SC raises questions on federal structure on ED's probe into liquor retail scam in Tamil Nadu

New Delhi: The Supreme Court on Tuesday raised questions over the Enforcement Directorate's investigation against the Tamil Nadu State Marketing Corporation Limited, while extending its interim order restraining the central agency from taking coercive action, including search, seizure or investigation, in the liquor retail scam.

Flagging issue of federal structure, a bench of Chief Justice of India B R Gavai and Justice K Vinod Chandran put the break on the ED's action till review petition against the judgment upholding validity of the Prevention of Money Laundering Act was decided.

Senior advocate Kapil Sibal, representing TASMAC, contended that the state vigilance had filed 47 FIRs against liquor outlet operators over allegations of corruption from 2014-21, but ED entered the scene in 2025 and raided the headquarters and took the phones and devices of the officers.

He asked who is ED to investigate corruption?

Additional solicitor general S V Raju, representing the ED, said the central agency is not investigating corruption and it is only probing money laundering, and TASMAC is making wild allegations.

Citing ED’s counter affidavit, Sibal asked that to claim that regional managers of TASMAC are indulging in bribes for transfer, what does it have to do with ED? 

Officers of district managers and senior managers are indulging in high-level corruption, what does that have to do with ED, Sibal further asked.

He said they have not gone to any regional manager or district authority, and they have not gone to the breweries, and they only raided the corporate office.

Raju said the state vigilance had registered the FIR, and hence, the existence of predicate offence was undenied. The bench was informed that the ED investigation found evidence regarding money laundering and the state was protecting the officers.

The bench asked Raju, "What happens to the federal structure? Law and order have to be worked within its own domain….". 

Raju said the central agency has found incriminating offences.

The bench asked if the ED investigation would not infringe upon the right of the state to investigate the matter? 

"Would it not amount to encroachment upon the right of the state to investigate?

The bench further queried, “In every case, when you find that the state is not investigating the matter, you will go and do it yourself?" Raju said federalism arguments were being made to conceal the corruption. He claimed that there was large-scale corruption. The bench asked if the agencies in the state are silent in the matter. The bench was informed that the state had closed 37 FIRs in a short time, and they are trying to cut off the ED by closing the FIRs one by one.

"Last six years we have had the opportunity to deal with many cases of ED...I don't want to say more, last time I said something, it was reported everywhere," the CJI said.

On May 22, this year, a bench led by CJI had observed that the ED is totally violating the federal structure of the country and the central agency is crossing all limits, while putting on hold the investigation and raid of the ED against the TASMAC. The apex court today decided to post the matter after the review petitions against the 2022 Vijay Madanlal Choudhary judgment, which upheld the provisions of the Prevention of Money Laundering Act relating to arrest, search, ECIR, etc. is decided. TASMAC had cited non-supply of the ECIR. The Vijay Madanlal judgment had held that need not be supplied to the parties. The court said that it is bound by a three-judge bench Vijay Madanlal judgment. 

The CJI, in a lighter vein, said "I don't know when it will be decided, from the last three years I have been hearing the review is being heard…” Sibal said they are trying very hard.