ED can’t bypass due process when seizing property: HC

THe new delhi heights margaret court has ruled that the Enforcement board of directors (ED) cannot short-circuit procedures laid down in the Prevention of Money Laundering Act (PMLA) when seeking to retain seized or frozen property, reinforcing that procedural safeguards must be strictly followed to protect individuals from arbitrary retention.A bench of justices Subramonium Prasad and Harish Vadiyanathan Shankar delivered the verdict on Friday, holding that before the ED can seek permission from the adjudicating authority to retain property, an authorised officer must first pass a formal order explaining why retention for up to 180 days is necessary.Without this crucial step, the adjudicating authority cannot lawfully determine whether the property is linked to money laundering, the court ruled. The adjudicating authority reference is to a quasi-judicial body appointed by the Centre under Section 6 of PMLA, and plays a pivotal role in determining whether properties attached or seized by ED are involved in money laundering, and confirming legitimacy of such attachments.The judgment emerged while hearing the ED’s plea challenging a February 2019 decision by the PMLA appellate tribunal, which had dismissed the agency’s application to retain seized or frozen properties linked to an accused in a money laundering case.The appellate tribunal had overruled the adjudicating authority’s order permitting retention, concluding that the manner in which the seized property was retained did not conform to the PMLA’s scheme.In its petition before the high court, the probe agency had asserted that issuing a formal order to retain or continue freezing property was neither a legal precondition nor a procedural necessity for applying Section 17(4) to keep seized or frozen property. The ED further argued that procedural requirements laid down under Section 20 were merely directory and not mandatory.However, the accused’s lawyer submitted that the formal order of retention by the authorised officer ensures that the adjudicating authority has all necessary inputs before permitting the ED to retain seized property for a year to probe its involvement in money laundering.Legal framework clarifiedSection 17(4) requires an authorised ED officer to file an application before the adjudicating authority within 30 days of a search, seizure, or freezing order, seeking permission for retention of the seized or frozen property.Section 20 deals with the retention of property that has been seized or frozen and requires an officer authorised by the ED director to pass a separate and independent order stating that retaining the property for up to 180 days is necessary for the adjudicating authority to decide its involvement in money laundering and confirm its attachment.The bench, in its ruling authored by justice Shankar, held that a direct application without a valid retention order would amount to bypassing clear legal requirements.The court noted that such a shortcut would have serious and potentially harsh consequences for a person whose property has been seized or frozen, and any order passed without compliance with “procedural safeguards” would be void.“Section 20 is a procedural safeguard concerning the retention of seized or frozen property, and permitting retention by bypassing it would amount to a violation of the legislative mandate and would undermine the very purpose of incorporating procedural safeguards in the PMLA,” the court observed.In its 41-page ruling, the court maintained: “Section 20 comes into play from the day of any seizure and will have to be applied for any retention of seized goods up to a period of 180 days. Put simplistically, post the action of seizing or freezing under Section 17, the baton would be handed over to the provisions of Section 20. In our view, the Statute does not provide for any such route wherein the provisions of Section 17(4) can be directly resorted to.”