Mr Mahender Kumar Khandelwal vs. Directorate Of Enforcement & Anr.

Facts

The petitioner, Mr. Mahender Kumar Khandelwal, was appointed as the Interim Resolution Professional (IRP) and later Resolution Professional (RP) for M/s Bhushan Power and Steel Ltd. (BPSL). In his capacity, he unearthed fraud and filed a criminal complaint. Subsequently, the Directorate of Enforcement (ED) registered an Enforcement Case Information Report (ECIR) based on a CBI FIR. The petitioner cooperated with the ED investigation. On August 19-20, 2020, the ED conducted search and seizure operations at the petitioner's premises, seizing documents, digital devices, and jewellery valued at Rs. 85,98,677/-. An Original Application was filed by the ED seeking confirmation of retention of seized items, which was allowed by the Adjudicating Authority on February 10, 2021. The petitioner claims no prosecution complaint was filed against him within 365 days of this order, prompting him to seek the return of his seized property.

Held

The Court held that the retention of property seized under the PMLA can only continue for a period not exceeding 365 days or during the pendency of proceedings relating to any offence under the Act before a Court. The Court found that the prosecution complaint (CC no.01/2020) filed by the respondent did not name the petitioner as an accused, nor did it seek the confiscation of the property seized from him. The petitioner's status as a witness in that complaint was insufficient to justify the continued retention of his property. The Court emphasized that for the retention to be valid beyond 365 days, the proceedings must either be against the petitioner or seek the confiscation of the seized property. Citing various Supreme Court judgments on the right to property and the necessity of legal authority for deprivation, the Court concluded that the natural consequence of the investigation not resulting in proceedings against the petitioner or for confiscation of his property within the stipulated period is that the seizure lapses and the property must be returned. The Court directed the respondents to forthwith return the seized documents, digital devices, property, and other material to the petitioner, subject to any contrary order from a competent court.

Key Issues

1. Whether the Adjudicating Authority's order dated February 10, 2021, confirming the retention of seized property has ceased to have effect due to the non-filing of a prosecution complaint within 365 days, as contemplated under Section 8(3)(a) of the Prevention of Money Laundering Act, 2002 (PMLA)? Petitioner's arguments: The petitioner contends that Section 8(3)(a) of the PMLA mandates the return of seized property if no prosecution complaint is filed within 365 days of the Adjudicating Authority's order or if the proceedings do not relate to the seized property or the person from whom it was seized. He argues that the existing prosecution complaint (CC no.01/2020) does not name him as an accused nor does it seek confiscation of the seized property, making its reliance for further retention ill-founded. He relies on the Punjab & Haryana High Court judgment in Seema Garg & Ors. v. The Deputy Director, Directorate of Enforcement. Respondent's arguments: The respondent (ED) argues that the retention of property is justified by the pendency of the prosecution complaint (CC no.01/2020) before the Special Judge, which pertains to the same ECIR under which the property was seized. They contend that the petitioner's role as a witness in that complaint is sufficient to justify the continued retention of the seized items.