2017 (9) TMI 1446 - AT - Money Laundering

Offence under PMLA Act - provisional attachment orders - legal owner of property - vehicle was hypothecated to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/said vehicle and the Ld. Adjudicating Authority confirmed the provisional attachment order - superiority of SARFAESI Act - overriding effect of the two Acts i.e. SARFAESI Act, 2002 and the PMLA Act, 2002 - Held that - Admittedly, neither the bank is the accused in any criminal proceedings nor there is any allegations against them that they are involved in the commission of alleged crime or generating proceeds of crime . The amount of loan sanctioned are public money and they are entitled to get back their money by selling the mortgaged property as a first charge. The provisions of the amended SARFAESI Act prevail over the provision of the PML Act because the Amended SARFAESI Act is the subsequent legislation to the PML Act as held by the Hon ble Supreme Court in the case of Solidaire India Ltd. Vs. Fairgrowth Financial Services Ltd. & Ors. (2001 (2) TMI 968 - SUPREME COURT OF INDIA) Thus, the ED has no authority over the said vehicle as the Appellant is now the legal transferee of said vehicle. Even in the criminal jurisprudence, if the stolen property is in the hands of unauthorized person then that person cannot claim title to the property. The said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners. In view of above observations, the impugned order dated 29.08.2014 is set aside. The provisional attachment order dated 31.03.2014 also set aside. The bank is permitted to sell the said vehicle to recover part of its outstanding against dues of ₹ 12.45 Lacs. As far as the remaining balance amount is concerned the bank is entitled to recover the remaining amount by taking the appropriate action as per law.

Issues Involved:
1. Hypothecation and rights of the secured creditor.
2. Non-repayment of loan and declaration of Non-Performing Asset (NPA).
3. Attachment of the vehicle by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).
4. Priority of secured creditors under amended SARFAESI Act, 2002.
5. Legal conflict between SARFAESI Act, 2002 and PMLA Act, 2002.
6. Rights of the bank as a victim under Section 8(8) of PMLA.
7. Impact of the attachment on the bank’s ability to recover its dues.
8. Judicial precedence and interpretation of relevant laws.

Detailed Analysis:

1. Hypothecation and Rights of the Secured Creditor:
The State Bank of India (SBI) had sanctioned a vehicle loan to Respondent No. 2, secured by hypothecation of the vehicle. Clauses 8 and 12 of the Loan-cum-Hypothecation Agreement explicitly provided the bank with the right to take possession and sell the vehicle in case of default. The bank's right to sell the property as a secured creditor was affirmed.

2. Non-Repayment of Loan and Declaration of NPA:
Respondent No. 2 defaulted on the loan repayment, resulting in the account being classified as a Non-Performing Asset (NPA). SBI issued a recall notice and took possession of the vehicle from the police station, intending to sell it to recover the outstanding dues.

3. Attachment of the Vehicle by ED under PMLA:
Before SBI could sell the vehicle, the ED issued a provisional attachment order, claiming the vehicle was involved in money laundering. The Adjudicating Authority confirmed this attachment, despite acknowledging that the vehicle was procured with a loan from SBI before any scheduled offense was committed.

4. Priority of Secured Creditors under Amended SARFAESI Act, 2002:
The 2016 amendment to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, introduced Section 31B, which prioritizes the rights of secured creditors over all other debts and government dues. This amendment was intended to protect the interests of financial institutions by ensuring their priority in recovering dues from secured assets.

5. Legal Conflict between SARFAESI Act, 2002 and PMLA Act, 2002:
The Tribunal discussed the overriding effect of the SARFAESI Act over the PMLA, particularly after the 2016 amendment. The Tribunal referenced various judgments, including those from the Madras High Court and the Supreme Court, which upheld the priority of secured creditors under the amended SARFAESI Act.

6. Rights of the Bank as a Victim under Section 8(8) of PMLA:
It was agreed that the bank, as a victim, is entitled to recover its dues either by receiving the vehicle or the balance amount due. The ED's attachment of the vehicle would make the bank a greater victim, as it would hinder the bank's ability to recover its dues.

7. Impact of the Attachment on the Bank’s Ability to Recover Its Dues:
The Tribunal noted that the vehicle's value had depreciated significantly, and if not sold promptly, it would become worthless. The bank's right to recover its dues by selling the vehicle was emphasized, and the ED's attachment was seen as detrimental to the bank's interests.

8. Judicial Precedence and Interpretation of Relevant Laws:
The Tribunal cited several judgments to support its decision, including the Full Bench of the Madras High Court and the Supreme Court. It was established that the SARFAESI Act, being a subsequent legislation, prevails over the PMLA. The Tribunal also highlighted the need for financial institutions to be protected from undue losses caused by such attachments.

Conclusion:
The Tribunal set aside the impugned order dated 29.08.2014 and the provisional attachment order dated 31.03.2014, permitting SBI to sell the vehicle to recover part of its outstanding dues. The bank was also entitled to take appropriate legal action to recover the remaining balance. The appeal and pending applications were disposed of accordingly, with no costs awarded.

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