DELHI HIGH COURT: NON-COMPLIANCE WITH SECTION 20 OF PMLA MAKES RETENTION OF PROPERTY ILLEGAL

FACT OF CASE

The Enforcement Directorate (ED) initiated proceedings based on a complaint from the Serious Fraud Investigation Office alleging large-scale money laundering operations through shell companies. Certain individuals, referred to as the Jain Brothers, were accused of routing unaccounted cash into corporate entities disguised as share subscription at high premiums. The respondent, a professional, was accused of acting as a mediator in the transactions. A search of his office premises led to seizure of files, digital devices, and cash. The Adjudicating Authority initially allowed retention of these assets, but this was overturned by the Appellate Tribunal. The ED then appealed to the High Court.

ISSUE BEFORE THE COURT

The core legal issue was whether property seized under Section 17 of the Prevention of Money Laundering Act, 2002, could be lawfully retained without compliance with Section 20. The Court also examined whether procedural lapses could be cured by later confirmation under Section 8(3), and whether delay in refiling the appeal affected its maintainability.

PROCEDURAL HISTORY

The Adjudicating Authority (AA) confirmed retention of seized assets. On appeal, the Appellate Tribunal (AT) set aside the AA’s order, holding it lacked reasoning and failed to conform to statutory requirements. The ED then approached the High Court under Section 42 of PMLA.

CONTENTIONS BY PETITIONER

The ED argued that once a prosecution complaint was filed and cognizance taken by the Special Court, retention automatically continued. It was claimed that Section 20 compliance was unnecessary since adjudication had already been concluded within 180 days. ED further asserted that Section 20 is directory, not mandatory, and the Tribunal should have remanded the case back instead of setting aside the AA’s order.

CONTENTIONS BY RESPONDENT

The respondent opposed maintainability due to delay beyond the prescribed 60 days. On merits, it was argued that strict compliance with Section 20 was mandatory. The respondent stressed that orders passed without statutory safeguards were bad in inception and incapable of being cured later. It was further argued that PMLA being a special legislation, any departure from procedure vitiates the process, and remand was impermissible after the expiry of the statutory period of retention.

COURT OBSERVATIONS

The High Court held that Section 20 lays down a substantive safeguard and cannot be treated as a mere formality. Section 8(3) operates only to confirm an existing order of retention; it cannot be invoked in absence of a valid retention order under Section 20. The Court clarified that seizure under Section 17 must be followed by an order of retention with recorded “reason to believe,” failing which the process is void ab initio. The Court also held that while the delay in refiling existed, it was condoned since the initial filing was within time.

RELEVANT CASE LAW & LAW DISCUSSION

The Court relied on Vijay Madanlal Choudhary v. Union of India (2023) to discuss the continuation of seizure during pendency of prosecution. It cited State of Orissa v. Mamta Mohanty (2011) and Ritesh Tewari v. State of U.P. (2010) to establish that orders void at inception cannot be validated later. It also referred to Laxman Lal v. State of Rajasthan (2013) and Sukh Dutt Ratra v. State of H.P. (2022) to underscore the constitutional guarantee of property rights under Article 300A. In relation to condonation of delay, the Court considered Perumon Bhagvathy Devaswom v. Bhargavi Amma (2008) and Northern Railway v. Pioneer Publicity (2017), which distinguish delay in refiling from delay in initial filing.

INTERPRETATION OF PMLA PROVISIONS

The Court held that bypassing Section 20 amounts to circumventing legislative safeguards, making the ED’s action unlawful.The judgment undertakes a detailed analysis of Sections 17, 20, and 8 of PMLA. It explains that:

• 1. Section 17 deals with search and seizure, followed by immediate intimation to the Adjudicating Authority.
• 2. Section 20 mandates recording reasons to retain seized property for 180 days, which is a precondition to adjudication.
• 3. Section 8 empowers the Adjudicating Authority only to confirm retention beyond 180 days, not to issue a fresh order of retention.

PRINCIPLES OF NATURAL JUSTICE

The Court emphasized that retention of property effectively deprives a person of constitutional rights under Article 300A. Therefore, procedural safeguards must be followed strictly. It observed that any interpretation bypassing statutory safeguards would be contrary to natural justice and legislative intent.

COURT DIRECTIONS/JUDGMENT

The High Court dismissed the ED’s appeal and upheld the Appellate Tribunal’s decision. It ruled that non-compliance with Section 20 vitiated the retention process, rendering it void. The Court reiterated that retention of property without statutory compliance amounts to deprivation of property without authority of law, which is impermissible under Article 300A of the Constitution.

SIGNIFICANCE OF THE JUDGMENT

This decision reinforces that statutory safeguards in PMLA are mandatory. It strengthens due process in money laundering investigations by ensuring that coercive powers of the ED are exercised strictly within the statutory framework. The judgment highlights the constitutional balance between the State’s interest in curbing money laundering and the individual’s right to property.

JUDGMENT PRONOUNCED ON

12.09.2025

CASE NUMBER

MISC. APPEAL (PMLA) 03/2023