ED can continue with its investigation into TASMAC scam: Madras High Court

Chennai: In a setback to the DMK dispensation, the Madras High Court on Wednesday allowed the Enforcement Directorate (ED) to continue with its investigation into a Rs 1,000 crore scam unearthed at the state-run liquor retailer Tamil Nadu State Marketing Corporation Limited (TASMAC) under the Prevention of Money Laundering Act (PMLA). 

A division bench of Justices S M Subramaniam and K Rajasekar passed the order while dismissing two writ petitions filed by TASMAC and one by the state government seeking to declare the raids as “illegal.” TASMAC, which controls retail sales of liquor in the state, and the Tamil Nadu government challenged the search operations by ED between March 6 and 8 arguing that it violated principles of federalism.  

The bench concluded that the ED’s action was legal and well within powers vested to it Section 17 of the PMLA and said it found no evidence of harassment or violation of fundamental rights during the search operations. 

In stinging remarks on the state government, the judges said the petitions lead to questions as to whether the petition was filed to obstruct the smooth conduct of the investigation and cannot use federalism angle, a pet topic of the DMK government, in the case. 

The judges also noted that the ED does not need prior consent from the state government to conduct searches under PMLA, as the Act extends to the whole of India. The bench also said it was unable to understand as to why the state government and TASMAC chose to file writ petitions as they aggrieved (employees) could have filed individual writ petitions if their fundamental rights are under threat. 

“How can a peoples’ government be aggrieved because of a search operation conducted in one government owned company? In fact the search operation was conducted to unearth any case of money laundering, if any and to ensure a corruption free operation of TASMAC for which the state government must cooperate with the investigation agency,” they asked. 

 The judges also said fallacy in the submissions made raises several doubts. and vague and improper writ petitions by Government institutions alleging inhumanity against a statutorily empowered investigating agency ought not to be entertained. 

“This will lead to utter chaos whereby it will lead to complete dilution of the statute itself,” the judges wrote. They also said the petitioners were embarking on a mission to defeat the very core of PMLA and criminal justice system and contended that the concept of federalism cannot be applied. 

Indian 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, the judge said, adding that PMLA legislation is to prevent crimes affecting national economic growth. 

“How can the concept of federalism be argued in cases concerning offences against the national economy…the ED is at liberty to proceed with all further actions under PMLA,” they added. 

After a search operation that lasted over two days at the TASMAC office and other places, the ED had on March 13 alleged a Rs 1,000 liquor scam in Tamil Nadu. 

The ED had alleged that it unearthed documents to show that distilleries have siphoned off over Rs 1,000 crore in unaccounted cash, which they used as kickbacks to secure “increased supply orders” from TASMAC. 

The ED had said it was a well-orchestrated scheme of unaccounted cash generation and illicit payments has been uncovered with proof revealing that distilleries systematically inflated expenses and fabricated bogus purchases, particularly through bottle-making companies, to siphon off over Rs. 1,000 crore in unaccounted cash. 

“These funds were then used for kickbacks to secure increased supply orders from TASMAC. Bottling companies played a critical role in this fraudulent scheme by inflating sales figures, allowing distilleries to route excess payments, which were later withdrawn in cash and returned after deducting commissions,” the statement had added.