The Enforcement Directorate approached the Supreme Court against a Madras High Court Judgment which prevented him from carrying out an investigation under the Prevention of Money Laundering Act against private contractors in connection with allegations of illegal sand mining.

The matter was listed today before a bench of Justices Sanjiv Khanna and Sanjay Kumar which, without issuing any formal notice at this stage, requested the parties to file their notes on the aspect of provisional attachment under the PMLA in the absence of underlying offense as dealt with in Vijay Madanlal Choudhury v. Union of India.

To recap, ED has registered an ECIR against certain private contractors based on four FIRs relating to illegal sand mining. Following this, searches were carried out and summons were issued to district collectors and individuals. Provisional seizure orders were also issued regarding the contractors’ properties.

K Govindaraj and 2 other contractors approached the High Court, challenging the proceedings on the main ground that ED had no jurisdiction to initiate proceedings under the PMLA. It was argued that the FIRs, based on which the PMLA proceedings were initiated, did not reveal any proceeds of crime and, therefore, ED could not assume jurisdiction.

ED, on the other hand, argued that the mere fact that the ECIR referred to four FIRs did not mean that these were the only materials available to the authority. The agency claimed that there was illegal sand mining in the state which would generate proceeds of crime. Regarding the provisional attachment orders, ED claimed that the petitioners had another remedy and that the writ petition was not maintainable.

After examining the record, the High Court observed that ED had initiated the proceedings under PMLA without any basis and without identifying the proceeds of crime. Further, it noted that sand mining was not covered as an offense under the PMLA.

The High Court also held that unless a case regarding a scheduled offense was registered and such offense generated proceeds of crime, ED could not have initiated any action. He further observed that ED had not clarified exactly the offense intended by the petitioners or whether the acts alleged in the FIRs were committed by them.

The Court added that even if there were proceeds of crime, ED could not assume jurisdiction to seize property on the ground that it was ill-gotten.

In relation to provisional attachment orders, it was held that ED’s power to make provisional attachment could only be used in exceptional cases where urgent action was required and not on a routine basis. In the facts of the present case, it was said that initiation of proceedings under the PMLA was unwarranted.

Thus, finding that ED’s actions were incompetent, the High Court found it appropriate to set aside the provisional attachment orders. Contesting this decision, ED filed the present application.

Appearance: ASG SV Raju (for ED); Senior Advocate Mukul Rohatgi (for respondent-entrepreneurs)

File title: EXECUTION AND ANR DIRECTORATE. Against K. GOVINDARAJ AND ANR., SLP(Crl) No. 14355/2024