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Synopsis

In a significant ruling, the Delhi High Court has ruled that if the investigation under the Prevention of Money Laundering Act (PMLA) extends beyond 365 days without resulting in a prosecution complaint, the seizure of the property must be deemed lapsed, and it should be returned to the individual from whom it was confiscated.

The bench of Justice Navin Chawla clarified that the phrase "pendency of the proceedings relating to any offence under this Act [PMLA] before a Court" in Section 8(3) of the PMLA specifically refers to a complaint pending before a PMLA Court concerning the person from whom the property was seized.

"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," the court observed in its order dated January 31.

The court emphasized that this does not include petitions filed by the affected individual challenging actions like summons, search, and seizure or seeking the supply of relied-upon documents.

"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 Section 8(3) of the Act. It would be like penalising the petitioner for availing of the legal remedies against a perceived illegal act of the respondent," the court said.

The court underscored that the authority to attach, seize, and freeze properties and records, as per PMLA, is a stringent provision that must be strictly construed. It rejected the argument put forth by the Enforcement Directorate (ED) that the absence of consequences in Section 8(3) for the lapse of 365 days precludes any direction for the return of seized property.

Justice Chawla maintained that the continued seizure beyond 365 days, in the absence of ongoing proceedings related to any PMLA offence before a court, would be confiscatory, lacking legal authority, and thus violative of Article 300A of the Constitution of India.

The ruling was delivered in response to a plea by Mahender Kumar Khandelwal, former Insolvency Resolution Professional (IRP) of Bhushan Power and Steel. Khandelwal challenged an Adjudicating Authority's order confirming the retention of documents, records, and jewelry seized by the ED during a search and seizure operation.

Khandelwal sought a declaration that the order had ceased to be effective from February 11, 2022, due to the non-filing of a prosecution complaint within the stipulated 365 days under Section 8(3) of PMLA.

The Court, agreeing with Khandelwal's interpretation of Section 8(3), directed the ED to return the seized items from Khandelwal's premises.

Case Title: Mr. Mahender Kumar Khandelwal v. Directorate of Enforcement & Anr.