New Delhi: The Delhi High Court has ruled that the Enforcement Directorate (ED) must strictly adhere to procedural safeguards under the Prevention of Money Laundering Act (PMLA) when retaining seized or frozen property.
The court emphasised that retention cannot be arbitrary and must be backed by a formal order from an authorised officer.
A division bench of Justices Subramonium Prasad and Harish Vaidyanathan Shankar delivered the judgment on Friday, holding that before approaching the adjudicating authority, the ED must issue a reasoned order justifying why property needs to be retained for up to 180 days. Without this, the adjudicating authority cannot lawfully decide whether the property is linked to money laundering.
Safeguards Cannot Be Bypassed
The adjudicating authority under Section 6 of PMLA—constituted as a quasi-judicial body—plays a key role in determining whether attachments and seizures made by the ED have a legitimate nexus to money laundering. The court clarified that skipping the requirement of a retention order undermines this framework.
“Section 20 is a procedural safeguard concerning the retention of seized or frozen property. Permitting retention by bypassing it would violate the legislative mandate and undermine the very purpose of incorporating safeguards under PMLA,” the court observed.
Background of the Case
The ruling came in response to the ED’s challenge against a February 2019 order of the PMLA appellate tribunal, which had dismissed the agency’s plea to retain seized assets linked to an accused in a money laundering case. The tribunal had held that the procedure adopted by the ED was inconsistent with the Act’s requirements.
In its petition, the ED argued that a separate formal order was not a legal prerequisite and that the requirements under Section 20 were directory rather than mandatory. However, counsel for the accused contended that the retention order was crucial to ensure that the adjudicating authority had sufficient information before granting extended retention for investigation.
Legal Clarification
Section 17(4) of PMLA requires an authorised officer to file an application before the adjudicating authority within 30 days of a seizure or freezing order to seek retention. Section 20, meanwhile, mandates that a separate order must be passed, stating why retention for up to 180 days is necessary.
In its 41-page ruling authored by Justice Shankar, the bench underscored that bypassing this requirement would have “serious and potentially harsh consequences” for individuals whose property is seized. “Post the action of seizing or freezing under Section 17, the baton would be handed over to the provisions of Section 20. The statute does not provide for any route wherein Section 17(4) can be directly resorted to,” the judgment stated.
The verdict reinforces that procedural checks are integral to preventing arbitrary action and safeguarding the rights of individuals while allowing the ED to pursue its mandate against money laundering.
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