The Madras High Court’s decision in TASMAC v. Enforcement Directorate is a landmark ruling that reaffirms the necessity of due process and evidentiary rigor under the PMLA.
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MADRAS: In a significant ruling that underscores the importance of due process under the Prevention of Money Laundering Act, 2002 (PMLA), the Madras High Court delivered a well-reasoned judgment in TASMAC v. Enforcement Directorate, quashing the attachment proceedings initiated against the Tamil Nadu State Marketing Corporation (TASMAC).
The case brought to the forefront critical questions on the limits of executive power, the evidentiary threshold required for invoking PMLA provisions, and the liability of government bodies in cases involving proceeds of crime.
Through this judgment, the Court reasserted that statutory corporations cannot be roped into money laundering cases merely by association or suspicion, and that strict adherence to procedural safeguards is indispensable when civil liberties are at stake.
Background and Context
Tamil Nadu State Marketing Corporation (TASMAC) is a government-owned entity responsible for wholesale and retail vending of alcoholic beverages in Tamil Nadu. The Enforcement Directorate initiated proceedings against TASMAC under the Prevention of Money Laundering Act, 2002, alleging its indirect involvement in a liquor-related scam where proceeds of crime were supposedly laundered through transactions involving it.
The ED passed a provisional attachment order against properties, stating they were linked to proceeds of crime generated through corrupt practices involving private contractors and public officials.
TASMAC challenged this action, contending that:
- It was merely executing a statutory function.
- No direct evidence linked it to the crime.
- The ED’s action lacked procedural and legal foundation.
Issues Before the Court
- Can a statutory corporation like TASMAC be implicated under the PMLA solely based on transactions with third parties who are under investigation?
- Does the ED have the jurisdiction to attach properties in the absence of a “reason to believe” based on direct evidence?
- What is the standard of evidence required for invoking Sections 3 and 5 of PMLA?
- Was the procedural due process under the PMLA followed by the ED in passing the attachment order?
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Held: Quashing of ED Proceedings
The Madras High Court quashed the provisional attachment made by the ED and ruled in favour of TASMAC.
Judicial Reasoning and Observations
1. On Lack of Nexus with Proceeds of Crime
The Court categorically held that the foundation of any action under the PMLA must be a demonstrable and direct link between the accused and the proceeds of crime:
“Suspicion, however strong, cannot replace the requirement of prima facie evidence in proceedings that affect civil rights and liberty.”
It noted that TASMAC was neither accused of any scheduled offence nor shown to have knowingly assisted in the concealment or use of illicit proceeds.
“The Enforcement Directorate must satisfy the statutory requirement of establishing a proximate and conscious link between the person and the proceeds of crime.”
2. On Statutory Function of TASMAC
The Court acknowledged that TASMAC operates as a state-run statutory monopoly tasked with procurement and distribution of liquor. The mere association or transaction with third-party vendors under scrutiny could not be construed as involvement in money laundering.
“A government corporation discharging a public function cannot be criminally liable under the PMLA without clear and specific allegations showing knowledge and intent.”
3. On Interpretation of “Proceeds of Crime” and Possession
The Court stressed that for invoking Section 5 (Provisional Attachment), the ED must establish that:
- The property attached is derived or obtained from the commission of a scheduled offence.
- The person in possession has knowledge or intent connected to the crime.
In this case, the ED failed to demonstrate that TASMAC was in conscious possession or control of the proceeds of crime:
“Possession must not only be physical but must also be backed by mens rea or culpable mental state under PMLA.”
4. On Procedural Lapses and Due Process
The Court pointed to significant lapses in following the mandatory procedures under the PMLA. In particular:
- “Reasons to believe” were not properly recorded.
- The attachment order lacked adequate justification based on material evidence.
- There was no prior opportunity given to TASMAC to explain its case.
“Adherence to statutory safeguards is not a matter of discretion. It is a constitutional mandate where civil liberties are at stake.”
V. Legal Significance
This judgment reinforces several critical principles under the PMLA framework:
- High Threshold for Action Under PMLA
The ruling emphasizes that enforcement under PMLA cannot be speculative. It must be based on credible, specific, and direct evidence.
- Protection of Government Bodies from Misapplication of Law
Statutory corporations like TASMAC are shielded from hasty or blanket application of money laundering laws unless a clear case of active involvement is made out.
- Due Process and Rule of Law
It reiterates the need for strict adherence to due process under the PMLA. Procedural irregularities can vitiate the entire proceeding.
- Clarity on “Possession” and “Proceeds of Crime”
The judgment draws a sharp distinction between mere association or possession and culpable possession for the purpose of attachment.
The Madras High Court’s ruling in TASMAC v. ED is a landmark interpretation of the limits of executive power under the PMLA. It stands as a caution to enforcement agencies to exercise their authority with judicial care and constitutional discipline. The case offers a robust shield for public sector bodies from being unjustly embroiled in criminal proceedings absent specific culpability.
Court: Madras High Court
Statute Involved: Prevention of Money Laundering Act, 2002 (PMLA)
Petitioner: Tamil Nadu State Marketing Corporation (TASMAC)
Respondent: Enforcement Directorate (ED)
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