SC Halts ED’s Action on Tamil Nadu Liquor Body, Flags Threat to Federalism and Privacy

New Delhi— In a sharp rebuke to the Enforcement Directorate (ED), the Supreme Court on Thursday stayed further investigation and raids by the central agency against the Tamil Nadu State Marketing Corporation (TASMAC), questioning the legality of treating a state-run corporation as a criminal offender.

A bench comprising Chief Justice of India (CJI) BR Gavai and Justice AG Masih was hearing petitions filed by the State of Tamil Nadu and TASMAC, challenging the Madras High Court’s decision to allow ED’s searches to proceed.

The matter stems from an alleged Rs. 1,000 crore scam in Tamil Nadu's liquor distribution network. The ED alleges that distillery companies siphoned off large sums as unaccounted cash, which were allegedly used to secure additional supply orders from TASMAC. It also accused TASMAC outlets of overcharging customers and senior officials of corruption.

ASG Raju argued that the ED had jurisdiction, citing 41 FIRs lodged between 2014 and 2021 by the Tamil Nadu Directorate of Vigilance and Anti-Corruption (DVAC). He claimed that politicians were being shielded and described it as a case of “major fraud.”

However, Senior Advocate Kapil Sibal, appearing for the state, countered that the FIRs were already being acted upon by state agencies, and none targeted the corporation itself.

Senior Advocate Mukul Rohatgi, representing TASMAC, added that the ED’s actions had infringed on the privacy of officials. “They took cloned copies of our officers’ phones. This is a breach of privacy,” he argued, seeking restrictions on the agency’s use of the data.

Despite concerns raised about privacy, the Court declined to pass immediate directions on the use of the data, noting that interim relief had already been granted. It did, however, issue notice to the ED and stayed further proceedings against TASMAC and the state.

The larger question raised by the Court was not just about legality, but about the constitutional relationship between the Centre and the States. “You may register against individuals, but a criminal case against the corporation?” CJI Gavai asked, casting doubt on the foundational legitimacy of the ED’s actions.

The ED’s widening footprint—particularly in states governed by opposition parties—has drawn increasing judicial scrutiny. In this case, the Court’s criticism suggested a tipping point: that what might once have been viewed as aggressive investigation is now being questioned as a violation of federal norms.

The political implications are difficult to ignore. While the ED insists that it is probing a Rs. 1,000 crore scam with deep links to corruption and political patronage, the timing and nature of its involvement—especially after years of state-level action—has led to accusations of selective enforcement.

The Court also asked a critical legal question: “Where is the predicate offence?”—referring to the requirement that an underlying crime must exist before the ED can invoke money laundering provisions.

Though the ED claims it is acting on the same FIRs filed by the state’s vigilance agency, the state government argues that central involvement this late in the process undermines federal authority and amounts to a political intrusion.

The Supreme Court’s decision to stay ED proceedings against TASMAC sends a broader institutional message: that the unchecked use of federal investigative power—particularly when it touches state-controlled bodies—must be subjected to judicial scrutiny.

As the ED prepares its detailed response, what began as a probe into alleged corruption has morphed into a larger constitutional moment. The case now stands as a test of how far central agencies can go in pursuing their mandate—and whether judicial oversight can still act as a check on executive excess.