Madras High Court: In a case stemming from coal allocation scam of 2018, the Division Bench comprising of M.S. Ramesh and V. Lakshminarayanan*, JJ., opined that if, even after nine years since filing of charge-sheet by CBI, ED is unable to trace the proceeds of crime to the coal allocation scam, then it cannot possess jurisdiction based on the phantoms it sees in the charge-sheet. The Court emphasised on the fact that ED is not a super-cop to investigate everything which comes to its notice. There should be a “criminal activity” which attracts the schedule to PMLA, and on account of such criminal activity, there should have been “proceeds of crime” for ED to commence its jurisdiction.
Background
R.K. Powergen Private Limited (RKPP) was incorporated in 1991 by five women entrepreneurs for biomass power generation in Karnataka. In December 2004, RKPP and Malaysian entity Mudajaya Corporation incorporated R.K.M. Powergen Private Limited (RKMP) for coal-based power generation. Following joint venture and shareholders’ agreements executed between 2005-2007, Mudajaya acquired 26% equity in RKMP at premium pricing with proper RBI approvals under Foreign Exchange Management Act (FEMA) regulations. RKMP applied for coal linkage from Ministry of Coal in 2005 and subsequently applied for Fatehpur East Coal Block allocation in November 2006, revising its net worth from Rs 306 crores to Rs 2963 crores during the application process to meet eligibility criteria.
RKMP was allocated Fatehpur East Coal Block along with four other companies, jointly forming Fatehpur East Coal Private Limited with Rs.100 crores bank guarantee. However, upon inspection, the allocated land was found to be reserved forest, making it unsuitable for mining activities. The entire coal block allocation system came under judicial scrutiny when the Supreme Court in Manohar Lal Sharma v. Principal Secy., (2014) 9 SCC 516 declared all such allocations illegal in August 2014, ordering CBI investigation into each allocation. Consequently, CBI registered FIR against RKMP for offences under IPC Sections 420, 120B and Prevention of Corruption Act, while Enforcement Directorate (ED) initiated parallel money laundering investigation under Prevention of Money Laundering Act (PMLA) in January 2015.
ED froze all RKMP bank accounts in May 2015, affecting the company’s operations and salary payments. The Madras High Court intervened in August 2015, setting aside the freezing order as excessive and disproportionate, particularly noting that no actual benefit was derived from the unusable coal block. Despite the legal challenges, RKMP managed to complete both phases of its power generation project, with commissioning in November 2015 and February 2016. CBI initially filed closure report as “mistake of fact” in 2017, but the CBI Court rejected this and ordered further investigation. In a significant development in 2022, the Madras High Court’s Division Bench quashed ED’s money laundering investigation entirely, finding no predicate offence existed since no mining occurred, and no proceeds of crime were generated.
ED appealed this decision before the Supreme Court but withdrew the SLP in November 2024 after CBI filed a supplementary charge sheet finding sufficient evidence for prosecution under corruption and cheating charges. Immediately following this withdrawal, ED conducted fresh searches in January 2025, and simultaneously froze Rs 901 crores in fixed deposits under PMLA Section 17(1A).
This latest freezing order formed the subject matter of this writ petition before the High Court, with the petitioner challenging ED’s renewed enforcement action despite previous judicial findings that no money laundering offence was established.
Analysis, Law and Decision
Since the maintainability of the writ was challenged, the Court pointed out that there is a difference between “maintainability” and “entertainability” of a writ petition. Maintainability of a writ petition goes to the root of the matter. If a Court concludes that the writ is not maintainable, it means that the Court is not entitled to even look into the papers. “Entertainability” implies that the writ is maintainable, but the Court will not exercise its discretion and deal with the matter. Mere existence of an alternate remedy by way of a statutory appeal, does not mean that the Court should not interfere. It is the discretion of a Court to decide whether it wants to entertain the writ petition or not, but it cannot hold that the writ itself is not maintainable. Thus, the Court upheld the petition’s maintainability.
Furthermore, on ED’s jurisdictional issue, the Court opined that the condition precedent for an enquiry by the ED is the existence of a predicate offence. In the present case, the predicate offence, which led the CBI to file a final report, was the coal allocation scam case but the alleged offence of “round tripping” of funds, diversion of public loans and misuse of share premiums are not relatable to coal allocation scam. Filing of positive final report by the CBI does not automatically gives ED the jurisdiction to enquire into matters not covered by the charge sheet. For the purpose of ED to investigate into these aspects, there should have been a complaint at the instance of the Power Finance Corporation and other financial institutions, who had lent monies to RKMP, but no complaint was lodged with respect to any of the aforesaid alleged criminal activities. Section 17(1) to 17(4) PMLA, shows that there must be in possession of the officials, materials or information suggesting that there has been money laundering or possession of any proceeds or property related to crime, with the person who is the target of the agency.
Emphasisingon the fact that ED is not a super-cop,, the Court pointed out that in the absence of a predicate offence, ED cannot plead the doctrine of terminus a quo and commence proceedings under the PMLA. If any investigating agency, upon intimation from ED, commences investigation and registers a complaint, then the ED can investigate into those aspects, 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. 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 as well under Section 66(2) of PMLA. The essential ingredient for the ED to seize jurisdiction is the presence of a predicate offence.
Accordingly, the Court held that the impugned order suffered from a jurisdictional error and the order of attachment by ED was per se without jurisdiction as there is neither a predicate offence nor the proceeds of crime which could be traced from the coal allocation scam.
[R.K.M Powergen Pvt. Ltd. v. Directorate of Enforcement, W.P. Nos. 4297 & 4300 of 2025, decided on: 15-7-2025]
*Orderby: Justice V. Lakshminarayanan
Advocates who appeared in this case:
Advocate for the Petitioners- B. Kumar, Senior Counsel
Advocate for the Respondents- AR. L. Sundaresan, Additional Solicitor General, N.Ramesh Special Public Prosecutor
