2025 (7) TMI 1144 - HC - Money Laundering

Maintainability of petition - existence of an alternate remedy by way of a statutory appeal - Money Laundering - Freezing the fixed deposits - proceeds of crime - jurisdiction of ED to enquire into matters not covered by the charge sheet. Maintainability of petition - existence of an alternate remedy by way of a statutory appeal - HELD THAT - The mere existence of an alternate remedy by way of a statutory appeal does not mean that this Court should not interfere. It is rightly stated that the view which prevailed more than a decade and beyond was that due to the existence of alternate remedy the writ petition itself was held to be not maintainable. In the watershed case of Godrej 2023 (2) TMI 64 - SUPREME COURT the Supreme Court made a difference between maintainability and entertainability. It is finally the discretion of a Court to decide whether it wants to entertain the writ petition or not but certainly it cannot hold that the writ itself is not maintainable. Seeking writ by way of a petition under Article 226 is too precious a constitutional right to be surrendered for the very existence of an alternate statutory remedy. Furthermore in this case not once but twice writ petitions have been entertained by this Court and orders have been passed in favour of the writ petitioner. The Supreme Court in Vijay Madanlal Choudhary s case 2022 (7) TMI 1316 - SUPREME COURT (LB) held that for the mere fact that there is a crime does not mean there is money laundering. Even paragraph No.300 that was relied upon by the learned Additional Solicitor General of India points out there has to be satisfaction that the property involved is a result of money laundering - For the invocation of Section 17 there need not be a complaint on file. However that situation does not arise here since the investigation has been going on for over a decade and the ED has not brought forth any new materials in order to show that the fixed deposits attached in this case are the result of money laundering. We should point out here that the fixed deposits had been created in January 2025. Jurisdiction of ED to enquire into matters not covered by the charge sheet - HELD THAT - A careful perusal of Section 66(2) of PMLA points out that if during the course of investigation the ED comes across violations of other provisions of law then it cannot assume the role of investigating those offences also. It is to inform the appropriate agency which is empowered by law to investigate into that offence. If that Agency on the intimation from the ED commences investigation and registers a complaint then certainly the ED can investigate into those aspects also provided there are proceeds of crime . In case the investigating agency does not find any case with respect to the aspects pointed out by the ED then the ED cannot suo motu proceed with the investigation and assume powers. 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 impugned order suffers from a jurisdictional error and the order of attachment is per se without jurisdiction. This is not a case where the CBI is yet to come up with the offence. The Supreme Court had directed registration of the offence in 2014. The complaint was also registered in the year 2015. After a period of nine years the ED s jurisdiction to attach and investigate is being traced to the CBI charge sheet. The ED has jurisdiction if it can trace proceeds of crime from coal allocation scam. It does not and cannot possess jurisdiction based on the phantoms that it sees from the charge sheet - Unless and until proceeds of crime linked to the predicate offence are shown ED by virtue of a combined reading of 2(1)(u) 2(1)(p) 3 read with Section 17 does not have the power to proceed further in fine lacks the jurisdiction to proceed further. The impugned order is set aside - Petition allowed.

Summary

ISSUES:

1. Whether the writ petition challenging the freezing order under Section 17(1-A) of the Prevention of Money Laundering Act, 2002 (PMLA) is maintainable despite the existence of alternative statutory remedies.
2. Whether the Enforcement Directorate (ED) has jurisdiction to investigate and freeze properties in the absence of a predicate offence under PMLA.
3. Whether the impugned freezing order under Section 17(1-A) of PMLA is valid when the alleged proceeds of crime are not established or linked to the predicate offence.
4. Whether "round tripping" allegations and other financial irregularities fall within the jurisdiction of ED under PMLA or are matters under Foreign Exchange Management Act (FEMA) or Customs Act.
5. The scope and limits of jurisdictional error in the context of orders passed under PMLA and the principles governing judicial review of such orders.
6. Whether the ED can expand its investigation beyond the predicate offence without a fresh complaint or new material.

RULINGS / HOLDINGS:

1. The writ petition is maintainable under Article 226 of the Constitution despite the availability of alternative statutory remedies, as "maintainability" and "entertainability" are distinct concepts, and the existence of an alternative remedy does not oust the High Court's jurisdiction to entertain a writ petition.
2. The ED lacks jurisdiction to investigate or freeze properties under PMLA in the absence of a predicate offence; the "terminus a quo" for ED's jurisdiction is the existence of a predicate offence and "proceeds of crime."
3. The impugned freezing order under Section 17(1-A) of PMLA is set aside as the authority failed to record a reasoned conclusion that the fixed deposits were "the result of proceeds of a crime," rendering the order a jurisdictional error and void ab initio.
4. Allegations of "round tripping" and Customs Duty irregularities fall outside the scope of PMLA investigation as they pertain to FEMA and Customs Act, which are not scheduled offences under PMLA; therefore, ED cannot proceed under PMLA on these grounds.
5. Jurisdictional error includes errors of law and fact that are decisive, such as acting without jurisdiction or ignoring material facts; such errors render the decision "no decision at all" and liable to be quashed.
6. ED cannot expand its investigation beyond the predicate offence without a fresh complaint or new material; reliance on ancillary or unrelated allegations without predicate offence is impermissible.

RATIONALE:

1. The Court applied the Supreme Court's clarification distinguishing "maintainability" and "entertainability" of writ petitions under Article 226, emphasizing the plenary nature of writ jurisdiction and discretion in entertaining petitions despite alternate remedies.
2. The statutory framework under PMLA, particularly Sections 2(1)(p), 2(1)(u), 3, and 17, was examined to establish that ED's powers to investigate and attach property are contingent upon the existence of a predicate offence and proceeds of crime.
3. The Court relied on the Supreme Court's decision in Vijay Madanlal Choudhary & others v. Union of India & others, which held that money laundering investigation under PMLA requires a predicate offence and that mere existence of a crime does not automatically trigger PMLA jurisdiction.
4. The Court referred to authoritative principles on jurisdictional error from the High Court of Australia and the Supreme Court of India, including the distinction between want of jurisdiction and irregular exercise of jurisdiction, and the modern approach that all errors of law are jurisdictional errors warranting judicial review.
5. The Court noted that the ED's impugned order merely recited statutory provisions without a reasoned conclusion linking the frozen fixed deposits to proceeds of crime, constituting a jurisdictional error as per the redefined test of jurisdictional error.
6. The Court emphasized that ED's role is not that of a "super cop" with unfettered powers to conduct roving enquiries; it must confine itself to investigating offences listed in the schedule to PMLA and predicate offences with established proceeds of crime.
7. The Court further held that the ED must notify and coordinate with appropriate agencies for offences outside PMLA's scope and cannot proceed suo motu without a complaint or fresh material, consistent with Section 66(2) of PMLA.
8. In light of the CBI's charge sheet and the Supreme Court's directions in the coal allocation scam case, the Court held that ED's jurisdiction is limited to proceeds of crime traceable to the predicate offence and not to ancillary or unrelated allegations.