2018 (10) TMI 1012 - AT - Money Laundering

Offence under PMLA - Provisional Attachment Order - SARFESI act - whether the banks should wait till the trial is over or recover the amount by enforcing the decree forthwith once decree is become final? - Held that - In the case of Attorney General of India and Ors. 1994 (5) TMI 235 - SUPREME COURT while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they belong. In the present case as the money belongs to the Appellant bank it is public money. In view of settled law on the subject the appellant bank is the rightful claimant who have already obtained decree against the borrower from DRT under the SARFAESI Act and has a priority rights to recover the loans amount forthwith. The Respondent No.1 is not having any lien over the said properties as the Appellant banks are now the Legal transferee of said properties. The Respondent No. 1 may not retain the said property till the trial is over. They have no legal title and the property is to be returned to the persons lawfully entitled to recover the debts as they are the victim. Being a victim party u/s 8(8) of the Act, second proviso which is incorporated very recently in April, 2018, the banks are entitled to dispose of the properties if they are victim and sufferer due to non-return of loan amount by the borrowers. There is no nexus whatsoever between the alleged crime and the banks who are merely the secured creditor and were not aware that the borrowers would avoid returning the loan-amount. Prima facie, no case of money-laundering is made out against banks. The banks have priority rights on assets of the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created. As far as the appeal is concerned, the same will be considered on the next date of hearing. At present, this Tribunal is only concerned with the interim order as prayed by the appellants. In view of facts and nature of the present case, that once the banks are secured creditors and have obtained the final decree from the court which has attained finality, the banks are bound to receive the default loan amount from Vijay Mallya and his companies. He was/is the active person of the companies. The loans amount has to be paid by the borrowers. It is a banks money. It must come to the banks. These are public sector banks. The decretal amount is recoverable in law being pubic money. Thus, till the next date of hearing, Vijay Mallya is restrained not to deal with and alter the status of the movable and immovable properties as per Schedule A to C and Schedule-A and shall not create third party interest in any manner directly or indirectly till the next date. The respondent no.1 shall also maintain the status quo with regard to the properties, the details of which are mentioned in the impugned orders in both appeals till the next date.

Issues Involved:
1. Prior right over attached properties
2. Condonation of delay
3. Non-issuance of notice under Section 8(1)
4. Priority of Secured Creditors
5. Right to recover loans against the decree
6. Interim order and status quo

Detailed Analysis:

1. Prior right over attached properties:
The appellants, comprising the State Bank of India and other banks, claimed a prior right over the movable and immovable properties of the Respondent Nos. 3, 4 & 5 based on a Personal Guarantee Agreement dated 21.12.2010, Corporate Guarantee Agreement dated 21.12.2010, and a final order dated 19.01.2017 by the Debt Recovery Tribunal (DRT), Bengaluru. The DRT held that Respondent Nos. 2 to 5 were jointly and severally liable to pay a substantial sum to the appellants, supported by an Amended Recovery Certificate dated 10.04.2017.

2. Condonation of delay:
The appellants filed applications for condonation of delay of 562 days in filing the appeals. They argued that they received a copy of the impugned order only on June 22, 2018, and promptly took steps to file the appeal. The Tribunal allowed the condonation of delay, noting that the Enforcement Directorate (ED) failed to implead the appellants despite knowing that the loan amounts were to be returned to the banks.

3. Non-issuance of notice under Section 8(1):
The Tribunal observed that no notice under Section 8(1) was issued to the appellants, nor were they given an opportunity to be heard before the impugned order was passed. Citing the case of Amanpreet Singh Gandhi vs. Deputy Director, Enforcement Directorate, the Tribunal emphasized that the Adjudicating Authority must afford an opportunity of hearing to any person claiming a right in the property before confirming an attachment order under Section 8(3).

4. Priority of Secured Creditors:
The Tribunal highlighted that the appellants, as secured creditors, had obtained a decree against the borrowers and had priority rights over the attached properties. The amendment to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, effective from 01.09.2016, reinforced the priority of secured creditors over other debts and government dues. The Tribunal cited judgments from the Madras High Court and the Supreme Court affirming the priority rights of secured creditors.

5. Right to recover loans against the decree:
The Tribunal acknowledged that the appellants, as secured creditors, were entitled to recover the loan amounts as per the decree obtained from the DRT. The Tribunal noted that the ED admitted that the banks were victims and entitled to recover their dues. The Tribunal emphasized that the purpose of the Prevention of Money Laundering Act, 2002, was to punish those involved in money laundering, not innocent parties like the banks.

6. Interim order and status quo:
The Tribunal granted an interim order restraining Vijay Mallya from dealing with or altering the status of the movable and immovable properties listed in the appeals. The Tribunal also directed the ED to maintain the status quo regarding the properties until the next hearing date, recognizing the banks' rights as secured creditors to recover the default loan amounts. The Tribunal scheduled the next hearing for 26.11.2018.

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