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2019 (5) TMI 1463 - AT - Money LaunderingOffence under PMLA - Provisional Attachment Order - recording of reason to believe - money belongs to the Appellant is a public money - HELD THAT - The Appellant is not holdings any funds of any of the defendant/respondent. The mortgage properties are admittedly not derived from criminal activities or proceed of crime. The scope of the PMLA is to punishing the accused person and not to punish the innocent person who is not involved in the crime within the meaning of Section 2 (v) read with Section 3 of the Act. The appellant is not charge sheeted nor any prosecution complaint has been filed against the appellant. The appellants have also no objection if the borrowers properties which were acquired from proceed of crime be dealt by the respondent in any manner. There is no nexus whatsoever between the alleged crime and the appellant who is mortgagee of the properties and is a victim of the fraud and is innocent party. The definition of proceed of crime as per Section (u) of the Act comprises of the property which is derived or obtained as a result of criminal activities. The mortgaged properties are not acquired from proceed of crime. The scheme of the Act is such that is cannot apply to a transaction of the nature as in the present case against the appellant. Money of appellant is a public money and its right under SARFAESI cannot be taken away by the attachment order in case the attachment continues against the mortgage property in all matters the economy of the country would suffer. In the present case as the money belongs to the Appellant it is public money. The appellant has the right to property under the Constitution of India. The property of the appellant 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 mortgage of property is the transfer under the transfer of property act. Under Section 8(1) upon receipt of a Complaint U/s 5(5) of the Act if this Hon ble Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income earning or assets out of which or by means of which he has acquired the property attached U/s 5(1) of the Act. Provisional attachment order in the present case is bad as no valid reason to believe pertaining to appellant herein has been recorded within the meaning of the provision of Section-5(1) of the Act. Recording of reason to believe under the said provision is not a formality rather it is the duty of the authorized officer to record the valid reason to believe. As far as reason of believe within the meaning of Section 8(1) is concerned if the Adjudicating Authority chooses to record the same it must be recorded after having gone through the entire material and copy of complaint and provisional attachment order the same shall have to be satisfied fully with the mandatory condition as to whether the person-concerned has committed the offence within the meaning of Section 3 of the Act or not or is in possession of proceed of crime. Only than the notice under section 8(1) is to be issued otherwise notice is to be declared as invalid. In the present case copy of reason to believe has not been filed. Counsel for the respondent submits that reason to believe is not required prior to the order of passing the provisional attachment order. The attachment order shows that after recording the facts the IO has just used the expression by repetition of language of section 5(1) in the provisional attachment order. The Authorised Officer must be aware that due to fixed period of 180 days normally the person concerned is not allowed to cross-examination of the complaint and other witnesses. Till the provisional attachment order is passed no notice of appearance is served and till the concluding of the said proceedings the proceedings are conducted ex-parte . The notice is served after attachment alongwith the copy of provisional attachment and other material and copy of complaint. Thus it is virtually not possible for any party to discharge the burden of proof unless he knows the nature allegations. No valid findings with the properties mortgaged with the appellant to who is the financial institution and possession of the proceeds of crime or the same is likely to be concealed transferred or dealt with in any manner as the said properties are already mortgaged with the appellant. Adjudicating Authority failed to apply its mind at the time of issue of the Show Cause Notice ( SCN ). No reason to believe can be discerned from the SCN or the order dated 29.06.2018 accompanying the SCN under Section 8 of the PMLA as to how there was reason to believe that the Appellant was in possession of proceeds of crime . Adjudicating Authority in its discussions did not even consider the reply of the Appellant let alone discuss it. Appeal is allowed. The impugned order with regard to attached property (which is mortgaged with the appellant) is set-aside with regard to the appellant (as the attachment on face of it was bad and contrary to law).
Issues Involved:
1. Validity of the Provisional Attachment Order (PAO) and its confirmation. 2. The appellant's connection to the alleged crime and possession of proceeds of crime. 3. The appellant's rights under the SARFAESI Act and the impact of the PAO on these rights. 4. The necessity and adequacy of the "reason to believe" recorded by the authorities. 5. The applicability of the Prevention of Money Laundering Act (PMLA) to the appellant's case. Issue-Wise Detailed Analysis: 1. Validity of the Provisional Attachment Order (PAO) and its Confirmation: The Tribunal examined the PAO dated 16.05.2018, which attached the appellant’s secured property on the grounds of outstanding dues against fraudulent loans disbursed by Syndicate Bank. The Tribunal noted that the PAO and the subsequent confirmation order failed to consider the appellant’s legitimate claim over the mortgaged property. The Tribunal emphasized that the mortgaged property was not acquired from proceeds of crime, thus invalidating the attachment. 2. The Appellant's Connection to the Alleged Crime and Possession of Proceeds of Crime: The appellant argued that it had no connection with the alleged crimes committed by the defendants and was not holding any funds derived from criminal activities. The Tribunal concurred, noting that the appellant was neither charge-sheeted nor involved in any money laundering activities as per Section 2(v) read with Section 3 of the PMLA. The appellant was a bona fide third party and a victim of the fraud, having legitimately disbursed a loan and created a mortgage over the property prior to the commission of the scheduled offence. 3. The Appellant's Rights under the SARFAESI Act and the Impact of the PAO on These Rights: The Tribunal highlighted that the appellant had initiated recovery proceedings under the SARFAESI Act and the RDDBFI Act, and insolvency proceedings under the I&B Code, prior to the provisional attachment. The Tribunal cited the Delhi High Court’s judgment in Directorate of Enforcement v. Axis Bank & Ors., which held that the interest of a third party acquired prior to the commission of the offence could not be defeated by attachment under the PMLA. The Tribunal allowed the appellant to continue its proceedings under the SARFAESI Act and sell the secured property to recover its dues. 4. The Necessity and Adequacy of the "Reason to Believe" Recorded by the Authorities: The Tribunal scrutinized the "reason to believe" recorded by the Deputy Director before issuing the PAO. It was found that the reasons were not adequately detailed and were a mechanical reproduction of statutory language. The Tribunal emphasized that valid reasons to believe must be based on material evidence and not mere suspicion, as per the guidelines laid down by the Supreme Court in various judgments. The lack of detailed reasons invalidated the PAO and subsequent notices. 5. The Applicability of the Prevention of Money Laundering Act (PMLA) to the Appellant's Case: The Tribunal noted that the PMLA primarily targets proceeds of crime related to scheduled offences. In this case, the appellant’s property was not derived from criminal activities, and the appellant was not involved in money laundering. The Tribunal concluded that the PMLA could not be applied to the appellant’s legitimate transactions and that the attachment of the mortgaged property was contrary to the legislative intent of the Act. Conclusion: The Tribunal set aside the impugned order dated 9th November 2018, confirming the PAO concerning the appellant’s mortgaged property. Consequently, the provisional attachment order was quashed, allowing the appellant to proceed with the sale of the secured property under the SARFAESI Act to recover its outstanding dues. The appeal was allowed, and no costs were imposed.
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