2017 (10) TMI 32 - AT - Money Laundering

Provisional attachment - offence under PMLA Act - whether grant of loan itself by the Bank cannot be termed criminal activity in respect of a scheduled offence? - Held that - In the present cases it is clear that in order to treat the loan proceeds obtained by the borrower from the Syndicate Bank as the proceeds of crime as done by the ED and the Adjudicating Authority is not correct. The said money is not illicit or tainted money nor is the Bank a party to the criminal conspiracy hatched between the manager of the Bank and the borrower. The Bank is an innocent third party who is to be treated as a victim of the crime if at all. The money received by the appellants were pure and untainted. It was a public money. It is wholly immaterial if one of the employee is mixed up with the appellant and helped them in order to obtain the loan by virtue of mis-presentation because the fact of the matter is that the money has gone to the appellants from the pocket of the bank and it was public money. The same cannot blocked till the trial in the prosecution complaint before the Special Court is over as it may take number of years. The said proceedings are to be continued even otherwise. The complainant in the criminal case is the Bank who is victim. Had the Bank not filed a criminal complaint perhaps the conspiracy might not have been discovered. Further if in a case like the present if the security of the Bank is treated as proceeds of crime and is confiscated under the Act in future no Bank in such circumstances would make a complaint to the authorities. The trial in the prosecution complaint would take number of years. The victim cannot wait for such a long period of time although after trial and final determination the victim is entitled to recover the amount by selling immovable properties u/s 8(8) of the Act. The intention of the Act could not have been to affect a third person or an innocent person as is sought to be done in the instant case. If the impugned order is correct it would be a patently absurd situation that the only substantial securities of the bank are not available for the benefit of Bank but are vested in the Central Government as proceeds of crime. Such a result does not advance the objects of the Act. There seems to be no decision in which the matter has been considered in the manner as sought to be explained here. The Bank partly relies on the case of Indian Bank Vs. Government of India and M/s Palpap Ichinichi Software International Ltd. 2012 (7) TMI 1007 - MADRAS HIGH COURT wherein it was held in similar circumstances that Sections 5 8 and 9 of the Act cannot be used by the authorities to inflict injury of the victim on the crime i.e. the Bank (para 33). The Court also held that in such a case it was the duty of the ED/Adjudicating Authority to give notice to the Bank in such a case and hear the Bank and that without having done so the order would be vitiated. The impugned order is set-aside consequently the provisional attachment also does not survive. The same is quashed. However it is clarified that this judgement and order is limited to the legality of attachment of properties noted above under the PMLA 2002. This judgement & order is without prejudice to the matters pending against the appellants in criminal cases before the Special Court.

Summary

Issues Involved:
1. Non-service of mandatory notice to Syndicate Bank under Section 8(2) of the PMLA Act.
2. Allegations of fraudulent transactions and conspiracy involving Syndicate Bank officials and appellants.
3. Investigation and statements recorded under PMLA.
4. Confirmation of properties being proceeds of crime.
5. Appellants' contention against CBI's investigation and framing of charges.
6. Attached properties and their value.
7. Syndicate Bank's rights and proceedings under SARFAESI Act.
8. Jurisdiction and applicability of PMLA in relation to SARFAESI Act.
9. Innocent party's rights over attached properties.

Detailed Analysis:

1. Non-service of Mandatory Notice:
The judgment highlighted that Syndicate Bank, a respondent in the appeals, was not served with any notice under Section 8(2) of the PMLA Act despite being an aggrieved party. This non-service of notice was deemed mandatory and its absence was a significant procedural lapse.

2. Allegations of Fraudulent Transactions and Conspiracy:
The case originated from a complaint by the Chief Vigilance Officer of Syndicate Bank regarding fraudulent transactions in the sanction and disbursal of loans. The CBI registered a case on 15.04.2009 against several individuals, including the appellants, for offences under sections 120-B read with 409, 420, 467, 471 IPC and section 13(2) read with section 13(1)(d) of the PC Act 1988. The allegations included conspiracy and gross violation of procedures by bank officials in collusion with the appellants, resulting in a loss of ?12,63,65,210/- to Syndicate Bank.

3. Investigation and Statements Recorded:
The Enforcement Department registered the ECIR based on the CBI charge sheet and conducted its investigation under the PMLA. Statements were recorded from the appellants, wherein they admitted to receiving and utilizing money from Syndicate Bank for various investments, including construction of houses and industries. Specific details of the investments and properties acquired were provided in these statements.

4. Confirmation of Properties Being Proceeds of Crime:
The judgment noted that the appellants and their family members failed to produce legitimate sources of income for the properties acquired. The properties were confirmed to be purchased from the money derived from Syndicate Bank, and the appellants admitted to defaulting on repayments, resulting in a significant loss to the bank.

5. Appellants' Contention Against CBI's Investigation and Framing of Charges:
The appellants argued that the entire investigation by the CBI was flawed and that the Directorate of Enforcement's conclusions were based on this faulty investigation. They also contended that the Special Judge for CBI cases incorrectly framed charges against them, and they had approached the High Court of Karnataka, which granted an interim stay on the proceedings.

6. Attached Properties and Their Value:
The judgment provided detailed descriptions and values of the attached properties, which included houses, factories, and agricultural lands. These properties were mortgaged to Syndicate Bank, and the details were supplied by the bank's counsel.

7. Syndicate Bank's Rights and Proceedings under SARFAESI Act:
Syndicate Bank had initiated proceedings under the SARFAESI Act to recover the dues from the appellants. The bank had issued demand and possession notices and taken symbolic or physical possession of some properties. The bank also filed recovery applications in the Debt Recovery Tribunal (DRT), which were at various stages of adjudication.

8. Jurisdiction and Applicability of PMLA in Relation to SARFAESI Act:
The judgment discussed the overriding effect of the PMLA over the SARFAESI Act, citing relevant case laws. It was emphasized that the PMLA, being a later enactment with a non-obstante clause, would prevail over the SARFAESI Act. However, the judgment also noted that the bank, being an innocent party and a victim of the fraud, should not be prejudiced by the attachment of properties under the PMLA.

9. Innocent Party's Rights Over Attached Properties:
The judgment underscored that innocent parties, such as Syndicate Bank, which had legitimate claims over the attached properties, should be given an opportunity to prove that the properties were not involved in money laundering. The bank's rights as a secured creditor were recognized, and it was held that the properties mortgaged to the bank should not have been attached under the PMLA.

Conclusion:
The judgment set aside the impugned order of attachment, quashed the provisional attachment, and clarified that the bank's rights as a secured creditor should be upheld. The judgment emphasized the need for proper procedural compliance and the protection of innocent parties' rights in cases involving money laundering allegations.