2018 (11) TMI 187 - AT - Money Laundering

Offence under PMLA - Provisional Attachment Order - release of attached property - property acquired from the proceeds of crime - Held that - There is no denial on behalf of respondent that the Appellant Bank being a mortgagee of the Subject Property mentioned is not required to approach the trial court for getting released the Subject Property that was mortgaged to the Appellant Bank. The Proceedings under section 5 & section 8 of the PMLA, Act, 2002 are civil in nature and therefore the Adjudicating Authority has the power to release the Subject Property In the present case, it is admitted by the respondent that the bank is not involved in any crime. The mortgaged property is not purchased from proceed of crime. The respondent agrees that the bank is entitled to recover the amount and end of the day, it is a public money. The respondent is taking the frivolous defence as the bank is also involved in money laundering. Thus the respondent is mis-reading many provisions of PMLA, 2002. The situation in the present case is entirely different. Those provisions referred by the respondent are only applicable in those cases if the subject matter of property is acquired from proceed of crime. It is an admitted fact that the properties herein are mortgaged with the appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime. The relevant sale deed of the mortgaged properties are of 2003 so the date of acquisition is much prior to the date of alleged commission of crime in the present case. The property of the Bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent is not denying the fact that the Bank is a victim party who is also innocent and is entitled to recover the loan amount. It is also not disputed by the respondent that the properties in dispute are mortgaged with Bank and it has to go to Bank ultimately. There is no nexus whatsoever between the alleged crime and the Bank who is mortgagee of the properties in question which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against Bank who has sanctioned the amount which is untainted and pure money. The bank has the priority right to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Adjudicating Authority has not appreciated the facts and law involved in the matter and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. The contentions raised by Mr. Rajiv Awasthi, Advocate has no substance. The provisional attachment in the present matter is bad and against the law. In the circumstances available in the present case, the allegation of money laundering, so far as present appellant Bank & properties involved in this appeal are not acquired from the proceeds of crime. The proceedings under PML Act before the Adjudicating Authority are civil in nature and not criminal. The provisions of Section 11 and Section 42 of the PML Act specifically confirms the said position and therefore the reliance placed by ED on the judgment passed by NCLT, Ahmedabad to contend non-applicability of moratorium on the proceedings before Adjudicating Authority is wholly misplaced. Rather the said judgment reinforces the correct position. We set aside the Impugned Order dated 20.12.2017 and the Provisional Attachment Order dated 29.06.2017. The mortgaged properties attached under the PAO 05/2017, so far as, properties concern in this appeal are released from attachment forthwith. Even the arguments of the respondent no. 1 that the PMLA will override the proceeding under the Insolvency and Bankruptcy Act of 2006 are wholly without any merit because of the reasons as explained earlier even otherwise the SARFAESI Act after the amendment is over-ride proceedings of PMLA because of the reasons that the properties in question is mortgaged property with the bank. If the provisional attachment order, impugned order as well as the pleadings of ED are read, one is failed to understand, why is ED is opposing the move to recover the debts. The trial against the borrowers would take number of years. Thus, the impugned order passed is totally contrary to law and is not sustainable. The same is set-aside pertaining to subject matter of mortgaged property. The provisional attachment is also quashed. The attached property is released forthwith. The time spent from the date of provisional attachment order till today shall be deducted if the chosen to continue the proceedings against the borrowers under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Summary

Issues Involved:
1. Validity of the Provisional Attachment Order under PMLA.
2. Conflict between PMLA and other laws like SARFAESI Act, RDDB Act, and Insolvency & Bankruptcy Code.
3. Rights of the Appellant Bank as a bona fide mortgagee.

Detailed Analysis:

1. Validity of the Provisional Attachment Order under PMLA:
The Appellant Bank challenged the Provisional Attachment Order dated 29.06.2017 issued by the Directorate of Enforcement (ED) and the subsequent confirmation by the Adjudicating Authority on 20.12.2017. The property in question was mortgaged to the Appellant Bank before the alleged offence date, thus it could not be considered "proceeds of crime." The Tribunal noted that the property was mortgaged in 2009 and the alleged offence occurred in 2013, making it clear that the property was not derived from criminal activity. Therefore, the attachment was deemed inappropriate.

2. Conflict between PMLA and other laws like SARFAESI Act, RDDB Act, and Insolvency & Bankruptcy Code:
The Tribunal examined the interplay between PMLA and other laws, specifically the SARFAESI Act, RDDB Act, and Insolvency & Bankruptcy Code. It was argued that the amendments to SARFAESI Act and RDDB Act in 2016, which give priority to secured creditors, should prevail over PMLA. The Tribunal agreed, stating that the amendments were designed to facilitate the recovery of debts by secured creditors, which include banks. The Tribunal emphasized that the properties in question were not acquired from the proceeds of crime and were mortgaged to the bank before the alleged criminal activity. Hence, the provisions of SARFAESI Act and RDDB Act should take precedence.

3. Rights of the Appellant Bank as a bona fide mortgagee:
The Tribunal recognized the Appellant Bank as a bona fide mortgagee, entitled to recover its dues by selling the mortgaged property. The bank had classified the borrower's account as a Non-Performing Asset (NPA) and initiated recovery proceedings under SARFAESI Act and RDDB Act. The Tribunal highlighted that the bank's right to the property could not be prejudiced by the alleged offences committed by the borrower. The Tribunal also noted that the bank had initiated Corporate Insolvency Resolution Process against the borrower, which was admitted by NCLT, and the moratorium was in effect. The Tribunal concluded that the bank's right to recover the public money should not be hindered by the attachment under PMLA.

Conclusion:
The Tribunal set aside the Provisional Attachment Order and the confirmation by the Adjudicating Authority, releasing the mortgaged property from attachment. The Tribunal emphasized that the bank's right to recover its dues should not be impeded, especially when the property in question was not derived from criminal activity and was mortgaged before the alleged offence. The Tribunal's decision reinforced the precedence of SARFAESI Act and RDDB Act over PMLA in cases involving bona fide mortgagees like the Appellant Bank.