ED Cannot Freeze Property on Mere Suspicion: Delhi High Court

November 14, 2025

Introduction

The Delhi High Court has delivered a significant ruling reinforcing the constitutional right to property and the statutory safeguards built into the Prevention of Money Laundering Act, 2002 (PMLA). The court held that the Enforcement Directorate (ED) cannot freeze or attach property based merely on suspicion; instead, it must show valid and recorded “reasons to believe” supported by material evidence. The judgment provides important clarity on the limits of ED’s powers and the legal standards required for deprivation of property.

Statutory Framework Under PMLA

Section 17(1): Search and Seizure – Requirement of “Reasons to Believe”

Section 17(1) of the PMLA empowers ED officers to enter and search premises and seize records or property. However, this power is conditional.
The officer must possess “reasons to believe” that:

A person has committed an offence under the Act, or
The person is in possession of proceeds of crime.

These reasons must be recorded in writing, ensuring transparency and accountability.

Section 17(1A): Freezing of Property When Seizure is Not Practicable

Section 17(1A) allows freezing of property or assets instead of physical seizure, but only when seizure is not practicable.
Although the phrase “reasons to believe” is not explicitly mentioned, the High Court clarified that this provision cannot be interpreted in isolation. Since freezing is an alternative to seizure, the same evidentiary threshold applies.

Section 8(3)(a): Duration of Attachment

The court also examined Section 8(3)(a), which regulates the duration of attachment or freezing. Importantly, this section governs only the validity period of an already authorised attachment, not the timeframe or manner of investigation.

Constitutional Provision: Article 300A

Right to Property as a Constitutional Right

Article 300A of the Constitution states that no person shall be deprived of their property except by authority of law. Although no longer a fundamental right, it remains a constitutional right and can be enforced through writ jurisdiction.

The court emphasised that freezing a bank account results in deprivation of property. Such deprivation can occur only when statutory safeguards are strictly followed. Any deviation violates Article 300A.

Judicial Findings of the Delhi High Court

Suspicion vs. Reason to Believe

The bench of Justices Subramonium Prasad and Harish Vaidyanathan Shankar categorically held that:

“Suspicion” is a subjective state of mind with minimal or no basis.
“Reason to believe” requires an objective assessment grounded in material such as documents, evidence, or statements.

Thus, suspicion cannot be elevated to a legal standard to justify freezing.

Freezing Cannot Have a Lower Threshold

The court clarified that Section 17(1A), although not explicitly using the phrase “reasons to believe”, must be read with Section 17(1). Freezing, being an alternative to seizure, cannot have a lower or separate threshold.
Any contrary interpretation would defeat constitutional and statutory protections.

Case Background and Findings

Tribunal’s 2019 Orders

In 2019, the PMLA Appellate Tribunal set aside the freezing of two bank accounts belonging to a woman whose husband was arrested in connection with a bank fraud of more than ₹5,000 crore. Her accounts contained ₹6.45 lakh.

The tribunal found:

Orders were based solely on suspicion.
The woman was not an accused in the predicate offence.
Investigation was not completed within the mandated 90 days.
No material was produced to justify the ED’s “reasons to believe”.

ED’s Appeal Dismissed

Before the High Court, ED argued that the freezing was supported by sufficient reasons and that adjudicating authority proceedings were civil in nature.
However, the woman’s counsel contended that no material existed at the time of freezing.

The High Court upheld the tribunal’s orders, calling the ED’s freezing directions “cryptic” and unsupported by evidence.

Judicial Precedents Relevant to “Reasons to Believe”

Vijay Madanlal Choudhary v. Union of India (2022)

The Supreme Court held that powers under PMLA must comply with procedural safeguards. “Reason to believe” is an indispensable condition for intrusive actions.

Maneka Gandhi v. Union of India (1978)

Although not a PMLA case, this judgment reinforces that any action affecting personal liberty or property must be fair, just, and reasonable.

State of Gujarat v. Mohanlal Jitamalji Porwal (1987)

The Supreme Court emphasised that constitutional rights cannot be curtailed without strict adherence to statutory safeguards.

Directorate of Enforcement v. Deepak Mahajan (1994)

Clarified that enforcement agencies must act strictly within statutory boundaries.

These precedents collectively underscore that intrusive powers—search, seizure, freezing—must rest on concrete, recorded reasons.

Key Takeaways

1. “Reasons to Believe” is Mandatory

ED must record and justify its belief based on material evidence.

2. Suspicion is Not Enough

Suspicion cannot justify freezing of bank accounts or assets.

3. Freezing = Seizure Alternative

Therefore, the same statutory threshold applies.

4. Article 300A Protects Property

Any violation amounts to unconstitutional deprivation.

5. Non-Accused Person’s Property Can Be Frozen

However, ED must still meet all legal requirements.

Conclusion

The Delhi High Court’s ruling is a strong reminder that investigative powers, especially those that impact property rights, must be exercised with caution and in full compliance with statutory mandates. The decision reiterates that suspicion, however strong, is not sufficient under the PMLA. Only a well-founded, objectively supported “reason to believe” can justify freezing of assets. This judgment not only protects citizens from arbitrary deprivation of property but also reinforces the rule of law and limits on executive power.