The Supreme Court on Monday struck down a money laundering case linked to the alleged Chhattisgarh liquor scam, holding that no scheduled offence was established for the Enforcement Directorate to proceed under the Prevention of Money Laundering Act (PMLA).

The ED probe in the case unfolded against the backdrop of political tensions between the then Congress-led state government and the Bharatiya Janata Party-led central government, with the former accusing the Centre of using the agency to attack its leaders and sabotage its governance.

The Congress has since been unseated from the state as the BJP won an absolute majority in the assembly elections last December.

Former chief minister Bhupesh Baghel said on Monday that the ruling exposed the Narendra Modi government’s “political misuse” of federal investigative agencies. “Just before the assembly elections, ED registered a case of liquor scam and gave BJP a campaign weapon. BJP tried to defame the Congress government throughout the elections.Today the SC decision has made it clear that the BJP was just spreading lies,” he wrote on X (formerly Twitter).

Citing its precedent in a 2023 case known as the Pavana Dibbur ruling, the court underscored that invoking PMLA using conspiracy charges unrelated to a scheduled offence is impermissible. The bench noted that ED cannot proceed based on an income tax violation since those offences are not categorised as scheduled under PMLA.

“As there is no scheduled offence, as held in the aforesaid decision (Pavana Dibbur), there cannot be any proceeds of crime…If there are no proceeds of crime, obviously offence under Section 3 of PMLA is not made out,” noted a bench comprising justices Abhay S Oka and Ujjal Bhuyan.

In the Dibbur ruling, the court declared that criminal conspiracy can be charged under PMLA only when it relates to an enlisted scheduled offence. PMLA enumerates specific offences, including those under the Indian Penal Code (IPC), Narcotic Drugs and Psychotropic Substances (NDPS) Act and others with cross-border implications.

The development on Monday signifies the Supreme Court’s role in clarifying and as well as limiting the extent of enforcement powers under PMLA, aligning them with broader legal and constitutional principles. By nixing the ED complaint in the Chhattisgarh liquor scam case, the court has solidified the legal position that the agency cannot enter at will without there being a foundational offence mentioned under PMLA. Importantly, a few other states not run by the BJP, including as West Bengal and Tamil Nadu, have filed complaints with the Supreme Court, which is currently reviewing a number of these cases, protesting the ED’s purported overreach.

While additional solicitor general (ASG) SV Raju, representing ED, contended that it was premature to quash the complaints without the special court’s cognisance, the court deemed it immaterial whether cognisance had been taken because the complaints were inherently unsustainable due to the absence of a money laundering offence.

“In this case, ex facie a scheduled offence is not in existence. Therefore, there can’t be proceeds of crime. Hence, it follows that there cannot be an offence under Section 3 of PMLA. Therefore, no purpose is served by directing the special court to apply its mind in accordance with Section 203 read with Section 204 of the Criminal Procedure Code (CrPC),” the bench held. The CrPC provisions entail scrutiny of a complaint by a magistrate to decide whether materials on record merit issuance of summons or dismissal of the case.

The controversy arose from allegations of corruption within Chhattisgarh’s liquor industry, implicating officials and influential functionaries. ED alleged there were irregularities between 2019 and 2022 when officials of the state-run liquor retailer, CSMCL, took bribes from distillers.

The then Congress-led state government accused the BJP-led central government of using ED to target its leaders. The Centre defended ED’s actions as upholding the law.

“All the cases registered by ED during Congress rule were fake and had no basis,” said Shushil Anand Shukla, Congress chief spokesperson on Monday.

BJP chief spokesman Ajay Chandrakar said, “We will definitely follow the SC judgment, but we will investigate the suitable cases with our investigating agencies.”

During Monday hearing, ASG Raju submitted that there is a subsequent predicate offence, registered in Uttar Pradesh, against the petitioners, and that ED will be filing a complaint regarding the said offence. The bench clarified that it was not commenting on future complaints, as its concern was solely with the present complaint.

The court protected the accused from arrest for three weeks to allow them to seek relief from the Allahabad high court. It noted ED has been acting without court cognisance of a predicate offence.

The issue of not having a predicate offence in the matter has consistently perturbed the Supreme Court even as ED went on making several arrests in the case.

In July 2023, the top court restrained the agency from investigating further or taking any coercive measures in connection with the alleged liquor syndicate scam, noting that ED has so far been acting without any court having taken cognisance of a predicate offence under the anti-money laundering law. A predicate offence is the foundational criminal offence that generates illegal proceeds of crime, leading to a separate probe by ED.

Later that month, in July, ED files a case in Noida, Uttar Pradesh, naming a Noida-based company for supplying fake holograms for alleged use in Chhattisgarh liquor sales.

ED initiates prosecution under the Prevention of Money Laundering Act (PMLA) predicated on a base FIR registered by CBI or any other law enforcement agency. ED registers an Enforcement Case Information Report (ECIR) in order to probe the cases of money laundering related to the proceeds of crime which have been committed prior and an FIR for such an offence already exists. If the base FIR is quashed or the accused is exonerated of the charges, ED cannot continue its probe under PMLA, the Supreme Court held in its 2022 judgment in the Vijay Madanlal Chaudhary & Others v Union of India case.