Delhi High Court Orders Return of Seized Items After Finding No Legal Proceedings under PMLA

Introduction

In a recent judgement in Mr. Mahender Kumar Khandelwal v. Directorate of Enforcement and Anr.[i], the Delhi High Court (‘DHC’) addressed the critical issue under the Prevention of Money Laundering Act, 2002 (‘PMLA’) highlighting the constitutional conflict arising from extended property seizures. The DHC held that the continuation of such seizure beyond 365 days in the absence of the ‘pendency of any proceedings relating to any offence under this Act before a Court’ shall be confiscatory in nature, lacking the authority of law, and therefore, violative of a. 300A of the Constitution of India, 1949 (‘Constitution’). This judgement is significant as it clarifies the ambit of s. 8(3) of the PMLA to relate only to a complaint that is pending before a PMLA Court in relation to the person from whom the property was seized.

Brief Facts

• The petitioner was appointed as the Interim Resolution Professional (‘IRP’) for the corporate insolvency resolution process (‘CIRP’) of M/s Bhushan Power and Steel Ltd. (‘BPSL’) on 26.07.2017 by the National Company Law Tribunal (‘NCLT’). The committee of creditors (‘CoC’) thereafter confirmed the petitioner’s appointment as the RP on 01.09.2017. A resolution plan was submitted by M/s JSW Steel Limited and was approved by the CoC on 16.10.2018 and by the NCLT on 05.09.2019.

• The petitioner during his functioning, unearthed fraud committed by the ex-promoters and directors of BPSL. On 07.02.2020, the petitioner filed a criminal complaint as well as an application under s. 66 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) for fraudulent and wrongful trading before the NCLT.

• Thereafter, the Central Bureau of Investigation, New Delhi (‘CBI’) registered an FIR/RC against BPSL, its directors, and the other key managerial persons, for offences committed under the Indian Penal Code, 1860, and the Prevention of Corruption Act, 1988. The petitioner was neither named as an accused in the FIR nor subject to a CBI investigation. Based on the said FIR, the Directorate of Enforcement (‘ED’) registered an enforcement case information report (‘ECIR’) on 25.04.2019 under the PMLA. The petitioner served as a witness in the ED’s investigation.

• Thereafter on 19.08.2020 and 20.08.2020, the ED carried out searches at the premises of the petitioner seizing various documents, records, digital devices, and gold and diamond jewelry having an approximate value of Rs. 85,98,677/-.

• The ED’s application for retention of the seized items was confirmed by the Adjudicating Authority (‘AA’) on 10.02.2021. The petitioner challenged this decision on 11.04.2023, arguing that despite no complaints being filed against the petitioner for over a year, the seized properties were not returned and that retention of the same beyond 365 days was unlawful under s. 8(3)(a) of the PMLA.

Held

• The DHC allowed the petition and directed the return of the seized properties to the petitioner. It held that, since 365 days have elapsed from the passing of the order dated 10.02.2021 by the AA, the documents, digital devices, and property seized from the petitioner during the search and seizure conducted on 19.08.2020 and 20.08.2020 at the premises of the petitioner must be returned.

• The DHC emphasized that the provisions of PMLA should be interpreted reasonably and harmoniously with other provisions. It was noted that under s. 8(3)(a) of the PMLA’, proceedings must pertain to the property or the record which is seized under s. 17 of the PMLA.

• The DHC further observed that a prolonged seizure beyond 365 days, in the absence of pending proceedings, would constitute confiscation without legal authority, thereby violating a. 300A of the Constitution.

• The DHC reinforced that the authority to retain seized property under the PMLA must not only comply with statutory timelines but also respect constitutional rights, affirming the sanctity of a. 300A of the Constitution.

Analysis

Through this judgement, the DHC has clarified the legal framework governing the retention of seized property under the PMLA, ensuring that such actions remain within the bounds of law and constitutional rights. The DHC’s decision imposes an obligation on the AA to initiate proceedings in a time-bound manner. This decision strikes a delicate balance between safeguarding the interests of investigations and upholding the right of individuals to their property under a. 300A of the Constitution. The DHC’s judgement sets a clear precedent that prevents seizures from continuing indefinitely, even if they do not culminate into any ‘proceedings relating to any offence under the Act before a court’ within the period of 365 days. Further, by mandating the return of the seized items due to the absence of ongoing legal proceedings, the judgment reinforces accountability and prevents potential abuse of seizure powers by the authorities.

End Note:

[i] 2024 SCC OnLine Del 645

Authored by Aditya Gupta, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.