.66 of the PMLA, ED has a right to write to the concerned police that a predicate offence has arisen and to file an FIR. He added that since police has not registered an FIR, the ED is now taking umbrage under S. 156(3). 

The bench issued notice in the matter without agreeing to grant a status quo on the concerned property by the ED. The CJI remarked, "Your arms are so strong and long, nobody can purchase it." 

Previously, the bench, without issuing notice at this stage, asked the parties to file their notes on the aspect of provisional attachment under PMLA in the absence of a predicate offense, as dealt with in Vijay Madanlal Choudhury v. Union of India.

Background

ED registered an ECIR against certain private contractors based on four FIRs relating to illegal sand mining. Following this, searches were conducted and summons sent to District Collectors and private parties. Provisional attachment orders were also passed in relation to the properties of the contractors.

K Govindaraj and 2 other contractors approached the High Court, challenging the proceedings on the primary ground that ED lacked jurisdiction to initiate action under PMLA. It was submitted that the FIRs, based on which the PMLA proceedings were initiated, did not reveal any proceeds of crime and thus, ED could not assume jurisdiction.

ED, on the other hand, argued that merely because the ECIR referred to four FIRs did not mean that those were the only material available to the authority. The agency contended that there was illicit sand mining in the state that would generate proceeds of crime. Regarding the provisional attachment orders, ED asserted that the petitioners had an alternative remedy and the writ petition was not maintainable.

After perusing the record, the High Court observed that ED initiated the proceedings under PMLA without any basis and without identifying any proceeds of crime. Further, it noted that sand mining was not covered as a scheduled offence under PMLA.

The High Court was also of the view that unless a case regarding scheduled offence was registered and such an offence generated proceeds of crime, ED could not have initiated any action. It further observed that ED did not spell out the exact scheduled offense committed by the petitioners or whether the acts alleged in the FIRs were committed by them.

The Court added that even if there were proceeds of crime, ED could not assume jurisdiction to attach property on the premise that they were ill-gotten.

With regard to the provisional attachment orders, it was opined that ED's power to make provisional attachment could be resorted to only in exceptional cases where an urgent measure was required and not as a matter of routine. In the facts of the present case, it was said that initiating proceedings under PMLA was unwarranted.

Thus, noting that ED's actions were without jurisdiction, the High Court deemed it fit to quash the provisional attachment orders. Assailing this decision, ED filed the present petition.

Case Title: DIRECTORATE OF ENFORCEMENT AND ANR. Versus K. GOVINDARAJ AND ANR., SLP(Crl) No. 14355/2024