In a significant judgment, the Delhi High Court held that retention of seized or frozen property under the Prevention of Money Laundering Act, 2002 (PMLA) cannot be sustained unless the strict procedure laid down under Section 20 of the PMLA is followed. The Court emphasised that procedural safeguards form the backbone of the PMLA and any attempt to bypass them would not only defeat the legislative mandate but also undermine the very purpose of incorporating such safeguards.
Brief Facts:
The case arose from an ECIR registered by the Directorate of Enforcement (ED) on the basis of a complaint filed by the Serious Fraud Investigation Office. In May 2017, the ED conducted a search at the office of Rajesh Kumar Agarwal and seized 59 files, a laptop, three hard drives, and Rs. 6 lakh in cash. In compliance with Section 17(2) of the PMLA, the reasons recorded for the search were forwarded to the Adjudicating Authority (AA). Subsequently, in June 2017, the ED filed an application under Section 17(4) of the PMLA, seeking retention of the seized property, and in July 2017, it also filed a prosecution complaint. Later on, in August 2017, the AA confirmed the retention of seized property. However, on appeal, the Appellate Tribunal (PMLA) set aside the AA’s order. Aggrieved, the ED filed the present appeal before the Delhi High Court.
Contentions of the Appellant :
The ED contended that once the Adjudicating Authority had confirmed the seizure under Section 8 of the PMLA, within the statutory period of 180 days, any alleged non-compliance with Section 20 of the PMLA would be of no consequence. It argued that Section 20 of the PMLA was merely directory and not mandatory, and therefore, even if the procedure was not strictly followed, the retention order could not be invalidated. It was further argued that the objection regarding Section 20 of the PMLA was not raised before the Adjudicating Authority, and in any event, the Appellate Tribunal ought to have remanded the matter back to the AA rather than quashing the retention order altogether.
Contentions of the Respondent:
The respondent argued that Section 20 of the PMLA lays down a mandatory procedure requiring the authorised officer to record reasons in writing and forward the retention order along with supporting material to the Adjudicating Authority. Unless this is done, the seized property cannot be lawfully retained beyond the initial search. It was submitted that Section 17(4) of the PMLA cannot substitute the mandatory safeguards of Section 20 of the PMLA. The respondent further relied on the settled principle that an order bad in inception cannot be validated by subsequent actions, and contended that the Adjudicating Authority’s order was mechanical and unsustainable as it lacked any independent reasoning or application of mind.
Observations of the Court:
The Court examined the scheme of the PMLA and held that “if Section 20 stipulates a defined mechanism for the retention of seized property or records, it is imperative that such procedure is strictly followed.” The Bench clarified that the retention of seized property up to 180 days is permissible only under Section 20 of the PMLA, which mandates recording of reasons in writing and forwarding them to the Adjudicating Authority.
The Court further observed, “Allowing retention of seized property without strict adherence to these provisions would amount to a violation of the legislative mandate and would undermine the very purpose of incorporating procedural safeguards in the PMLA.” It explained that Section 8(3) of the PMLA comes into play only for confirmation of retention beyond 180 days and cannot operate as a substitute for the mandatory procedure under Section 20 of the PMLA.
The Bench rejected the ED’s contention that non-compliance with Section 20 of the PMLA would be immaterial once an adjudication under Section 8 of the PMLA has commenced. It held, “Such an interpretation would, in our opinion, run contrary to the express mandate of the Statute, as resort to Section 17(4) without referral or resort to the Provisions of Section 20, would effectively render the provisions of Section 20 nugatory.”
The Court emphasised that the amendments to Section 20 of the PMLA were substantive in nature and reflected Parliament’s intent to strengthen procedural safeguards. It reiterated that “the exercise of such coercive powers must strictly conform to the statutory checks and balances provided within the Act.”
The decision of the Court:
In light of the foregoing discussion, the Court dismissed the appeal filed by the Enforcement Directorate and upheld the decision of the Appellate Tribunal. It held that the Adjudicating Authority’s order was unsustainable as it failed to comply with the mandatory procedure under Section 20 of the PMLA. The Bench ruled that retention of seized property without adherence to these provisions is invalid in law. Consequently, the appeal was dismissed and the order of the Appellate Tribunal, which had set aside the AA’s confirmation of retention, was affirmed.
Case Title: Directorate Of Enforcement Through Assistant Director Delhi Vs. Rajesh Kumar Agarwal
Case No: Misc. Appeal (PMLA) 03/2023 & Crl. M.A. 34701/2019 & Crl. M.A. 38804/2019
Coram: Justice Subramonium Prasad, Justice Harish Vaidyanathan Shankar
Advocate for Appellant: Adv. Samrat Goswami
Advocate for Respondent: Advs. Amit Khemka, Sandeep Dash, Himani Singh, Jeevika Dhyani,
