2019 (4) TMI 250 - HC - Money Laundering

Offence under PMLA - attachment of property involved in money laundering - HELD THAT - The assets which have been the subject matter of attachment in the appeals at hand are not tainted property , the same having been seemingly acquired prior to the criminal activity giving rise to accusations of money-laundering. But, they are sought to be attached and subjected to eventual confiscation on account of they being the alternative attachable properties or deemed tainted properties, which is permissible in law. The audi car (subject matter of first appeal) was acquired by a transaction which has no direct connection with the case of money-laundering. There is no clarity as to the value of proceeds of crime which are to be confiscated as against value of the attached property as indeed the extent of the debt yet to be recovered by the secured creditor. The monetary gains made by the transactions which are subject matter of the accusations of money-laundering on account of illicit foreign exchange transactions (third appeal) or the case of cheating by use of fabricated defence supply orders (fourth appeal), both involving public servants, require closer scrutiny as to the claim of the respondent banks of bonafide action. Though there is no such element of complicity on part of any of the officials of the respondent banks in the case relating to fictitious hospital equipment (second appeal) or the one involving consortium of banks (fifth appeal), scrutiny respecting legitimacy and bonafide of the claim on the touchstone, inter alia, of the subsisting value of the secured interest and chronology of events leading to attachment would be necessary. It will be appropriate that such further scrutiny as is necessary on the touchstone of above principles is undertaken by the appellate tribunal after calling for further responses (and inputs) from each side. Ordered accordingly. Thus, the appeals are allowed. The impugned decisions of the appellate tribunal are set aside. The matters arising out of the appeals of the respondents stand revived and restored for further consideration by the appellate tribunal.

Issues Involved:
1. Measure of attachment of property involved in money laundering.
2. Claims of third parties over attached properties.
3. Conflict between PMLA and other laws like RDBA, SARFAESI Act, and Insolvency Code.
4. Rights of third parties acting bona fide.

Detailed Analysis:

Measure of Attachment of Property Involved in Money Laundering:
The court emphasized that the attachment of property under the PMLA aims to prevent the frustration of the ultimate objective of confiscation of "proceeds of crime." The attachment process is an additional sanction to the criminal penalty for money laundering, and the confiscation order transfers the ownership of the attached property to the Central Government, free from all encumbrances.

Claims of Third Parties Over Attached Properties:
The appeals dealt with claims by third parties (primarily banks) over properties attached under PMLA. These claims arose from legitimate charges, liens, or encumbrances created before the attachment. The conflict is between the State's authority to confiscate properties acquired through criminal activity and the lawful claims of third parties to recover dues through attachment and sale of the same properties.

Conflict Between PMLA and Other Laws:
The court addressed the argument that RDBA, SARFAESI Act, and Insolvency Code should prevail over PMLA due to their provisions for the priority of secured creditors. The court concluded that PMLA has an overriding effect over these laws in matters of dealing with "money-laundering" and "proceeds of crime." The court emphasized that the objective of PMLA is distinct from the other laws, and they must co-exist without one derogating the other.

Rights of Third Parties Acting Bona Fide:
The court acknowledged the rights of third parties acting bona fide, stating that an order of attachment under PMLA is not rendered illegal merely because a secured creditor has a prior charge. However, such third parties must prove that they acquired interest in the property lawfully, for adequate consideration, and without being privy to the money-laundering activities. If a third party's interest was acquired before the criminal activity, their claim should be protected, and the State's action under PMLA should be restricted to the excess value of the property beyond the third party's claim.

Summary of Conclusions:
1. Attachment under PMLA is a civil sanction running parallel to criminal proceedings.
2. Enforcement officers must assess the value of proceeds of crime to ensure equivalent value assets are attached.
3. PMLA allows attachment of both tainted and alternative attachable properties.
4. Burden of proof lies on the accused to show that attached property was not acquired from criminal activity.
5. PMLA prevails over RDBA, SARFAESI Act, and Insolvency Code.
6. PMLA, RDBA, SARFAESI Act, and Insolvency Code must co-exist harmoniously.
7. Third parties must prove bona fide acquisition and compliance with the law to claim release of attached property.
8. Attachment under PMLA remains valid but subject to the satisfaction of third-party claims if acquired bona fide before criminal activity.
9. Special courts have jurisdiction to adjudicate claims of bona fide third parties after attachment is confirmed or confiscation is ordered.

Decision on the Appeals:
The court set aside the appellate tribunal's decisions and remanded the matters for further scrutiny by the appellate tribunal, emphasizing the need for a detailed examination of the claims of the respondents (banks) concerning the attached properties. The parties were directed to appear before the appellate tribunal for further consideration.

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