Court cannot act as stumbling block in central agency investigations unless there is misuse of powers: Madras High Court

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The Madras High Court recently refused to interfere with the proceedings initiated by the Enforcement Directorate (ED) against a private firm, saying that courts must not act as stumbling blocks to ongoing investigations by probe agencies [Southern Agrifurne Industries v. The Assistant Director].

A Bench of Justices PN Prakash and N Anand Venkatesh on December 19 dismissed a writ petition that had sought to restrain the ED from proceeding further on its Enforcement Case Information Report (ECIR) registered against a private firm, Southern Agrifurane Industries, under the provisions of the Prevention of Money Laundering Act (PMLA).

“The Apex Court time and again has frowned upon interference into investigations conducted by the Investigation Agency since Courts are not expected to stall investigations, which falls within the exclusive domain of the executive, unless such an investigation is found to be without jurisdiction or there is misuse of power of investigation or such an investigation is an abuse of process of law,” the Court said.

The petitioner firm had argued that a case under the Foreign Exchange Management Act (FEMA) was registered against it on the allegation that it had sent money abroad in violation of FEMA norms.

The ED then registered an ECIR based on this complaint that had been made by Axis Bank, with which the petitioner had a bank account.

The petitioner said that the ED was conducting its probe to confirm if there was any contravention of FEMA regulations in remitting such money outside India. However, since offences under the provisions of the FEMA were not scheduled offences under the PMLA, ED was indirectly conducting the investigation by taking advantage of the FIR registered based on Axis Bank’s complaint, the petitioner argued.

ED, however, told the Court that it had collected sufficient material to prove that the investments that the petitioner firm claimed to have made outside India never actually took place, and instead, the money which amounted to over ₹200 crore had been siphoned off. It thus urged the Court to dismiss the plea.

The Court said that an ECIR was an internal document and could not be equated with an FIR. The ECIR merely paved the way for commencing an investigation under PMLA, the Court added, noting that for such investigation to begin, what was required was the existence of a predicate offence which was a scheduled offence as specified under the PMLA.

It further said that if the ED had prima facie material to believe that the scheduled offence had generated proceeds of crime, it was enough for the agency to launch a probe under the PMLA.

“Both these requirements are satisfied in the present case and we are not in agreement with the submission of the learned Senior Counsel to the effect that the respondent lack jurisdiction to investigate the case under the PML Act,” the Bench held.

The Court further said that it was only required to ensure that ED was not misusing its powers.

“If we are convinced that the investigation taken up by the respondent is within their powers and there is no misuse of powers, we cannot act as a stumbling block in the further progress of the investigation conducted by the respondent. It is left open to the petitioner Company to submit their explanation to the respondent along with all supporting documents and we expect the respondent to proceed further with the investigation within the scope of PML Act…”

Senior Counsel B Kumar and Advocate T Kokilavanee appeared for the petitioner firm. Special Public Prosecutor N Ramesh appeared for the Enforcement Directorate.

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