Cannot Retain Seized Cash Beyond Six Months Without Valid Extension Order Recording Reasons: Allahabad High Court Imposes Costs On DRI

The Court further observed that a mere note-sheet containing signatures without any independent reasoning or application of mind cannot constitute a valid order extending the period for retention of seized cash under Section 110(2) of the Customs Act, 1962.

A Division Bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla observed: “In the first place, we are not satisfied that the note sheet dated 18.02.2026 contains the prior approval of the Principal Commissioner of Customs or Commissioner of Customs, to grant extension of time by six months. Though the order sheet notes that proposal made to the Additional Director General, only his signature is appended thereunder without any remark or note to evidence that at the time of such signature being placed by the said authority, he had applied his mind or recorded reasons or approved the proposal in entirety- to allow for extension of time, by six months. Mainly, the existence of the signature on the order sheet is nothing more than a rubber stamp, affixed without application of mind”.

The Bench further added: “To the extent mandatorily no cash seized may be retained beyond a period of six months and further to the extent the Act prescribes that the extension of time may be granted for ‘reasons to be recorded in writing’, the note sheet is a mute document. As to what may amount to ‘reasons to believe’, the issue is no longer res integra.”

Advocate Shaikh Mohd Mujib Ur Rahman appeared for the petitioners, while Additional Solicitor General S.P. Singh appeared for the respondents.

Background

The petitioners approached the High Court seeking the release of cash amounting to ₹25.20 lakh seized by officers of the Directorate of Revenue Intelligence during search proceedings. According to the petitioners, the seizure had taken place in August 2025, and the statutory period of six months prescribed under Section 110(2) of the Customs Act expired in February 2026. However, neither any show cause notice had been issued nor had any valid extension order been communicated before the expiry of the statutory period.

During the proceedings, the DRI relied upon a note-sheet dated 18 February 2026, contending that it constituted an order extending time for investigation and issuance of a show cause notice. The petitioners challenged the validity of the document and argued that it neither disclosed any independent application of mind by the competent authority nor had it ever been communicated to them before the expiry of the six months.

The dispute became further complicated when the DRI disclosed that, during the pendency of the writ petition, the seized cash had been handed over to Income Tax authorities pursuant to a requisition received from them. The petitioners contended that such a transfer was undertaken after expiry of the statutory period and while the matter was actively under consideration before the High Court.

Court’s Observations

The High Court examined the note-sheet relied upon by the DRI and found that it did not satisfy the statutory requirement of a valid extension order.

The Court observed that while the note-sheet contained signatures of the authority concerned, there was nothing to indicate that the authority had independently considered the proposal, recorded reasons, or consciously approved the extension of time.

The High Court found that the document relied upon by the DRI to justify the extension of time did not show any independent application of mind by the competent authority. Although the note-sheet recorded that a proposal had been placed before the Additional Director General, the only thing appearing on the document was his signature.

There was no note, remark or recorded reason indicating that he had examined the proposal, considered the material on record, or consciously approved extension of the statutory period by six months, the Bench noted.

The Court observed that merely placing a signature on a note-sheet is not sufficient when the law specifically requires reasons to be recorded in writing before extending the period for retention of seized cash.

In the absence of any recorded reasoning or indication of consideration of the proposal, the Court held that the signature could not be treated as a valid exercise of statutory power and was akin to a mechanical approval granted without application of mind.

Referring to decisions of the Supreme Court dealing with statutory approvals and “reasons to believe,” the High Court reiterated that recording of reasons is a mandatory safeguard designed to prevent arbitrary exercise of power.

The Court observed that the expression “reasons to believe” requires the authority to arrive at a reasoned conclusion based on relevant material and cannot be reduced to a mechanical endorsement of a proposal.

Relying on settled principles governing statutory approvals, the Bench held that the note-sheet relied upon by the DRI was a “mute document” incapable of satisfying the legal requirement of recording reasons for extension of time.

The High Court noted that Section 110(2) not only requires a valid extension order to be passed but also mandates that the affected person be informed of the extension before the expiry of the original six-month period.

The Court recorded the admission made on behalf of the DRI that the note-sheet dated 18 February 2026 had never been communicated to the petitioners before the expiry of six months from the date of seizure.

The Bench observed: “Thus, neither of the conditions prescribed under Section 110 of the Act was fulfilled.”

Consequently, the Court held that the petitioners had acquired a statutory right to return of the seized cash immediately upon expiry of the six-month period.

Having found that no valid extension order existed and that no communication had been made within time, the Court held that retention of the cash after expiry of the statutory period was wholly illegal.

The Bench observed: “The retention of the money from 20.02.2026 to 20.05.2026 is wholly illegal and outside the procedure prescribed by the law.”

The Court further held: “The cash ought to have been returned on the mandatory statutory condition not fulfilled, without any application by the petitioners. To retain it beyond the period of six months was without jurisdiction.”

The High Court expressed serious concern regarding the conduct of the DRI authorities in transferring the seized cash to the Income Tax Department during the pendency of the writ petition.

The Court noted that the issue regarding the legality of continued retention of cash was already under active consideration and that the DRI authorities were fully aware of the proceedings before the Court.

The Bench observed: “We are forced to reach a conclusion that DRI authorities have deliberately attempted to defeat the ends of justice and specifically the present petition.”

The Court further remarked: “Their conduct appears to be directed not to participate in the proceedings, but to overreach and defeat the proceedings, by acting in a manner wholly impermissible in law and beyond their jurisdiction.”

The Court initially assessed costs at ₹10 lakh after finding that the petitioners had been compelled to pursue litigation because of actions that illegally obstructed their right to recovery of the seized cash.

Subsequently, an application was moved on behalf of the DRI, supported by an affidavit of a senior officer tendering an unconditional apology and assuring the Court that similar lapses would not occur in future. The DRI also placed on record an office order directing officers not to take action in matters pending before courts without verifying the status of judicial proceedings and obtaining necessary permissions where required.

The Additional Solicitor General further assured the Court that in future, seized cash would either be returned within the statutory period or retained only in accordance with a validly passed and communicated extension order.

Conclusion

The High Court held that the DRI had no authority to retain the seized cash beyond six months in the absence of a valid extension order recording reasons and communicated within time as required by Section 110(2) of the Customs Act. The Court further held that the petitioners had acquired a statutory right to return of the cash upon expiry of the prescribed period and that subsequent retention was wholly illegal and without jurisdiction.

While taking note of the assurance furnished on behalf of the DRI and the corrective measures undertaken by the department, the Court nevertheless held that the petitioners had suffered loss because the money had been illegally retained for nearly three months after expiry of the statutory period. The Court observed:

“In view of the assurance given by the learned A.S.G.I., while some relaxation in the award of costs may be made, at the same time, in view of the discussion contained in the main part of the order as also recognising the fact that the money was retained by the DRI for long duration of three months, after the expiry of the statutory period under Section 110(2) of the Customs Act, 1962, loss has been caused to the petitioners for act of deliberate omission and/or commission.”

Accordingly, the Court reduced the originally proposed costs of ₹10 lakh and directed payment of costs of ₹1 lakh to the petitioners before disposing of the writ petition.

Cause Title: Shalabh Agarwal and Another v. Additional Director General and Another (Neutral Citation: 2026:AHC:124246-DB)

Appearances

Petitioners: Advocate Shaikh Mohd Mujib Ur Rahman.

Respondents: Additional Solicitor General S.P. Singh with Advocates Krishna Agarwal and Anant Kumar Tiwari.

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