ED must return seized property if PMLA probe goes beyond 365 days and no prosecution complaint filed: Delhi High Court

The Delhi High Court recently held that if the investigation under Prevention of Money Laundering Act (PMLA) goes beyond 365 days and does not result in any prosecution complaint, then the seizure of that property lapses and the same must be returned to the person from whom it was taken [Mr Mahender Kumar Khandelwal v Directorate of Enforcement & Anr].Justice Navin Chawla said that the expression “pendency of the proceedings relating to any offence under this Act [PMLA] before a Court” as contained in Section 8(3) of the PMLA relates only to a complaint that is pending before a PMLA Court in relation to the person from whom the property was seized.This would not include the petitions filed by the person (whose properties were seized) challenging summons, search and seizure action or petitions seeking supply of relied upon documents.It is also to be remembered that the power of attachment, seizure, and freezing of the properties and records is a draconian provision that has to be strictly construed, the Court stressed.“As noted hereinabove, the expression “pendency of the proceedings relating to any offence under this Act before a Court” relates to a complaint pending before the Special Court. To hold that a writ petition filed by the petitioner to challenge the summons issued by him, and on which challenge there is no order passed by the Court staying the investigation, would also extend the period by which the property seized can be retained by the respondent, would be contrary to the bare reading of the Section 8(3) of the Act. It would be like penalising the petitioner availing of the legal remedies against a perceived illegal act of the respondent,” the Court said..It rejected the argument of the Enforcement Directorate (ED) that since Section 8(3) of PMLA does not provide for any consequence for lapse of 365 days, there can be no direction for the return of the property so seized.The Court rather held that continuation of such seizure beyond 365 days, in absence of the pendency of any proceedings relating to any offence under the PMLA before a court or under the corresponding law of any other country before the competent court of criminal jurisdiction outside India, shall be confiscatory in nature, without authority of law and, therefore, violative of Article 300A of the Constitution of India.“Therefore, the natural consequence of the investigation for a period beyond three hundred and sixty-five days not resulting in any proceedings relating to any offence under the Act, in terms of Section 8(3) of the Act, is that such seizure lapses and the property so seized must be returned to the person from whom it was so seized,” Justice Chawla concluded..The Court returned these findings while dealing with a plea filed by former Insolvency Resolution Professional (IRP) of Bhushan Power and Steel, Mahender Kumar Khandelwal.Khandelwal approached the High Court against an order dated February 10, 2021 passed by the Adjudicating Authority under Section 8(3) of PMLA confirming the retention of documents, records and jewellery seized from his premises by ED during search and seizure. He prayed that the Court issue a declaration that the said order has ceased to have effect from February 11, 2022 due to non-filing of prosecution complaint within 365 days as contemplated under Section 8(3) of PMLA.Khandelwal said that he is ED’s witness in the money laundering case being probed against the former proprietors of the company.It was argued by the petitioner that the words “the proceedings relating to any offence under this Act before a Court” in Section 8(3)(a) must be read in a narrow manner so as to mean only the complaint which arrays the person from whom the documents or the property has been seized as an accused or mentions such documents or property as relied upon in such complaint..ED, however, contended that there is no reason to give a restricted meaning to these words and any proceedings relating to any offence under this Act shall be sufficient to extend the period by which the property seized or frozen can be retained..The Court considered the argument and agreed with the petitioner.It ordered the ED to return the documents, digital devices, property and other material seized from Khandelwal pursuant to the search and seizure operation conducted at his premises..Advocates DP Singh, Archit Singh (Partner, Circle of Counsels) and Shreya Dutt appeared for petitioner Mahender Kumar Khandelwal. ED was represented through Advocates Zoheb Hossain, Vivek Gurnani, Kavish Garach and Vivek Gaurav. .[Read Judgment]