2018 (7) TMI 1800 - AT - Money Laundering

Offence under PMLA - provisional attachment order - The properties in question are admittedly mortgaged with the bank who sought to be detached and released in favour of the appellant bank - Held that - In the present appeal it is admitted position that the loan was given by the bank in good faith who had suffered a loss because of non-return of money by the borrowers. It is evident from the said proviso that in case the claimant would be able to satisfy the Special Court that it has acted in good faith and suffered the loss despite of having taken all the reasonable precautions and is also not involved in the offence of money laundering then the Special Court is empowered to restored such property during the trial. In the facts of the present case, the mortgaged properties are not purchased from the proceed of crime. Those were purchased prior to FIR against borrower/accused and even prior to execution of mortgaged deed agreement. The question of proceed of crime qua those properties does not arise. Even the stand of the respondent in almost in all the cases where it was found that the attached properties are mortgaged properties which were not purchased from proceeds of crime, the Bank are victim parties and are innocent parties who are entitled to recover the loan amount from the said mortgaged properties, but the banks be allowed to dispose the properties after the trial and final out-come of criminal complaints filed against the borrowers under schedule offence and prosecution complaint. The said argument cannot be accepted in view of settled law and new amendment in sub-section 8 of section 8 of the Act. Thus, the stand earlier taken by the respondent no. 1 is wholly vague and without any substance. The provisional attachment order thus apparently bad and against the scheme of the Act. Thus in case the Special Court passes the order to release the property of the victim and innocent party is mortgaged property could be disposed of for the purpose of adjustment of the amount due from the borrowers. Once it was found that the appellant is a innocent party who is not involved in the money laundering directly or indirectly or assist any party and the mortgaged property is also not purchased from the proceeds of crime then the question of provisional attachment order and confirmation thereof does not arise and the victims/innocent party i.e. innocent party would be entitled to disposed of the said property. In the fact and circumstances and material available in the present case, the allegation of money laundering, 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. The appeal is allowed. The respondent in the present case has not made the appellant bank a party in the array of defendant before the Adjudicating Authority, New Delhi under the PMLA. Despite of knowledge, the said actual fact has not been disclosed with regard to the aspect of the mortgaged properties with the appellant bank. The impugned order is therefore is set aside/modified pertaining to the attached properties at serial no. 8 to 11 at page 65 to 67 of impugned order. Accordingly, appeal is allowed. The appeal filed by the borrowers would be decided as per its own merit pertaining to other properties.

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 SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act (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 PMLA:

The appellant bank filed an appeal under Section 26 of the PMLA against the order dated 26.09.2013, which confirmed the provisional attachment order dated 30.03.2013. The properties in question were mortgaged with the bank, and the bank sought their detachment and release. The properties were mortgaged by M/s Renu Residency Pvt. Ltd. on 25.09.2010, and the loan was sanctioned for the construction of a school hostel building. The Enforcement Directorate attached these properties following investigations into the National Rural Health Mission scam, where the directors of the borrowing company were implicated.

The appellant bank argued that it had no reason to believe that the land purchased by the loanee or the margin arranged was from any proceeds of crime. The bank was not made a party in the original complaint by the Enforcement Directorate, despite being an interested party entitled to recover the loan amount. The bank contended that it should have been given notice under Section 8 of the PMLA, which was not done, thus violating principles of natural justice.

The Tribunal noted that the properties were purchased much before the loan was sanctioned and were mortgaged in good faith. The bank had acted as a bona fide party without knowledge of any criminal activity related to the properties. The Tribunal emphasized that the bank, being a public sector entity dealing with public money, should not be penalized due to the fraudulent activities of the borrowers.

2. Whether the PMLA has priority over the SARFAESI Act and the RDDB & FI Act:

The Tribunal referred to several judgments, including the case of State Bank of India vs. Joint Director, Directorate of Enforcement, Kolkata, and others, to determine the priority of laws. It was established that the SARFAESI Act and the RDDB & FI Act, being later enactments with non-obstante clauses, would prevail over the PMLA. The amendments to these Acts in 2016 further reinforced the priority of secured creditors to recover debts over other claims, including government dues.

The Tribunal cited Section 26E of the SARFAESI Act and Section 31B of the RDDB & FI Act, which explicitly state that the rights of secured creditors shall have priority over all other debts and government dues. These amendments were intended to protect the interests of financial institutions and ensure the recovery of public money.

The Tribunal also referenced the judgment in B. Rama Raju v. UOI and others, which highlighted that bona fide acquisition of property should be protected, and properties not directly involved in money laundering should not be subject to attachment. The Tribunal concluded that the properties mortgaged to the appellant bank were not "proceeds of crime" and were acquired in good faith.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order confirming the provisional attachment of the properties mortgaged with the appellant bank. It was held that the bank, being an innocent party, should be allowed to recover its dues from the mortgaged properties. The Tribunal directed that the bank could move its claim before the Special Court for the disposal of the properties in accordance with the law, ensuring that the bank's rights as a secured creditor were upheld.