2018 (8) TMI 426 - AT - Money Laundering

Offence under PMLA - provisional attachment orders - properties mortgaged with the Appellant Bank acquired by the alleged accused/mortgagor much prior to the date of crime - Held that - There is no denial that all the properties in the subject matter of the Appeal, are mortgaged with the Appellant Bank were acquired by the alleged accused/mortgagor much prior to the date of crime. It is also the stand of the ED that the banks are the victim parties. They are entitled to recover the amount, most are public sector banks. It is a public money and accused/borrowers are liable to face trial in criminal complaint. The trial may take number of years. The main accused is absconding. He has left India. Non performing assets (NPA) are choking the banking system and the system is already struggling for some time and banking conditions are deteriorating day by day. It is submitted that such order would create a chaos in banking industries and would be against the interest of nation as a whole ad would also be against the public policy. Hundreds of borrowers have taken the loans against the securities and mortgaged properties and are not returning the legal debts. They are simply adopting all sort of tactics by raising defense that their properties are attached by ED. Even they have stopped paying the installments due by raising the plea that why should pay debts once the attachment orders are passed. By way attachment, their properties are also safe so as the due amount. They are happy if the attachment would continue against the mortgaged properties despite of passing the decrees by the DRT in favor of banks and against borrowers. By this mean, the attachment-orders amounting to interference with the judicial system as the Adjudicating authority in many cases has ignored judgments of the Supreme Court, Full bench of Madras High Court and many High Courts and even of this tribunal. At present, total outstanding as per Recovery Certificate is ₹ 4687,04,04,315.29 (Rupees Four Thousand Six Hundred Eighty Seven Crore Four Lakh Four Thousand Three Hundred Fifteen and Paisa Twenty Nine only). What a big tragedy, despite of having a full knowledge about the amount due, Jatin R. Mehta has left the country without any hindrance by making a fool of everyone of this country and we are unable to do anything. As been informed that he has run away from this country leaving the debt of more than ₹ 4687 Crores. It is a matter of surprising and shocking as many banks are Public Sector Banks. It is a public money. One hand, middle class (who are law abiding citizen) are suffering from starvation and small children are dying due to shortage of meal, on the other hand the person like Jatin R. Mehta has cheated the banks and all citizen of this country whose hard earned money is ₹ 4687 Crore swindled by this villain of our society. The condition of the Public Sector Banks is become very bad. It is a matter of fact and it proves that he has flanted the law and guilty of fleece and fly. Jatin R. Mehta, Mehul Chokshi and Nirav Modi have scammed and have shamed to this country. This tribunal is hopeful that the ED and other authorities must take necessary steps and stringent action against him who is enjoying the lavish life in foreign countries by cheating the huge amount of the poor people of this country. This tribunal expects that the ED must take similar actions as taken in the case of other accused persons who have run away from this country by issuance of Red-Corner-Notice and initiate the extradition proceedings forthwith (if already not taken). Thus the impugned order dated 16th November, 2016 be set-aside, consequently the provisional attachment does not to survive. The same is also quashed.

Issues Involved:
1. Prior charge of the consortium of banks over the mortgaged properties.
2. Allegation of properties being proceeds of crime.
3. Rights of secured creditors under amended laws.
4. Innocence of the banks and their entitlement to recover dues.

Issue 1: Prior Charge of the Consortium of Banks Over the Mortgaged Properties
The consortium of banks led by Standard Chartered Bank (Appellant) had a prior charge over the properties mortgaged by M/s. Winsome Diamonds & Jewellery Ltd., M/s. Kohinoor Diamonds Pvt. Ltd., and M/s. Bombay Diamonds Company Pvt. Ltd. These properties were acquired between 1989 and 2009, well before any alleged criminal activity. The properties were mortgaged to the consortium for securing loans. The banks have a legal right to recover the dues from these properties as they were mortgaged long before the alleged fraud and money laundering activities took place.

Issue 2: Allegation of Properties Being Proceeds of Crime
The Enforcement Directorate (ED) attached the properties under the Prevention of Money Laundering Act (PMLA), alleging they were proceeds of crime. However, there was no evidence presented that the properties were acquired through money laundering activities. The properties were acquired and mortgaged before the loans were obtained, and there was no direct or indirect involvement of the banks in any criminal activity. The ED did not allege that the banks assisted in money laundering or that the properties were purchased with proceeds of crime.

Issue 3: Rights of Secured Creditors Under Amended Laws
The amendment to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the SARFAESI Act, 2002, gives secured creditors priority over other debts, including government dues. The rights of secured creditors to realize secured debts by selling assets over which security interest is created shall have priority over all other debts. The Full Bench of the Madras High Court and subsequent judgments upheld the priority of secured creditors, affirming that the amendments apply to pending cases and govern the rights of parties even in ongoing litigation.

Issue 4: Innocence of the Banks and Their Entitlement to Recover Dues
The banks, being innocent parties, were entitled to recover their dues from the mortgaged properties. The properties were not purchased with proceeds of crime, and the banks were not involved in any money laundering activities. The banks had a legal right to recover the outstanding amounts through the sale of the mortgaged properties. The provisional attachment by the ED hindered the banks' ability to recover the public money, causing significant financial loss and affecting the banking system's stability.

Conclusion:
The Tribunal set aside the impugned order of the Adjudicating Authority confirming the provisional attachment of the properties. The appeals filed by the borrowers were disposed of, and the appeal filed by the bank was allowed. The Tribunal emphasized the banks' right to recover their dues from the mortgaged properties, which were acquired and mortgaged before any alleged criminal activity. The Tribunal also highlighted the priority of secured creditors under the amended laws and the innocence of the banks in the alleged money laundering activities.

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