Supreme Court Probes ED's Reach, Questions Federalism in TASMAC Case

New Delhi – The Supreme Court on Tuesday intensified its scrutiny of the Enforcement Directorate's (ED) expansive investigative powers, raising fundamental questions about the federal structure of the nation during a high-stakes hearing involving the Tamil Nadu government and the Tamil Nadu State Marketing Corporation (TASMAC). Extending an interim order that shields TASMAC from coercive ED action in an alleged liquor retail scam, the Court has framed the dispute as a critical test of Centre-State jurisdictional boundaries.

A bench comprising Chief Justice of India B.R. Gavai and Justice K. Vinod Chandran granted leave to appeal in the petitions filed by the State and TASMAC, which challenged a Madras High Court decision greenlighting the ED's probe. In a significant procedural move, the bench linked the final hearing of the matter to the outcome of the pending review petitions against its own 2022 landmark judgment in Vijay Madanlal Choudhary v. Union of India , a decision that had broadly upheld the stringent provisions of the Prevention of Money Laundering Act (PMLA).

The hearing saw a sharp exchange between senior counsel for the petitioners and the Additional Solicitor General representing the ED, with the Chief Justice pointedly questioning the central agency's potential overreach. "Would it not amount to encroachment upon the right of the State to investigate?" CJI Gavai asked, setting the tone for a debate that strikes at the heart of India's constitutional framework.

The Crux of the Conflict: Predicate Offence and Jurisdictional Overlap

The case originates from alleged corruption in the operation of state-run liquor outlets between 2014 and 2021. Senior Advocate Kapil Sibal, representing TASMAC, informed the Court that the State's own Directorate of Vigilance and Anti-Corruption had proactively registered 47 First Information Reports (FIRs) against individual retailers. However, the ED's subsequent entry and raids on TASMAC's corporate headquarters in 2025 escalated the matter into a constitutional confrontation.

"How can you raid government corporate offices? What happens to the federal structures of this country?" Mr. Sibal argued forcefully. He contended that corruption, the "predicate offence" required to trigger a PMLA investigation, falls squarely within the state's investigative domain. "Corruption is the predicate offence. It is to be investigated by the State. CBI can investigate with the State's consent. But ED is investigating corruption. How can they do?" he questioned, suggesting the ED was unlawfully investigating the primary crime rather than its financial proceeds.

Mr. Sibal further invoked Section 66(2) of the PMLA, which mandates that the ED share relevant information with other concerned agencies, arguing that the central agency had failed in its duty, thereby undermining cooperative federalism.

ED's Defence: A Mandate to Pursue Money Laundering

Countering these arguments, Additional Solicitor General (ASG) S.V. Raju, appearing for the ED, asserted that the agency was operating within its statutory mandate. He clarified, "I am not investigating corruption. I am investigating money laundering." The ASG submitted that the very existence of the state-registered FIRs established the predicate offence, giving the ED a clear and undeniable entry point.

Mr. Raju defended the raids, stating that the search of TASMAC's headquarters was justified under Section 17 of the PMLA, which requires only a "reason to suspect" to initiate a search. "Did we wrongly suspect? We have found. Large-scale corruption was there. That corruption is sought to be concealed with the arguments on federalism," he contended, adding that the searches yielded incriminating materials detailed in the panchnamas.

The ASG also accused the state of attempting to thwart the ED's investigation by strategically closing cases. "They have also closed 37 FIRs in a short time. Predicate offence goes, ED goes. They are trying to cut off the ED by closing the FIRs one by one," he alleged, portraying the state's actions as an effort to protect implicated officials.

The Shadow of Vijay Madanlal

Central to TASMAC's grievance is the non-supply of the Enforcement Case Information Report (ECIR), the ED's internal equivalent of an FIR. Mr. Sibal argued that without the ECIR, the accused are left in the dark about the specific allegations against them.

However, this line of argument runs directly into the binding precedent of the Vijay Madanlal Choudhary judgment. In that 2022 decision, a three-judge bench held that the ECIR is an internal document and its supply to the accused is not mandatory. The current bench acknowledged its constraint, observing that it is bound by the Vijay Madanlal ruling until it is reviewed by a larger bench.

The decision to post the TASMAC case after the Vijay Madanlal review is decided strategically ties the fate of this specific state-centre dispute to a much broader re-evaluation of the PMLA's powers. The CJI remarked in a lighter vein on the delay in the review hearing, "I don't know when it will be decided, from the last three years I have been hearing the review is being heard."

Judicial Concerns and a Politicized Atmosphere

The hearing was marked by the Chief Justice's candid observations, reflecting a growing judicial concern over the ED's methods. "It is not as if the State agencies were keeping silent," the CJI noted, pushing back against the ED's narrative of state inaction. He also alluded to previous strong remarks made in the same case, where he had stated the ED was "crossing all the limits and was violating the federal structure." Recalling the media attention his previous comments had drawn, the CJI said, "Last six years we have had opportunity to deal with many cases of ED... I don't want to say more."

The political undercurrents of the case also surfaced when Mr. Sibal suggested the ED's keen interest would wane "once the 2026 elections are done," prompting an objection from the ASG for politicizing the issue. Senior Advocate Mukul Rohatgi, appearing for Tamil Nadu, also raised the issue of privacy violations stemming from the seizure of officials' mobile phones during the raids.

As the Supreme Court extends its protective order, the case now stands as a critical battleground. It will not only determine the course of the investigation into Tamil Nadu's alleged liquor scam but will also have profound and lasting implications for the delicate balance of power between central and state agencies in the Indian federal system. The final resolution, now tethered to the much-anticipated review of the Vijay Madanlal judgment, is poised to reshape the landscape of criminal investigation and constitutional law in the country.