No Predicate Offence, No ED Action: Madras High Court Quashes ₹901 Crore PMLA Freezing Order - 2025-07-17

Madras HC: ED is Not a 'Super Cop', Cannot Investigate Without a Predicate Offence

CHENNAI: In a significant ruling clarifying the jurisdictional limits of the Directorate of Enforcement (ED), the Madras High Court has quashed a freezing order worth ₹901 crore against R.K.M. Powergen Private Limited (RKMP). A Division Bench of Justices M.S. Ramesh and V. Lakshminarayanan held that the ED's power to investigate under the Prevention of Money Laundering Act, 2002 (PMLA) is contingent upon the existence of a "predicate offence" and it cannot conduct a roving enquiry into other potential crimes.

The court allowed the writ petition filed by RKMP, setting aside the ED's order dated January 31, 2025, which had frozen the company's fixed deposits under Section 17(1-A) of the PMLA.

Case Background: A Decade-Long Legal Battle

The case originates from the controversial allocation of the Fatehpur East Coal Block to RKMP in 2006. Following the Supreme Court's 2014 judgment in Manoharlal Sharma v. Union of India , which deemed all such allocations illegal, the Central Bureau of Investigation (CBI) registered an FIR against the company.

This CBI case served as the predicate offence for the ED to register an Enforcement Case Information Report (ECIR) in 2015. The dispute has since seen multiple rounds of litigation, including: - An initial freezing order by the ED in 2015, which was quashed by the High Court. - A closure report by the CBI in 2017, which the Special CBI Court rejected, ordering further investigation. - A 2022 High Court order restraining the ED from investigating non-PMLA scheduled offences like alleged "round-tripping" under FEMA . - The CBI filing a supplementary charge sheet in 2023, after which the ED withdrew its appeal from the Supreme Court and issued the fresh freezing order that was challenged in the present petitions.

Arguments at the Bar

Petitioner's Submissions: Senior Counsel Mr. B. Kumar, appearing for RKMP, argued that the ED's action was without jurisdiction. He contended that: - No proceeds of crime were ever generated from the coal block, as it was found to be a reserved forest and never mined. - Allegations of "round-tripping" and inflated share premiums were related to FEMA and Income Tax laws, which are not scheduled offences under the PMLA. This issue had already been settled by a previous High Court order in 2022. - The ED cannot expand its investigation beyond the specific predicate offence mentioned in the CBI's charge sheet.

Respondent's Submissions: Mr. AR.L. Sundaresan, the Additional Solicitor General, defended the ED's action, arguing that: - The filing of the new CBI charge sheet in 2023 gave the ED fresh grounds to proceed. - The charge sheet indicated that the company had inflated its net worth to secure loans, which attracts scheduled offences under the IPC, giving the ED jurisdiction. - The court should not interfere at this stage as the petitioner has an alternative statutory remedy of appeal.

Court's Analysis: No Predicate Offence, No PMLA Action

The Division Bench decisively settled the matter on the fundamental issue of jurisdiction. The court distinguished between the "maintainability" and "entertainability" of a writ petition, holding that the existence of an alternative remedy does not bar the High Court from exercising its constitutional powers, especially when a jurisdictional error is alleged.

The core of the judgment rests on the interpretation of the PMLA, referencing the Supreme Court's landmark decision in Vijay Madanlal Choudhary v. Union of India .

"The terminus a quo for the ED to commence its duties and exercise its powers is the existence of a predicate offence... No predicate offence, no action by ED."

The court observed that the ED's renewed investigation and freezing order were based on allegations of "round-tripping of funds, diversion of public loans and misuse of share premiums." However, it noted that these allegations do not form part of the predicate offence (coal block allocation) being prosecuted by the CBI. For the ED to investigate these separate matters, a distinct predicate offence must be registered by the appropriate agency.

In a powerful analogy, the court described the ED's jurisdictional limits:

"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 concluded that since no complaint had been filed by any financial institution regarding loan diversion and since FEMA violations are not scheduled offences, the ED lacked the jurisdiction to attach the funds. The freezing order was thus declared "per se without jurisdiction."

Final Verdict

The High Court allowed W.P.No.4297 of 2025 and quashed the freezing order. Regarding the second petition (W.P.No.4300 of 2025) seeking to stop the entire investigation, the court stated that its previous 2022 order, which permitted the ED to investigate the coal block allocation offence while restraining it from probing other matters, would continue to hold the field.