ED Is Not A “Super Cop” Or “Loitering Munition”To Investigate Everything Coming To Its Notice : Madras High Court

The Madras High Court has reiterated that the Enforcement Directorate can initiate action only upon the existence of a predicate offence and cannot conduct investigations on its own. The bench of Justice MS Ramesh and Justice V Lakshminarayanan said that ED was not a super cop to investigate anything and everything that came to its notice. The court stressed that there must be criminal activity coming within the schedule of the Act, and there should be proceeds of crime based on which the ED will have jurisdiction to commence an investigation. “The ED is not a super cop to investigate anything and everything which comes to its notice. There should be a “criminal activity” which attracts the schedule to PMLA, and on account of such criminal activity, there should have been “proceeds of crime”. It is only then the jurisdiction of ED commences. The terminus a quo for the ED to commence its duties and exercise its powers is the existence of a predicate offence. Once there exists a predicate offence, and the ED starts investigation under the PMLA, and file a complaint, then it becomes a stand alone offence,” the court said. The court stressed that if an act was to be done in a particular way, it must be done in that way and no other way. The court added that if the ED was allowed to conduct an investigation merely on coming to know about any activity, the ED would be conducting roving enquiry. “The essential ingredient for the ED to seize jurisdiction is the presence of a predicate offence. It is like a limpet mine attached to a ship. If there is no ship, the limpet cannot work. The ship is the predicate offence and “proceeds of crime”. The ED is not a loitering munition or drone to attack at will on any criminal activity,” the court said. The court also observed that ED was like a limpet mine attached to a ship, the ship being the predicate offence and the proceeds of crime. The court added that without the ship, the limpet mine could not work. It stressed that the ED was not a loitering munition or drone to attack at will on any criminal activity. The court also highlighted that as per Section 66(2) of the PMLA, during the course of the investigation, if the ED comes across a violation of law, it cannot assume the role of an investigating agency and investigate those offences also. The court said that as per law, the ED was to inform the appropriate agency, which would commence an investigation. If, after investigation, the agency did not find any case with respect to the aspects pointed out by the ED, the ED could not suo motu proceed with the investigation and assume power. The court made the observations on a plea filed by RKM Powergen Private Limited, challenging the ED's action of freezing its fixed deposits and preventing the ED from proceeding in the investigation. RKM Powergen was set up for creating, establishing and operating coal powered electricity generation plant and was allotted coal block in Fatehpur East Coal Block by the Ministry of Coal. However, after allocation, on inspection, it was found that the coal block was allocated in a reserved forest and thus incapable of any non-forest activity, including coal mining. Meanwhile, a PIL was filed in the Supreme Court challenging the coal allotment. The court held that the allocation was illegal and called upon the CBI to investigate each allocation and take action. The CBI registered an FIR for offences under Section 420 and 120B of the IPC read with Section 13(1)(d) of the Prevention of Corruption Act. The ED also registered a case and took up an investigation in connection with offences under the Prevention of Corruption Act. The ED found a prima facie case, and ordered freezing of all bank accounts of RKM Powegrid. This freezing orer was however set aside by the High Court. The CBI filed a closure report stating a mistake of fact before the Special Court. However, the special court did not agree with the closure report and referred the matter back to the CBI for further investigation. The CBI filed a supplementary final report finding sufficient incriminating materials. Following this, the ED passed another freezing order which was challenged in the present plea. The petitioner company submitted that the coal allocation was never given effect to and thus there was no money generated which could be said to be proceeds of crime. It was submitted that the difference in pricing that was challenged by the ED was not valid, as it was already set aside by the jurisdiction tribunal. The petitioner further argued that the foreign investments were made after approval from the RBI and thus could not be treated as proceeds of crime. It was argued that there was no predicate offence and thus the ED could not proceed under the PMLA. The ED, on the other hand, said that it had jurisdiction to pass the order. It was submitted that in earlier round of...

ED Is Not A “Super Cop” Or “Loitering Munition”To Investigate Everything Coming To Its Notice : Madras High Court

Upasana Sajeev

Without a predicate offence and proceeds of crime, ED cannot launch investigation.

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