Madras HC restrains ED from initiating action against sand miners, quashes property attachment order

CHENNAI: The Madras High Court restrained the Directorate of Enforcement (ED) from initiating any action against the sand miners who were booked under the Prevention of Money Laundering Act (PMLA) for alleged illegal mining, and also quashed the orders attaching their properties.

A division bench of Justice MS Ramesh and Justice Sunder Mohan issued the direction while hearing a batch of writ petitions moved by sand miners seeking to quash the action initiated by the ED.

On September 11, 2023, the agency registered an enforcement case information report (ECIR) against the miners, including K Govindaraj, A Rajkumar, Shanmugam Ramachandran, and Rethinam, based on the FIR related to illegal sand mining.

The ED also conducted surprise inspections at various mining premises and issued provisional orders attaching their properties alleging it as proceeds of crime.

Citing the Supreme Court’s landmark judgment in the Vijay Madhanlal Choudhary's case which emphasised the necessity to determine the proceeds of crime which is quintessential for initiating action, the bench noted that in the case in hand, the agency has not determined the exact proceeds of crime.

“It is very clear that in order to assume jurisdiction to proceed under PMLA, the investigation agency has to first satisfy that there is a scheduled offence that has been committed and the same is registered with jurisdictional police,” the bench said.

Though it proceeded on the premise that a scheduled offence has been committed and that it has generated proceeds of crime, it has not spelt out the exact scheduled offence committed by the petitioners in its counter or in any of the provisional attachment orders, the bench noted.

To consider a property as proceeds of crime, it must be derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, it said, adding that possession of unaccounted property or illegal money cannot be considered as proceeds of crime.

The four FIRs that were cited as the basis for recording the ECIR were not even remotely connected to the petitioners, it said.

The court also made it clear that the agency has every right to initiate action to ensure that the scheduled offence is registered and investigated. Till such time, the petitioners’ properties cannot be subjected to attachment. Also, the agency cannot initiate any action under the PMLA, it said, adding: "One cannot put the cart before the horse."

After registering the ECIR against miners, the ED also sent summons to the Collectors of Tiruchy, Ariyalur, Thanjavur, Karur, and Vellore to appear for inquiry. On November 11, 2023, the High Court issued an interim stay on the summons. But the Supreme Court set aside the stay and said the officials were bound to respond to the summons.

On January 31, ED issued the provisional order attaching the miners’ property as proceeds of crime. Challenging this, they moved the High Court which stayed the summons issued against the miners.

Aggrieved by this, the ED moved an appeal in which the Supreme Court directed the agency to file a counter and directed it to continue the proceedings pending in the High Court.