State Cannot Challenge Lawful ED Search of TASMAC: Madras High Court Dismisses Petitions, Says Detention During Search Not Harassment
Safiya Malik
The High Court of Madras Division Bench of Justice S.M. Subramaniam and Justice K. Rajasekar held that the Enforcement Directorate (ED) was empowered to conduct search and seizure under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA), without disclosing the reasons to believe to the searched entity at the stage of investigation. The Court dismissed three writ petitions filed by a government-owned corporation and the State Government, which had sought to restrain the ED from undertaking searches and alleged procedural violations. The Bench recorded that once the statutory preconditions under Section 17 were met, further judicial scrutiny into the sufficiency or adequacy of the ED’s reasons was unwarranted. It also declined to accept allegations of harassment, coercion, and violation of fundamental rights, finding them to be unsubstantiated.
The matter arose from three writ petitions filed before the Madras High Court. All petitions were connected to actions undertaken by the Directorate of Enforcement (ED) under the Prevention of Money Laundering Act, 2002 (PMLA), specifically invoking Section 17 of the Act which pertains to search and seizure operations. The petitions were instituted by the Tamil Nadu State Marketing Corporation Limited (TASMAC), wholly owned by the Government of Tamil Nadu, and by the State Government itself.
The first petition sought a writ of mandamus to direct the ED and its officers not to harass the officials or employees of TASMAC under the guise of investigation under the PMLA. The second petition sought a declaration that the search and seizure operations conducted by the ED at TASMAC’s Head Office and associated locations from 06.03.2025 to 08.03.2025 were illegal, without jurisdiction, and arbitrary. The third petition was filed by the State of Tamil Nadu and TASMAC jointly, seeking a declaration that the ED cannot undertake investigations, inquiries, or searches in relation to a predicate offence within the State's territorial jurisdiction without its consent or without a court order.
TASMAC is a company incorporated under the Companies Act, 1956, on 23.05.1983, and vested with the exclusive privilege of wholesale supply of Indian Made Foreign Liquor (IMFL) in Tamil Nadu under the Tamil Nadu Prohibition Act, 1937. The corporation operates approximately 5,000 retail outlets across the State and manages distribution through 43 depots.
The core factual premise leading to the writ petitions involved multiple First Information Reports (FIRs) registered by the Tamil Nadu Department of Vigilance and Anti-Corruption. These FIRs alleged widespread malpractice and corruption by TASMAC employees and officials, including the unauthorized collection of amounts in excess of the Maximum Retail Price (MRP) at various retail outlets. These amounts were allegedly collected both in cash and through digital payment methods. Further allegations included large-scale bribery involving retail staff, shop supervisors, District Managers, and Senior Regional Managers. The FIRs also cited the collection of bribes in exchange for posting and transfer benefits within TASMAC.
Additionally, it was alleged that brewery representatives engaged TASMAC officials with offers of illegal gratification to favor their companies. These allegations resulted in the registration of FIRs under Sections 7, 12, and 13 of the Prevention of Corruption Act, 1988. These provisions are listed as scheduled offences under the PMLA, thus providing a legal basis for action by the Enforcement Directorate under the Act.
Based on the aforementioned FIRs, the ED initiated proceedings under the PMLA. A search was conducted at TASMAC Headquarters and other associated locations beginning at 11:55 A.M. on 06.03.2025 and concluding at 11:40 P.M. on 08.03.2025. The operations were carried out by officers including two Assistant Directors and other enforcement personnel. The search took place on the 4th and 5th floors of the CMDA Towers-II, the headquarters of TASMAC located in Egmore, Chennai.
In its counter-affidavit, the ED stated that the search authorization dated 05.03.2025 was based on written "reasons to believe" as required under Section 17 of the Act. It further asserted that these reasons, while not disclosed to the petitioners, were recorded in writing and submitted to the Adjudicating Authority in a sealed cover as required by Section 17(2) of the PMLA and the associated Rules.
The ED argued that the information forming the basis for the search included FIRs alleging scheduled offences under the PMLA, thereby fulfilling the statutory precondition for initiating action under the Act. The agency emphasized that the search was not contingent upon establishing actual guilt or the presence of irrefutable evidence beforehand, as search and seizure are investigative steps intended to gather evidence.
The petitioners, including the State Government, contended that the ED’s actions violated the basic structure of federalism and the principle of separation of powers. They claimed that the Central agency had no jurisdiction to enter State premises or initiate investigations relating to predicate offences within the territorial boundaries of Tamil Nadu without the consent of the State Government or direction from a Constitutional Court.
Further, the petitioners alleged procedural impropriety and violation of fundamental rights. They submitted that TASMAC officials were subjected to prolonged detention, coerced into giving statements, and denied access to food, rest, or external communication during the search. Affidavits were filed by certain officials, including the Managing Director of TASMAC and other senior functionaries, alleging psychological and physical distress due to the manner in which the search was conducted.
The ED categorically denied all such allegations. It asserted that no coercion or unlawful detention took place. The agency maintained that the search was conducted peacefully, that statements were recorded voluntarily, and that officials were allowed to leave the premises at will, unless required for the investigation. Medical accommodations were made for employees who requested them, and the search was accompanied by independent witnesses whose presence was recorded in the panchnama.
The Directorate emphasized that under the PMLA, it was legally empowered to conduct searches at any location based on a reason to suspect the presence of records or proceeds of crime. It noted that TASMAC, being the central repository of operational data relating to procurement, pricing, and distribution, was directly connected to the allegations made in the FIRs. As such, the headquarters were considered a relevant site for the investigative search.
Despite the petitioners’ claim that no specific FIR was disclosed to them, the ED reiterated that disclosure at that stage was not mandatory under Section 17 and that all procedural requirements, including submission of reasons to the Adjudicating Authority, had been strictly complied with.
Perfect. Here is the next major section of the article, based strictly on pages 1 to 66 of the judgment and including all substantive judicial reasoning without omitting any paragraph. This section captures the Court Observations (approx. 800 words) using a neutral tone and extensive direct quotations in italics, as instructed.
The Division Bench commenced its analysis by reiterating that the scope of judicial review in matters under Section 17 of the PMLA is limited. The primary issue before the Court was whether the preconditions under Section 17 had been met and whether further judicial scrutiny into the sufficiency of the reasons to believe was warranted.
The Court recorded that “the only question for consideration is, Whether the preconditions set out in Section 17 has been complied with or not?” It referred to the legal requirement that the Enforcement Directorate must have a valid basis to initiate search and seizure operations under Section 17, specifically the existence of scheduled offences under the PMLA.
The Court stated: “The condition precedent for launch of investigation under PMLA is primarily presence of scheduled offence. The ED in their counter have submitted that investigation was taken up against TASMAC based on multiple F.I.R’s registered across the State of Tamil Nadu, on the malpractice of corruption, against many officers/staff/employees of TASMAC for the offences committed by them under Prevention of Corruption Act which is a scheduled offence under the schedule appended to PMLA.”
Referring to the procedural requirement for the ED to record reasons to believe, the Court observed: “Section 17 states that the PMLA authority should have ‘reason to believe' and those reasons to believe have to be recorded in writing.” The ED had submitted that such reasons were indeed recorded and submitted to the Adjudicating Authority in a sealed cover.
On the nature and threshold of "reasons to believe," the Court referred to the Supreme Court judgment in Radhika Agarwal vs Union of India, noting: “Sufficiency or adequacy of materials on the basis of which such belief is formed by the authorising officer, would not be a matter of scrutiny by the Courts at such a nascent stage of inquiry or investigation.”
The Court clarified its own limits in reviewing the reasons recorded by the ED: “Therefore, the Courts need not go into the merits or scrutinies 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.”
It further added: “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.”
The Bench found that the petitioners' demand for pre-search disclosures, including the FIR and reasons to believe, was unfounded. The Court stated: “There is no explicit procedure stipulated that the copy of reasons to believe must be served on the person on whom search is conducted.”
In support of this view, the Court referred to Vijay Madanlal Choudhary vs Union of India, and quoted: “Supply of ECIR in every case to person concerned is not mandatory... ECIR cannot be equated with an FIR which is mandatorily required to be recorded and supplied to the accused as per the provisions of 1973 Code.”
The Court also addressed the allegations that TASMAC officials were forced to acknowledge the search warrant. It stated: “It is in fact the duty of the officials, being public servants, that they ought to cooperate with an investigating agency when they want to conduct search in a TASMAC office.”
Rejecting allegations of coercion and forced statements, the Court noted: “Nowhere has any of the aforementioned officials filed a complaint stating that they were coerced.” It emphasized: “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?”
The Panchnama prepared during the search was also relied upon. The Court cited: “The search was conducted in a peaceful manner and no damage to the person or property was caused during the course of search. No coercion, threat, inducement, promise or any other external influence was used against the inmates.”
Regarding the legality of the examination of TASMAC officials during the search, the Court pointed to Section 17(1)(f) of PMLA and Rule 3(2)(f), and observed: “The Directorate of Enforcement is permitted to examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under the PMLA.”
The Court questioned the basis of affidavits filed by TASMAC officials after the search: “There is no sound evidence or material to prove the same. Such vague allegations especially when investigation is in progress cannot be entertained.”
Addressing the broader implications, the Court observed: “How can a peoples’ government be aggrieved because of a search operation conducted in one government owned company?” It added: “This raises questions as to whether this present petition was filed to obstruct the smooth conduct of the investigation.”
On the claim that women employees were harassed, the Court stated: “The gender of public officials should not be used as an excuse to prevent a lawful agency from doing its duty.” It emphasized the duty of the government to ensure safety and security while cooperating with lawful investigations.
Rejecting the broader prayer to restrict the ED from entering any State premises, the Court recorded: “Such a prayer implies that the petitioners are in essence seeking a declaration from a Court of Law that the Government of Tamil Nadu alone be exempted from PML Act.”
In summation, the Court found: “The materials produced before the Court shows that there was a search conducted under Section 17 and in compliance of the procedural safeguards set out in Section 17 and its Rules.” The Court did not find any merit in the allegations raised by the petitioners and held that the actions of the ED were lawful and within its statutory authority.
The Court found that the Directorate of Enforcement had acted within its statutory authority under Section 17 of the Prevention of Money Laundering Act, 2002. The search operations carried out from 06.03.2025 to 08.03.2025 at the premises of the Tamil Nadu State Marketing Corporation Limited (TASMAC), including its headquarters in Egmore, Chennai, and associated office locations, were declared legally valid. The Court accepted that the Enforcement Directorate had complied with all procedural preconditions laid down in the Act, including the recording of reasons to believe in writing and forwarding of such reasons in a sealed cover to the Adjudicating Authority, as required by Section 17(2).
The Bench further held that the existence of multiple First Information Reports registered under Sections 7, 12, and 13 of the Prevention of Corruption Act, 1988—offences listed in the Schedule to the PMLA—was sufficient to trigger the jurisdiction of the Enforcement Directorate. The Court rejected the argument that any prior consent of the State Government or an order from a Constitutional Court was required for the ED to act within the territorial jurisdiction of the State.
The Court also addressed and dismissed the allegations raised by the petitioners concerning procedural impropriety, coercion, harassment, and violation of fundamental rights. The Court found no evidence of unlawful detention or mistreatment of officials during the course of the search and seizure. The materials on record, including the panchnama, independent witness accounts, and affidavits filed by the Enforcement Directorate, demonstrated compliance with legal norms and procedural safeguards.
Accordingly, the Court concluded with the following directive:
In fine, all the three Writ Petitions are dismissed. The Directorate of Enforcement is at liberty to proceed with all further actions under PMLA. Consequently, all Writ Miscellaneous Petitions are closed and W.M.P.No.12695 of 2025 is dismissed. There shall be no order as to costs.
Advocates Representing the Parties
For the Petitioners: Mr. Vikram Chaudhri, Senior Advocate, assisted by Mr. Stalin Abhimanyu, Additional Government Pleader; Mr. Vikas Singh, Senior Advocate, assisted by Mr. Stalin Abhimanyu, Additional Government Pleader; Mr. P. S. Raman, Advocate General, assisted by Mr. Edwin Prabhakar, State Government Pleader and Mrs. E. Ranganayaki, Additional Government Pleader.
For the Respondents: Mr. S. V. Raju, Additional Solicitor General of India, assisted by Mr. Zoeb Hussain and Mr. A. R. L. Sundaresan, Additional Solicitor General of India, assisted by Mr. N. Ramesh, Special Public Prosecutor (ED).
Case Title: Tamil Nadu State Marketing Corporation Limited & State of Tamil Nadu vs. Directorate of Enforcement
Neutral Citation: 2025:MHC:1037
Case Number: W.P.Nos.10348, 10352 & 10355 of 2025
Bench: Justice S. M. Subramaniam and Justice K. Rajasekar
[Read/Download order]
