Freezing Of Bank Account On Mere Suspicion Cannot Sustain — "Reasons To Believe" Under PMLA Cannot Be A Mere Formality

The Delhi High Court in the case of Directorate of Enforcement v. Poonam Malik [2025:DHC:9981-DB] has strongly reprimanded the Enforcement Directorate (ED) for freezing a bank account purely on the basis of suspicion, without complying with the statutory safeguards under the Prevention of Money Laundering Act, 2002 (PMLA). The Court held that both the ED and the Adjudicating Authority (AA) acted mechanically and in disregard of the distinct procedural stages mandated under the Act.

The case involved freezing orders that were subsequently confirmed by the AA. The Appellate Tribunal set aside those orders and directed unfreezing, prompting the ED to approach the High Court. The Division Bench upheld the Tribunal's order and recorded clear disapproval of the ED's manner of proceeding.

The Court observed that the PMLA provides for separate events and acts of seizure, freezing, retention, continuation and confirmation and each event has its own statutory requirements. These terms are not interchangeable. However, in the present case, the ED's application and the AA's order "conflated all these terms and served up what can at best be called a khichdi." The ED sought "confirmation," styled the application as one for "continuation," and ultimately managed to secure an order of "retention."

Importantly, the Court clarified that retention under Section 20 requires fresh satisfaction recorded by the authorised officer and cannot be granted automatically merely because a freezing order exists. Similarly, continuation of a freezing order under Section 17 must be preceded by a properly recorded "reason to believe." These safeguards are integral to the statutory scheme and cannot be bypassed for convenience. The AA therefore cannot, immediately after a seizure or freezing, rubber-stamp retention or continuation without complying with the express mandate of the Act.

The Court also found that the initial freezing orders were cryptic and unsupported by any material. They merely stated that "it is suspected" that the funds in the accounts were linked to alleged laundering activities of the respondent's husband, who was under investigation. Suspicion of this nature, the Court held, falls far short of the mandatory threshold of "reasons to believe" under Section 17. An action freezing a bank account without meeting statutory requirements infringes the constitutional right to property under Article 300A.

The judgment reiterates that a freezing order lacking application of mind, failing to establish a nexus with alleged proceeds of crime, or overlooking the mandatory statutory checks cannot be sustained.

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