It is absolutely rational and so also in the fitness of things that Madras High Court which is one of the oldest High Court in India in a most learned, laudable, landmark, logical and latest judgment titled RKM Powergen Private Limited v. The Assistant Director and others in W.P.Nos.4297 & 4300 of 2025 and W.M.P.Nos.4807 & 4809 of 2025 and cited in 2025 LiveLaw (Mad) 244 that was reserved on 17.06.2025 and then finally pronounced on 15.07.2025 has minced just no words whatsoever to hold most unequivocally that Enforcement Directorate (ED) is not a “super cop” or “loitering munition” to investigate everything coming to its notice. It has been also reiterated by the Madras High Court that the Enforcement Directorate can initiate action only upon the existence of a predicate offence and cannot conduct investigations on its own. It was also underscored by the court that the ED was not a loitering munition or drone to attack at will on any criminal activity.
It must be noted that the Court made the observations on a plea that had been filed by RKM Powergen Private Limited challenging the Enforcement Directorate’s arbitrary action of freezing its fixed deposits and urging the court to prevent the ED from proceeding in the investigation. The Madras High Court while noting that in the present case there was no predicate offence held that the freezing order and attachment was per se without jurisdiction. We thus see that the Madras High Court very rightly set aside the ED order and allowed the plea of the petitioner company. No denying or disputing!
At the very outset, this brief, brilliant, bold and balanced judgment authored by Hon’ble Mr Justice V Lakshminarayanan for a Division Bench of the Madras High Court comprising of Hon’ble Mr Justice MS Ramesh and himself sets the ball in motion by first and foremost putting forth in para 1 that, “These two writ petitions seek for the following reliefs:
“W.P.No.4297 of 2025: to issue a Writ of Certiorari, to call for the records and to quash the order under Section 17(1-A) of the PMLA 2002 dated 31.01.2025 freezing the fixed deposits on the file of the 1st respondent and quash the same.”
“W.P.No.4300 of 2025: to issue a Writ of Mandamus, forbearing the respondents from proceeding in investigation since there are no proceeds of crime or in the alternative restrict such investigation to matters connected with the coal block until its cancellation.””
To put things in perspective, the Division Bench envisages in para 2 that, “A private company was incorporated in the year 1991. It was titled as ‘R.K.Powergen Private Limited, Chennai’ (hereinafter referred to as ‘RKPP’). This was a venture by five women entrepreneurs. The primary business of the company was to set up and operate a Bio Mass Power Generation Plant in Karnataka. Subsequently, on 15.12.2004, this company and one Mudajaya Corporation, an entity based out of Malaysia, incorporated another company under the name and style of ‘R.K.M.Powergen Private Limited’ (hereinafter referred to as ‘RKMP’). This entity was set up for the purpose of creating, establishing and operating coal powered electricity generation plant.”
While elaborating on the facts that led to the writ petition, the Division Bench then lays bare in para 3 disclosing that, “On 13.07.2005, a joint venture agreement was entered into between Mudajaya and RKPP. In terms of the agreement, Mudajaya agreed to invest in RKMP. Pursuant to this agreement, on 08.02.2007, a shareholders’ agreement was entered into between RKPP and Mudajaya. Under this agreement, 26% of the equity shares of RKMP were to be allotted to Mudajaya, or its nominee. The allotment would not be at face value, but at a premium. The premium was to be calculated in line with the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations, 2000.”
Delving deeper, the Division Bench points out in para 4 that, “RKMP began preparation for establishing a coal based power generation plant in the State of Chhattisgarh. In order to have an uninterrupted supply of coal for this plant, which is the fundamental and basic ingredient, RKMP wrote to the Secretary, Ministry of Coal, Government of India on 24.01.2005, seeking permanent coal linkage. Five months thereafter, this request was renewed with a slight change. In January, 2005, RKMP had proposed to install 5 x 210 MW power plant. This was revised in May, 2005, to a 4 x 300 MW power plant. Taking this proposal forward on 15.12.2005, RKMP wrote another letter to The Additional Secretary (Coal) and Chairman, Standing Linkage Committee, Ministry of Coal, New Delhi, giving details of its coal requirement. RKMP stated that the requirement per annum would be 9.072 million tonnes and the period of operation would be around 50 years. Thereby, specifying its total requirement as 453.6 million tonnes.”
As it turned out, the Division Bench enunciates in para 5 that, “It is pertinent to point out here, even while making the application for permanent coal linkage, RKMP had stated that in case of allotment of captive coal blocks in its favour, and if such coal block would provide adequate coal supply, it would migrate to the captive coal mining system. Simultaneously, RKMP approached M/s.Power Finance Corporation Limited, a Government of India undertaking, for a project appraisal. The Power Finance Corporation also issued an information memorandum for Phase-I of this project. Phase-I of this project was supposed to install and operate a power generating plant with a capacity of 350 MW. Subsequently, for Phase-II of this project, another information memorandum was made ready by the Power Finance Corporation in September, 2008.”
As we see, the Division Bench then reveals in para 6 that, “Soon after the first project appraisal report was issued by the Power Finance Corporation, RKMP entered into an agreement with an entity called MIPP Capitals International Limited. The purpose of this agreement was to supply equipment for the project. It was one of the terms of the contract that it would come into force from the date of issuance of “notice to proceed”, as defined under Clause 3.24.0, read with Clause 8.1.0 of the said contract. Pursuant to the agreement so signed on 18.07.2007, RKMP also made payment of US $500,000 on the same day.”
Simply put, the Division Bench mentions in para 7 that, “As stated in its letter to the Ministry of Coal on 26.05.2005, RKMP approached the Union of India for the allocation of a coal block. On 13.11.2006, the Ministry of Coal decided to make allocations for 38 coal blocks. Out of the 38 blocks, 15 blocks were reserved for power projects, and the remaining 23 blocks for steel and cement companies. Preferential allocation of coal blocks had been a policy decision taken by the Ministry of Coal from 1993 onwards. The Ministry of Coal, after consultation with Coal India Limited and other similar bodies, would allot coal blocks for captive mining for eligible end user companies. For this purpose, a screening committee was created by the Union of India. In order to guide the screening committee, as to how to identify the determining factors and for evaluation, the Ministry of Coal used to issue appropriate guidelines. The screening committee followed these guidelines and on that basis, granted allocation. The aforesaid advertisement in 2006, calling for allotment of coal blocks, in which the petitioner participated, was one such allocation.”
Do note, the Division Bench notes in para 10 that, “On the basis of the guidelines that had been issued, the net worth of a company had to be Rs.0.50 crores per MW of the maximum capacity. The minimum capacity for coal block allocation was fixed at 500 MW. In all, 187 applications had been received by the screening committee. Out of 187 applications, 115 applications were found eligible. RKMP was one such eligible candidate. After the analysis of all the 115 applications, RKMP was found to be qualified for allotment. It was recommended for allocation of Fatehpur East Coal Block. Along with RKMP, four other companies were also allotted the Fatehpur East Coal Block. The other companies are:
(i)M/s.JLD Yavatmal Energy Ltd.;
(ii)M/s.Green Infrastructure Pvt. Ltd.;
(iii)M/s.Visa Power Ltd.;
(iv)M/s.Vandana Vidhyut Energy Ltd.”
Do also note, the Division Bench then notes in para 11 that, “These five entities joined together and formed another entity in the name and style of ‘M/s.Fatehpur East Coal Private Limited’. In accordance with the regulations, this entity also furnished a Bank Guarantee of Rs.100 crores in favour of the Union of India. After securing a coal block, when Fatehpur East Coal Private Limited went to inspect the property, they found that it was a reserved forest. Being a reserved forest, it is incapable of any non-forest activity which includes coal mining.”
It would be instructive to note that the Division Bench hastens to add in para 12 noting that, “Taking note of allotment of coal blocks through the screening committee route and Government dispensation route, a writ petition was filed by one Manoharlal Sharma. The Public Interest Litigation challenged the validity of such allotments. A three Judges Bench of the Supreme Court, headed by Mr.Justice R.M.Lodha, CJ, heard the matter. Judgement was pronounced on 25.08.2014, holding that such allotments were illegal. The judgment is reported in [2014 (9) SCC 516]. At the time of disposal of this writ petition, taking into consideration the facts placed before the Court, the Supreme Court decided that an investigation/enquiry has to be ordered into the same. Accordingly, the Central Bureau of Investigation (hereinafter referred to as ‘CBI’) was called upon to investigate each of the allocations and take appropriate action.”
Truth be told, the Division Bench specifies in para 13 stating that, “Insofar as the case at hand is concerned, the CBI registered a case in FIR.RC.219 201 4E 0018 on 07.08.2014. FIR was registered for the offences under Sections 420 and 120B of the Indian Penal Code read with Section 13(1)(d) of the Prevention of Corruption Act, 1988.”
Further, the Division Bench observes in para 14 that, “On the registration of the offences, the Enforcement Directorate (hereinafter referred to as ‘ED’) registered a case on 07.01.2015. Investigation was taken up under the provisions of the Prevention of Money Laundering Act, 2002 (Act 15 of 2003) [hereinafter referred to as ‘PMLA’]. The ED came to a prima facie conclusion that there appeared to be an offence of money laundering as defined under Section 3 of PMLA. Consequently, it passed an order on 22.05.2015, freezing all the bank accounts of RKMP.”
Be it noted, the Division Bench notes in para 58 that, “On the aspect of jurisdiction, we need not labour much for. The Supreme Court had made it very clear in Vijay Madanlal Choudhary’s case and subsequent cases that the condition precedent for an enquiry by the ED is the existence of a predicate offence. The predicate offence, which led the CBI to file a final report, is the coal allocation scam case. The alleged offence of “round tripping” of funds, diversion of public loans and misuse of share premiums are not relatable to coal allocation scam. In paragraph No.7 of the counter, the ED has pleaded that the aforesaid three aspects have led it to withdraw the SLP and continue with its investigation. Even assuming that they are true, for the purpose of ED to investigate into these aspects, there should have been a complaint at the instance of the Power Finance Corporation and other financial institutions, who had lent monies to RKMP, for ED to swing into action.”
Most significantly, the Division Bench encapsulates in para 59 what constitutes the cornerstone of this notable judgment holding that, “When this aspect was pointed out to Mr.AR.L.Sundaresan, the Additional Solicitor General pointed out that criminal law can be set into motion by any person. That is a general principle of criminal law. No one can dispute it, and we certainly are not going to do it. If any criminal act takes place, it is certainly open to any individual to bring it to the notice of police or appropriate authorities who are entitled to register a complaint on these aspects. A perusal of the papers show that no complaint had been lodged with respect to any of the aforesaid alleged criminal activities. The ED is not a super cop to investigate anything and everything which comes to its notice. There should be a “criminal activity” which attracts the schedule to PMLA, and on account of such criminal activity, there should have been “proceeds of crime”. It is only then the jurisdiction of ED commences. The terminus a quo for the ED to commence its duties and exercise its powers is the existence of a predicate offence. Once there exists a predicate offence, and the ED starts investigation under the PMLA, and file a complaint, then it becomes a stand alone offence. As long as there is no predicate offence, ED cannot plead that since no one set up the criminal law into motion, it will rely on that doctrine and commence proceedings under the PMLA.”
Needless to say, the Division Bench states in para 60 that, “It is too well settled that where an act has to be done in a particular way, it must be done in that way and in no other way. The PMLA demands the existence of a predicate offence. When there is no predicate offence, initiation of proceedings under PMLA is a non starter. If the arguments of the Additional Solicitor General is accepted, then the ED on registration of an ECIR can conduct a roving enquiry with respect to other aspects also. That is not the position of law. To put it pithily, no predicate offence, no action by ED.”
It merits noting that the Division Bench notes in para 61 that, “A careful perusal of Section 66(2) of PMLA points out that if during the course of investigation, the ED comes across violations of other provisions of law, then it cannot assume the role of investigating those offences also. It is to inform the appropriate agency, which is empowered by law to investigate into that offence. If that Agency, on the intimation from the ED, commences investigation and registers a complaint, then certainly the ED can investigate into those aspects also, provided there are “proceeds of crime”. In case, the investigating agency does not find any case with respect to the aspects pointed out by the ED, then the ED cannot suo motu proceed with the investigation and assume powers. The essential ingredient for theED 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.”
Most forthrightly, the Division Bench holds in para 62 that, “As there is no predicate offence with respect to the three aspects in paragraph No.7 of the counter, we conclude that the impugned order suffers from a jurisdictional error and the order of attachment is per se without jurisdiction. We come to this conclusion because this is not a case where the CBI is yet to come up with the offence. The Supreme Court had directed registration of the offence in 2014. The complaint was also registered in the year 2015. After a period of nine years, the ED’s jurisdiction to attach and investigate is being traced to the CBI charge sheet. We entirely agree that the ED has jurisdiction if it can trace “proceeds of crime” from coal allocation scam. It does not and cannot possess jurisdiction based on the phantoms that it sees from the charge sheet.”
More to the point, the Division Bench then holds in para 63 that, “Unless and until proceeds of crime linked to the predicate offence are shown, ED by virtue of a combined reading of 2(1)(u), 2(1)(p), 3 read with Section 17, does not have the power to proceed further in fine lacks the jurisdiction to proceed further. In the light of the above decision, the impugned order is set aside. W.P.No.4297 of 2025 is allowed with costs. Cost memo to be filed within one week from today. Consequently, the connected miscellaneous petition is closed.”
W.P.No.4300 of 2025:
Finally, the Division Bench then concludes by directing and holding aptly in para 64 that, “Since there is already an order of this Court in W.P.No.24700 of 2021 dated 08.06.2022, apart from reiteration of para No.39 of the said order, no further directions are required in W.P.No.4300 of 2025. Consequently, the connected miscellaneous petition is closed.”
Sanjeev Sirohi