Suspicion is Not a Substitute for Lawful Satisfaction: Delhi High Court Strikes Down ED’s Freezing Orders for Failing ‘Reason to Believe’ Test Under PMLA

“When a person’s right to property is at stake, procedural shortcuts are not merely irregularities—they are unconstitutional.” - In a critical ruling Delhi High Court held that the Enforcement Directorate’s (ED) freezing of bank accounts belonging to Poonam Malik was illegal, procedurally defective, and constitutionally untenable. The Division Bench comprising Justice Subramonium Prasad and Justice Harish Vaidyanathan Shankar dismissed the ED’s appeals against the Appellate Tribunal’s order unfreezing the accounts, and observed that the agency had acted merely on “suspicion”, not on any recorded “reason to believe”, as required by law.

The case arose under the Prevention of Money Laundering Act, 2002, and involved the freezing of two bank accounts in the name of the respondent, whose husband was allegedly linked to the high-profile Sterling Biotech scam. Despite no charges being framed against the respondent herself, the ED froze her accounts in 2018 under Section 17(1A) of PMLA. The Court has now held that this action was both procedurally and substantively flawed.

“Suspicion, However Strong, Cannot Replace the Statutory Mandate of ‘Reason to Believe’”

At the heart of the case lay the interpretation of the threshold requirement under Section 17 of the PMLA, which governs seizure and freezing of property. The Court sharply noted that the freezing order issued by the ED contained no recorded ‘reason to believe’ and instead relied on a vague reference to “suspicion that amount involved in money laundering are lying in the bank account.”

Rejecting this approach, the Court held:

“Suspicion cannot be equated to a ‘reason to believe’. In fact, suspicion cannot also be equated with a ‘prima facie’ opinion.” [Para 59]

The Court further emphasized that suspicion, by its very nature, lacks evidentiary backing:

“‘Suspicion’, as defined by Black’s Law Dictionary, is the apprehension or imagination of the existence of something wrong based only on inconclusive or slight evidence, or possibly even no evidence.” [Para 60]

The Court concluded that such a standard is wholly insufficient when dealing with the constitutional right to property under Article 300A of the Constitution, which protects individuals from deprivation of property except through due process:

“Freezing of a bank account in violation of statutory requirements has far-reaching consequences. Such action directly impinges upon the constitutional right to property... and cannot be countenanced.” [Para 68]

“Section 17(1A) Cannot be Triggered Without Section 17(1) Compliance”: Freezing is Not a Lesser Power than Seizure

A significant legal finding of the Court was its declaration that freezing property under Section 17(1A) cannot occur in isolation, and must satisfy the precondition of “reason to believe” as per Section 17(1). The ED’s argument that Section 17(1A) had no such requirement was firmly rejected:

“Although Section 17(1A) does not expressly use the phrase ‘reason to believe’, it cannot be read in isolation from Section 17(1)... the act of freezing is merely an alternative to seizure, it cannot logically be subjected to a lower or different standard of satisfaction.” [Para 62]

Thus, the Court held that the entire action of the ED was vitiated by non-compliance with the basic procedural safeguard of prior belief formation based on tangible material.

“Freezing, Retention, and Confirmation Are Not Synonyms”: Court Criticises ED’s ‘Khichdi’ of Legal Terminology

In one of the most scathing parts of the judgment, the Court took issue with the manner in which the ED had sought confirmation of the freezing orders. It found that the ED had muddled the statutory scheme by using terms like “retention”, “continuation” and “confirmation” interchangeably, despite each term being tied to distinct statutory functions under the PMLA:

“The Application of the Appellant under Section 17(4) and the order have conflated all these terms and served up what can at best be called a ‘khichdi’.” [Para 75]

Noting that such casual use of language reflects a lack of application of mind, the Court stated:

“We continue to remain bewildered by the grant of ‘Retention’ when what was actually sought was an order of ‘Confirmation’. Each of these words, as used, is distinct and in respect of different actions and different species.” [Para 79]

The Court made it clear that statutory actions under PMLA are not procedural formalities that can be dispensed with or loosely interpreted.

“90-Day Period in Section 8(3)(a) Does Not Limit Investigation Duration”: Tribunal's Interpretation Declared Legally Erroneous

The Court also dealt with a crucial misreading of the statute by the Appellate Tribunal, which had held that the ED must complete its investigation within 90 days under Section 8(3)(a), failing which the freezing would lapse. The High Court clarified:

“Section 8(3)(a)... governs the duration of the attachment, retention, or freezing, which may continue even beyond the investigation period. The ninety-day limit mentioned... is referable to the attachment or retention, not to the investigative process.” [Para 41]

The Court expressly rejected the Tribunal’s view that the investigation was itself time-bound:

“To the extent that the learned Appellate Tribunal has held that the investigation must be completed within ninety days, failing which the attachment would lapse, we find such an interpretation to be inconsistent with the express wording of the statute.” [Para 42]

“Being an Accused Is Not a Precondition to Freezing Under Section 8(3)”: Legal Principle Reaffirmed

One of the central arguments raised by the ED was that even if the respondent was not named as an accused, her property could still be frozen if the same was allegedly used in money laundering. The Court endorsed this proposition, citing the Supreme Court’s judgment in Union of India v. J.P. Singh (2024 SCC OnLine SC):

“For attracting clause (a), it is enough if a complaint alleging commission of offence under Section 3 of the PMLA is pending. It is not necessary... that the person affected... must be shown as an accused in the complaint.” [Para 46]

Thus, while the Court accepted the principle, it found that the ED had failed to provide the necessary procedural basis to sustain the freezing in this particular case.

“Procedural Safeguards Are Not Optional—They Are the Only Route to Constitutional Legitimacy”

In summing up, the Court held that the entire architecture of the ED’s action—from the initial freezing order to the proceedings before the Adjudicating Authority—was vitiated by procedural violations. There was:

• No proper authorisation from a Deputy Director with recorded reasons
• No material forwarded to the Adjudicating Authority in a sealed envelope
• No Form-II freezing memo under Rule 4 of the 2005 Rules
• No independent application of mind by the Adjudicating Authority

The Court concluded:

“Such non-compliance renders the freezing orders dated 05.09.2018 issued by the ED not only procedurally defective but also substantively contrary to law.” [Para 67]

And further warned:

“Deviation from the prescribed procedure is impermissible in law... The legitimacy of State action depends upon scrupulous adherence to these procedural requirements.” [Para 66]

“To permit the ED to do so would be a travesty of justice, denying a person the procedural safeguards guaranteed by the PMLA itself.” [Para 77]

Date of Decision: 14 November 2025