DRI To Pay Rs. 1 Lakh Cost For Illegal Retention of Seized Cash Beyond Statutory Limit: Allahabad High Court

The Allahabad High Court has imposed the cost of Rs. 1 Lakh on the Directorate of Revenue Intelligence (DRI) for illegally retaining seized cash of ₹25.20 lakh beyond the statutory period of six months without issuing a show cause notice or properly communicating an extension order to the affected parties. The Bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla has observed that the department had unlawfully retained the money for nearly three months beyond the statutory period and that loss had been caused to the petitioners due to deliberate omissions and commissions on the part of the authorities. The controversy arose after DRI officials seized ₹25.20 lakh in cash from the petitioners during search proceedings conducted on August 20, 2025, at business premises in Bareilly. The petitioners contended that despite the lapse of six months from the date of seizure, no show cause notice had been issued under Section 124 of the Customs Act, nor had any valid extension of time been communicated to them. Consequently, they approached the High Court seeking release of the seized amount. During the proceedings, the DRI relied upon a document dated February 18, 2026, claiming it constituted an order extending the limitation period for issuance of a show cause notice under Section 110(2) of the Customs Act. The department argued that ongoing investigations relating to the source of cash and suspected counterfeit currency notes justified additional time. The High Court carefully examined the alleged extension order and found serious deficiencies in the document. The Bench observed that the note sheet merely contained signatures of officers without any indication that the competent authority had independently applied its mind or recorded reasons as required under the statute. The Court held that Section 110(2) mandates not only the recording of reasons in writing by the competent authority but also communication of the extension to the person from whom the goods or cash were seized before expiry of the original six-month period. According to the Court, neither requirement had been satisfied. Relying upon landmark Supreme Court decisions including Chhugamal Rajpal v. S.P. Chaliha, Union of India v. Rai Singh Dev Singh Bist, and Sahara India (Firm) v. CIT, the Bench emphasized that statutory approvals cannot be granted mechanically and must demonstrate genuine application of mind. The Court held that upon expiry of six months on February 19, 2026, the petitioners had acquired a statutory right to return of the seized cash because no valid show cause notice had been issued and no lawful extension order had been communicated. The Bench observed that retention of the money after February 19, 2026, was wholly unauthorized and beyond jurisdiction. The authorities were under a legal obligation to return the cash automatically once the statutory conditions for continued retention ceased to exist. A particularly serious aspect noted by the Court was that while the writ petition was pending and the issue of release of cash was under active consideration, the DRI transferred the seized amount to the Income Tax Department pursuant to a requisition received on May 19, 2026. The Court found that this transfer was executed in haste on May 20, 2026—just two days before the matter was listed before the High Court again. The Bench noted that the DRI was fully aware that the legality of its retention of the cash was being scrutinized by the Court, yet proceeded to transfer the money without informing the Court. Expressing strong disapproval, the High Court remarked that the conduct of the DRI appeared to be aimed at frustrating the writ proceedings and defeating the ends of justice. The Bench observed that the authorities had acted without jurisdiction after the expiry of the statutory period and then sought to place the money beyond the reach of the Court by transferring it to another department. The Court described the conduct as “absolutely shocking” and held that the DRI had attempted to overreach the judicial process. Considering the seriousness of the conduct, the Court initially assessed costs of ₹10 lakh against the DRI for illegally retaining the cash and frustrating the proceedings. The Bench observed that the petitioners were forced into further litigation solely because of unlawful actions of the authorities. Subsequently, the DRI filed an application seeking reduction of costs. An affidavit was submitted by the Joint Director of DRI expressing unconditional apology and assuring the Court that future actions would comply with statutory requirements. The department also issued an internal office order directing officers not to take action in matters pending before courts without verifying the status of judicial proceedings and obtaining necessary permissions. Taking note of the apology and administrative corrective measures introduced by the DRI, the High Court decided to reduce the costs from ₹10 lakh to ₹1 lakh. Case Details Case Title: Shalabh Agarwal Versus Additional Director General And Another Citation: JURISHOUR-1537-HC-2026(ALL) Case No.: WRIT TAX No. - 2070 of 2026 Date: 27/05/2026 Counsel For Petitioner: Shaikh Mohd Mujib Ur Rahman Counsel For Respondent: A.S.G.I., Anant Kumar Tiwari, Dhananjay Awasthi, Krishna Agarawal Click Here To Read Order Read More: DGGI Gauhati | Bona Fide Buyer Can’t Be Penalised for Supplier’s Tax Default: High Court

DRI To Pay Rs. 1 Lakh Cost For Illegal Retention of Seized Cash Beyond Statutory Limit: Allahabad High Court

Membership Required

Latest articles

GST Dept. Can’t Deny 15% Penalty Settlement Benefit for Failure to Issue DRC-01A: Allahabad HC

Penalty U/s 270A Can’t Be Levied on Estimated Bogus Purchase Addition: ITAT

GST Show Cause Notice Must Specify Interest Rate and Penalty Proposal: Delhi HC

DGGI Gauhati | Bona Fide Buyer Can’t Be Penalised for Supplier’s Tax Default: High Court

More like this

GST Dept. Can’t Deny 15% Penalty Settlement Benefit for Failure to Issue DRC-01A: Allahabad HC

Penalty U/s 270A Can’t Be Levied on Estimated Bogus Purchase Addition: ITAT

GST Show Cause Notice Must Specify Interest Rate and Penalty Proposal: Delhi HC

About us

Company

Categories