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All state govts must abide by PMLA, says top court
All states governments are obligated to comply with federal legislations, including the Prevention of Money Laundering Act (PMLA), the Supreme Court observed on Monday
All states governments are obligated to comply with federal legislations, including the Prevention of Money Laundering Act (PMLA), the Supreme Court observed on Monday, directing the Tamil Nadu government to provide an explanation for its opposition to Enforcement Directorate’s (ED) investigation into alleged illegal sand mining in the state.
According to a bench of justices Bela M Trivedi and Pankaj Mithal, a state government should assist the federal agency in looking into allegations of money laundering instead of countering it.
“State government officials should assist the ED if there are allegations of sand mining and money laundering...As a general proposition, we are saying if the state machinery is asked for help, it should do so in finding out if there are offences,” the bench told senior counsel Kapil Sibal and Amit Anand Tiwari, who were representing the Tamil Nadu government.
The bench was hearing an appeal filed by ED against the Madras high court order passed in November 2023, staying the summons issued to five district collectors of the state in connection with alleged illegal sand mining. The high court passed the stay order after the state government filed a petition, complaining against ED’s summons to its officers.
Last week, the bench pressed the MK Stalin government to justify how the state government was aggrieved by the summons to the district collectors by a central agency that was looking into allegations of money laundering.
The case comes at a time when states ruled by parties not allied with the Bharatiya Janata Party have alleged that the Union government is using federal agencies such as ED and the Central Bureau of Investigation to target political opponents.
On Monday, Sibal commenced his submissions by citing several other instances where state governments filed writ petitions before the constitutional courts, adding that collectors are also a part of the state, and that the local government is bound by duty to defend them.
But the bench asked him: “If district collector was aggrieved, he could have filed a petition in individual capacity...But how is state interested? How can the state file on behalf of the collector?”
It further cited Article 256 of the Indian Constitution which mandates that the executive power of every state shall be so exercised as to ensure compliance with the laws made by Parliament.
“A state has to comply with the law made by Parliament under Article 256. You will have to thus comply with the PMLA,” it told Sibal.
Responding, Sibal argued that PMLA deals with scheduled offences but since sand mining is not a scheduled offence, ED has no jurisdiction to investigate or ask district collectors to produce various records.
“In this case, the state is filing a writ petition because authority of the state has been asked to produce documents with respect to leases with respect to which there is no scheduled offence. ED is trying to collect information and investigate a predicate offence which it cannot do under the law,” Sibal added. He further said that the scheme of the PMLA in fact mandates ED to refer a matter to the state government if the agency believes there is a predicate offence -- the underlying or main offence is to be investigated that may involve money laundering as proceeds of crime.
Additional solicitor general SV Raju, representing ED, countered Sibal. The ASG refuted that ED was probing a predicate offence, including criminal conspiracy. “It’s not a mining offence as my learned friend is trying to project. We are entitled to investigate. The state government is stepping into the shoes of the accused and trying to prevent the investigation...As if trying to shield them...We have asked for innocuous information,” Raju said.
At this point, Sibal said that the court ought to issue a formal notice to the Tamil Nadu government, which will respond with an extensive counter affidavit. The bench, however, said that it would first scrutinise whether the state government could have at all filed a petition before the high court. It fixed the matter on Tuesday for a detailed hearing so that the state government’s note rendering justification for it to file a writ petition in the high court could be brought on record.
ED registered a complaint in September last year based on four FIRs filed in the state in connection with the offences under the Prevention of Corruption Act and other provisions of the Indian Penal Code.
Citing a study conducted by ED using an expert team, the agency claimed that the value of sand mining carried out in Tamil Nadu was to the tune of ₹4,730 crore as against the state records’ declared revenue of ₹36.45 crore. Subsequently, the ED conducted raids at 34 locations throughout the state to discover the connection between local mafia and state authorities. As a result, cash, incriminating documents, and digital devices were allegedly seized, relying on which, summons were issued to five district collectors on November 17 asking for their presence before the ED investigators along with certain records.
Aggrieved, the state government moved the Madras high court, contending that such enquiry by the ED without consent of state or by the direction of any constitutional court was unlawful because it violates the basic structure of the Constitution envisaging federalism and separation of powers.
The high court, in its interim order, stayed the summons while noting that the issuance of summons was not within the jurisdiction of the ED. “It is just an attempt to investigate the possibility of identifying any proceeds of crime as a result of any criminal activity, which is not so far registered by the state agencies,” the high court said in its November 28 order.
