The Delhi High Court has upheld the Tribunal order quashing ED’s retention of chartered accountant’s seized assets in PMLA case.
The bench of Justice Subramonium Prasad and Justice Harish Vaidyanathan Shankar has observed that the provisions under PMLA are not directory or mere procedural niceties but are substantive and mandatory in nature. The statutory text leaves no scope for discretion or implied exceptions for retaining property or records without following the prescribed procedure. 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.
The bench stated that although the right to property is no longer a fundamental right under the Constitution of India, it retains its status as a constitutional and legal right under Article 300A. No person can be divested of their property save by authority of law.
The bench remarked 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.
“A cardinal principle of statutory interpretation, as reiterated by courts time and again, is 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 stipulates a defined mechanism for the retention of seized property or records, it is imperative that such procedure is strictly followed,” the court said.
How was a Chartered Accountant Involved In Money Laundering?
The case stems from a 2017 probe initiated on the basis of a Serious Fraud Investigation Office (SFIO) complaint alleging that businessmen Surendra Kumar Jain and Virendra Jain, through shell companies, laundered funds using share subscriptions at inflated premiums. Agarwal was accused of assisting them as a professional intermediary. Following a search of his Karol Bagh office on May 18, 2017, the ED seized files, electronic devices, and Rs. 6 lakh in cash.
The Chartered Accountant, Rajesh Kumar Agarwal was alleged to be one of the professionals who acted as a mediator / co-conspirator in the money laundering operations carried out by the Jain brothers. The Jain brothers allegedly used corporate entities under their control to launder funds by infusing cash from M/s Jagat Projects into company accounts disguised as share subscription at a huge premium (around Rs. 64.7 crore during FY 2008–09). Agarwal, in his professional capacity, was accused of facilitating and assisting these transactions, helping route the funds in a way that appeared legitimate.
Retention Of CA’s Property Challenged Before Tribunal
On 15 June 2017, the Enforcement Directorate filed an application under Section 17(4) of the Prevention of Money Laundering Act (PMLA) before the Adjudicating Authority, seeking permission to retain the property seized from Rajesh Kumar Agarwal. Subsequently, on 20 July 2017, the ED also filed a prosecution complaint against Agarwal before the Special Court under the PMLA, and the Court formally took cognizance of the offence on 4 September 2017.
In the meantime, on 21 August 2017, the Adjudicating Authority had already allowed the ED’s application to retain the seized property. Aggrieved by this retention order, Agarwal filed an appeal under Section 26 of the PMLA before the Appellate Tribunal.
The Tribunal set aside the retention Order on the grounds that it lacked any substantive consideration or discussion on merits, particularly regarding the retention of the Respondent’s properties. While holding that the order of the AA was sans reasons, the Tribunal also examined the manner in which the property was sought to be retained and held that the manner in which the seized property was retained did not conform to the scheme of the Act and examined the relevant provisions in respect of the same, and in particular, Sections 17, 20 and 8 of the PMLA and the interplay of the said Sections for the purpose of examining the retention of the seized properties.
Retention Order Quashing Challenged By ED
The ED argued that since a prosecution complaint had been filed before the Special Court and was pending, the retention of seized assets automatically continued under Section 8(3)(a) of the PMLA. It further claimed that compliance with Section 20, which mandates a separate retention order for seized property up to 180 days, was not necessary in this case. ED maintained that procedural lapses could not invalidate the retention when adjudication had already taken place within the statutory period.
ED failed to follow the mandatory safeguards under Section 20, CA Argued
The CA contended that the retention was illegal from inception as the ED failed to follow the mandatory safeguards under Section 20. He argued that without a properly recorded “reason to believe” and a retention order communicated to the Adjudicating Authority, the subsequent adjudication under Section 8 was void. The defense also highlighted that the PMLA is a special statute requiring strict compliance with procedural safeguards to protect citizens from arbitrary deprivation of property.
ED’s Powers under the PMLA are “draconian in effect, Says Court
The court observed that Section 20 of the PMLA is mandatory. The ED must pass a reasoned order of retention within 180 days and forward it to the Adjudicating Authority. The Adjudicating Authority’s powers under Section 8(3) are limited to confirmation, not creation, of a retention order. Non-compliance with Section 20 renders the retention void ab initio and cannot be cured by later adjudication. Though no longer a fundamental right, Article 300A of the Constitution protects against deprivation of property without authority of law.
The Court observed that accepting ED’s argument would render Section 20 “nugatory” and allow a “shortcut” bypassing statutory safeguards. It emphasized that powers under the PMLA are “draconian in effect” and must be exercised with strict adherence to legislative intent.
Dismissing ED’s appeal, the High Court held that the Tribunal was correct in quashing the Adjudicating Authority’s 2017 retention order. Consequently, the seized files, devices, and cash are liable to be released to Rajesh Kumar Agarwal.
Case Details
Case Title: Directorate Of Enforcement Versus Rajesh Kumar Agarwal
Case No.: MISC. APPEAL (PMLA) 03/2023 & CRL.M.A. 34701/2019 & CRL.M.A. 38804/2019
Date: 12.09.2025
Counsel For Petitioner: Samrat Goswami
Counsel For Respondent: Amit Khemka
