Property Seized By ED Must Be Returned If PMLA Probe Continues Beyond 365 Days And Does Not Result In Any Proceedings: Delhi HC

While ruling on a very significant legal point pertaining to property seized by Enforcement Directorate (ED), the Delhi High Court in a most learned, laudable, landmark and latest judgment titled Mr Mahender Kumar Khandelwal vs Directorate of Enforcement & Anr in W.P.(C) 10993/2023 & CM APPL. 42616/2023 and cited in Neutral Citation No.: 2024 : DHC : 666 that was reserved on 16.11.2023 and then finally pronounced on 31.01.2024 has minced just no words to say in no uncertain terms that where the investigation under Prevention of Money Laundering Act, 2002 extends beyond 365 days and does not result in any proceedings relating to any offence, the seizure of a property will lapse and must be returned to the person from whom it was so seized. The Single Judge Bench comprising of Hon'ble Mr Justice Navin Chawla was dealing with a plea thatthat was moved by Mahender Kumar Khandelwal who was appointed as Interim Resolution Professional (IRP) of Bhushan Power and Steel Limited (BPSL). It must be noted that a money laundering case was filed by ED against BPSL based on CBI's fair which did not name Khandelwal.

It must be noted that a Single Judge Bench comprising of Hon'ble Mr Justice Navin Chawla sets the ball in motion by first and foremost putting forth in para 1 that, "This petition has been filed by the petitioner praying for the following reliefs:

"i. Issue a writ of mandamus or any other appropriate writ/direction/order declaring that the order dated 10.02.2021 passed by the Ld. Adjudicating Authority allowing Original Application bearing O.A. No. 404/2020 filed u/s 17(4) of PMLA, 2002 has ceased to have effect from date 11/02/2022 due to non-filing of prosecution complainant within 365 days as contemplated u/s 8(3)(a) of PMLA.

ii. Issue a writ of mandamus or any other appropriate writ/direction/order to the Respondent/ED to release/return all the documents, records, digital devices, and gold & diamond jewelry as mentioned in the Panchanama/seizure memo dated 19/08/2020 and 20/08/2020."

Factual matrix

To put things in perspective, the Bench envisages in para 2 that, "It is the case of the petitioner that, vide order dated 26.07.2017, passed by the learned National Company Law Tribunal, Principal Bench, New Delhi (in short, ‘NCLT') in CA No.(IB)-202(PB)/2017, the petitioner was appointed as the Interim Resolution Professional (in short, ‘IRP') for the Corporate Insolvency Resolution Process of M/s Bhushan Power and Steel Ltd. (hereinafter referred to as ‘BPSL')."

To recapitulate, the Bench then recalls in para 3 that, "On 01.09.2017, the Committee of Creditors (in short, ‘CoC') for BPSL confirmed the appointment of the petitioner as the Resolution Professional (in short, ‘RP') for BPSL."

Further, the Bench then discloses in para 4 that, "On 16.10.2018, the CoC also approved the resolution plan for BPSL, which was submitted by M/s JSW Steel Limited. The said plan was approved by the learned NCLT vide order dated 05.09.2019."

Furthermore, the Bench lays bare in para 5 that, "The petitioner claims that in the course of his functioning as the IRP and as the RP of BPSL, the petitioner unearthed fraud committed by the ex-promoters and directors of BPSL, for which he even filed a criminal complaint dated 07.02.2020 with the SHO, Thelkoloi Police Station, District- Sambalpur, Odisha, under Sections 419,420,465,467,468,469,471 read with Section 120-B of the Indian Penal Code, 1860 (in short, ‘IPC'). The petitioner also filed an application under Section 66 of the Insolvency and Bankruptcy Code, 2015 (in short, ‘IBC') for the fraudulent and wrongful trading, before the learned NCLT."

Simply put, the Bench states in para 6 that, "It is alleged that the Central Bureau of Investigation, New Delhi (in short, ‘CBI') registered an FIR/RC No.RCBDl/2019/E/0002 dated 05.04.2019 against BPSL, its Directors, and the other Key Managerial Persons, on allegations of offences committed under Sections 120-B read with Sections 420, 468, 471 & 477A of the IPC, and Section 13(2) r/w 13(1) (d) of the Prevention of Corruption Act, 1988. The petitioner was neither named as an accused in the FIR nor was investigated by the CBI. He was neither summoned nor asked to join the investigation by the CBI in the said FIR."

Analysis and finding

Do note, the Bench notes in para 41 that, "In the present case as well, the order dated 10.02.2021 passed by the Adjudicating Authority itself records that the retention of documents, digital devices, and the property seized from the petitioner."

Do also note that the Bench then notes in para 42 that, "Explanation (ii) to Section 44 of the Act states that the complaint shall be deemed to include any subsequent complaint in respect of further investigation that may be conducted "to bring any further evidence, oral or documentary, against any accused person involved in respect of the offence" for which complaint has already been filed, whether named in the original complaint or not. From the said provision also, it is apparent that the investigation may lead to filing of a subsequent complaint to bring on record further evidence in form of seized documents and records, either against the accused named in the original complaint or subsequent thereto. However, till such Supplementary Complaint is filed, it has to be presumed that the investigation is still pending, and in such a scenario, the outer limit of 365 days to retain the property/documents seized, shall continue to operate."

As a corollary, we see that the Bench then while making it discernibly clear holds in para 43 that, "In view of the above, it is held that the period of 365 from the passing of the order dated 10.02.2021 by the Adjudicating Authority having been passed, the documents/digital device/property seized from the petitioner in the search and seizure conducted on 19th and 20th August, 2020 from the premises of the petitioner are liable to be returned."

Most forthrightly, the Bench propounds in para 45 postulating that, "As far as the petition filed by the petitioner challenging the Summons dated 19.08.2020 and 22.08.2020 issued under the Act, that is, W.P.(Crl) 1342/2020, titled as Mahender Kumar Khandelwal v. Union of India & Ors., the same cannot come to the aid of the respondent to extend the period for retention of the seized documents and the property. 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 penalizing the petitioner availing of the legal remedies against a perceived illegal act of the respondent."

Equally forthright is what the Bench then expounds in para 46 that, "The same logic applies to the writ petition filed by the petitioner seeking setting aside of the search and seizure action and for a direction for supply of the relied upon documents, being W.P.(CRL) 233/2021, titled as Mahender Kumar Khandelwal v. Union of India & Ors.. It is not shown that on the said petition if any order has been passed by the Court staying the investigation against the petitioner. The said writ petition again cannot fall within the ambit and scope of the expression "pendency of the proceedings relating to any offence under this Act before a Court"."

Briefly stated, the Bench states in para 51 that, "The contention of the learned counsel for the respondents that as Section 8(3)(a) of the Act does not provide for a consequence of lapsing of 365 days, there can be no direction for the return of the property so seized, also cannot be accepted. The continuation of such seizure beyond 365 days, in absence of the pendency of any proceedings relating to any offence under this Act 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. In this regard, reference may be made to M.C.Mehta v. Union of India and Ors., 2020 SCC OnLine SC 648."

Most significantly, the Bench mandates in para 52 that, "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."

Directions

Resultantly, the Bench directs in para 53 that, "In view of the above, the respondents are directed to return the documents, digital devices, property, and other material seized from the petitioner pursuant to the search and seizure operation conducted on 19th and 20th August, 2020, forthwith to the petitioner, subject to any order to the contrary passed by any competent Court."

In a nutshell, we thus see for ourselves quite clearly that the bottom-line of this notable judgment is that the property seized by ED must be returned if PMLA probe continues beyond 365 days and does not result in any proceedings. This must be definitely strictly implemented as directed so very sagaciously by the Delhi High Court! No denying it!