In the ED proceedings against a private company over suspected FEMA violations, the High Court declined to get involved.
In a recent ruling, the Madras High Court refused to intervene in proceedings filed by the Enforcement Directorate (ED) against a private company, stating that courts must not function as roadblocks to ongoing inquiries by investigative agencies.
On December 19, a bench of Justices PN Prakash and N Anand Venkatesh dismissed a writ petition that sought to prevent the Enforcement Directorate (ED) from proceeding with its Enforcement Case Information Report (ECIR) against a private company, Southern Agrifurane Industries, under the provisions of the Prevention of Money Laundering Act (PMLA).
“Courts are not expected to slow or stop investigations, which fall within the exclusive domain of the executive, unless such an investigation is found to be without jurisdiction, there is misuse of power of investigation, or such an investigation is an abuse of legal process” according to the Supreme Court.
The petitioner company stated that a case was brought against it under the Foreign Exchange Management Act (FEMA) on the grounds that it had sent money abroad in breach of FEMA regulations.
The ED then lodged an ECIR based on this complaint filed by Axis Bank, where the petitioner maintained an account.
The petitioner stated that the ED was conducting an investigation to determine if there was any violation of FEMA regulations in the transfer of such funds outside of India. The petitioner stated that since FEMA violations were not listed as crimes under the PMLA, the ED was conducting the inquiry indirectly by utilising the FIR issued in response to Axis Bank’s complaint.
ED, on the other hand, informed the court that it had gathered sufficient evidence to indicate that the investments that the petitioner firm claimed to have made outside India had actually occurred, and that instead, over 200 crore had been stolen. It therefore requested the Court to reject the appeal.
According to the Court, an ECIR is an internal record that cannot be compared to a FIR. The Court emphasised that the ECIR only cleared the way for initiating an inquiry under the PMLA, noting that for such an investigation to commence, the existence of a predicate offence that constituted a scheduled offence under the PMLA was required.
Further, it stated that if the ED had probable cause to think that the scheduled offence resulted in criminal proceeds, it could initiate an investigation under the PMLA.
“Both of these prerequisites are met in the current case, and we disagree with the learned Senior Counsel’s contention that the respondent lacks authority to investigate this case under the PML Act,” the Bench ruled.
In addition, the Court stated that it was merely needed to verify that ED did not abuse its authority.
“If we are persuaded that the respondent’s investigation is within their authority and that there has been no abuse of authority, we cannot intervene as a roadblock to the investigation’s continued advancement. It is permissible for the petitioner to provide their explanation to the respondent together with all supporting documentation, and we anticipate the respondent to continue the investigation within the boundaries of the PML Act…”
Senior Counsel B Kumar and Counsel T Kokilavanee represented the petitioning company. Special Prosecutor N. Ramesh represented the Enforcement Directorate.
Case Title: Southern Agrifurne Industries v. The Assistant Director
Written by: Lakshman Singh, BBA LLB (Hons.), Shri Ramswaroop Memorial University, Lucknow
