Limiting Judicial Review of PMLA Section 17 Searches: Procedural Compliance and Federalism Constraints

Introduction

In Tamil Nadu State Marketing Corporation Ltd (TASMAC) v. Directorate of Enforcement (2025 MHC 1037), the Madras High Court considered three writ petitions filed by TASMAC and the State of Tamil Nadu challenging search and seizure operations carried out by the Enforcement Directorate (ED) under Section 17 of the Prevention of Money Laundering Act, 2002 (PMLA). TASMAC sought (a) protection for its employees against alleged harassment, (b) a declaration that the search from 6–8 March 2025 was illegal for want of jurisdiction, and (c) a ruling that ED cannot investigate state‐territorial predicate offences without state consent. The Court was called upon to examine the procedural thresholds for PMLA searches, the scope of judicial review, the necessity of an underlying First Information Report (FIR), and the constitutional limits of federalism within special anti‐money‐laundering legislation.

Summary of the Judgment

On 23 April 2025, a two‐judge bench dismissed all three writ petitions, holding that:

Section 17(1) search and seizure requires only “reason to believe” recorded in writing—there is no requirement for an FIR or prior state consent.
Judicial review of a PMLA search is limited to verifying procedural compliance (i.e., that reasons were recorded in writing), and cannot probe the sufficiency of the underlying material at the investigation’s nascent stage.
Section 17 searches are categorically different from Section 19 arrests; the stringent safeguards for arrest do not apply to search operations.
ED need not share its internal Enforcement Case Information Report (ECIR) or reasons to believe with the searched party—the Adjudicating Authority will receive those reasons in sealed form under Section 17(2).
State limitations, including the requirement of state government consent or notification under Section 54(1)(j), cannot curtail the ED’s powers of search and seizure under Section 17.
Allegations of harassment or infringement of fundamental rights by detained TASMAC officers were unsubstantiated and cannot derail a lawful investigation.

Analysis

Precedents Cited

The Court extensively reviewed and distinguished prior decisions:

Vijay Madanlal Choudhary v. Union of India (2022 SCC Online SC 929): Upheld Section 17 searches post-2019 amendment removing the FIR‐requirement proviso; held ECIR is internal and need not be furnished to the accused.
ARVIND KEJRIWAL v. DIRECTORATE OF ENFORCEMENT (2024 INSC 400): Clarified the higher procedural threshold for arrest under Section 19 and affirmed that Section 19 safeguards cannot be imported into Section 17.
RADHIKA AGARWAL v. UNION OF INDIA (2025 SCC Online SC 449): Distinguished judicial scrutiny of “reason to believe” in arrests—sufficiency of materials is not open to early-stage judicial review.
Justice K.S. Puttaswamy v. Union Of India (2017 10 SCC 1): Validated reasonable restrictions on privacy for crime detection and revenue protection; affirmed that privacy under Article 21 is subject to fair, just, reasonable procedure.

Legal Reasoning

The Court’s reasoning can be dissected into key pillars:

Section 17 “Reason to Believe”
- Only requires a recorded “reason to believe” based on information in possession; the Court’s review is limited to checking the existence of such writing.
- Sufficiency or adequacy of the underlying material is not examined at the search stage, lest the very purpose of search—to gather evidence—be defeated.
- Unlike Section 19 arrests, Section 17 searches carry a lower threshold of certainty: “reason to suspect” once reasons to believe are recorded.
No FIR Requirement
- 2019 amendments deleted the proviso requiring a Section 157 CrPC report or FIR before PMLA searches.
- Aligning with Vijay Madanlal, the Court refused to re-import deleted procedural prerequisites.
Internal Documents and Confidentiality
- ECIR and reasons to believe are internal, confidential records; disclosure risks jeopardising ongoing investigations.
- Section 17(2) mandates forwarding sealed reasons to the Adjudicating Authority, where an affected party can challenge them.
Federalism and State Consent
- PMLA is a special, self-contained statute extending nationwide; ED’s search-seizure powers cannot be conditioned on state government consent.
- Section 54(1)(j) places a duty on state authorities to assist ED, but does not confer a veto over ED’s Section 17 powers.
Fundamental Rights and Harassment Claims
- Detention of public servants during a lawful search is neither “arrest” nor “illegal confinement”; it is an incidental, procedural necessity to prevent evidence tampering.
- No credible material—panchnama, independent Panch witness attestations, or individual complaints—substantiated harassment or violation of privacy beyond reasonable restrictions under PMLA and CrPC.

Impact

This landmark ruling will shape future PMLA investigations:

It affirms ED’s autonomy in conducting surprise searches nationwide without state interference.
Limits judicial review to procedural compliance—courts will no longer probe the merits of “reason to believe” at the search stage.
Confirms that PMLA’s privacy intrusions, including mobile phone seizures, are reasonable restrictions aimed at crime detection.
Strengthens the integrity of evidence collection by protecting ED’s internal records from premature disclosure.
Deters frivolous challenges alleging “harassment” or “federal overreach” when state-owned entities or employees face lawful ED action.

Complex Concepts Simplified

“Reason to Believe” vs. “Reason to Suspect”: A “reason to believe” (recorded in writing) triggers Section 17 search; thereafter, officers need only “reason to suspect” to execute the search.
Section 17 vs. Section 19: Section 17 deals with property‐focused search and seizure—lower threshold and less intrusive—whereas Section 19 pertains to personal liberty (arrest), demanding higher safeguards and greater judicial oversight.
Scheduled Offence: An offence under designated entries (Schedule of PMLA) that must precede a money-laundering investigation; post-2013 amendments removed monetary thresholds for most scheduled offences.
Federalism Constraints: While criminal law is a concurrent subject, special statutes like PMLA vest central agencies with clear nationwide powers that cannot be nullified by individual states.
ECIR and Confidentiality: ED’s internal investigative report—akin to a police diary—is not equated with an FIR and need not be furnished, preserving operational secrecy.

Conclusion

The Madras High Court’s decision in TASMAC v. Directorate of Enforcement crystallises the procedural contours of PMLA Section 17 searches and clarifies the limited ambit of judicial review. By distinguishing search from arrest, rejecting state consent requirements, and affirming the confidentiality of ED’s internal records, the Court has ensured that anti‐money-laundering investigations remain swift, discreet, and effective. This ruling not only safeguards the ED’s operational autonomy but also reaffirms the constitutional balance between individual rights and the collective interest in combating economic crime.