2018 (10) TMI 329 - AT - Money Laundering

Offence under PMLA - attachment orders - Held that - From the language of the second proviso, it appears that only in particular types of cases, such power can be exercised as stated in the proviso itself otherwise in remaining/routine matters, the power should be exercised under first proviso. The second proviso should be invoked very carefully only in those cases where it shows that (if not invoked), the attachment proceedings would likely to frustrate the proceedings under this act. Thus, the due compliance has to be made by ED who only can attach the property once full satisfaction of circumstances of second proviso are available. The said proviso can be invoked in case of urgent matters and immediately. Otherwise, in normal cases, the ED should wait till the report under Section 173 of Cr. P.C. is filed before the Magistrate. The question of urgency did not arise on the date of passing the provisional attachment order as the property in question is under construction where the stakes of hundreds flat owners are involved and after taking the possession, they would reside there and it is a mortgaged property. The financial institutions are secured creditors. The 2nd proviso mandates that in case the property is not attached immediately, the non-attachment of the property is likely to frustrate any proceeding under this Act. Prima facie, such situation is not available as per material placed on record nor it is mentioned in the impugned order. At the time of hearing of appeal, this tribunal will re-examine as to whether the mandatory compliance has been made in the present case or not and if the compliance of second proviso has been made on the date of passing the provisional attachment order (which the relevant date), then the objection may be over-ruled.If not, then the provisional attachment ordercould not have been passed as per law. Even the confirmation order ipso facto would also be set aside. As enquired from the learned counsel for respondent no. 1 to produce the copy of the reasons to believe which is mandatory under 2nd proviso of Section 5(1) of the Act. He submits that the copy of reasons to believe is not available with him. It must have been sent to the Adjudicating Authority. He is also not aware the language of the reasons to believe if passed under the 2nd proviso of the Act. Appellate Authority is directed to produce the trial record along with the copy of the reasons to believe in the sealed cover on the next date of hearing. In the interest of justice, the equity in favour of the appellant who are offering the alternative property which is approx. ₹ 119 crores as per the prevailing circle rate of area. The respondent no. 1 is always at liberty to point out if the said alternative is not free from any incumbrances. The prayer made is allowed. As direct respondent no. 1 to accept the alternative land at Sekkadu Village, Avadi Taluk, Tiruvallur District ad-measuring 10.21 acres in place of the property attached. Direction is passed to release the property forthwith which was attached under the provisional attachment order admeasuring about 10.46 acres in Guindy Village, Chennai at VGN Fairmont, Thiru Vi Ka Industrial Estate, Guindy, Chennai-32, while exercising my discretion available under Section 35(1) of the Act as prima facie it is found that the property was not purchased from the money of proceed of crime.

Summary

Issues Involved:

1. Legality of provisional attachment order under PMLA.
2. Substitution of attached property with alternative property.
3. Compliance with mandatory provisions under Section 5(1) of PMLA.
4. Impact on innocent third-party buyers and secured creditors.
5. Tribunal's power to regulate its own procedure.

Detailed Analysis:

1. Legality of Provisional Attachment Order under PMLA:

The case involves allegations of wrongful gain and loss to the Government of India due to the sale of property at a price lower than the guideline value. The CBI registered an FIR, and the Directorate of Enforcement (ED) passed a Provisional Attachment Order (PAO) attaching the property in question. The appellant contested this attachment, arguing that the property was not purchased with proceeds of crime and that the loans used were from financial institutions, making the attachment unreasonable.

2. Substitution of Attached Property with Alternative Property:

The appellant proposed substituting the attached property with an alternative property valued at approximately ?119 crores. The Tribunal found merit in this request, noting that there is no specific provision under PMLA for such substitution but also no prohibition against it. The Tribunal exercised its discretion under Section 35(1) of PMLA, which allows it to regulate its own procedure, to accept the alternative property offered by the appellant.

3. Compliance with Mandatory Provisions under Section 5(1) of PMLA:

The Tribunal scrutinized whether the ED complied with the mandatory provisions of Section 5(1) of PMLA while passing the PAO. It was noted that the first proviso to Section 5(1) mandates that no attachment order shall be made unless a report has been forwarded to a Magistrate under Section 173 of the Cr.P.C. or a complaint has been filed. The second proviso allows for attachment without such a report if immediate attachment is necessary to prevent frustration of proceedings under the Act. The Tribunal found that the ED did not comply with these mandatory provisions, as no report was filed, and the reasons for immediate attachment were not adequately recorded.

4. Impact on Innocent Third-Party Buyers and Secured Creditors:

The Tribunal recognized that the attachment of the property adversely affected 461 customers who had invested their savings in the flats being constructed on the attached property. These customers were innocent parties not involved in any scheduled offense under PMLA. The Tribunal also noted that the financial institutions, as secured creditors, had a stake in the property. The attachment would stall the construction project, causing significant financial harm to both the buyers and the creditors.

5. Tribunal's Power to Regulate its Own Procedure:

The Tribunal cited the Supreme Court's decision in 'Union of India Vs. Paras Laminates (P) Ltd.' to assert its power to regulate its own procedure under Section 35(1) of PMLA. This provision allows the Tribunal to be guided by the principles of natural justice and to regulate its procedure to ensure effective and meaningful exercise of its statutory powers.

Conclusion:

The Tribunal allowed the substitution of the attached property with the alternative property offered by the appellant, valued at ?119 crores. The Tribunal directed the ED to release the originally attached property and accept the alternative property. This decision was made while exercising the Tribunal's discretion under Section 35(1) of PMLA, considering that the property was not purchased with proceeds of crime and to prevent undue hardship to innocent third-party buyers and secured creditors. The Tribunal also emphasized the need for compliance with mandatory provisions under Section 5(1) of PMLA when passing provisional attachment orders.