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of <h1>Appeal dismissed; AA's retention order quashed for lack of reasons and no independent inquiry under Sections 8(2)-8(3) PMLA</h1> <h3>Directorate Of Enforcement Through Assistant Director Delhi Versus Rajesh Kumar Agarwal</h3> HC dismissed the appeal and affirmed the AT's impugned order. The HC held the AA's order confirming retention was legally unsustainable for failing to ... Money Laundering - seeking retention of seized properties of the Respondent - applicability of time limitation - delay of 143 days beyond the period prescribed under Section 42 of the PMLA - delay in re-filing the appeal after curing defects - sufficient cause for delay or not - applicability of Section 20 of the PMLA - HELD THAT:- It is well settled in law that the standards for condonation of delay in initial filing of an appeal and those applicable to delay in re-filing after curing defects are distinct. The rigour applicable to condonation of delay in the initial institution of an appeal is not to be applied with equal strictness to delay in re-filing. However, even in the case of re-filing, the party seeking condonation has to show sufficient cause for the delay. In Northern Railway v. Pioneer Publicity Corpn. (P) Ltd [2016 (10) TMI 1366 - SUPREME COURT], although in the context of Section 34(3) of the Arbitration and Conciliation Act, 1996, the Hon’ble Supreme Court reiterated the principle that delays in re-filing should be assessed with greater leniency, considering overall circumstances. In the present case, the Appellant, in the application seeking condonation of delay in re-filing (which was allowed vide order dated 30.08.2019), had attributed the delay primarily to administrative difficulties. Taking into account that the Appeal has remained pending for almost six years and that notice was already issued vide order dated 30.08.2019 after considering the application seeking condonation of delay in re-filing, this Court is of the considered opinion that, at this belated stage, it may not be necessary to undertake the exercise of a detailed scrutiny into the alleged 143-day delay in re-filing. The Hon’ble Supreme Court in State of Orissa v. Mamata Mohanty [2011 (2) TMI 1371 - SUPREME COURT] held that an order which is void ab initio cannot be salvaged or legitimised by any subsequent action or development. Thus, confirmation by the learned AA cannot cure initial procedural violations or validate unlawful retention carried out without adherence to statutory requirements. The order does not reveal any reason being accorded for the decision to confirm the retention of the property. In our opinion, the same does not satisfy the statutory mandate and suffers from a mechanical and superficial approach, devoid of the mandatory inquiry envisaged under Sections 8(2) and 8(3). The absence of a response from the Respondent cannot absolve the learned AA of its statutory duty to independently assess the materials placed before it and determine whether the property is indeed involved in money laundering. The legislative scheme does not permit automatic confirmation or passive endorsement; it mandates active, reasoned adjudication - the Order dated 21.08.2017 passed by the learned AA is legally unsustainable. Consequently, the present appeal does not merit any interference with the Impugned Order dated 06.02.2019 passed by the learned AT, which merits affirmation. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an Adjudicating Authority can confirm retention of property under Section 8(3) of the PMLA without prior compliance with Section 20 (order of retention and forwarding of reasons and material) read with Section 17(2) and 17(4). 2. The correct statutory interplay and sequence between Sections 17, 20 and 8 of the PMLA in relation to seizure, order for retention (up to 180 days), forwarding of material, adjudication and confirmation of retention (beyond 180 days). 3. Whether the requirements of Section 20 are directory or mandatory, and whether non-compliance renders retention void ab initio or is capable of subsequent cure by confirmation under Section 8. 4. Whether the Appellate Tribunal erred in setting aside the Adjudicating Authority's retention order on the ground of absence of reasoning, and if instead a remand ought to have been ordered. 5. Whether delay in re-filing an appeal after curing defects (143 days) barred the present appeal and whether condonation principles applicable to re-filing justify adjudication on merits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Adjudicating Authority's ability to confirm retention absent Section 20 compliance Legal framework: Sections 17 (search and seizure, forwarding reasons and material, filing application under 17(4)), Section 20 (order of retention by authorised officer for up to 180 days, forwarding retention order and material to Adjudicating Authority), and Section 8 (adjudication and confirmation of retention beyond 180 days up to 365 days) together regulate seizure, retention and confirmation. Precedent treatment: Reliance placed on State of Orissa v. Mamta Mohanty and Ritesh Tewari (orders bad in inception cannot be validated), OPTO Circuits (strictness of procedure under PMLA), and other authorities on procedural compliance and protection of property rights under Article 300A. Interpretation and reasoning: The Court reads Sections 17, 20 and 8 as a cohesive, sequential scheme. Section 17 authorises seizure/freezing and requires forwarding of reasons and material to the Adjudicating Authority. Section 20 is the statutory mechanism that authorises retention/continued freezing for up to 180 days by an authorised officer on recorded reasons and mandates immediate forwarding of that retention order and material to the Adjudicating Authority. Section 8(3) is confined to confirmation of retention beyond the 180-day period. The Court reasons that Section 8(3) cannot be read as conferring the initial power to retain for 180 days; that function is vested in Section 20(1). Allowing resort to Section 17(4) and immediate confirmation under Section 8(3) would circumvent the statutory safeguards in Section 20 and render them nugatory. Ratio vs. Obiter: Ratio - Section 20 must be invoked and complied with before the Adjudicating Authority can confirm retention under Section 8(3); Section 8(3) is limited to confirmation beyond the 180-day retention allowed under Section 20. Obiter - observations on the non-interchangeability of officers under Sections 17 and 20 and on practical administration. Conclusions: The Adjudicating Authority cannot validly confirm retention absent prior compliance with Section 20; retention without Section 20 is contrary to the statutory scheme and void. Issue 2 - Statutory sequence and interplay between Sections 17, 20 and 8 Legal framework: Text of Sections 17, 20 and 8 and the Adjudicating Authority (Procedure) Regulations, 2013 governing adjudicatory process under Section 8. Precedent treatment: OPTO Circuits emphasises that procedures under PMLA must be followed; Supreme Court authorities on mandatory statutory modes were invoked. Interpretation and reasoning: The Court sets out the sequence: (a) seizure/freezing under Section 17(1)/(1A) with reasons recorded; (b) immediate forwarding of reasons and material under Section 17(2); (c) authorised officer forms a separate reason to believe and passes retention order under Section 20(1); (d) immediate forwarding of retention order and material to Adjudicating Authority under Section 20(2); (e) ED files application under Section 17(4) within 30 days seeking adjudication; (f) Adjudicating Authority conducts adjudication under Section 8(1)-(3), issuing notices, hearing parties and, if satisfied (prima facie involved in money-laundering and required for adjudication), confirms retention beyond 180 days under Section 8(3). The Court explains that Section 20(3) requires return of property on expiry of 180 days unless AA permits continuation; Section 20(4) sets the AA's threshold for permitting continuation beyond 180 days. Ratio vs. Obiter: Ratio - the statutory scheme requires the staged invocation and communication under Sections 17(2), 20(1)/(2) prior to adjudication and confirmation under Section 8; Section 20 is the source of the 180-day retention power. Conclusions: The Court holds that the statutory sequence is mandatory; an application under Section 17(4) does not itself create retention rights unless Section 20 requirements have been complied with. Issue 3 - Mandatory vs. directory nature of Section 20 and cure by subsequent confirmation Legal framework: Text of amended Section 20 and legislative history (2012 amendment) demonstrating substantive change; constitutional protection of property under Article 300A. Precedent treatment: Cited authorities (State of Orissa v. Mamta Mohanty; Ritesh Tewari; OPTO Circuits; Laxman Lal; Sukh Dutt Ratra) establishing that orders bad in inception cannot be validated, that statutory modes must be followed and that PMLA procedures are to be strictly complied with. Interpretation and reasoning: The Court emphasises that Section 20, particularly post-amendment, establishes a substantive, mandatory mechanism: formation and recording of reasons by an authorised officer, passing of a retention order for up to 180 days, and immediate forwarding of the order and material to the AA. Given the draconian consequence of deprivation of property, and Article 300A protections, these requirements are not mere directory formalities. Confirmation under Section 8 cannot retrospectively validate an initial retention made without any order under Section 20; an order void ab initio cannot be cured by later steps. Ratio vs. Obiter: Ratio - Section 20 is mandatory; non-compliance renders retention void ab initio and not amenable to subsequent cure by confirmation under Section 8. Obiter - commentary on legislative intent evidenced by amendments and the balance between enforcement and individual rights. Conclusions: Section 20's procedural steps are mandatory. Failure to comply invalidates retention and cannot be remedied by later confirmation; hence retention without Section 20 is legally unsustainable. Issue 4 - Whether Tribunal should have remanded instead of setting aside for lack of reasons Legal framework: Sections 26 and 42 (appeal provisions) and principles governing remand powers; statutory timeline implications (Section 20(3) and functus officio concerns). Precedent treatment: Authorities cited by parties do not provide a statutory mandate to remand in this context; the respondent argued remand not permissible once 180 days lapsed as AA becomes functus officio under Section 20(3). Interpretation and reasoning: The Court considers that remand would be ineffective where the initial retention was void for non-compliance with Section 20 and where statutory timelines (180 days) limit the AA's powers; remanding could lead to an exercise of a power the AA no longer possesses (functus officio), thereby frustrating statutory safeguards. Additionally, confirmation by the AA cannot cure a void inception. The Tribunal's decision to set aside the AA order for absence of reasoning and procedural non-compliance is consistent with statutory scheme. Ratio vs. Obiter: Ratio - where retention is void due to Section 20 non-compliance and the AA's order lacks requisite reasoning, setting aside is appropriate; remand is not mandatorily required and may be ineffectual given statutory limits. Obiter - remarks on situations where remand may be appropriate are not elaborated. Conclusions: The Tribunal did not err in setting aside the AA order rather than remanding; remand would not cure the foundational illegality and may be precluded by statutory timelines. Issue 5 - Delay/limitation in re-filing and condonation Legal framework: Section 42 (appeal timelines) and principles governing condonation of delay in refiling after rectification of defects (Perumon Bhagvathy Devaswom; Northern Railway v. Pioneer Publicity). Precedent treatment: Supreme Court authorities support greater leniency for delay in re-filing versus initial filing; requirement to show sufficient cause for condonation remains. Interpretation and reasoning: The Court notes initial filing was within limitation; delay addressed related to re-filing after curing defects (143 days). The Court observed established principles permit leniency for re-filing delays and that the appeal had remained pending for years with condonation earlier granted; at a belated stage it was not necessary to undertake detailed scrutiny of the 143-day delay and the Court proceeded to decide on merits. Ratio vs. Obiter: Ratio - where initial filing was within period and condonation of re-filing delay has been allowed, court may examine merits rather than dismiss on technical delay; assessment of re-filing delay requires lesser rigour. Obiter - the Court's decision to proceed was discretionary given the circumstances. Conclusions: The preliminary limitation objection did not preclude adjudication on merits in the present case; the Court exercised discretion to decide the substantive issues.
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