Tamil Nadu: ED slaps Rs 908 crore fine on DMK leader Jagathrakshakan, confiscates Rs 89 crore worth properties

CHENNAI: In a significant move, the Enforcement Directorate (ED) has levied a hefty fine of ₹908 crore on senior DMK leader and former Arakonam Lok Sabha MP, S Jagathrakshakan, for violations under the Foreign Exchange Management Act (FEMA). Additionally, the agency has confiscated immovable properties worth Rs 89.19 crore belonging to the MP and his family members. These properties had been previously seized by the ED in 2020.

The ED’s investigation into Jagathrakshakan and his family members revealed violations of FEMA, prompting the imposition of the substantial fine and the confiscation order. The ED took to social media platform X to announce the decision, stating, “ED, Chennai had conducted investigation under FEMA against Jagathrakshakan, a businessman from Tamil Nadu and Member of Parliament, his family members, and related Indian entity. The properties worth Rs 89.19 crore which were seized in terms of Section 37A of FEMA were also ordered for confiscation, and a penalty of Rs 908 crore (approx.) is levied vide Adjudication Order passed on 26/08/2024.”

This development comes just as Tamil Nadu Chief Minister MK Stalin is preparing to visit the United States to attract investments for the state. The timing of the ED’s action against a prominent DMK leader is likely to have political ramifications and could impact the party’s image ahead of the CM’s investment drive abroad.

The ED, in a press release, stated that the case dates back to a complaint filed on December 1, 2021, against Jagathrakshakan, his family members, and their associated entities. The complaint accused them of various FEMA violations, particularly concerning an investment of ₹42 crore into a shell company in Singapore in 2017. The acquisition and subsequent transfer of Singapore foreign shares among family members were carried out in violation of FEMA regulations.

Additionally, the ED’s investigation uncovered an investment of approximately ₹9 crore in a Sri Lankan entity, which was also conducted in breach of FEMA guidelines. The ED emphasized that the Adjudication Proceedings under FEMA were completed after following the due process of law. The Adjudicating Authority carefully examined the alleged violations and the written replies from the accused. The violations were found to be “clearly proved,” leading to the imposition of the fine and confiscation order.

In 2020, the ED had initially conducted a probe under FEMA against Jagathrakshakan, his family, and their Indian entity, resulting in the seizure of properties. However, a competent authority had set aside the seizure order the same year. The ED then filed an appeal with the appellate tribunal and continued its investigation during the pendency of the appeal.

The case was taken up by the Adjudicating Authority, which accused Jagathrakshakan and his family of acquiring and transferring shares of a Singapore-based foreign company in violation of FEMA. In response, Jagathrakshakan filed a petition in the Madras High Court challenging the Adjudicating Authority’s power to proceed with the probe after the competent authority had set aside the seizure order. However, the High Court ruled in July 2024 that the competent authority’s order would not interfere with the Adjudicating Authority’s power, leading to the dismissal of Jagathrakshakan’s petition.

In a press release, the ED stated that the investigation revealed significant violations of FEMA provisions. Specifically, the DMK leader and his associates were found to have made an investment of Rs 42 crore into a Singapore-based shell company, Silver Park International Pte Ltd, in 2017. This investment was made without obtaining the necessary approval from the Reserve Bank of India (RBI). Additionally, they were accused of acquiring and holding 90 lakh foreign shares in contravention of FEMA regulations.

The ED further detailed that a complaint was filed on December 1, 2021, which led to the issuance of a show-cause notice on December 22, 2021. The accused were offered the opportunity for a personal hearing on multiple occasions, which was attended by their counsel. Subsequently, the accused filed individual writ petitions in the Madras High Court, challenging the ED’s actions. However, on December 30, 2021, a single bench of the court ruled that the order passed by the competent authority (CA) regarding the seizure of assets would not interfere with the adjudication process by the Adjudicating Authority (AA).

Following this, the accused appealed to a division bench of the Madras High Court, which, on July 23, 2024, also dismissed the writ appeals, thereby upholding the ED’s actions. The ED completed the adjudication proceedings under FEMA, following due process of law. Upon careful examination of the alleged violations and the written replies filed by the accused, the adjudicating authority found the violations to be clearly proven. Consequently, penalties were imposed for each violation, and the properties worth ₹89.19 crore, previously seized under Section 37A of FEMA, were ordered to be confiscated.

In recent months, the ED, along with the Income Tax department, conducted multiple raids on properties and residences belonging to Jagathrakshakan. These raids were part of a broader investigation into allegations of illegal financial transactions and other irregularities. Notably, Jagathrakshakan had been previously implicated in the 2012 coal scam in Tamil Nadu, where he was accused of facilitating illegal coal allocations to one of his companies. Over 40 properties were searched as part of the ongoing investigation.

Jagathrakshakan, a former AIADMK leader who switched to the DMK, has had a significant political career, being elected three times from the Arakkonam constituency since 1999. He is also a prominent businessman, serving as the chairman of Shree Balaji Medical College and Hospital, and owning Dr. Rela Hospital and Institute, as well as several hotels. His meteoric rise in wealth has been a subject of scrutiny; in 2009, he declared assets worth ₹5 crore, which skyrocketed to ₹70 crore by 2011, marking the highest percentage increase in assets among all ministers in the central cabinet at the time.

The ED’s investigation also uncovered Jagathrakshakan’s involvement in a multi-billion dollar oil refinery project in Sri Lanka’s Hambantota region, announced in 2019. The DMK MP’s two children and wife were listed as directors of the company behind the investment, with allegations that Jagathrakshakan’s entity was funding 70 per cent of the project. This overseas investment further attracted the ED’s attention, prompting the agency to pursue charges under FEMA.