The Supreme Court (SC) is scrutinizing the Enforcement Directorate's (ED) investigation into the Tamil Nadu State Marketing Corporation (TASMAC) liquor retail scam, raising significant questions about the federal structure of India and the ED's authority.
A bench headed by Chief Justice of India (CJI) B R Gavai, also comprising Justice K Vinod Chandran, is hearing petitions filed by TASMAC and the State of Tamil Nadu, challenging the Madras High Court's approval of the ED's searches on TASMAC headquarters. The Supreme Court has extended its interim order, preventing the ED from taking coercive actions such as search, seizure, or investigation against TASMAC. This extension will remain in effect until the review petitions against the 2022 Vijay Madanlal Choudhary judgment are decided. This prior judgment upheld the validity of key provisions of the Prevention of Money Laundering Act (PMLA), including those related to arrest, search, and the Enforcement Case Information Report (ECIR). TASMAC has argued that the ED did not supply them with the ECIR.
Senior Advocate Kapil Sibal, representing TASMAC, argued that the state vigilance department had already filed 47 FIRs against liquor outlet operators for alleged corruption between 2014 and 2021. He questioned why the ED entered the scene in 2025, raiding the headquarters and seizing phones and devices of officers. Sibal argued that corruption is a state matter and should be investigated by state agencies. He cited Section 66(2) of the PMLA, stating that the ED is required to share information about offenses with state agencies investigating the matter. He questioned the ED's decision to raid the TASMAC head office when the alleged offenses were committed by retailers, which the state was already investigating. Sibal asked, "How can you raid government corporate offices? What happens to the federal structures of this country?".
Additional Solicitor General (ASG) S V Raju, representing the ED, countered that the agency is not investigating corruption but rather probing money laundering. He stated that the state vigilance had registered the FIR, thus confirming the existence of a predicate offense. He also alleged that the ED investigation uncovered evidence of money laundering and that the state was protecting the officers involved. Raju argued that the ED has the power to search under Section 17 of the PMLA if there are "reasons to suspect," suggesting a lower threshold for initiating a search.
The CJI questioned the ASG, "What happens to the federal structure? Law and order has to be worked within its own domain". He further inquired whether the ED's investigation would encroach upon the state's right to investigate and whether the ED would intervene in every case where it believes the state is not properly investigating. "Would it not amount to encroachment upon the right of the State to investigate? In every case, when you find that the state is not investigating the matter, you will go and do it yourself? What happens to Section 66(2)?" the CJI asked.
The ED's investigation has revealed alleged kickbacks, inflated expenses, and manipulated tenders within TASMAC. The central agency suspects money laundering based on allegations contained in the FIRs registered by the State government or TASMAC against its officials. The DMK-led State government and TASMAC have accused the ED of overreach and termed the raids illegal.
This legal battle highlights a significant debate about the balance of power between the central government and state governments in India’s federal system. The Supreme Court's decision will have far-reaching implications for the ED's ability to investigate cases within states and the overall structure of Indian federalism.
