New Delhi: The Supreme Court has ruled that the Enforcement Directorate (ED) cannot freeze a person’s bank account solely on the basis of suspicion or conjecture, delivering a significant judgment on the scope of the agency’s powers under the Prevention of Money Laundering Act (PMLA). The Court held that freezing a bank account is effectively an alternative to seizure of property and, therefore, must meet the same legal threshold applicable to seizure proceedings. The Bench also declined to interfere with a Delhi High Court order that had quashed the ED’s decision to freeze two bank accounts.
The judgment was delivered by a Bench comprising Justice Dipankar Datta and Justice Sheel Nagu. The Court observed that although Section 17(1A) of the PMLA does not expressly use the phrase “reason to believe,” it cannot be interpreted in isolation from Section 17(1). According to the Bench, both provisions are intrinsically connected, and any action to freeze a bank account must be supported by adequate material and the statutory satisfaction required under the law.
The Supreme Court further held that seizure of property under the PMLA is permissible only when the authorised officer has a legally sustainable “reason to believe” that the property constitutes the proceeds of crime. Since freezing a bank account produces substantially the same legal effect as seizure by preventing a person from accessing the funds, such action cannot be subjected to a lower or different standard. The Court emphasized that investigative agencies must exercise their statutory powers strictly in accordance with the safeguards and procedures prescribed by law.
The case arises from the alleged ₹5,000 crore Sterling Biotech bank fraud and the connected money laundering investigation. During the probe, the ED froze two bank accounts belonging to Poonam Malik, alleging that she was linked to Gagan Dhawan, an accused in the Sterling Biotech case. However, neither Poonam Malik nor her husband Ranjit Malik was named in the ED’s Enforcement Case Information Report (ECIR) or in the underlying criminal case.
The Delhi High Court had earlier held that the ED failed to place sufficient material on record to demonstrate that the statutory conditions required for freezing the bank accounts had been satisfied. On that basis, the High Court set aside the freezing order. The ED challenged that ruling before the Supreme Court, but the apex court dismissed the appeal and upheld the relief granted by the High Court.
The ruling is being viewed as an important clarification of the balance between investigative powers under the PMLA and the financial rights of individuals. Legal experts believe the judgment will serve as a guiding precedent in future cases involving the freezing of bank accounts, reinforcing that such measures cannot be taken arbitrarily or without adequate legal justification. The Court also underscored that investigative agencies are bound to follow the statutory safeguards enacted by Parliament while exercising coercive powers.
With this decision, the relief granted to Poonam Malik by the Delhi High Court remains in force, while the investigation into the alleged Sterling Biotech bank fraud and related money laundering allegations will continue in accordance with law. The Supreme Court has made it clear that suspicion alone cannot justify freezing a person’s bank account and that any such action must be supported by concrete material establishing the legally required “reason to believe.”
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
