Kerala High Court dismisses appeal against ED probe by firm linked to Pinarayi Vijayan’s daughter

“The civil action of attachment may be initiated on the basis of material suggesting the existence of proceeds of crime, even without a registered scheduled offence. The penal action of prosecution, on the other hand, requires the registration of a scheduled offence as a foundational prerequisite,” said the bench comprising Justices Raja Vijayaraghavan and K V Jayakumar.

The judgment comes amid a long-running political and legal debate over the ED’s expansive powers under the PMLA and allegations by Opposition parties that the agency frequently embarks on “roving and fishing inquiries” without a clearly established criminal offence.

The challenge before the High Court arose from an Enforcement Case Information Report (ECIR) registered by the ED in connection with payments made by CMRL to Exalogic Solutions, a company owned by Veena Vijayan. The ED had issued summons under Section 50 of the PMLA seeking documents and statements relating to the transactions. Last week, the ED raided Vijayan’s premises as part of its probe. The raid was held a day after a single bench of the High Court rejected CMRL’s plea to quash all proceedings against it.

The petitioners argued that when the ECIR was registered and summons were issued, no FIR or complaint existed in respect of any scheduled offence. Since the PMLA is predicated on the existence of a scheduled offence, they contended that the ECIR and subsequent proceedings were without jurisdiction and liable to be quashed.

Rejecting the argument, the court held that the PMLA contemplates a distinction between inquiry, investigation and prosecution.

“It is not as if after every inquiry, prosecution is launched against all persons found to be involved in the commission of the offence of money laundering,” the court observed.

The Bench held that inquiry is the “foundational process” under the statute. When the ED receives information suggesting the existence of proceeds of crime, it can begin gathering evidence, issue summons, record statements and seek documents to determine whether property qualifies as “proceeds of crime”, the court observed.

“The existence of a prior registered scheduled offence is not a jurisdictional prerequisite” for the exercise of powers under Section 50, the court said.

The ruling is significant because it effectively endorses the ED’s ability to open a money laundering inquiry before a predicate offence has been formally registered by another agency. The court relied heavily on the Supreme Court’s judgment in Vijay Madanlal Choudhary, which upheld several provisions of the PMLA and recognised a distinction between the Act’s civil and criminal components.

The court stressed that prosecution for money laundering stands on a different footing. Referring to the Supreme Court judgment, it said, “To initiate prosecution for offence under Section 3, PMLA registration of scheduled offence is a prerequisite, but for initiating action of provisional attachment under Section 5 there need not be a pre-registered criminal case in connection with scheduled offence.”

The Bench further held that an ECIR cannot be equated with an FIR under the Code of Criminal Procedure. “ECIR is an internal document created by the department before initiating penal action or prosecution,” the court said.

“If the existence of an ECIR is not a legal prerequisite for ED action, it follows that the quashing of an ECIR is not a remedy that would have any operative legal consequence,” the court observed while rejecting the prayer to quash the ECIR.

The court sought to preserve the statutory link between money laundering and predicate offences by reiterating that prosecution under Section 3 cannot ultimately proceed without a scheduled offence.

The distinction assumes importance in light of recent developments in the National Herald money laundering case involving Congress leaders Sonia Gandhi and Rahul Gandhi. Earlier this year, a Delhi court declined to take cognisance of the ED’s prosecution complaint after holding that the ED case was based on a private complaint and not an FIR. The case highlighted a core principle of PMLA jurisprudence: while inquiries may continue, a money laundering prosecution cannot survive if the scheduled offence collapses.

In the CMRL matter, however, the High Court noted that a complaint had subsequently been filed by the Serious Fraud Investigation Office (SFIO) alleging offences under Section 447 of the Companies Act, a scheduled offence under PMLA. The court therefore found that, in any event, a predicate offence had emerged by the time the matter was being considered.