New Delhi: Can the Enforcement Directorate (ED) lawfully seize a citizen’s assets, while keeping the specific “reasons to believe” behind that seizure a confidential administrative secret? This fundamental question on the balance between transparency and investigative secrecy under the Prevention of Money Laundering Act (PMLA) has prompted the Gauhati High Court to refer the issue to a larger bench.
In a judgement delivered last Friday, Justice Manish Choudhury upheld the ED’s power to attach property of “equivalent value”, even if it was purchased years before an alleged crime.
At the same time, he reasoned that disclosing the justification is essential for “natural justice and fair play”. But since the high court, in the past, had also ruled that such reasons must remain confidential, the judge referred the matter to a larger bench for a final resolution to maintain judicial consistency.
He referred two questions to a larger bench. First, is the ED’s “reason to believe” confidential in character, or must it be furnished to the affected person? And second, does including these reasons in an attachment order constitute a “jurisdictional error”?
The case highlighted a sharp legal divide over whether citizens can adequately defend themselves, if the basis for the state’s power remains a hidden internal record.
The case stems from a 2024 investigation into M/s Siddhi Vinayak Trade Merchants, which the ED described as a shell company that operated solely on paper to generate “15,258 bogus invoices totaling over Rs 658 crore”.
According to the agency, the invoices allegedly allowed various entities to fraudulently claim Rs 99.31 crore in Input Tax Credits (ITC) without any actual movement of goods.
The ED said it traced approximately Rs 52.66 lakh of this fraudulent ITC to the petitioner’s firm, M/s Fama Marketing, as part of transactions to project “proceeds of crime as legitimate business transactions”, effectively integrating the allegedly illicit gains into the formal financial system.
A central point of the petitioner’s challenge was that the three plots of land attached by the ED in Guwahati were purchased in 2022, well before the alleged GST fraud took place in 2023–2024. The petitioner argued that property acquired before a crime cannot be considered “proceeds of crime”.
Justice Choudhury rejected this argument, holding that the PMLA allows for attachment of property of “equivalent value” because and “if the actual asset is no longer available, its equivalent value can be considered as PoC (Proceeds of Crime) and can be attached or confiscated”.
The court found that because the allegedly laundered Rs 52.66 lakh had already been “infused into the formal financial economy” and was not available for seizure, the ED was legally permitted to attach the petitioner’s pre-existing land to cover that value.
The transparency debate
The most impactful part of the judgment involves the “reason to believe” or the written justification an ED officer must record before seizing property.
The petitioner argued that these reasons are “confidential administrative secrets” that should remain in internal files and never be included in the public attachment order.
However, Justice Choudhury disagreed, stating that keeping these reasons hidden from the affected person is “antithesis of the principles of natural justice”.
“If the reason to believe is made part of the PAO (Provisional Attachment Order), the same would be in alignment with the constitutional principles of natural justice and fair play; and the same would lessen the possibility of subjective fishing expeditions,” he said in a 63-page judgement.
Further, a citizen cannot adequately defend themselves if the basis for the charge against them is “hidden”, he said.
The judge further noted that a citizen cannot adequately defend themselves if the very basis of the charges against them remains a “hidden administrative secret”.
Despite his stance on transparency, Justice Choudhury acknowledged that a previous coordinate bench of the same court had ruled that these reasons should be kept confidential in the 2024 Aftabuddin Ahmed case.
The matter now moves to the Chief Justice of the Gauhati High Court to constitute a larger bench to resolve these fundamental questions, which will determine how much information the ED must disclose when seizing private property.
(Edited by Sugita Katyal)
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