'ED Action Without Any Basis' : Madras High Court Quashes Money Laundering Case Against Contractors Over Sand Mining

The bench of Justice MS Ramesh and Justice Sunder Mohan 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 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.

“We are thus of the view that unless an information with regard to any case in the scheduled offence is registered and such an offence has generated proceeds of crime, which is dealt with by the petitioners, no action can be initiated. As stated earlier, the materials collected and the reasons shown in the Provisional Attachment Order, even if accepted to be true only suggests that the respondents have unearthed large scale illegal sand mining and that may have generated illegal money,” the court observed.

Stressing that the procedure prescribed under the law could not be violated, the court added that the reasons put forward by the ED did not justify their actions. The court noted that the FIRs relied upon by the ED in the ECIR were not connected to the petitioner contractors that would justify proceeding against them. While the court acknowledged that a person need not be an accused in the predicate offence to be prosecuted under the PMLA, the court highlighted that it should be established that the person is involved with the proceeds of crime derived from a scheduled offence.

“We are only concerned with the procedure adopted by the respondents. Even assuming that the respondents have the object to curb the illegal sand mining in the State, the procedure prescribed under the law cannot be violated. The four FIRs which were the basis for recording the ECIR, are not even remotely connected to the petitioners. The other reasons assigned by the respondents in the provisional attachment order and in the counter affidavits to justify their action against the petitioners do not satisfy the requirements under the PMLA, as reiterated by the Hon'ble Supreme Court in Vijay Madhanlal Choudhary's case (cited supra),” the court said.

Relying on the Apex Court decision in Vijay Madhanlal Choudhary's case, the court added that even if the contractors had ill-gotten money, the ED could not assume jurisdiction and proceed against them under the PMLA in the absence of a scheduled offense. The court added that while the ED had every right to ensure that a scheduled offense is registered against the contractors, the court added that till such time, the ED could not attach their properties or initiate any action under the PMLA as it would be putting the cart before the horse.

"However, we would also make it clear that the respondents would have every right to initiate such action to ensure that the scheduled offence is registered and is investigated. Till such time, the properties of the petitioner cannot be subjected to attachment and the respondents otherwise cannot initiate any action under the PMLA. One cannot put the cart before the horse," the court said.

The court was hearing the pleas filed by private contractors against the proceedings initiated by the ED and the provisional attachment order issued by the department. The ED had registered an ECIR based on four FIRs in connection with illegal sand mining. Following this, searches were conducted and summons were sent to the District Collectors and private parties. Provisional attachment orders were also passed in relation to the properties of the petitioners. The court had earlier stayed the summons to the District Collectors and the private contractors.

The petitioner challenged the proceedings on the primary ground that the ED lacked jurisdiction to initiate action under the Prevention of Money Laundering Act. It was submitted that the FIRs, based on which the PMLA proceedings were initiated did not reveal any proceeds of crime. thus, they argued that the ED was assuming the role of investigating illegal sand mining. The petitioner argued that the proceeds of crime were quintessential and the ED could not assume jurisdiction in the absence of the same.

The ED, on the other hand, argued that merely because the ECIR referred to four FIRs did not mean that those were the only materials available to the authority. The ED argued that there was illicit sand mining in the state that would generate proceeds of crime. Regarding the provisional attachment orders, the ED argued that the petitioners had an alternative remedy and the present writ petition was not maintainable. Thus, the ED argued that the investigation could not be stalled at the nascent stage and it was necessary to continue the investigation to bring out more facts.

The court observed that the ED had not spelled out the exact scheduled offense committed by the petitioners and whether the acts alleged in the FIRs were committed by the petitioners. The court also noted that the proceeds of crime, which was quintessential were not determined in the present case. The court added that even if there were proceeds of crime, the ED could not assume jurisdiction to attach property in the premise that they were ill-gotten.

“There is absolutely no discussion as to what is the proceeds of crime and how they had arrived at that figure. Even if there is proceeds of crime, the respondents cannot assume jurisdiction to attach all other properties on the premise that they were ill-gotten,” the court observed.

The court also observed that ED's power to make provisional attachment could be resorted to only in exceptional cases where an urgent measure was required and could not be resorted to as a matter of routine. In the present case, the court noted that initiating proceedings under the PMLA was unwarranted.

Thus, noting that ED's actions were without jurisdiction, the court deemed it fit to quash the same.

Counsel for Petitioner: Mr.Vikram Chaudhri, Senior Advocate for M/s.S.Elambharathi, M/s.Abdul Saleem, Senior Advocate for M/s. M.Vijayamehanath

Counsel for Respondent: Mr.AR.L.Sundaresan, Addl.Solicitor General assisted by M/s.N.Ramesh Spl.Public Prosecutor (ED) and Mr.Zoheb Hussain Spl. Counsel for (ED)

Citation: 2024 LiveLaw (Mad) 282

Case Title: K Govindaraj v Union of India and Others

Case No: W.P.No.5402 of 2024 batch