S.17 PMLA | Can't Direct ED To Serve 'Reasons To Believe' Before Conducting Search, May Lead To Concealment Of Evidence: Madras High Court
The Madras High Court has held that it cannot issue an omnibus direction mandating the Enforcement Directorate to serve 'reason to believe' the commission of money laundering offence before conducting a search in terms of Section 17 PMLA, as the same may alert the suspect to conceal evidence."Section 17 is a preliminary stage where based on some information in possession the ED search...
The Madras High Court has held that it cannot issue an omnibus direction mandating the Enforcement Directorate to serve 'reason to believe' the commission of money laundering offence before conducting a search in terms of Section 17 PMLA, as the same may alert the suspect to conceal evidence.
"Section 17 is a preliminary stage where based on some information in possession the ED search is conducted and if no prima facie case is made out, automatically all action is dropped, but if any incriminating evidence is found then the matter moves towards trial and the issue of reasons to believe can always be tested before the trial court," observed the bench of Justice SM Subramaniam and Justice K Rajasekar.
The development comes in a petition filed by the State of Tamil Nadu and the Tamil Nadu State Marketing Corporation challenging the searches conducted by the ED at TASMAC headquarters.
One of the primary arguments raised by the TASMAC and the State was that the ED had failed to provide the “reasons to believe” or the FIRs registered against the TASMAC employees, which were the basis for starting the PMLA proceedings. It was argued that not supplying the reason to believe would vitiate the entire ED proceedings.
While dismissing the petitions, the Court said, “Such omnibus direction that all search must be conducted by serving a copy of reason to believe might lead to concealment or destruction of evidence thereby jeopardising the investigation...The reasons to believe under arrest is different and more serious as compared to a search, hence the same thresholds of arrest cannot be applied here,” the court said.
The court also noted that Section 17 PMLA does not obligate that the copy of the reasons to believe be served on the person on whom the search is conducted. It noted that under the Act, there was an alternative mechanism whereby the parties could approach the Adjudicating authority seeking an appropriate remedy.
“A reading of the facts reveals that the precise FIR sought for by the petitioner is linked to the reasons to believe. On examination of Section 17, there is no explicit procedure stipulated that the copy of reasons to believe must be served on the person on whom search is conducted,” the court said.
State's Assistant Under Section 54 of PMLA
Another contention that was raised by the State was that the ED should have sought assistance of the State authorities under Scetion 54 of the PMLA instead of searching the office premises under Section 17 of the PMLA.
Rejecting this contention, the court noted that it would be a wrong interpretation of the provisions. The court noted that under Section 50 of the Act, ED was empowered to issue summons to any person whose attendance was necessary to give evidence or to produce any records during the investigation. The court noted that Section 54 was to achieve this purpose, empowering the ED to get assistance from the authorities, and it was distinct from ED's power to search under Section 17. The court held that the provision could not be read to mean that the ED must seek assistance from the State Government officers.
“Section 54 pertains to authorities who have duty to assist the enforcement of PMLA, which is distinct from the respondent's powers of search and seizure under Section 17...In essence, Section 54 casts a responsibility on such authorities to assist the ED. Therefore, this provision does not state that ED must seek assistance from the State government officers only. No such meaning can be derived from the plain language of this provision,” the court said.
Arguments On Federalism
The court was also not willing to accept the State's argument that ED must have obtained its consent before conducting the search. The court wondered how a surprise search could be conducted in a state owned company if prior permission was to be obtained. It added that though such an argument would be good on paper, it was unlikely that the State would consent to an investigation in its own company.
The court further held that the arguments on federalism could not be made in cases concerning offences against the Nation's economy. The court added that such arguments should be made only for uplifting the people and not to prevent investigation into crimes or offences committed against the Nation and its people. The court remarked that the State should be open to weeding out any offences that is plaguing the Sttae instead of proposing unrealistic conditions.
“This Court is of the view that the argument of federalism in Special Criminal Legislation like PMLA is untenable and unjustifiable. Federalism though present in limited doses in our Constitution should be utilised only in issues concerning upliftment of the people and not to prevent investigation into crimes or offences which are committed against the Nation and its people. The State Governments should in fact be open to allow any investigating agency to weed out any offences that is plaguing the State. Instead proposing unrealistic conditions which goes against the very operation of criminal procedures defies the object of the PMLA and the Constitution,” the court said.
Thus, noting that the petitioner's arguments were highly disproportionate, the court dismissed the pleas.
Counsel for the Petitioners: Senior Advocate Mr.Vikram Chaudhri and Senior Advocate Vikas Singh Assisted by Mr.Stalin Abhimanyu Additional Government Pleader, Mr.P.S.Raman Advocate General Assisted by Mr.Edwin Prabhakar State Government Pleader and Mrs.E.Ranganayaki Additional Government Pleader
Counsel for the Respondents: Mr.S.V.Raju Additional Solicitor General of India Assisted by Mr.Zoeb Hussain and Mr.AR.L.Sundaresan Additional Solicitor General of India Assisted by Mr.N.Ramesh Special Public Prosecutor (ED)
Case Title: Tamil Nadu State Marketing Corporation Ltd TASMAC v. Directorate of Enforcement
Citation: 2025 LiveLaw (Mad) 147
Case No: WP 10348/ 2025