'ED Can't Investigate Predicate Offences', Says TN; 'What Prejudice Caused If State Helps ED?', Asks Supreme Court

A bench of Justices Bela M Trivedi and Pankaj Mithal was hearing a special leave petition filed by the Directorate of Enforcement (ED) against a November 28 ruling of the high court staying the operation of the summonses issued by the central agency to district collectors in the case under the Prevention of Money Laundering Act, while allowing the investigation to continue.

On the last occasion, the bench questioned the state government's locus standi to invoke Article 226 of the Constitution before the high court, assailing summonses issued to district collectors. Justice Trivedi initially suggested staying the high court's interim order but agreed to defer the decision at Senior Advocate Mukul Rohatgi's request. Representing Tamil Nadu, the senior counsel vehemently argued that there was no legal prohibition preventing the state from initiating the writ action, saying that it was a 'question of federalism'. He also cited a separate writ petition filed by the ED in the Supreme Court seeking to transfer a bribery case against its officer Ankit Tiwari from the Tamil Nadu Directorate of Vigilance and Anti-Corruption (TNDVAC) to the Central Bureau of Investigation (CBI), citing non-cooperation from the state government.

The Additional Advocate General of Tamil Nadu, Amit Anand Tiwari, pointed out that the district collectors themselves had challenged the summonses in the high court. Justice Trivedi agreed that the collectors may have pursued a legal remedy before the high court in their own capacities, but questioned how the writ action was maintainable at the state government's instance. The judge also stressed that the ED was empowered to conduct a preliminary inquiry under Section 50 of the PMLA, asking why the state officials would not cooperate with the agency. To this, Rohatgi argued that the district collectors were not obliged to respond if the central agency was acting without jurisdiction.

Is district collector not part of the State? Kapil Sibal defends Tamil Nadu govt's standing to file writ petition

During Monday's hearing, Justice Trivedi pointed to the obligation of the state government and its instruments to comply with central laws as per the mandate of Article 256 of the Constitution. Senior Advocate Kapil Sibal, who appeared today for the State of Tamil Nadu, however, reiterated the state government's challenge to the jurisdiction of the Enforcement Directorate under the Prevention of Money Laundering Act to investigate what he described as 'mining offences'. Echoing the submissions made by Rohatgi on the last occasion, Sibal stressed that none of the offences were scheduled offences under the anti-money laundering statute.

To Justice Trivedi's query on why the State intervened on behalf of the district collectors, Sibal insisted that the collectors were not acting as individuals but as its representatives. He also objected to what he described as an 'omnibus order' issued by the probe agency seeking a wide gamut of information from the collectors.

“Is a district collector not a part of the State? Information was not sought from the collectors in an individual capacity. The state government is aggrieved by an omnibus order of the Enforcement Directorate asking information from an authority of the State. In this omnibus order, four collectors in four districts have been asked by the agency to furnish whatever information that has been sought. Both the state government and its authorities are petitioners before the court, on grounds that the ED had no jurisdiction. What is the legal basis for saying that the state government cannot file a writ petition?”

Sibal further pointed out that there was no investigation or first information report (FIR) regarding the leases in question, nor any identified proceeds of crime, questioning the basis on which the ED sought information. He also highlighted a discrepancy between the districts from whose collectors information has been sought by the central agency and the districts mentioned in the FIRs filed with respect to the illegal sand mining case.

The senior counsel summarised –

“First, there are no proceeds of crime in any FIR, nor any predicate offence in any FIR qua which information has been sought. Therefore, the question of issuing notice under Sub-section (2) of Section 50 does not arise. That's the second point. Third, the ED is concerned with money laundering. It has no powers under the PMLA to investigate predicate offence. Fourth, in this case, the state government has filed a writ petition because the authority of the state has been asked to produce documents with respect to leases vis-à-vis which there is no scheduled offence.”

State and its officers should help Enforcement Directorate to find out if any offence is laid out, Supreme Court judge suggests

At this juncture, Justice Mithal suggested, “Every state and its officers should help the Enforcement Directorate to find out if any offence is laid out…”

Vehemently protesting this, Sibal exclaimed, “Then Your Lordships may as well say that the Enforcement Directorate can investigate anywhere in this country, qua any offence. Please say that then.”

“Not any offence, but offences under the PMLA. The summonses are very clear,” Justice Trivedi reasoned. Justice Mithal also added –

“We have noted your submission that there is no predicate offence. But as a general proposition, we are saying that if the state machinery is asked to help by the Enforcement Directorate, what is the prejudice caused?”

“No, it is the other way around,” Sibal answered, referring to Sub-section (2) of Section 66 of the Prevention of Money Laundering Act which provides for the disclosure and sharing of information between authorities. Section 66(2) reads as follows –

“If the Director or other authority specified under sub-section (1) is of the opinion, on the basis of information or material in his possession, that the provisions of any other law for the time being in force are contravened, then the Director or such other authority shall share the information with the concerned agency for necessary action.”

Therefore, if in the course of an ED investigation, the central agency finds information relating to the commission of a predicate offence, it has to send the documents to the investigating authority of the state, the senior counsel explained. He quickly clarified, “But the ED has no jurisdiction here to seek information with respect to these offences.”

Before concluding his oral submissions, Sibal pressed for issuance of formal notice which would allow the state government to file a detailed affidavit. This was met with resistance from Additional Solicitor General SV Raju, who argued –

“On the last occasion, Mr Rohatgi had appeared and gotten it adjourned until today, seeking time to make submissions. This is unfair. In any case, under the Supreme Court Rules, there is no requirement to issue notice to a caveator. Now, for my learned friend to say that notice has to be issued is being very unfair to this court.”

State attempting to protect the accused, why is it getting agitated over ED seeking simple and innocuous information from collectors: ASG SV Raju

ASG SV Raju also countered Sibal's contentions relating to the question of maintainability, insisting that the ED was entitled to investigate the offences concerned -

“The predicate offences are Sections 120B of the Indian Penal Code read with Section 420. Also, Section 467. Besides, there are offences under the Prevention of Corruption Act. All these offences are predicate offences. So, it's not a mining offence as my learned friend is trying to project. So if there is a predicate offence of conspiracy, is the Enforcement Directorate not entitled to investigate? We definitely are.”

The law officer further accused the state government of attempting to shield potential offenders. Their conduct, despite the information being sought from the collectors being 'innocuous', made it appear as though the State of Tamil Nadu wanted to “protect the accused”, he said.

“This is the State stepping in the shoes of the accused and trying to prevent the ED from getting information. We have asked for simple, innocuous information. So, why is the state government getting agitated over it? We are not investigating any predicate offence. I make this statement. Look at their conduct. We have written to the director general seeking copies of the FIRs, but neither have they sent them across, nor have they replied,” ASG Raju complained.

Not only this, but Raju also refuted Tamil Nadu's claim that ED's petition alleging non-cooperation by state government pending before Justice Surya Kant's bench was over the same issue. “That petition was with respect to allegations of bribery against an ED officer. It has nothing to do with sandmining.”

Despite both parties making substantive arguments today, the bench could not pass any order. In a turn of events, the bench was informed by Senior Advocate Ranjit Kumar, appearing for the Tamil Nadu government, that a short counter-affidavit on the question of maintainability was filed earlier in the day.

“This is on maintainability only, this short affidavit. We would like to file an affidavit in detail, both on the law and on facts,” Sibal told the bench.

In view of this development, the bench adjourned the hearing until tomorrow, in order to allow the affidavit to be placed on record.

Protesting, ASG SV Raju said, “I just received this document. They do not give us time to peruse it. They file it at 12 o'clock.”

Trivedi J replied, “Let us see. What to do. We'll hear this tomorrow.”

Background

The legal controversy can be traced back to an interim directive issued by the division bench of Justice SS Sundar and Justice Sunder Mohan in response to a batch of pleas challenging the ED's summonses to district collectors in Tamil Nadu. While the investigation was permitted to proceed, the Madras High Court granted three weeks for the Enforcement Directorate to respond to the case.

Before the high court, the Tamil Nadu government contended that the Mines and Minerals (Development and Regulation) Act constituted a self-contained code, suggesting that the central agency lacked investigative powers under this legislation. It was also pointed out that the MMDR Act were not scheduled offences under the Prevention of Money Laundering Act, in support of the state government's argument that the ED had exceeded its jurisdiction by issuing summonses.

Contrarily, the probe agency defended its actions and refuted any allegations of a fishing expedition. The ED also questioned the maintainability of the petitions, highlighting that none of the petitioners were accused in the case, thus questioning the grounds for stalling the investigation. It also went on to argue that rampant illegal mining in Tamil Nadu constituted offences under various sections of the Indian Penal Code and the Prevention of Corruption Act. These, the ED asserted, were scheduled offences that fell within the its jurisdiction to investigate. The Tamil Nadu government and its officers were also accused by the central agency of attempting to shield potential offenders.

Case Details

Directorate of Enforcement v. State of Tamil Nadu & Ors. | Special Leave Petition (Criminal) No. 1959-1963 of 2024