2018 (5) TMI 1242 - AT - Money Laundering

Offence under PMLA - Provisional Attachment Orders - proof of property purchased from the alleged proceeds of crime - as by way of the SARFAESI provisions the properties are being taken in possession by the Appellant Bank - Held that - That the definition of proceeds of crime as per Section 2(u) of the PML Act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, all the properties have been mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in acquiring of these properties and hence the same cannot be attached. The evidence on record suggests that the properties were acquired by the borrower/guarantors much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case there was absence of such requirement. The said properties are already in the symbolic possession of the Appellant Bank under the SARFAESI Act. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the Appellant Bank and there is no charge of money laundering against the Bank. Thus the allegation of money laundering, prima facie, so far as present appellant & properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002.

Summary

Issues Involved:
1. Whether the properties mortgaged with the Appellant Bank are “proceeds of crime” as defined under Section 2(1)(u) of the Prevention of Money Laundering Act (PMLA).
2. Whether the PMLA has priority over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and the Recovery of Debts Due to Banks and Financial Institutions (RDDB & FI) Act.

Issue-wise Detailed Analysis:

1. Whether the properties mortgaged with the Appellant Bank are “proceeds of crime” as defined under Section 2(1)(u) of the PMLA:
The appellant challenged the classification of the mortgaged properties as "proceeds of crime" under Section 2(1)(u) of the PMLA. The properties in question were mortgaged to the appellant bank prior to the alleged commission of the crime. The appellant argued that the properties were not acquired from proceeds of crime and that the bank had a prior charge to recover its dues from these properties. The Enforcement Directorate, however, maintained that the properties were involved in money laundering activities. The Tribunal noted that the properties were acquired before the alleged criminal activities and the bank had a legitimate right to recover its dues. It was concluded that the properties could not be classified as "proceeds of crime" since they were acquired and mortgaged before the commission of the alleged crime.

2. Whether the PMLA has priority over the SARFAESI and RDDB & FI Acts:
The Tribunal examined the conflict between the PMLA and the SARFAESI and RDDB & FI Acts, both of which have non-obstante clauses. The Tribunal referred to previous judgments, including the State Bank of India vs. Joint Director, Directorate of Enforcement, Kolkata, and IDBI Bank Ltd. vs. Deputy Director, Directorate of Enforcement, Delhi, which established that when two special statutes contain non-obstante clauses, the later statute prevails. The Tribunal also considered the 2016 amendments to the SARFAESI and RDDB Acts, which give priority to secured creditors over government dues. The Tribunal concluded that the amendments to the SARFAESI and RDDB Acts prevail over the PMLA, allowing the appellant bank to recover its dues from the mortgaged properties.

Conclusion:
The Tribunal set aside the impugned order dated 04.08.2017 and the Provisional Attachment Order dated 29.03.2017, holding that the properties mortgaged with the appellant bank were not "proceeds of crime" and that the bank had the right to recover its dues under the SARFAESI and RDDB Acts, which have priority over the PMLA.