Delhi High Court: ED Cannot Bypass Due Process in Retaining Seized Property

Court Emphasizes Procedural Safeguards Under PMLA

The Delhi High Court has ruled that the Enforcement Directorate (ED) must strictly follow the procedures laid down in the Prevention of Money Laundering Act (PMLA) when seeking to retain seized or frozen property. The judgment reinforces that procedural safeguards are crucial to protect individuals’ rights from arbitrary retention of property.

A bench of Justice Subramonium Prasad and Justice Harish Vadiyanathan Shankar delivered the verdict on Friday, making it clear that ED cannot directly seek the adjudicating authority’s approval for retention without first issuing a formal order.

Requirement of a Formal Order Before Retention

According to the court, before the ED approaches the adjudicating authority, an authorised officer must pass a formal order explaining why retention for up to 180 days is necessary. Without this essential step, the adjudicating authority has no legal basis to determine whether the seized property is linked to money laundering.

The adjudicating authority, a quasi-judicial body appointed under Section 6 of the PMLA, is empowered to confirm whether seized or attached properties are involved in money laundering.

Case Background

The judgment came in response to ED’s plea challenging a February 2019 decision of the PMLA Appellate Tribunal. The tribunal had dismissed ED’s application to retain seized or frozen properties connected to an accused in a money laundering case.

The tribunal held that the process adopted by the agency did not conform to the scheme of the PMLA. The ED had argued that issuing a formal retention order was not a legal precondition and that provisions under Section 20 were directory rather than mandatory.

The accused’s counsel countered, stressing that a formal order of retention is a safeguard ensuring the adjudicating authority has complete details before granting ED the right to retain property for investigation.

Legal Framework Clarified

The High Court clarified the distinction between Section 17(4) and Section 20 of the PMLA:

  • Section 17(4): Requires an authorised ED officer to apply to the adjudicating authority within 30 days of search, seizure, or freezing, seeking permission for retention.

  • Section 20: Mandates that a separate, independent order by an authorised officer must justify retention of seized or frozen property for up to 180 days, pending adjudication.

The bench emphasized that the two provisions work together, and Section 20 cannot be bypassed.

Court’s Observations on Safeguards

Justice Shankar, authoring the ruling, stated that skipping the formal retention order would allow ED to bypass “procedural safeguards” designed by the legislature. Such shortcuts could result in harsh consequences for individuals whose properties were seized, undermining the rule of law.

The court observed:

  • Section 20 is a procedural safeguard to prevent misuse of ED’s powers.

  • Retention without compliance would violate the legislative mandate.

  • Any order passed without following the process would be legally void.

The court explained:
“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 such route wherein the provisions of Section 17(4) can be directly resorted to.”

Significance of the Ruling

This decision establishes that ED cannot short-circuit the law by directly invoking Section 17(4) for retention without complying with Section 20. It strengthens protections for individuals against arbitrary property retention, ensuring adherence to due process under PMLA.

By reinforcing procedural requirements, the ruling also highlights the judiciary’s role in balancing the state’s fight against money laundering with the fundamental rights of individuals.


Location: Pune, Maharashtra, India

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