ED Summons To District Collectors A 'Fishing Expedition' Without Showing Existence Of Proceeds Of Crime: Madras High Court

The division bench of Justice SS Sundar and Justice Sunder Mohan had passed the interim orders yesterday in a batch of pleas challenging the summons issued by the Enforcement Directorate to District Collectors in Tamil Nadu in an alleged sand mining money laundering case. The court had, however, allowed the investigation to go on and asked the authority to respond to the petition in three weeks.

The court noted that as per the summons, the District Collectors were required to appear with a copy of their Aaadhar and a passport size photograph along with a list of all sand mining sites in their districts including the name, address, GPS coordinates etc. Looking into the summons, the court observed that the summons was not with respect to existing proceeds of crime, but to fish out possible commission of scheduled offences in the district. The court noted that the agency was trying to identify cases of illegal mining and whether it lead to inference of commission of scheduled offence and then to infer existence of “proceeds of crime”.

“This Court prima facie is convinced that without identifying the proceeds of crime, the respondent is trying to fish out the possible commission of offence under the schedule. By this impugned summons, the respondent ventures into a fishing expedition to find out whether informations and evidence collected from the district administration can be processed further from other sources to find out commission of scheduled offence so that the respondent may then identify the proceeds of crime which will help them to proceed under the PMLA, 2002".

Though the ED argued that every instance of illegal sand mining would involve an offence of cheating and other predicate offences and the amount thus generated would lead to an inference regarding the existence of proceeds of crime which is sufficient to constitute an offence of money laundering, the court did not agree with this view. The court reiterated that the purpose of the enquiry was to find out whether an offence under PMLA was committed and then to draw a presumption that the illegal money generated by the sand mafia could be considered as proceeds of crime.

The court added that even if the ED had unearthed any particular offence and found proceeds of crime, they were bound to inform the investigating agency about the offence and only if the offence was a scheduled offence, they would get a right to further investigate the proceeds of crime. In the present case, the court was prima facie convinced that the nature of enquiry contemplated by the ED was outside its jurisdiction.

Locus Standi Of State

Though a challenge was made to the maintainability of the plea, the court observed that the petitions by the State Government were maintainable as the State had challenged ED's jurisdiction to conduct an investigation in relation to mining violations, which was within the State's domain. The court also observed that since the State had complained of ED usurping and invading into the State's jurisdiction against the principle of federalism, the State could be heard as a person suffering legal injury.

“This Court, prima facie, found that the writ petitions filed by the State Government along with the District Collector concerned, are maintainable, in view of the specific allegations made in the affidavit questioning the jurisdiction of the respondent to conduct investigation in relation to mining violations, which is within the exclusive domain of the State Government.. Since the State Government complains about invasion into their jurisdiction, which according to them, is opposed to true federalism, they are entitled to be heard on such serious issues as person suffering legal injury,” the court observed.

Thus, finding that there was a prima facie case the court was inclined to stay the operation of the summons as the balance of convenience was in favour of the State.

Counsel for the Petitioners: Senior Advocate Dushyant Dave, assisted by Additional Advocate General Amit Anand Tiwari, Advocate General R Shunmugasundaram assisted by Mr.K.M.D.Muhilan, Ms.A.G.Shakeenaa

Counsel for the Respondent: ASG ARL Sundaresan assisted by N Ramesh, Special Prosecutor for ED

Citation: 2023 LiveLaw (Mad) 368

Case Title: State of Tamil Nadu v Enforcement Directorate

Case No: W.P No(s). 33459 to 33468 of 2023