ED cannot freeze property on mere suspicion: Delhi HC

The bench said freezing a bank account without complying with statutory safeguards under Sections 17(1) and 17(1A) of the Prevention of Money Laundering Act (PMLA) has ‘far-reaching consequences’ and affects the constitutional right to property under Article 300A.

The Delhi High Court on Friday held that the Enforcement Directorate (ED) cannot attach or freeze property on the basis of mere suspicion and must demonstrate valid “reasons to believe”, supported by material such as documents or evidence, that the property is involved in money laundering.

The court stressed that freezing is merely an alternative to seizure and therefore cannot have a lower threshold (File photo)

A bench of justices Subramonium Prasad and Harish Vaidyanathan Shankar said freezing a bank account without complying with statutory safeguards under Sections 17(1) and 17(1A) of the Prevention of Money Laundering Act (PMLA) has “far-reaching consequences” and affects the constitutional right to property under Article 300A.

Section 17(1) authorises ED officers to search premises only when they have “reasons to believe” that a person has committed money laundering or possesses proceeds of crime, while Section 17(1A) permits freezing of property when seizure is not practicable. The court’s 31-page judgment, authored by justice Shankar, stressed that freezing is merely an alternative to seizure and therefore cannot have a lower threshold.

“We are of the firm opinion that ‘suspicion’ cannot be equated to a ‘reason to believe’. In fact, suspicion cannot also be equated with a ‘prima facie’ opinion,” the court said, adding that suspicion is “a subjective state of mind… with minimal or no basis”, whereas “reason to believe” requires an informed, objective assessment based on material.

The bench further noted: “Although Section 17(1A) does not expressly use the phrase ‘reason to believe’, it cannot be read in isolation… since the act of freezing is merely an alternative to seizure, it cannot logically be subjected to a lower or different standard.”

The court dismissed the ED’s appeal challenging two 2019 orders of the PMLA appellate tribunal, which had set aside the freezing of two bank accounts belonging to a woman containing ₹6.45 lakh. Her husband had been arrested in 2018 for allegedly managing cash operations in a bank fraud exceeding ₹5,000 crore, following which the ED froze her accounts based on unexplained cash deposits and the couple’s failure to file income tax returns.

The tribunal had ruled that the orders were based solely on suspicion, that the woman was not named as an accused, and that the ED had failed to complete its investigation within 90 days.

Before the high court, ED counsel Zoheb Hossain argued that the freezing orders were supported by “sufficient reasons to believe” and that proceedings before the adjudicating authority are civil in nature, governed by the standard of preponderance of probabilities.

However, the woman’s counsel, Madhav Khurana, contended that the ED failed to disclose any material indicating the existence of “reasons to believe” at the time of the freezing.

Upholding the tribunal’s decision, the court held the ED’s orders “cryptic” and “founded solely on suspicion”. It clarified that while property belonging to a non-accused person may be frozen under the PMLA, Section 8(3)(a) governs only the duration of attachment, not the timeframe of investigation.