2025 (10) TMI 12 - HC - Money Laundering

Retention of property under PMLA held unlawful for failure to issue fresh written 'reason to believe' under Section 20

Anirudh Pratap Agarwal Versus Enforcement Directorate

HC allowed the appeal and set aside the impugned AT order dated 26.06.2024, holding that the respondent agency's retention of the appellant's property was ... Money Laundering - seeking retention of seized properties - proceeds of crime - unlawful retention of Appellant’s property beyond the permissible period under the then Section 8(3)(a) of the PMLA - illegal retention of the Appellant’s property due to non-compliance with Section 20 of the PMLA by the ED. The Appellant’s property has been unlawfully retained beyond the permissible period under the then Section 8(3)(a) of the PMLA - HELD THAT:- The contention of the Appellant deserves outright rejection in view of the binding precedent laid down by the Hon’ble Supreme Court in Union of India v. J.P. Singh [2025 (4) TMI 695 - SC ORDER], wherein it was unequivocally held that for the application under Section 8(3)(a) of the PMLA, it is not essential for the individual to be specifically named as an accused in the complaint; rather, the statutory requirement stands fulfilled if a complaint alleging the commission of an offence under Section 3 of the PMLA is pending before the competent Court - the argument advanced by the Appellant is devoid of merit and is accordingly rejected. Retention of the Appellant’s property is illegal due to non-compliance with Section 20 of the PMLA by the ED - HELD THAT:- Section 20 is substantive and mandatory in nature. It ensures that seizure under Section 17 does not result in indefinite deprivation of property without independent scrutiny. Section 20(1) requires a fresh and independent “reason to believe”, duly recorded in writing, by an authorised officer, who may not necessarily be the same officer who conducted the search under Section 17. Without such a retention order, the learned AA, under Section 8(3), while exercising its confirmatory adjudicatory power, has nothing before it to confirm. Therefore, Section 20 acts as a vital safeguard against arbitrary executive action and ensures that property rights are protected until a full adjudication takes place under Section 8 of the PMLA. The architecture of the PMLA reflects a careful balance. While it equips the ED with robust enforcement powers to address money laundering, it simultaneously incorporates substantive procedural safeguards at every stage to protect constitutional rights and ensure judicial scrutiny. Compliance with Sections 17, 20, and 8 of the PMLA is not a mere formality but a statutory mandate. Any deviation from this framework renders the retention order void. Only by rigorously adhering to these safeguards can the PMLA preserve both the integrity of its enforcement regime and the constitutional guarantee of property rights under Article 300A of the Constitution of India. The present factual matrix reveals that the ED’s action in retaining the Appellant’s property without adherence to Section 20 is contrary to the statutory framework and constitutes an infringement of the Appellant’s constitutional right to property under Article 300A of the Constitution, and therefore, the ED’s retention, being unsustainable in law, cannot be permitted to stand. The Impugned Order dated 26.06.2024 passed by the learned AT is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether continuation of retention of seized property under Section 8(3)(a) of the PMLA requires that proceedings relating to an offence under the Act be pending specifically against the person whose property is retained, or whether a complaint alleging an offence under the PMLA pending before a competent court generally suffices. 2. Whether the Enforcement Directorate's retention of seized property without passing and forwarding a separate retention order under Section 20 of the PMLA (and related compliance under Section 17(2)) is lawful - specifically, the legal interplay and sequence between Sections 17, 20 and 8(3) of the PMLA, and whether Section 20 is a substantive mandatory precondition to retention for the initial 180-day period. 3. Whether a confirmation under Section 8(3) can validate or cure any initial non-compliance with the statutory procedures required by Section 20 (i.e., whether an order bad in inception can be sanctified subsequently by adjudicatory confirmation). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Necessity of person-specific arraignment for Section 8(3)(a) retention Legal framework: Section 8(3)(a) permits continuation of attachment/retention 'during investigation for a period not exceeding three hundred and sixty-five days or the pendency of the proceedings relating to any offence under this Act before a court.' The question is whether 'proceedings relating to any offence' must be proceedings specifically against the affected person. Precedent treatment: The Court followed authoritative binding precedent held by the Supreme Court that for Section 8(3)(a) it is sufficient that a complaint alleging an offence under Section 3 of the PMLA is pending before the competent court; it is not necessary that the affected person be specifically shown as an accused in that complaint. Interpretation and reasoning: The Court applied the plain text of Section 8(3)(a) and the Supreme Court's reading that the order of cognizance is of the offence and not of the accused. Where a complaint alleging an offence under the PMLA is pending and cognizance taken, the statutory criterion for continuity under Section 8(3)(a) is satisfied notwithstanding later formal arraying of the person as an accused. Ratio vs. Obiter: Ratio - continuation under Section 8(3)(a) does not require that the person affected be specifically named in the complaint; pendency of proceedings relating to the PMLA offence suffices. Obiter - none material on this point. Conclusions: The contention that retention on 14.06.2017 was unlawful because the concerned person was not then named as an accused was rejected; pendency of the complaint under the PMLA satisfied Section 8(3)(a). Issue 2 - Mandatory nature and sequencing of Sections 17, 20 and 8(3); necessity of a Section 20 retention order Legal framework: Chapter V of the PMLA sets out search, seizure, freezing and retention: Section 17 authorises search/seizure (requires 'reason to believe' recorded in writing and forwarding of reasons/material to the Adjudicating Authority under Section 17(2)); Section 20 permits an authorised officer to retain seized/frozen property for up to 180 days upon recording a separate 'reason to believe' and mandates immediate forwarding of the retention order and material to the Adjudicating Authority under Section 20(2); Section 17(4) requires filing an application within 30 days seeking retention/continuation before the Adjudicating Authority; Section 8(1)-(3) provides the adjudicatory and confirmation mechanism, with Section 8(3) confirming retention beyond 180 days up to 365 days or until pendency of proceedings. Precedent treatment: The Court relied on High Court precedent and Supreme Court pronouncements emphasising that statutory procedural mandates must be complied with; specifically treated as binding the principle that where statute prescribes a manner, it must be followed and that orders bad in inception cannot be validated later. The Court also relied on earlier High Court treatment holding Section 20's procedure mandatory and substantive. Interpretation and reasoning: The Court analysed the text and structure of Chapter V and concluded the provisions form a 'graded' and integrated scheme: (i) Section 17 permits seizure/freezing but does not itself authorise continued retention for up to 180 days; (ii) Section 20 is the substantive source of authority for retention/continuation for the initial 180-day period and requires an independent written reason to believe by an authorised officer and immediate communication of that retention order with supporting material to the Adjudicating Authority; (iii) Section 17(4) is procedural (requiring the ED to file an application within 30 days) but does not substitute for the recorded independent order under Section 20; (iv) Section 8(3) is a confirming/adjudicatory power that presupposes existence of a retention order under Section 20 and the material/reasons forwarded under Sections 17(2) and 20(2); and (v) Section 20(4) enables the Adjudicating Authority to satisfy itself prima facie before authorising retention beyond 180 days. The Court emphasised that allowing the Adjudicating Authority to create the retention order by virtue of Section 8(3) on application under Section 17(4) would invert the statutory scheme and nullify Section 20's safeguards. Ratio vs. Obiter: Ratio - Section 20 is a substantive, mandatory precondition for lawful retention of seized/frozen property for the initial 180 days; Section 17(4) does not itself constitute the legal foundation for retention absent compliance with Section 20; Section 8(3) is confined to confirmation of retention beyond the 180-day period and cannot be the source of the retention itself. Obiter - observations on legislative history and multiple amendments emphasising the importance of procedural safeguards. Conclusions: Non-compliance with Section 20(1)-(2) (i.e., failure to record an independent reason to believe and to forward the retention order and material to the Adjudicating Authority) renders the retention void ab initio. The statutory sequence (seizure under Section 17; retention order under Section 20 with immediate forwarding of reasons/material; application under Section 17(4); adjudication and confirmation under Section 8) is mandatory and cannot be bypassed. Issue 3 - Whether adjudicatory confirmation can cure initial procedural invalidity Legal framework: Principles of law that an order bad in inception cannot be validated by subsequent actions; constitutional protection under Article 300A (no deprivation of property save by authority of law) underpinning the need for strict compliance with statutory procedure. Precedent treatment: The Court applied settled jurisprudence that an order void ab initio cannot be sanctified by later events or confirmations, citing established authorities to the effect that procedural non-compliance which vitiates the legality of an order cannot be cured by later steps. Interpretation and reasoning: Given Section 20's substantive obligations and the protective purpose of forwarding reasons/material to the Adjudicating Authority, a subsequent confirmation under Section 8(3) cannot be used to validate a retention that lacked lawful origin. The protection of property rights and rule of law mandates that the retention must have a lawful origin; otherwise subsequent adjudicatory action has no lawful foundation to confirm. Ratio vs. Obiter: Ratio - Confirmation under Section 8(3) cannot cure an initial retention that was void for non-compliance with Section 20; such initial illegality strikes at the root and renders consequent proceedings non est. Obiter - commentary on constitutional dimensions and balance between enforcement objectives and safeguards. Conclusions: Where the authorised officer did not pass a retention order under Section 20 nor forward the material to the Adjudicating Authority as required, subsequent adjudicatory confirmation cannot validate the prior unlawful retention; the retention is void ab initio and must be set aside. Final Disposition (legal conclusion synthesising issues) Given the combined analysis, the Court concluded that although pendency of a PMLA complaint sufficed for Section 8(3)(a) purposes, the immediate retention of seized property for up to 180 days required a separate retention order under Section 20 supported by recorded reasons and immediate forwarding of the order and material to the Adjudicating Authority under Section 20(2) (and the forwarding obligations under Section 17(2)). Non-compliance with Section 20 rendered the ED's retention of the property void ab initio and incapable of being validated by later confirmation under Section 8(3); accordingly, the impugned appellate order upholding such retention was set aside.