The Supreme Court has reaffirmed that the Enforcement Directorate (ED) cannot freeze a person’s bank account merely on the basis of suspicion while exercising powers under the Prevention of Money Laundering Act (PMLA). The court made it clear that authorities must first record valid “reasons to believe” before restricting access to bank accounts.
A Bench comprising Justices Dipankar Datta and Sheel Nagu dismissed the ED’s challenge to a Delhi High Court ruling that had invalidated the freezing of two bank accounts belonging to Poonam Malik. The apex court agreed with the High Court’s interpretation that the power to freeze assets under Section 17(1A) of the PMLA is inseparably connected to the safeguards embedded in Section 17(1), which governs searches and seizures.
The controversy revolved around whether the ED could invoke Section 17(1A) without satisfying the requirement of forming a “reason to believe.” Although the provision dealing with freezing orders does not expressly contain those words, the courts held that freezing is simply an alternative to seizure and therefore cannot be subjected to a lower legal threshold.
The Delhi High Court had earlier observed that the authority to freeze assets derives its legitimacy from the same conditions that permit seizure. Since a seizure under the PMLA can only be carried out after authorities record reasons supported by material, a freezing order must also meet that standard.
The case stemmed from an investigation linked to the alleged Sterling Biotech banking fraud, involving claims of financial irregularities exceeding ₹5,000 crore. Poonam Malik, whose accounts were frozen, is the wife of Ranjit Malik, who was allegedly connected to one of the accused persons in the case. However, neither Poonam Malik nor her husband figured as accused in the FIR or the Enforcement Case Information Report (ECIR).
Despite this, the ED froze two of her bank accounts in 2018, stating that it suspected proceeds of crime could be lying in those accounts and directing banks to prohibit debit transactions until further orders.
The freezing action was initially upheld by the Adjudicating Authority, but the Appellate Tribunal later overturned the decision. The ED subsequently approached the Delhi High Court, which ruled against the agency.
The High Court concluded that the freezing orders had been issued in disregard of the mandatory procedural safeguards prescribed under the PMLA and therefore could not survive judicial scrutiny.
The court also emphasized the constitutional implications of such actions. It observed that freezing a bank account without following statutory requirements directly affects a citizen’s right to property under Article 300A of the Constitution, which guarantees that no person can be deprived of property except by authority of law.
According to the High Court, any action that bypasses these legal protections undermines the legitimacy of the exercise of power and cannot be sustained.
By refusing to interfere with that reasoning, the Supreme Court has reinforced the principle that investigative agencies must adhere to statutory safeguards and cannot impose financial restrictions based solely on suspicion.
