2018 (4) TMI 1411 - AT - Money Laundering

Provision under PMLA Act - the attached properties were purchased which are mortgaged properties much prior to the period when the facility of loan sanctioned to the borrowers - Held that - The complainant in the criminal case is the Bank who is victim. Had the Bank not filed a criminal complaint. 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. Non performing assets (NPA) choking the banking system who is already struggling for same time and banks condition are being deteriorated day by day. Lac of crores of rupees worth loans are classified as non-performing loans in India. The crises of banks in India is become worse. The intention of the Act could not have been to block the loan amount against the mortgaged properties being innocent person as is sought to be done in the instant case. If the impugned order is taken as correct it would be a patently absurd situation once substantial securities of the bank are not available for the benefit of Bank. Such a result does not advance the objects of the Act. For the above said reasons as mentioned above the impugned order dated 24.10.2017 is set-aside consequently the provisional attachment also does not survive and the same is quashed. This judgement & order is without prejudice to the matters pending against the borrowers before the Special Court. The attachment of mortgaged properties with the appellant bank is lifted.

Issues Involved:
1. Non-compliance with previous tribunal judgment.
2. Casual approach by the adjudicating authority.
3. Attachment of properties mortgaged to the bank.
4. Priority of secured creditors.
5. The legitimate rights of the bank under SARFAESI Act.
6. The definition and application of "proceeds of crime" under PMLA.
7. The impact of attachment on the bank's ability to recover dues.
8. The legal precedent and amendments affecting the rights of secured creditors.

Detailed Analysis:

1. Non-compliance with Previous Tribunal Judgment:
The adjudicating authority did not follow the previous judgment passed by the Appellate Tribunal on 14.07.2017, which involved the same parties. The tribunal had referred to several decisions by the Supreme Court and various High Courts in favor of the bank, which were ignored in the impugned order.

2. Casual Approach by the Adjudicating Authority:
The order was passed in a mechanical manner without considering the reply filed by the bank. The authority ignored the judgments of higher courts and real facts, which could harm the judicial system.

3. Attachment of Properties Mortgaged to the Bank:
The properties in question were purchased years before the alleged generation of proceeds of crime and were mortgaged to the bank. Despite this, the adjudicating authority confirmed the provisional attachment order. The properties were acquired before the alleged criminal activities, and the bank had issued notices under Section 13(2) of the SARFAESI Act before the Enforcement Directorate (ED) attached the properties.

4. Priority of Secured Creditors:
The amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, gives priority to secured creditors over government dues. This amendment was introduced to facilitate the rights of secured creditors, which were being hampered by government attachments.

5. Legitimate Rights of the Bank under SARFAESI Act:
The bank had sanctioned loans and credit facilities to the borrowers, and the properties were mortgaged as security. The bank is entitled to recover its dues by selling the mortgaged properties, which were acquired before the alleged criminal activities. The bank's right to recover its dues was upheld by various judgments, including those of the Madras High Court and the Supreme Court.

6. Definition and Application of "Proceeds of Crime" under PMLA:
The properties in question do not fall under the definition of "proceeds of crime" as per Section 2(1)(u) of the PMLA. The properties were not derived or obtained from criminal activities. The PMLA aims to punish those involved in money laundering, not innocent parties like the bank.

7. Impact of Attachment on the Bank's Ability to Recover Dues:
The attachment of mortgaged properties prevents the bank from recovering its dues, which is against the principles of justice. The bank is a victim and not an accused in the alleged criminal activities. The continuation of the attachment would cause significant harm to the bank and the economy.

8. Legal Precedent and Amendments Affecting the Rights of Secured Creditors:
Several judgments and amendments support the bank's right to recover its dues. The Full Bench of the Madras High Court and the Supreme Court have upheld the priority of secured creditors. The amended SARFAESI Act prevails over the PMLA, as it is a subsequent legislation. The bank's rights under the SARFAESI Act should not be taken away by the ED's attachment order.

Conclusion:
The impugned order dated 24.10.2017 is set aside, and the provisional attachment is quashed. The bank's right to recover its dues by selling the mortgaged properties is upheld. The attachment of the mortgaged properties is lifted, and the appeal is disposed of accordingly.

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