The Allahabad High Court has delivered a significant verdict clarifying the scope of the Enforcement Directorate's (ED) powers in pursuing money laundering investigations. The Lucknow bench of the court dismissed a petition by several cooperative societies, including Humara India Credit Cooperative Society Ltd., Sahara Credit Cooperative Society Ltd., Stars Multipurpose Cooperative Society Ltd., and Saharayan Universal Multipurpose Society Ltd., seeking to quash an ED probe under the Prevention of Money Laundering Act (PMLA).
Justice Subhash Vidyarthi stated that an ED investigation is valid and can continue even if a First Information Report (FIR) related to the case has been closed. The court emphasized that the ED's investigation isn't solely dependent on a single FIR, but rather on a "bundle of facts" derived from numerous FIRs registered across India pertaining to scheduled offenses like cheating. With over 300 such FIRs identified, the PMLA investigation has a valid foundation.
The petitioners had challenged the ED's Enforcement Case Information Report (ECIR) and the search and seizure operations conducted at their offices in July 2024, arguing that the closure of an FIR negated the basis for the PMLA case. The High Court rejected this argument, asserting that the ED's authority to investigate money laundering extends beyond the confines of a single FIR.
The court also addressed the issue of territorial jurisdiction, with Justice Vidyarthi overruling the ED's preliminary objection. The court reasoned that because the cooperative societies' head office is in Lucknow, crucial records were seized there, and a substantial part of the cause of action arose in the city, the Lucknow bench had the authority to hear the case.
Furthermore, the High Court rejected other arguments presented by the Sahara societies. The court stated that the alleged acts could still constitute cheating under the Indian Penal Code, irrespective of the Banning of Unregulated Deposits Scheme (BUDS) Act. It also clarified that an ongoing probe by the Serious Fraud Investigation Office (SFIO) into other Sahara companies does not legally prevent the ED from investigating these specific societies.
The Allahabad High Court's decision aligns with a similar stance taken by the Karnataka High Court. In a case involving a Congress MLA, the Karnataka High Court ruled that the survival of even one case, despite the filing of a closure report, is sufficient for the ED to proceed with a money laundering investigation.
This ruling has broader implications for the ED's operational capabilities. Recently, the Supreme Court addressed concerns about the ED's authority, particularly regarding its investigations into alleged corruption in various states. The Supreme Court has also clarified that High Courts cannot direct the ED to register an ECIR without an independent assessment. The Supreme Court emphasized that the ED should independently assess whether an investigation under the PMLA is warranted.
Over the past decade, the ED has filed closure reports in 49 cases while securing eight convictions in over 5,800 PMLA cases. The agency has filed 1,398 prosecution complaints, including 353 supplementary charge sheets, before special courts. The ED had also offered Flipkart the option to close a FEMA violation case by paying a penalty and admitting to the mistake. These actions highlight the agency's active role in pursuing cases of financial irregularities and economic offenses.
