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2019 (3) TMI 822 - AT - Money LaunderingOffence under PMLA - Provisional Attachment Order - attachment confirmed against the properties which were already stand mortgaged in favour of the Appellant, (who is now seeking setting aside of the Impugned Order) - continuation of pending suits or proceedings against the corporate debtor - opinion based on reason to believe - proceeds of crime - HELD THAT - A person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. Further, at the initial stage for believing the existence of a thing, condition or a statement of fact, one would collect information and then examine the information and come to a final conclusion on the basis of that information, that such a thing, condition or statement of a fact exists. All these ingredients are pre-requisite for forming an opinion based on reason to believe . Thus, the provisional attachment order is legally erroneous and untenable and could not have been passed more particularly in view of the fact that the complainant was aware of the fact that there is an exclusive and paramount claim of the Appellant Bank, therefore, The Adjudicating Authority had no justification/jurisdiction for confirming attachment of the aforesaid hypothecated/Equitably Mortgaged Moveable and immovable properties. As in Indian Bank Vs. Government of India 2012 (7) TMI 1085 - MADRAS HIGH COURT held that the PMLA does not provide for redressing grievances of victims of fraud such that the Enforcement Directorate cannot take away the right of Banks as security holder by provisionally attaching such property and seeking confirmation thereof. Accordingly, in the present case, the Appellant is the victim of the fraud played upon it by Mr. Mehul Choksi and the Gitanjali group of companies. Accordingly, the Adjudicating Authority erred in confirming the attachment of properties already mortgaged to the Appellant. The Adjudicating Authority has failed to understand that the NCLT Mumbai vide order dated 08.10.2018 has declared moratorium under Section 14 of the IBC, 2016, inter alia, the said section 14 of the IBC, 2016 prohibits the continuation of pending suits or proceedings against the corporate debtor (i.e. Respondent No.2 herein). Therefore, the Adjudicating Authority could not have confirmed the PAO bearing No. 03/2018 dated 28.03.2018 passed by the Respondent No.1. The said process is promoted by the Government of India. Apex Court has also held in favour of the bank and the main provisions valid in order to recover the amount in the interest of public. One fails to understand why both authorities are against the said process of recovery. In view of the non-obstante clause as contained in Section 238 of the IBC, 2016, the Adjudicating Authority could not have continued with the Attachment proceedings under the PMLA. The IBC, 2016 being a subsequent legislation than the PMLA, therefore, the Non-obstante clause of the IBC,2016 shall prevail over the PMLA. The proceedings before the Adjudicating Authority are civil in nature, therefore, in view of the Section 14 of the IBC, 2016 the proceedings before the Adjudicating Authority cannot continue as there is clear prohibition under the said section of the IBC, 2016. This Tribunal is of the considered opinion that the proceeding u/s 8 of PMLA,2002 before the Adjudicating Authority is a civil proceeding. The Adjudicating Authority should have stayed the proceedings. The continuation of the proceedings after the date of commencement of the moratorium order is contrary to the intention of the legislature, hence the consequential order of confirmation of PAO is contrary to law. Impugned order is set aside to the extent the Order passed by the Adjudicating Authority confirming the Provisional Attachment Order with regard to properties mortgaged to the Appellant in the present case. ED is entitled to recover entire proceeds of crime amount from the accused parties in India or from overseas countries from these assets except the mortgaged properties for which the banks are secured creditors. Thus, this tribunal is of view that the public money should come to the public but at the same time the mortgaged properties cannot be blocked. The banks money must come to the banks in the interest of public. All the actions which are pending against the accused parties, the same shall be proceeded further against as per law and without any influence of this order.
Issues Involved:
1. Legitimacy of the Provisional Attachment Order under Section 5(1) of the Prevention of Money-Laundering Act, 2002. 2. Appellant's rights as a secured creditor under SARFAESI Act and Recovery of Debts Due to Banks and Financial Institutions Act. 3. Priority of claims between the Prevention of Money-Laundering Act, 2002, and other financial recovery laws. 4. Procedural fairness and adherence to statutory requirements in the attachment process. 5. Impact of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. Issue-wise Detailed Analysis: Legitimacy of the Provisional Attachment Order under Section 5(1) of the Prevention of Money-Laundering Act, 2002: The Appellant challenged the Provisional Attachment Order (PAO) confirmed by the Adjudicating Authority, arguing that the conditions under Section 5(1) of the Act were not satisfied. Specifically, the Director must have reason to believe that the person is in possession of proceeds of crime and that such proceeds are likely to be concealed, transferred, or dealt with in a manner that may frustrate proceedings related to confiscation. The Respondent's case admitted that the alleged proceeds of crime were siphoned off out of the country and not available for attachment. The Appellant, having no charge of money laundering against it, argued that the properties were already mortgaged to them and should not have been attached. Appellant's Rights as a Secured Creditor under SARFAESI Act and Recovery of Debts Due to Banks and Financial Institutions Act: The Appellant and the Consortium Lenders had advanced credit facilities to Gitanjali Gems Ltd. (GGL) and Gitanjali Export Corporation Ltd. (GECL), secured by mortgages. The properties in question were mortgaged to the Appellant and other lenders, who are secured creditors. The Appellant argued that their rights as secured creditors under the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act should take precedence over the attachment under the PMLA. The Tribunal noted that the properties were mortgaged before the alleged offenses, and the banks had the first right to recovery. Priority of Claims between the Prevention of Money-Laundering Act, 2002, and Other Financial Recovery Laws: The Tribunal discussed the non-obstante clauses in both the PMLA and the SARFAESI Act, concluding that the later enactment's non-obstante clause would prevail. The Tribunal cited Supreme Court precedents, emphasizing that secured creditors have priority over other claims, including government dues. The Tribunal highlighted the amendments in Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, which prioritize secured creditors' claims over other debts. Procedural Fairness and Adherence to Statutory Requirements in the Attachment Process: The Appellant argued that they were not given an opportunity to be heard before the passing of the Provisional Attachment Order. The Tribunal noted that the properties were mortgaged to the Appellant and the Consortium Lenders, and no immediate threat of concealment or transfer was present. The Tribunal emphasized the need for careful exercise of jurisdiction by the Respondent when attaching properties already mortgaged to third parties. Impact of Insolvency Proceedings under the Insolvency and Bankruptcy Code, 2016: The Tribunal acknowledged the moratorium declared by the National Company Law Tribunal (NCLT) under Section 14 of the IBC, 2016, which prohibits the continuation of pending suits or proceedings against the corporate debtor. The Tribunal held that the proceedings under the PMLA should not continue during the moratorium period, as the IBC, being a later enactment, would prevail over the PMLA. Conclusion: The Tribunal set aside the Impugned Order to the extent it confirmed the Provisional Attachment Order concerning properties mortgaged to the Appellant. The Tribunal clarified that the Enforcement Directorate (ED) could recover proceeds of crime from the accused parties in India or overseas, except for the mortgaged properties. The Tribunal emphasized that public money should be recovered, but mortgaged properties should not be blocked, ensuring that banks can recover their dues. The Tribunal also noted that the proceedings before the Adjudicating Authority should be stayed during the moratorium period declared by the NCLT. The appeal was allowed, and the impugned order was set aside.
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