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Madras High Court Dismisses TASMAC and State Petitions, Upholds ED's PMLA Search and Investigation Powers

Chennai: In a significant ruling, the High Court of Judicature at Madras has dismissed a batch of three writ petitions filed by the Tamil Nadu State Marketing Corporation Limited (TASMAC) and the State of Tamil Nadu, challenging the Directorate of Enforcement's (ED) search operations and investigation powers under the Prevention of Money Laundering Act, 2002 (PMLA) concerning alleged corruption at TASMAC.

A division bench of Justices S.M. Subramaniam and K. Rajasekar pronounced the common order on April 23, 2025, staunchly upholding the ED's statutory authority and criticizing the petitioners for filing what the court deemed "whimsical" and "illogical" arguments attempting to impede a lawful investigation.

The petitions arose following a search conducted by the ED at the TASMAC Headquarters and associated locations from March 6 to March 8, 2025. The ED's action was based on multiple First Information Reports (FIRs) registered by the Tamil Nadu Department of Vigilance and Anti-Corruption (DVAC) between 2017 and 2024. These FIRs alleged widespread corruption within TASMAC, including collecting excess amounts over MRP, taking bribes for favourable postings and inspections, and illegal gratification from breweries. Offences under the Prevention of Corruption Act, 1988, cited in these FIRs, are scheduled offences under the PMLA, triggering the ED's jurisdiction.

The Petitions and Key Arguments:

TASMAC filed two petitions: one seeking a direction to the ED not to harass its officials under the guise of investigation (W.P.No.10348 of 2025), and another seeking a declaration that the search and seizure proceedings conducted under Section 17 of PMLA were without jurisdiction, illegal, and arbitrary (W.P.No.10352 of 2025).

The State of Tamil Nadu, along with TASMAC, filed the third petition (W.P.No.10355 of 2025). This petition sought a declaration that the ED's power to investigate money laundering related to state-based predicate offences without the consent of the concerned State was violative of federalism and separation of powers. It argued that such investigations should only occur at the State's request or under court directions. An amended prayer further sought to exclude State authorities/corporations from the definition of "person" under PMLA Section 2(1)(s), restrict ED to seeking assistance only under Section 54, and declare the search at TASMAC premises illegal and unconstitutional.

ED's Defence:

The ED defended its actions, stating that the investigation and subsequent search were initiated based on valid FIRs alleging scheduled offences. They asserted that 'reasons to believe' for the search under Section 17 PMLA were duly recorded in writing, as mandated, and provided a copy in a sealed cover to the court for verification. The ED argued that disclosure of these reasons or the Enforcement Case Information Report (ECIR) is not mandatory at the preliminary stage of investigation, citing the Supreme Court's ruling in Vijay Madanlal Choudhary .

The ED also refuted claims of harassment, stating that the search was conducted peacefully, employees were given breaks and food, and officials detained were necessary to prevent evidence destruction – a normal procedure during searches. They highlighted that the Panchnama (search record) reflected a peaceful process and voluntary cooperation. They specifically denied allegations of detaining women employees unsafely at night, stating they were allowed to leave with safety measures.

Court's Analysis and Rulings :

The High Court systematically addressed each of the petitioners' challenges, delivering sharp observations on their stance.

On the Legality of Search (Section 17 PMLA): The court upheld the ED's power to conduct search and seizure under Section 17 PMLA, reiterating its constitutional validity as confirmed in Vijay Madanlal Choudhary . It firmly rejected the petitioners' attempt to equate the procedural thresholds of search (Section 17) with those of arrest (Section 19), as discussed in Arvind Kejriwal vs Directorate of Enforcement . The bench held that search is a less rigorous, preliminary exercise aimed at gathering evidence, requiring a lower degree of certainty ('reason to suspect' under S.17(a)) compared to arrest ('reason to believe' of guilt under S.19).

Regarding the requirement of 'reasons to believe' being recorded in writing (Section 17(1)), the court, referencing differing views in Radhika Agarwal vs Union of India concerning Section 19, held that for a Section 17 search, judicial review is limited to verifying that reasons were recorded in writing based on some information in possession. The court explicitly stated that the sufficiency or adequacy of such material cannot be scrutinized by courts at the nascent stage of a search, as the very object of the search is to gather evidence. The court verified the recorded reasons in a sealed cover and found the procedure compliant.

On Disclosure of Reasons/ECIR: Following Vijay Madanlal Choudhary , the court held that supplying the ECIR or the 'reasons to believe' document to the searched person is not mandatory at this stage. The court noted that disclosure could jeopardize the investigation and that Section 17(2) provides an alternate mechanism for review by the Adjudicating Authority.

On Federalism and State Consent: The court dismissed the argument that the ED requires State consent to investigate state-based predicate offences, calling it "illogical and bereft of conscience." It stressed that PMLA is a Central special legislation enacted to combat economic crimes affecting the entire nation and extends to the whole of India (Section 1). The concept of federalism, while part of India's quasi-federal structure, cannot be invoked to exempt a State or its entities from lawful investigation or to obstruct central agencies from performing their duties against crimes detrimental to the national economy. Obtaining prior consent for a surprise search would defeat its purpose.

On the Definition of 'Person' (Section 2(1)(s)): The court noted that TASMAC, being a company incorporated under the Companies Act, clearly falls within the definition of "person" under Section 2(1)(s) of the PMLA, which explicitly includes a company. The bench held that the plain language of the statute was clear and required no 'reading down' as sought by the petitioners.

On Assistance under Section 54 vs. Powers under Sections 17/50: The court clarified that Section 54 of PMLA imposes a duty on specified authorities to assist the ED. It does not restrict the ED's independent powers of search, seizure, and summoning under Sections 17 and 50.

On Absence of Predicate FIR: The court pointed out that the proviso to Section 17(1) requiring an FIR or a report under Section 157 Cr.PC before search was deleted by amendment in 2019. Vijay Madanlal Choudhary held that this deletion was valid and the pre-conditions in the proviso to Rule 3(2) of the PMLA Rules cannot be read back into Section 17. The court also noted the ED's submission that the relevant FIRs were indeed sent to the concerned Judicial Magistrates.

On Allegations of Harassment and Detention: The court found the allegations of harassment, unlawful detention, denial of basic necessities, and unsafe treatment of women officers unsubstantiated. It observed that Panchnama reports contradicted these claims, stating the search was peaceful and cooperation was voluntary. The court emphasized that temporary detention of employees during a search to prevent evidence destruction is a standard, lawful procedure, well within the bounds of 'procedure established by law' under Article 21. It cited judgments like Sundeep Kumar Bafna and Gautam Thapar distinguishing custody from arrest. The court also noted that seizure of mobile phones and digital data for investigation is a lawful restriction on privacy (referencing KS Puttaswamy ) and not a violation of the right to speech. The bench expressed dismay that a State Government and a public corporation would file petitions alleging harassment over inconveniences inherent to a lawful search, particularly when public servants have a duty to cooperate with investigating agencies. The court also questioned the timing and motivation behind the individual affidavits alleging harassment.

On Political Motive: The court declined to enter the arena of political allegations, stating that the court's role is to apply the law based on presented materials, not to adjudicate political motivations. It suggested that political forces are a matter for the public to judge.

Conclusion:

Finding no procedural infirmity or legal basis for the challenges raised, the Madras High Court dismissed all three writ petitions. The court granted the ED the liberty to proceed with its investigation and further actions under the PMLA. All connected miscellaneous petitions were closed.

This judgment strongly reinforces the ED's powers under the PMLA, particularly concerning search and seizure, and underscores the obligation of State entities and public servants to cooperate with lawful investigations into economic offences.