2017 (8) TMI 754 - AT - Money Laundering

Innocent party whose immovable properties are attached by the ED - PMLA proceedings against banks - bonafide conduct of banks - Held that - In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly did so but their contention was rejected as appeared from the impugned order. There is no nexus whatsoever between the alleged crime and the two bank who are mortgagee of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against banks who have sanctioned the amount which is untainted and pure money. They have priority to the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. All the contentions raised by Mr. Matta has no substance. The provisional attachment in the present matter is bad and against the law. In the circumstances available in the present case, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002.

Issues Involved:
1. Validity of the Provisional Attachment Order under PMLA.
2. Priority of secured creditors under SARFAESI Act vs. PMLA.
3. Allegations of money laundering and involvement of properties.
4. Rights of banks as secured creditors.
5. Settlement and recovery proceedings under SARFAESI Act.

Detailed Analysis:

1. Validity of the Provisional Attachment Order under PMLA:
The Enforcement Directorate (ED) issued a Provisional Attachment Order (PAO) on 04.02.2015 attaching eight immovable properties under the Prevention of Money Laundering Act (PMLA), 2002, based on the belief that these properties were involved in money laundering. The Adjudicating Authority confirmed this order on 02.07.2015. The properties were alleged to be involved in money laundering related to a fraud involving Union Bank of India and State Bank of India.

2. Priority of Secured Creditors under SARFAESI Act vs. PMLA:
The judgment extensively discussed the priority of secured creditors under the SARFAESI Act, 2002, as amended, which gives secured creditors priority over other debts and government dues, including those under PMLA. The amendments to the SARFAESI Act and the Recovery of Debts and Bankruptcy Act, 1993, introduced sections 26E and 31B respectively, which provide that the debts due to secured creditors shall have priority over all other debts and dues.

3. Allegations of Money Laundering and Involvement of Properties:
The properties in question were acquired and mortgaged to the banks much before the alleged fraud and the enactment of PMLA. The ED's case was that the properties were involved in money laundering, but the banks contended that the properties were acquired legally and mortgaged as security for loans. The banks argued that no proceeds of crime were used to acquire these properties, and they were not involved in any money laundering activities.

4. Rights of Banks as Secured Creditors:
The banks, State Bank of India and Union Bank of India, argued that they had a legal right to recover their dues by selling the mortgaged properties. The properties were mortgaged to the banks before the alleged criminal activities, and the banks had initiated recovery proceedings under the SARFAESI Act. The judgment emphasized that the banks were innocent parties and had a legal right to recover their dues from the mortgaged properties.

5. Settlement and Recovery Proceedings under SARFAESI Act:
The borrowers had entered into a One Time Settlement (OTS) with Union Bank of India, and substantial payments had been made. The banks had also initiated recovery proceedings under the SARFAESI Act and had taken possession of the properties. The judgment highlighted that the properties were mortgaged to the banks much before the alleged fraud, and the banks had a legal right to recover their dues.

Conclusion:
The judgment set aside the Provisional Attachment Order dated 04.02.2015 and the confirmation order dated 02.07.2015, releasing all eight properties from attachment. The Tribunal recognized the priority of secured creditors under the SARFAESI Act over the provisions of PMLA, emphasizing that the banks were innocent parties with a legal right to recover their dues. The properties were acquired and mortgaged before the alleged fraud, and no proceeds of crime were involved in their acquisition. The judgment also acknowledged the settlements reached between the borrowers and the banks, facilitating the recovery of public money.

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