“The Concept Of Federalism Cannot Be Applied Here”: Madras High Court Says State Consent Not Required For ED’s TASMAC Search Under PMLA

The Division Bench of Justice S.M. Subramanium and Justice K. Rajasekar observed, “ …the argument that there must be a precondition of getting prior consent of the State government is an endeavour which may not [be] successful. On paper, it is a good argument but practically, a reasonable man can be sure that the State government will not consent to an investigating agency conducting searches in their own company.”

The Court explained, “… The concept of federalism cannot be applied here. Our Constitution is quasi federal in nature but the traces of federalism is applied only for the benefit of the people and not to their detriment. PMLA are legislation to prevent crimes affecting National economic growth.”

TASMAC was represented by Senior Advocate Vikram Chaudhri, while the Additional Solicitor General of India S.V. Raju appeared for the ED.

Brief Facts

Three writ petitions were filed in connection with search operations carried out by the ED at the Head Office and associated premises of the TASMAC in Chennai. The search began at 11:55 A.M. on March 6, 202,5 and continued until 11:40 P.M. on March 8, 2025, spanning three days. It was conducted on the 4th and 5th floors of TASMAC’s Head Office by officers of the ED, including two Assistant Directors and other officials.

One of the petitions, filed by TASMAC, sought a writ of mandamus to restrain ED from harassing its officials under the guise of investigation under the PMLA. Another petition by TASMAC sought a declaration that the search and seizure conducted under Section 17 of the Act was without jurisdiction and therefore illegal. The third petition, filed by the State of Tamil Nadu, challenged the authority of the ED to investigate predicate offences within the State without its consent, terming such action as violative of the principles of federalism and separation of powers.

The ED in its counter had stated that multiple FIRs were registered by the Tamil Nadu Department of Vigilance and Anti-Corruption regarding the issue that TASMAC shops were collecting amounts in excess of the actual Market Retail Price (MRP), and it was found that the staff were selling certain foreign liquors, which rarely appear in the market, at exorbitant rates, above the actual price. It was further stated that some supervisors admitted to collecting excess amounts over the MRP, depending on the liquor brand, ranging from Rs 10/- to Rs 100/, and the excess amount was collected not only from cash purchasers but also from customers buying liquor through credit and debit cards.

The FIRs had been registered under Sections 7, 12 and 13 of the PMLA.

TASMAC submitted that the ED took oral statements from their officers including the TASMAC Managing Director, General Manager (Administration and Wholesale), Deputy General Manager (Purchase and sale) and also asked 100 questions on tender process, price fixation of liquor, FL2 licenses, indent details etc. and typed the same and got signatures. This process according to TASMAC was recorded under illegal detention, threat and coercion.

Reasoning of the Court

The Court noted that the only question for consideration before it was whether the preconditions as set out under Section 17 of the PMLA had been complied with or not.

Section 17 of the PMLA states that the PMLA authority should have ‘reason to believe' and those reasons to believe have to be recorded in writing. In the

The Court noted, “…the Courts need not go into the merits or scrutinise the reasons. The fact that the authority had recorded the reasons to believe in writing as explicitly mandated under Section 17 based on information in possession is sufficient to conduct search. Sufficiency or adequacy of the information cannot be gone into by the Court at this stage of search and seizure which involves collection and gathering of evidence.”

On the aspect of judicial review, the Court held that although judicial scrutiny of the authority’s subjective satisfaction in recording reasons to believe was permitted, it was well settled that the merits of the subjective satisfaction formed by the authorising officer could not be examined by the Courts. The Courts could not substitute their own belief for that of the investigating officer. The Court said, “The judicial review powers of the Courts is limited only to the extent as to whether the reasons to believe is recorded in writing before conducting search. The scope of Judicial review is limited to this alone and cannot go beyond or examine the subjective satisfaction of the investigating officer.”

Rejecting the claims of harassment, the Court noted, “This submission finds no merit as nowhere has any of the aforementioned officials filed a complaint stating that they were coerced. Further the Panchnama also does not reveal any such allegation. How can both the Government of Tamil Nadu and TASMAC file an affidavit stating that such coercion happened when there is no material to prove the same. How does the Government assume that their officials were harassed, if at all, in the absence of any internal enquiry or complaints from the concerned officials.”

On the argument that the Right to Privacy has been infringed, the Court stated that it is well established that the Right to Privacy under Article 21 is subject to reasonable restrictions. The Court explained, “PMLA being statute in force, it is well within its ambit to conduct search and Directorate of Enforcement derives the search and seizure power from Section 17 of the Act. This cannot be termed as breach of privacy.”

The Bench noted that to verify the truth of the allegations, the first step is to conduct a search, gather evidence, and let the investigation proceed based on the findings. “How can a State Government would file a writ petition stating that an Investigating Agency cannot enter and conduct a search in a Government Company, that too when allegations are so serious in nature. In fact, it is the Tamil Nadu Directorate of Vigilance and Anti-Corruption, which has registered multiple First Information Reports (F.I.Rs) regarding malpractices of corruption ongoing in TASMAC”, the Court opined.

The Court further observed that the argument for prior consent from the State government before conducting searches is impractical, as the concept of federalism does not apply in this case, and the PMLA aims to prevent crimes impacting national economic growth.

While concluding the Court remarked, “If this court accepts that such a search conducted by an investigating agency is harassment, then it can lead to a floodgate of litigations where each and every citizen of this country bound by the rule of law start alleging harassment on every procedure detailed under our criminal procedure system…it is unfortunate that the government officers who are public servants cannot tolerate a few hours of detention to ensure a smooth investigation to be conducted.”

Consequently, the Court dismissed the writ petitions.

Cause Title: Tamil Nadu State Marketing Corporation Limited v. Directorate of Enforcement (Neutral Citation: 2025:MHC:1037)

Appearance:

Petitioner: Senior Advocate Vikram Chaudhri, Vikas Singh; Advocate General P.S. Raman, State Government Pleader Edwin Prabhakar; Additional Government Pleaders E. Ranganayaki, Stalin Abhimanyu

Respondent: Additional Solicitor General of India S.V. Raju; Additional Solicitor General of India AR.L. Sundaresan; Special Public Prosecutor (ED) N. Ramesh,; Advocate Zoeb Hussain