FEMA Violation Not a Scheduled Offence Under PMLA, ED Cannot Freeze Assets Without Predicate Crime: Madras HC [Read Order]

The Madras High Court ruled that a violation under the Foreign Exchange Management Act (FEMA) cannot, by itself, trigger proceedings under the Prevention of Money Laundering Act (PMLA), as FEMA is not a scheduled offence under the Act. The Court held that in the absence of a predicate offence and proceeds of crime, the Enforcement Directorate (ED) lacked the jurisdiction to freeze the assets.

R.K.M Powergen Private Limited (RKMP), a company engaged in coal-based power generation, was one of the joint allottees of the Fatehpur East coal block in Chhattisgarh. No mining was carried out as the land was discovered to be part of a reserved forest.

The petitioner claimed that it had derived no benefit from the coal block allocation and could not have generated any proceeds of crime.

Read More: Karnataka HC directs to grant bail for offence u/s 4 of PMLA on Execution of Personal bond [Read Order]

Following the Supreme Court’s cancellation of various coal block allocations in 2014, the Central Bureau of Investigation (CBI) registered an FIR and later filed a closure report. However, the Special CBI Court directed further investigation.

The ED registered an Enforcement Case Information Report (ECIR) under the PMLA in 2015, alleging misrepresentation in the coal allocation and potential FEMA violations, including “round-tripping” of funds.

In 2022, the Madras High Court in W.P. No. 24700 of 2021 had already ruled that without proceeds of crime or a scheduled offence under PMLA, the ED’s investigation into the petitioner was without jurisdiction. In 2025, following the CBI’s supplementary charge sheet, the ED froze fixed deposits worth Rs. 901 crore belonging to the petitioner under Section 17(1A) of the PMLA.

The petitioner challenged the freeze in a fresh writ petition. The petitioner’s counsel argued that the coal block had not been mined, no revenue was earned from it, and the share premium transactions with the Malaysian joint venture partner had been duly reported to and approved by the Reserve Bank of India. They further submitted that FEMA violations, even if assumed, cannot form the basis for action under PMLA as FEMA is not a scheduled offence.

Read More: Arrest for Dealing of Illicit Drug: Jammu & Kashmir HC grants bail considering the Medical condition of Accused [Read Order]

The ED counsel argued that there were discrepancies in the company’s declared net worth during the coal block allocation process and alleged that public funds were misused through inflated share premiums and valuations. They argued that it had jurisdiction to investigate these aspects in light of the CBI’s supplementary charge sheet.

The division bench of Justice M.S. Ramesh and Justice V. Lakshminarayanan observed that the existence of a predicate offence is a mandatory requirement under PMLA. The court observed that the alleged FEMA violations or financial structuring issues cannot substitute for a scheduled offence.

The court held that the ED’s actions, without any linkage to actual proceeds of crime from a scheduled offence, amounted to a jurisdictional error.

The court explained that the PMLA is not a roving investigative tool and cannot be invoked unless the statutory preconditions namely, a scheduled offence and demonstrable proceeds of crime are met.

The court allowed the writ petition and quashed the ED’s freezing order, directing the release of the petitioner’s fixed deposits.

The Madras High Court held that FEMA violations cannot trigger PMLA proceedings, as FEMA is not a scheduled offence, and quashed the ED’s Rs. 901 crore asset freeze.