Legislative Scheme Doesn’t Permit Automatic Confirmation Or Passive Endorsement: Delhi High Court Rejects ED’s Plea Against CA In PMLA Case

The Delhi High Court has dismissed the Appeal filed by the Directorate of Enforcement (ED) against a Chartered Accountant (CA) who is accused in a money laundering case, saying that legislative scheme does not permit automatic confirmation or passive endorsement.

The said Appeal was preferred under Section 42 of the Prevention of Money Laundering Act, 2002 (PMLA), challenging the Order of the Appellate Tribunal (AT), which set aside the Order of the Adjudicating Authority (AA).

A Division Bench of Justice Subramonium Prasad and Justice Harish Vaidyanathan Shankar observed, “As is manifest, 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 Bench reiterated that when a statute prescribes a method to do a particular thing, it must be done in that manner alone and not otherwise; therefore, if Section 20 of PMLA stipulates a defined mechanism for the retention of seized property or records, it is imperative that such procedure is strictly followed.

Advocate Samrat Goswami appeared for the Appellant/ED while Advocate Amit Khemka appeared for the Respondent/Accused.

Factual Background

The Appellant-ED had registered an Enforcement Case Information Report (ECIR) pursuant to a complaint filed by the Serious Fraud Investigation Office (SFIO) under Sections 420 and 120B of the Indian Penal Code, 1860 (IPC) before the Additional Chief Metropolitan Magistrate (ACMM). It was alleged that through the accounts of corporate entities controlled by two brothers, they had indulged in the offence of money laundering. It was also alleged that the said operation was carried out with the assistance of certain professionals who acted as mediators/co-conspirators in carrying out the money laundering operations. The Respondent-CA (accused) was alleged to be one of the professionals who acted as a mediatory or co-conspirator.

Post the investigation, on a strong reasonable belief, that proceeds of crime, documents/ records related to offence of money laundering could be recovered, a search under Section 17(1) of the PMLA was conducted at the office premises of the Respondent. The search led to the seizure of 59 files, one laptop, three computer hard drives, and Rs. 6 lakhs. Thereafter, the Respondent was arrested and later granted bail by the Special Court. Pursuantly, ED filed an application seeking retention of the seized property and also filed a prosecution complaint. The Special Court took cognizance of the offence and the AA allowed ED’s application. The Respondent challenged this before the AT, which set aside the AA’s Order. Hence, the ED was before the High Court.

Reasoning

The High Court in view of the facts and circumstances of the case, said, “The PMLA, being a special legislation with significant economic implications, occupies a distinct place in the statutory framework of financial regulation and jurisprudence. Recognising the evolving nature of economic offences and the growing threat of money laundering to the integrity of national and international financial systems, the PMLA has been extensively amended over time, almost a dozen times, to address exigencies, close legal loopholes, and reinforce its enforcement architecture.”

The Court elucidated that although the PMLA empowers the ED to seize or freeze property suspected to be involved in money laundering, such powers are embedded within a stringent procedural framework aimed at ensuring accountability, transparency, and protection of individual rights and the exercise of such coercive powers must strictly conform to the statutory checks and balances provided within the Act.

“We reiterate that, Section 20(1) would necessarily get attracted, at the very first instance, in respect of any action taken for the Retention of property or the continuance of freezing of any property. Section 20(1) mandates that a separate and independent opinion must be formed by an officer authorised by the Director, who may not necessarily be the same officer as authorized under Section 17(1), stating reasons justifying such retention”, it further reiterated.

The Court noted that the statutory text leaves no scope for discretion or implied exceptions for retaining property or records without following the prescribed procedure and allowing retention of seized property without strict adherence to these provisions would amount to a violation of the legislative mandate and would undermine the very purpose of incorporating procedural safeguards in the PMLA.

“We are of the opinion that the architecture of the PMLA is designed to strike a delicate balance between empowering enforcement agencies and protecting individual rights. The processes of search, seizure, freezing, attachment, and retention are embedded with procedural safeguards to ensure that state action is not only lawful but also proportionate and subject to independent scrutiny. Judicial and quasi-judicial oversight is envisaged at every stage to prevent the arbitrary exercise of power and to uphold constitutional values. The integrity of this framework rests on the rigorous application of the procedural mandates enshrined in the statute”, it remarked.

Conclusion

The Court also observed that the interpretation as sought to be canvassed by the Appellant effectively puts paid to the expressed timelines delineated in Sections 20 and 8(3) of the PMLA and the same is clearly impermissible in view of the determinative position of law as elaborated by the Supreme Court.

“In light of the foregoing analysis, this Court is of the firm and considered view that 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”, it concluded.

Accordingly, the High Court dismissed the Appeal and upheld the Tribunal’s Order.

Cause Title- Directorate of Enforcement v. Rajesh Kumar Agarwal (Neutral Citation: 2025:DHC:7898-DB)

Appearance:

Appellant: Advocate Samrat Goswami

Respondent: Advocates Amit Khemka, Sandeep Dash, Himani Singh, and Jeevika Dhyan.

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