Delhi High Court: An appeal was filed by Directorate of Enforcement (appellant) under Section 42 of the Prevention of Money Laundering Act, 2002, challenging the order dated 06-02-2019 wherein the Appellate Tribunal set aside the order dated 21-08-2017 passed by the Adjudicating Authority (PMLA), which had allowed original application dated 15-06-2017 filed under Section 17(4) of the PMLA, seeking retention of seized properties of the respondent. A division bench of Subramonium Prasad and Harish Vaidyanathan Shankar, JJ., held the order dated 21-08-2017 as legally unsustainable as the order does not reveal any reason being accorded for the decision to confirm the retention of the property and 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) of PMLA.
The Court also held that “the present appeal does not merit any interference with the impugned order dated 06-02-2019 passed by the learned Appellate Tribunal, which merits affirmation.”
The genesis of the present proceedings lies in the ECIR registered by the Enforcement Directorate on 11-02-2017, based on a complaint lodged by the Serious Fraud Investigation Office alleging large-scale money laundering by the Jain brothers through infusion of cash disguised as share subscription at an inflated premium. The respondent, a Chartered Accountant, was alleged to have acted as a professional facilitator in these transactions. Pursuant to these allegations, a search was conducted on 18-05-2017 under Section 17(1) of the PMLA at the respondent’s premises, resulting in the seizure of files, digital devices, and currency. The Enforcement Directorate thereafter filed an application under Section 17(4) before the Adjudicating Authority for retention of the seized assets and lodged a prosecution complaint before the Special Court, which took cognizance of the offence on 4-09-2017.
By order dated 21-08-2017, the Adjudicating Authority allowed the retention application. However, on appeal, the Appellate Tribunal, by its order dated 06-02-2019, set aside the Adjudicating Authority’s order, holding that it was unreasoned and that the process of retention did not conform to the statutory framework under Sections 17, 20, and 8 of the PMLA. It is this decision of the Appellate Tribunal, which annulled the Adjudicating Authority’s order, that has been brought under challenge before the present court in the present petition by the Enforcement Directorate.
The Court explained that Section 17(1) requires the authorised officer to form a reason to believe in writing before search and seizure, that Section 17(2) mandates immediate forwarding of the reasons and material to the Adjudicating Authority after seizure or freezing, and that Section 17(4) requires the ED to file an application before the Adjudicating Authority within thirty days requesting retention. The Court further explained that Section 20 (as comprehensively amended in 2012) is the mechanism by which the authorised officer (who may be different from the search officer) records a separate, independent “reason to believe” and passes an order for retention continuing freezing for a period up to 180 days, and that this order must be forwarded immediately with material to the AA under Section 20(2). Finally, the Court set out that Section 8(1)-(3) is the adjudicatory machinery: the Adjudicating Authority issues notices, hears the aggrieved person and the ED, considers replies and all materials, and only after recording findings under Section 8(2) may the Adjudicating Authority confirm retention under Section 8(3) for the period beyond 180 days. The Court emphasized that the AA’s adjudication under Section 8 is not a mere rubber stamp and must be informed by the Section 20 material where retention up to 180 days is invoked.
Building from that statutory reading, the Court held that the ED cannot bypass Section 20 by relying directly on Section 17(4) to obtain or legitimise retention; to permit direct resort to Section 17(4) as a “short-cut” would render the safeguards of Section 20 nugatory and allow a de facto circumvention of the procedure Parliament deliberately introduced. The Court therefore characterised Section 20 as substantive and mandatory rather than merely directory; it explained that any retention order that is not founded upon an independently recorded reason to believe and the forwarding of material under Section 20(2) will be void ab initio and cannot be subsequently validated by confirmation in a formal adjudication that lacked the required inputs.
The Court remarked that “Section 20(1) makes it evident that the authorised officer would, under it, pass an order for retention. Section 20(2) clarifies that an Order for Retention is to be passed under Section 20(1) and further reiterates that the Order under Section 20(1) is for the purposes of adjudication under Section 8.” The Court also stressed that Section 20 is not a directory formality but a mandatory safeguard, declaring that “any such order without following the required procedure would not survive and is, in fact, void ab initio.”
Finally, the Court expressly laid down a practical roadmap for future adjudications under the PMLA so that Adjudicating Authorities and enforcement officers follow the statutory architecture in step. It laid that once the Enforcement Directorate conducts a search and seizure under Section 17(1), it must immediately inform the Adjudicating Authority and forward the recorded reasons with relevant material as required under Section 17(2). Within thirty days, an application under Section 17(4) must be filed seeking confirmation of retention. However, mere filing of such an application does not itself justify retention. The Court clarified that before confirmation for any period beyond 180 days, the ED must necessarily invoke Section 20, where an authorised officer records a written “reason to believe” supported by tangible evidence that continued retention is necessary. That order must be immediately sent to the Adjudicating Authority under Section 20(2), and retention without this safeguard would violate the statutory procedure.
Once the Adjudicating Authority receives the application under Section 17(4), along with the Section 20 order and supporting material, it must strictly follow the process under Section 8. This includes forming a preliminary opinion, issuing notice, granting the aggrieved person an opportunity to reply and be heard, and considering all material on record. Only thereafter can the Authority confirm retention under Section 8(3), which extends seizure beyond 180 days up to 365 days. The Court underscored that this adjudication must be independent, reasoned, and compliant with both statutory provisions and the Adjudicating Authority (Procedure) Regulations, 2013. Failure to adhere to this sequence, particularly the invocation of Section 20, renders the continued retention bad in law, while in the absence of such confirmation, Section 20(3) mandates that property be released upon expiry of 180 days.
The Court then examined the Adjudicating Authority’s order dated 21-08-2017 and found it mechanically recorded and devoid of the requisite reasoning: the Adjudicating Authority’s short “discussion” did not demonstrate an independent consideration of the materials or reasons required by Sections 8(2) and 20, and the absence of a response from the respondent did not absolve the Adjudicating Authority of its statutory duty to independently assess whether the seized items were involved in money-laundering. Thus, the Court held that the Adjudicating Authority order was legally unsustainable. Given that conclusion, the Court declined to interfere with the Tribunal’s order of 6-02-2019 which had set aside the Adjudicating Authority’s order; accordingly, the Court dismissed the ED’s appeal.
[ED v. Rajesh Kumar Agarwal, 2025 SCC OnLine Del 5974, decided on 12-09-2025]
Advocates who appeared in this case:
Mr. Samrat Goswami, Advocate for ED
Mr. Amit Khemka, Mr. Sandeep Dash, Ms. Himani Singh and Ms. Jeevika Dhyani, Advocates for respondent