2020 (12) TMI 1385 - AT - Money Laundering

Money Laundering - attachment of properties through PAO - proceeds of crime - appellant is a bona fide third party or not - initiation of actions against mortgaged properties under SARFAESI Act 2002 - the provisions of Prevention of Money Laundering Act 2002 override the provisions of SARFAESI Act 2002 or not - the jurisdiction of this Appellate Tribunal under Section 26(4) of the PMLA to modify or set aside the impugned order is curtailed by second proviso to Section 8(8) as alleged by the respondent or not - material for the formation of reason to believe under Section 5(1) of PMLA 2002 or not - applicability of Section 3 of the PML Act 2002. First submission of appellant is that the appellant is a bona fide third party and has acquired interest in the properties in question at a time anterior to commission of alleged schedule offences - HELD THAT - Admittedly neither the appellant nor any of its officials have been named in the FIR or ECIR but that does not mean that the property attached would be released in favour of the appellant in view of the allegations of the respondent that the properties in question are involved in proceeds of crime. The appellant has not been named may be because of the fact that the appellant is not involved in commission of the crime. The appellant has filed certain documents on 27.11.2020 in support of his contention that due diligence was followed which includes (a) copy of legal verification report (b) copy of CIBIL reports of the borrowers (c) copy of valuation reports of secured assets and (d) copy of memorandum submitted to credit committee for approval of loan to borrowers - Even though the appellant has shown some diligence before sanction of the loan but the attachment under consideration cannot be lifted as any release of attachment from the questioned properties in favour of the present appellant is tantamount to depriving the Consortium of Banks of their money and jeopardizing their interest - thus even if the appellant is considered as a bona fide third party then also the order of attachment cannot be set aside or modified due to the fact that prima facie allegation is that the proceeds of crime have been travelled to acquire the properties in question. Therefore this legal submission is not acceptable. The second legal submission made by the appellant that it is a secured creditor being a bona fide third party had initiated actions against mortgaged properties under SARFAESI Act 2002 and rules framed thereunder prior to the order of attachments under PMLA - HELD THAT - While dealing with first legal submission it is already held that the properties in question prima facie appears to have been acquired out of the proceeds of crime and merely because the provisional attachment order was passed subsequent to the initiation of proceedings under SARFAESI Act that does not ipso facto create a right in favour of the appellant to claim priority of right over the properties in question particularly in the present facts and circumstances of the case where proceeds of crime has been used to acquire the properties in question - this legal submission is also not acceptable. The third legal submission of the appellant is that the provisions of Prevention of Money Laundering Act 2002 do not override the provisions of SARFAESI Act 2002 - HELD THAT - The learned counsel for the appellant during the course of argument submitted that this Tribunal is bound by the judgment of the Hon ble High Court having territorial jurisdiction in the event any conflict in the judgment of two High Courts on the same issue. In my view there is no conflict in the judgment passed by the Division Bench of the Hon ble High Court in PNB Housing Finance case 2020 (2) TMI 1685 - PUNJAB HARYANA HIGH COURT and the judgment of Hon ble High Court of Delhi passed by Single Bench in Axis Bank case 2019 (4) TMI 250 - DELHI HIGH COURT so the jurisdictional question raised by the appellant does not apply to the present facts and circumstances of the case. The fourth legal issue raised by the learned counsel for the appellant that the jurisdiction of this Appellate Tribunal under Section 26(4) of the PMLA to modify or set aside the impugned order is not curtailed by second proviso to Section 8(8) as alleged by the respondent - HELD THAT - This legal issue has arisen in view of the submissions made by the learned counsel for the respondent that the prosecution complaint has already been filed before the Special Court and cognizance has already been taken and in view of that the appellant should approach the Special Court to lay its claims for release of the properties. According to the learned counsel for the respondent once the cognizance is taken it amounts to beginning of criminal trial in the court - the submission made by the learned counsel for the respondent not agreed upon that this Tribunal has no jurisdiction to pass any order on the legality of attachment order passed by the respondent and confirmed by the Adjudicating Authority - the contention of the learned counsel for the respondent not agreed upon that this Tribunal has no jurisdiction to pass an order or on impugned order confirming/setting aside or modifying the attachment particularly when the charges are yet to be framed and the trial is yet to begin. The fifth legal submission made by the learned counsel for the appellant that there is no material for the formation of reason to believe under Section 5(1) of PMLA 2002 - HELD THAT - In the present case neither party has filed the copy of the provisional attachment order or the copy of the O.C. But on perusal of para 3 to 26 of the impugned order the details have been mentioned about how the proceeds of crime have been used to acquire the properties and para no. 27 to 29 of the impugned order are the conclusions arrived at by the complainant on reason to believe. Therefore it appears that there is compliance with regards to the reason to believe - there is no merit in these legal submission of the appellant. The last legal submission made by the appellant is that Section 3 of the PML Act 2002 is not applicable in the present matter - HELD THAT - The appellant is admittedly neither an accused in the FIR nor in the ECIR nor there is any material on record that the present appellant is arrayed as an accused in the prosecution complaint in which the properties involved herein are part of the prosecution complaint. The proceedings before this Tribunal is to examine the legality or infirmity in the impugned order passed by the Adjudicating Authority not of the persons who alleged to have committed the offence of money laundering. Therefore it is felt that there is no necessity to record any finding on this legal issue. There are no illegality or impropriety in the impugned order passed by the Adjudicating Authority and it is held that the appeal has no merit - appeal dismissed.

Summary

Issues Involved:
1. Provisional Attachment Order (PAO) and its confirmation.
2. Allegations of criminal conspiracy, breach of trust, cheating, forgery, and misconduct.
3. Loans and financial assistance availed by M/s. Nathella Sampath Jewelry Private Limited (NSJPL).
4. Allegations of misrepresentation, falsification of records, and diversion of funds.
5. Identification and attachment of properties as proceeds of crime.
6. Appellant's claim as a bona fide third party and secured creditor.
7. Jurisdiction of the Appellate Tribunal under PMLA.
8. Applicability of Section 3 of the PML Act, 2002.

Detailed Analysis:

1. Provisional Attachment Order (PAO) and its Confirmation:
The appeal was filed against the order dated 16.01.2019, which confirmed the Provisional Attachment Order (PAO) no. 11/2018 dated 31.07.2018. The Adjudicating Authority confirmed the PAO based on allegations that the properties involved were acquired using proceeds of crime.

2. Allegations of Criminal Conspiracy, Breach of Trust, Cheating, Forgery, and Misconduct:
A criminal case was registered by the CBI against M/s. NSJPL and its directors for offenses under various sections of the Indian Penal Code and the Prevention of Corruption Act. The allegations included criminal conspiracy, breach of trust, cheating, forgery, and using forged documents.

3. Loans and Financial Assistance Availed by M/s. NSJPL:
M/s. NSJPL availed financial assistance from multiple banks, including SBI, IOB, ICICI, HDFC, and Citi Bank. The total credit limits availed were Rs. 340 crores. The company delayed servicing interest payments and was found to have low stock levels during inspections.

4. Allegations of Misrepresentation, Falsification of Records, and Diversion of Funds:
A forensic audit revealed misrepresentation and falsification of records by M/s. NSJPL, leading to a loss of Rs. 379.75 crores to the banks. The company was accused of diverting funds and falsifying financial statements to avail credit facilities fraudulently.

5. Identification and Attachment of Properties as Proceeds of Crime:
During the investigation, 37 immovable properties were identified and attached as proceeds of crime. The properties included lands and buildings acquired using funds from the loans taken by M/s. NSJPL. The attachment was challenged by the appellant, who claimed to be a secured creditor.

6. Appellant's Claim as a Bona Fide Third Party and Secured Creditor:
The appellant, Aditya Birla Housing Finance Limited, claimed to have sanctioned home loans to the borrowers against the mortgaged properties. The appellant argued that they were a bona fide third party and had followed due diligence before granting the loans. They contended that their interest in the properties should take priority over the attachment under PMLA.

7. Jurisdiction of the Appellate Tribunal under PMLA:
The appellant argued that the Appellate Tribunal had the jurisdiction to modify or set aside the impugned order confirming the PAO. The Tribunal held that it had the jurisdiction to pass orders on the legality of the attachment, even though the criminal trial had commenced.

8. Applicability of Section 3 of the PML Act, 2002:
The appellant contended that Section 3 of the PML Act was not applicable to them as they were neither accused in the FIR nor the ECIR. The Tribunal did not find it necessary to record a finding on this issue, as the proceedings were to examine the legality of the attachment order.

Conclusion:
The Tribunal dismissed the appeal, holding that the properties in question were acquired using proceeds of crime. The appellant's claims as a bona fide third party and secured creditor were not accepted, and the attachment under PMLA was upheld. The Tribunal found no illegality or impropriety in the impugned order passed by the Adjudicating Authority.