Kerala High Court Asks ED Not To Act Against CMRL Until Verdict On Appeal Challenging Refusal To Quash PMLA Case, Order On June 5

The Kerala High Court on Monday (June 1) reserved its verdict in the appeal filed by Cochin Minerals and Rutile Limited (CMRL) and its officials challenging an order of the Single Bench that dismissed a plea seeking to quash the proceedings initiated by the Enforcement Directorate in an alleged case of misappropriation of public funds.

The verdict is likely to be pronounced on Friday (June 5). In the meantime, the Court asked the agency not to precipitate issue against the appellants until the verdict is pronounced. 

The Division Bench of Justice Raja Vijayaraghavan V. and Justice K.V. Jayakumar heard detailed arguments advanced by Senior Advocate Siddharth Luthra appearing for the appellants, ASGI AR L Sundaresan and Zoheb Hossain (Special Counsel) appearing for the ED. 

When the Court orally said that it was reserving its verdict, Luthra submitted: "These people should not be harassed. One gentleman is in the ICU right now." At this stage, the Court orally said to ED's counsel "In the meantime, will you maintain status quo till Friday? Don't precipitate any proceedings till Friday."

ED's counsel orally submitted that the same would be conveyed to the agency; he, however, submitted that the Court may clarify that the direction not to precipitate the issue only applies with respect to the appellants. The Court said that the issue will not be precipitated only in respect of the appellants.

The Court, in its interim order, dictated: "The counsel for the respondent (ED) has undertaken before us that till the judgment is passed, the issue will not be precipitated only in respect of the appellants. Post on Friday."

Senior advocate Siddharth Luthra appearing for the appellants, questioned whether PMLA can be invoked by the ED without registration of an FIR or complaint in the predicate offence.

He said that the ED has consistently taken a stand that there was no predicate offence registered and to invoke jurisdiction by any agency, there must be the jurisdictional fact, which must be existence of the offence, and the same is missing in the present case. 

To the Court's query as to whether the ED cannot initiate PMLA proceedings as SFIO is seized of the matter, Luthra said even if its assumed that SFIO has begun probe, the trigger for ED's invocation of jurisdiction would be filing of FIR or complaint; but here, neither FIR nor complaint was filed.

Submitting that till date there had been no attachment, Luthra said that the ED did not attach anything in 2024 when they registered the ECIR. 

At this stage, the Court asked, "So let us assume that, like you said, something happened in 2019, inquiry was conducted and found that some sort of a listed company has some cash transaction, digital transaction has taken place and some aspect of money laundering has taken place, some complaint was lodged against a particular Bangalore-based company. Now, some info is there with regard to the involvement of CMRL. He has to have 'reason to believe' under S.5 before getting info from you with respect to, he has not, ECIR is there. It's just as Vijay Madanlal (SC decision) said that it's just a document and not akin to an FIR. So ECIR is registered and thereafter, he issues summons to you and says, 'Please just explain. These are the things in public domain. This is how you have channelised public funds to a particular individual. We just want to get info from you' and the issue summons to you....You can't just throttle the ED when there is positive material."

The Court orally said that the agency wants to conduct an enquiry, probably. Luthra, however, referred to Vijay Madanlal judgment and said that it emphasizes on the existence of a scheduled offence as understood, which is not made out in the present case. 

He further referred to the summons and said that it clearly states that the agency did not attach the assets of the entity. He said that the company had challenged the ECIR, which was a "figment of imagination"; further the appellant had also challenged the investigation, actions taken in pursuance of the ECIR and all process initiated by agency, including the summons.

He said that in the reply to the summons issued, the company had raised the issue of jurisdiction of the agency. 

The Court, however, said that the appellant was a listed company and the ED had asked about the agreement entered into between CMRL and Exalogic, invoices issued by Exalogic to certain persons, ledger accounts relating to certain transactions in CMRL.

However, Luthra argued that whether any company listed or otherwise can be put to investigation without jurisdiction.

Arguing that the ED cannot go beyond Section 5 (Attachment of property involved in money-laundering) PMLA, Luthra said, "See the language and tenor...'reply sent by you is tantamount to non-cooperation with investigation'. I can't write back in regard to your lack of jurisdiction?...We can't have a situation where an agency or any individual can approbate and reprobate... We did appear. There was harassment, there was pressure. We were put under pressure...rather distasteful but it is what it is."

He further said that proviso in Section 5 provides for immediate attachment and nothing more; that does not say that you can continue with investigation.

The senior counsel added that there is no clarity as to what the scheduled offence triggering PMLA proceedings is as the ED has not said that there is offence under the Companies Act. It was further said that the appellants were not given the opportunity to argue after the Single Judge took the subsequent development of registration of SFIO complaint into consideration to dispose of their plea.

The ASGI argued that ECIR is merely an internal document, it is not an FIR or the registration of a case. He argued that the ECIR cannot be quashed since it is a record in the ED's files with regard to the work undertaken by it. He substantiated ED's right to issue summons.

"It is a record in the file, an internal document for the purpose of our record that we have some info, that we need further information proceeding on the little info we have...A final report or a complaint is not necessary to commence investigation or inquiry or proceedings under PMLA if the competent authority are holding the inquiry/investigation for a predicate offence which is in the schedule. Then that give legitimacy for the ED to kickstart inquiry /investigation/proceedings under PMLA. that stands satisfied in the present case by the admitted position that SFIO investigation was ordered by the govt in Jan 2024 and we have recorded the ECIR only on 04/03/24," ASGI pointed out.

Special Counsel for ED, Zoheb Hussain argued that the summons issued in April 2024, challenged in the writ petition, is no longer alive. Therefore, the challenge to the summons no longer survives. He pointed out:

"A summons is issued in anticipation of collecting material for the civil action of attachment, to be presented before the adjudicating authority. It is not necessarily for initiating prosecution against the noticee as such...If we are able to establish jurisdiction to issue summons, to conduct inquiry, then the writ petition, as rightly held by the SJ, will no longer be maintainable."

He added that ECIR is an informal document, not a statutory document. He further submitted there used to an embargo that unless there was an FIR, ED can't conduct a search but that embargo was deleted and, that deletion was assailed before the SC and upheld. Pre-registered scheduled offence is no longer a mandate was his argument.

Further, Advocate Hussain pointed out:

"Kerala State Industrial Corporation holds 13% shares in this company. 48.75% is held by general public shareholders. So, majority of the shares are held by the public or by a public entity...there is cheating on multiple levels."

Court then responded: "That amount was entitled to the shareholders as dividends, is what you are saying."

He added that fraud by a company has overlapping features of Section 420 IPC as well. Moreover, Section 447 Companies Act is also a scheduled offence.

He concluded by pointing out that the ED was not a party in the SFIO proceedings whereas the petitioners/appellants were but the latter never informed the Single Bench about the development. Therefore, the ED, when it came to know of the same, informed about the same and hence, there cannot be any suppression. Moreover, the PMLA is not based entirely on the SFIO complaint.

After the ED's submissions was over, Sr. Adv. Luthra made rebuttals:

"My friend made an interesting comment, he used the phrase "fraud on the statute". But what about when there is a fraud on the Court? They are duty-bound when they swear an affidavit, they have to state the truth in the affidavit. They mention the complaint but don't mention the complaint being kept in abeyance. They don't mention the Kerala order, the Delhi order. They were very well aware, there was oral understanding, which very well, fructified into an order..."

Senior counsel submitted that the ED is not an agency, which has powers beyond the statute or the Constitution. He concluded that there cannot be PMLA proceedings in the absence of predicate offences.

"Whenever they invoke a power under a statute, they are bound by the contours of the statute. They can't derive powers as they go along. Today, that is what they have asked to do - to give them power which does not exist...How can PMLA be invoked when there is lack of understanding or comprehension as to what is the offence which led to the existence of proceeds of crime?"

The case is now posted on June 5 (Friday) for pronouncement of orders.

Background

In 2023, a complaint was filed by Shone George before the Ministry of Corporate Affairs seeking an investigation into the affairs of CMRL under Sections 210 [Investigation into Affairs of Company] and 212 [Investigation into Affairs of Company by Serious Fraud Investigation Office] of the Companies Act.

It was alleged that CMRL handed bribes to Veena Thaikandiyil (Veena Vijayan), daughter of former Chief Minister Pinarayi Vijayan, her company Exalogic Solutions Pvt. Ltd., and other public servants, and carried out illegal financial transactions.

Following this, orders were passed by the Ministry, appointing three Inspectors to carry out the investigation and assigning SFIO to look into the affairs of CMRL. Later, CMRL came to know from a media report that a case have been registered under the PMLA (Prevention of Money-Laundering Act, 2002) in relation to Exalogic based on a SFIO complaint.

The ED issued summons to the office bearers to personally appear before it but CMRL gave a reply that the PMLA proceedings were initiated without jurisdiction. However, ED replied that the reply cannot be accept and mandated their personal appearance, leading them to approach the High Court by filing a writ petition. They sought to quash the proceedings initiated by the ED arising out of Enforcement Case Information Report (ECIR) and to stay the summons issued against the officials.

The Single Judge had dismissed the plea after finding that the same, made at the stage of issuance of summons, was premature. The Single Judge was also of the view that the contention of the petitioners that SFIO complainant was not there at the time of summons can no longer exist in view of the fact that SFIO filed a complaint against the petitioners, alleging scheduled offences under the PMLA, after the case was heard and taken for orders. It was further opined that FIR on scheduled offences not a pre-condition for issuing summons under the PMLA.

Case Title: M/s Cochin Minerals and Rutile Limited and Ors. v. Directorate of Enforcement

Case No: WA 1140/ 2026

Counsel for the appellants: Sidharth Luthra (Sr.), Arshdeep Singh Khurana, Gopikrishnan Nambiar M., K. John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C. Abraham, Raja Kannan

Counsel for the respondent: ARL Sundaresan - ASGI, Zoheb Hossain - Spl. Counsel, Jaishankar V. Nair