Without Issuing Retention Order u/s 20 of PMLA Act, Detention of Property by ED is Contrary to Law: Delhi says S. 20 Compliance is Mandatory [Read Order]

In a recent ruling, the Delhi High Court has held that the Enforcement Directorate (ED) cannot retain or continue to freeze seized property without first passing a valid order of retention under Section 20 of Prevention of Money Laundering Act, 2002 (PMLA).

The Court clarified that Section 20 is not a mere procedural formality but a mandatory substantive safeguard that acts as a bridge between the initial search and seizure under Section 17 and the adjudicatory confirmation process under Section 8 of the Act.

The proceedings arose out of an FIR registered in 2016 by Delhi Police for fraudulent conversion of demonetised notes into gold and diamonds. The ED initiated investigation and, during a search of the appellant’s residence in February 2017, seized five gold bars and five diamonds, alleged to be proceeds of crime.

An application was filed before the Adjudicating Authority (AA) under Section 17(4) of the PMLA, which allowed retention of the seized property. The Appellate Tribunal later upheld this order, leading to the present appeal before the High Court.

The appellant Anirudh Pratap Agarwal contended that the Enforcement Directorate (ED) had failed to comply with the mandatory requirements of Section 20 of the PMLA, which obligates the authorised officer to record specific “reasons to believe” and issue a retention order within 180 days of seizure.

According to the appellant no such independent satisfaction was recorded under Section 20(1), nor was any retention order passed and forwarded to the Adjudicating Authority as mandated under Section 20(2). In the absence of these statutory safeguards, the continued retention of the seized property was unlawful.

It was further asserted that when the Adjudicating Authority confirmed the seizure in June 2017, no proceedings under the PMLA were pending against the appellant, as he was formally arrayed as an accused only in 2018. Therefore, the appellant argued, Section 8(3) of the Act, which permits continuation of retention during the pendency of proceedings, had no application to his case.

However, the ED argued that Sections 17(4) and 20 operate independently. According to it, Section 17(4) allows the agency to approach the AA within 30 days for confirmation of retention, and therefore, non-compliance with Section 20 does not invalidate the process.

The ED submitted that once the AA had confirmed the seizure under Section 8(3), the continuation of retention was lawful, regardless of whether a separate retention order under Section 20 was issued.

The Division Bench of Justices Subramonium Prasad and Harish Vaidyanathan Shankar held that Section 20 of the PMLA serves as a substantive safeguard, ensuring that seizure under Section 17 does not result in indefinite deprivation of property without independent scrutiny.

“We are of the considered opinion that Section 20 is substantive and mandatory in nature. It ensures that seizure under Section 17 does not result in indefinite deprivation of property without independent scrutiny. Section 20(1) requires a fresh and independent “reason to believe”, duly recorded in writing, by an authorised officer, who may not necessarily be the same officer who conducted the search under Section 17” said the court.

It also added that “Without such a retention order, the learned AA, under Section 8(3), while exercising its confirmatory adjudicatory power, has nothing before it to confirm. Therefore, Section 20 acts as a vital safeguard against arbitrary executive action and ensures that property rights are protected until a full adjudication takes place under Section 8 of the PMLA.”

The Court pointed out that the authorised officer must record written reasons and pass a retention order, which must then be forwarded to the Adjudicating Authority. It was also clarified by the bench that Section 8(3) empowers the Adjudicating Authority only to confirm retention beyond 180 days, but such confirmation necessarily presupposes the existence of a valid retention order under Section 20.

Any attempt to bypass Section 20 by resorting directly to Section 17(4) and Section 8 undermines the statutory checks and renders the detention void ab initio, incapable of being cured by later confirmation, said the court.

The bench observed that “The architecture of the PMLA reflects a careful balance. While it equips the ED with robust enforcement powers to address money laundering, it simultaneously incorporates substantive procedural safeguards at every stage to protect constitutional rights and ensure judicial scrutiny. Compliance with Sections 17, 20, and 8 of the PMLA is not a mere formality but a statutory mandate. Any deviation from this framework renders the retention order void.”

Accordingly, the impugned order was set aside.

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