The Madras High Court has recently delivered a significant judgment, cautioning the Enforcement Directorate (ED) against overstepping its jurisdictional boundaries and acting as a "super cop". The court emphasized that the ED's powers are not unbridled and that the agency cannot act as a "loitering munition" or a "drone to attack at will on any criminal activity".
The ruling came in response to writ petitions filed by RKM Powergen Private Limited, challenging the ED's actions in a case linked to an alleged coal allocation scam. Justices M.S. Ramesh and V. Lakshminarayanan set aside an ED order of attachment, stating that the agency lacked jurisdiction to proceed without a clear "predicate offence" under the Prevention of Money Laundering Act (PMLA). The court clarified that the ED's authority to investigate under the PMLA is contingent upon the existence of a "predicate offence" and it cannot conduct a roving enquiry into other potential crimes.
The High Court bench emphasized that the ED's jurisdiction hinges on the existence of a 'predicate offence' and "proceeds of crime". It cited the Supreme Court's ruling in the Vijay Madanlal Choudhary case, reiterating this point. The court observed that the ED's renewed investigation and freezing order were based on allegations of "round-tripping of funds, diversion of public loans and misuse of share premiums". However, these allegations did not form part of the predicate offence (coal block allocation) being prosecuted by the CBI. The court asserted that for the ED to investigate these separate matters, a distinct predicate offence must be registered by the appropriate agency.
The Madras High Court drew a powerful analogy to illustrate the ED's jurisdictional limits: "The essential ingredient for the ED to seize jurisdiction is the presence of a predicate offence. It is like a limpet mine attached to a ship. If there is no ship, the limpet cannot work. The ship is the predicate offence and 'proceeds of crime'. The ED is not a loitering munition or drone to attack at will on any criminal activity".
The case stemmed from a joint venture between RKM Powergen and Malaysia-based Mudajaya Corporation, established in 2005 to set up a coal-powered electricity generation plant in Chhattisgarh. The ED's investigation began after a CBI chargesheet, but the court found that the agency's probe into alleged misuse of funds and diversion of public loans was not connected to the coal scam. The court noted that no complaint had been filed by any financial institution regarding loan diversion and since FEMA violations are not scheduled offences, the ED lacked the jurisdiction to attach the funds.
The court clarified that under Section 66(2) of the PMLA, if the ED uncovers violations of other laws during its investigation, it must refer them to the appropriate agency rather than assume investigative powers itself. The ruling underscores the importance of adhering to the legal framework and preventing the ED from exceeding its mandate.
This is not the first time the Madras High Court has raised concerns about the ED's conduct. In June 2025, the court criticized the ED for exceeding its authority under the PMLA during a search operation involving individuals linked to the Tamil film industry. The court questioned the legality of restricting access to premises with pasted notices and highlighted concerns about the ED's expanding powers. The court has also questioned the ED's timing of raids, emphasizing that state agencies do not conduct searches late at night. These observations reflect a broader concern about the ED's methods and the potential for overreach.
