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2018 (7) TMI 340 - AT - Money LaunderingOffence under PMLA - whether the properties mortgaged with the Respondent no. 5 Bank are proceeds of crime as defined u/s 2(1)(u) of PMLA - whether the PMLA has priority over SARFEASI and RDDB Act). In view of peculiar facts of this matter the only remedy left with the respondent no. 5 to approach to Special Court under the amended proviso of Sub-Section 8 of Section8 of the PML Act as prima facie I am of the view that the case of the respondent no. 5 covers the same. Till that time all partiesto the appeal shall maintain status quo with regard to attachment of properties in relation to mortgaged with the respondent no. 5 by the borrowers. The appellant despite knowledge of the fact that the respondent no.5 had taken possession of the properties in question prior to the order of attachment passed by him has not dealt with the impact of the action of the respondent No.5 under the SARFAESI Act while passing the impugned order. The said order has been passed without hearing the respondent No. 5 and thereby has violated the principles of natural justice. The prescribed period of 180 days provided under Section 5 has already been expired. The appellant has failed to proceed strictly in accordance with the provisions of the PMLA and has passed the impugned order in an undue haste and by committing patent illegalities resulting in grave prejudice to the said Respondent who is a Statutory Corporation constituted under the State Bank of India Act 1955. The appeal filed by the appellant is dismissed accordingly.
Issues Involved:
1. Legality of the provisional attachment order (PAO) under PMLA. 2. Rights of the secured creditor (Bank) over the mortgaged properties. 3. Priority of PMLA over SARFAESI Act and RDDB Act. 4. Confirmation of PAO by the Adjudicating Authority. 5. Allegations and evidence concerning proceeds of crime. Detailed Analysis: 1. Legality of the Provisional Attachment Order (PAO) under PMLA: The Enforcement Directorate (ED) challenged the impugned order confirming the PAO on the grounds that it was incorrect, erroneous, and contrary to law. The appellant contended that the Adjudicating Authority failed to confirm or set aside the PAO for properties at Sr. No. 1 to 3 of Schedule A, thereby refraining from discharging its duty as mandated under Section 8 of PMLA. The Adjudicating Authority postponed its decision pending the verdict of the Division Bench of the Hon’ble High Court of Madras in a related case, which the appellant argued was not applicable to the present case. 2. Rights of the Secured Creditor (Bank) over the Mortgaged Properties: The properties in question were mortgaged to the State Bank of India (SBI) by M/s Roopa Paddy Dryers before the alleged criminal activities took place. The bank argued that it had first charge over the disputed properties, and the subsequent sale of these properties without the bank’s knowledge did not affect its rights. The bank had taken possession of the properties under the SARFAESI Act after the borrower defaulted on the loan repayment. 3. Priority of PMLA over SARFAESI Act and RDDB Act: The Tribunal examined whether PMLA has priority over SARFAESI and RDDB Acts. It referred to several judgments, including the Full Bench of the Madras High Court, which held that the rights of secured creditors to realize secured debts have priority over all other debts and government dues. The Tribunal concluded that the amendments in SARFAESI and RDDB Acts in 2016, which give overriding effect over any other law, including PMLA, would prevail in cases involving recovery of loans by secured creditors. 4. Confirmation of PAO by the Adjudicating Authority: The Adjudicating Authority did not confirm the PAO within the stipulated period of 90/180 days, causing the PAO to cease having any effect in law. The Tribunal noted that the Adjudicating Authority’s decision to wait for the verdict of the Division Bench of the High Court of Madras was incorrect, as it failed to consider the legal position under Section 71 of PMLA, which gives overriding effect over other Acts. 5. Allegations and Evidence Concerning Proceeds of Crime: The Tribunal observed that there was no evidence that the disputed properties were purchased from the proceeds of crime. The properties were mortgaged to the bank before the alleged criminal activities took place. The Tribunal emphasized that the bank, as a secured creditor, had a legitimate right to recover its dues and that the properties in question were not acquired from the proceeds of crime. Conclusion: The Tribunal dismissed the appeal filed by the ED, holding that the properties mortgaged to the bank were outside the purview of PMLA and were governed exclusively under the SARFAESI Act. The bank, being an innocent party, had a priority right to recover its dues from the mortgaged properties. The Tribunal directed all parties to maintain the status quo regarding the attachment of properties mortgaged with the bank until the Special Court considers the bank’s claim under the amended provisions of PMLA.
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