The Madras High Court has issued a significant interim order, staying the summons issued by the Enforcement Directorate (ED) to District Collectors in Tamil Nadu in an alleged sand mining money laundering case. The division bench of Justice SS Sundar and Justice Sunder Mohan, while allowing the investigation to continue, has directed the ED to respond to the petition within three weeks.
The court scrutinized the summons, which required the District Collectors to appear with various documents, including a list of all sand mining sites in their districts. The bench observed that the summons were not aimed at investigating existing proceeds of crime but seemed to be an attempt to uncover potential commission of scheduled offenses in the district. The court noted,
“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.”
The ED’s argument that every instance of illegal sand mining could lead to an inference of proceeds of crime was not accepted by the court. The bench emphasized that the ED’s role is to investigate proceeds of crime related to scheduled offenses and that they must inform the investigating agency about any such offense before proceeding under the PMLA.
The court also addressed the locus standi of the State Government in challenging the ED’s jurisdiction. It observed that the petitions filed by the State Government were maintainable, as they questioned the ED’s authority to conduct investigations related to mining violations, a domain within the State’s exclusive jurisdiction.
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“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 stated.
Furthermore, the High Court dismissed the ED’s objections regarding the Tamil Nadu government’s right to file a petition. The bench clarified that the State has every right to approach the Court if it feels that the Central government is overstepping its bounds or acting in breach of the country’s federal structure.
In its interim order, the Court highlighted the Supreme Court’s clarification that under the PMLA, the ED cannot prosecute an offense unless “proceeds of crime,” as defined under the Act, exist. The High Court observed,
“In the present case, the investigation appears to be one to identify the scheduled offence. The very purpose of issuing summonses is to make out an offence that is scheduled and then to make a presumption that it involves illegal money that can be categorised as proceeds of crime.”
This ruling by the Madras High Court marks a critical juncture in the interpretation and application of the PMLA, particularly in the context of federalism and the jurisdictional boundaries between state and central authorities.
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