Allowing Retention Of Seized Property Without Strictly Following PMLA Undermines Purpose Of Procedural Safeguards: Delhi High Court

The Delhi High Court on Friday ruled that allowing retention of seized property without strict adherence to PMLA provisions would amount to a violation of the legislative mandate of the enactment and would undermine the very purpose of incorporating procedural safeguards therein.A division bench comprising Justice Subramonium Prasad and Justice Harish Vaidyanathan Shankar said that the processes of search, seizure, freezing, attachment, and retention under PMLA are embedded with procedural safeguards to ensure that state action is not only lawful but also proportionate and subject to independent scrutiny.“Therefore, 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 Court said. Section 20 of PMLA allows an authorized officer to retain the property seized or frozen under the Act for a maximum of 180 days if such an officer believes that it is needed for adjudication under Section 8. As per the provision, the officer has to record the reasons for believing in writing and forward a copy of the order, along with supporting material, to the Adjudicating Authority. It further adds that unless the Adjudicating Authority allows further retention, the property has to be returned after expiry of 180 days. The Court observed that the provisions are not directory or mere procedural niceties but are substantive and mandatory in nature, adding that the statutory text leaves no scope for discretion or implied exceptions for retaining property or records without following the prescribed procedure.“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,” the Court said. It further observed that upon executing a search and seizure or passing a freezing order, the ED is statutorily obligated to immediately inform the Adjudicating Authority and forward the reasons recorded along with the relevant material.It said that within 30 days of such search, seizure, or freezing, the ED must file an Application before the AA for confirmation and adjudication. “Prior to the point in time when the power for confirmation of retention of the seized/ frozen property or records is required to be confirmed by the learned AA for the period beyond 180 days, in exercise of its powers under Section 8(3), the Provisions of Section 20(1) and Section 20(2) read with Section 20(3) would have to be necessarily held to be the power under which the seized goods are permitted to be retained for a period up to 180 days,” the Court said. “Therefore, after informing the learned AA under Section 17(2) and before filing the requisite application under Section 17(4), the ED, if it believes the retention of the seized or frozen property is necessary for adjudication under Section 8, would have to necessarily invoke Section 20,” it added.Further, the Court said that the Adjudicating Authority may allow continued retention or freezing only if it is satisfied that the property is prima facie involved in money laundering and is required for adjudication under Section 8.The Bench also said that the scope of Section 8(2) of the PMLA is not confined to the response and hearing of the parties but also includes all materials previously submitted by the ED, during and after the search, seizure and retention.“The decision of the learned AA is appealable before the learned AT, and if aggrieved by the decision of the learned AT, a further challenge may lie before the appropriate High Court. In case there is no order for retention, Section 20(3) provides that, upon expiry of the 180-day period, the property must be returned to the person from whom it was seized or whose property was frozen,” the Court said. It added that Section 20 of the PMLA was comprehensively amended, reflecting the legislature's intent to introduce a more robust and clearly delineated procedure concerning the retention of seized or frozen property.The Court said that substantive nature of the amendment implies that the provisions are not merely directory or procedural but are mandatory and of critical legal consequence. “If they were of lesser import, such comprehensive legislative substitution would have been unnecessary. Furthermore, the amendments to Section 20 triggered corollary changes across other provisions of the Act, reinforcing the view that the amended provisions form a central part of the scheme for lawful seizure and retention,” it said. The Bench dismissed an appeal filed by the Enforcement Directorate challenging an order passed by the Appellate Tribunal (PMLA) allowing an application seeking retention of seized properties of one Rajesh Kumar Agarwal. The Court rejected ED's contention The Appellant's contention that once the Adjudicating Authority confirms the seizure under Section 8 within the statutory period of...

Allowing Retention Of Seized Property Without Strictly Following PMLA Undermines Purpose Of Procedural Safeguards: Delhi High Court

Nupur Thapliyal

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