2019 (6) TMI 1150 - AT - Money Laundering

Provisional order of attachment of properties mortgaged with the Appellant RIICO - Nexus with the crime committed by the borrowers - reasons to believe - offences under section 120 B, 420, 467, 468, 471, 472 and 474 of IPC and section 13(2) r/w 13(1) (d) of PC Act by CBI, BS FC - HELD THAT - This Tribunal possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. Upon an argument being raised by the Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending, the Hon‟ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be inquired into by the Special Court only if the order confirming the attachment has attained finality . An order cannot be said to have attained finality until and unless all the remedies under the Act have been exhausted. No doubt, the bank and financial institutions are always at liberty to approach the Special Court (if so desired) in order to invoke the amended provision of sub section 8 of Section 8, however, it is wrong to suggest that the bank and financial institutions are not entitled to challenged the order of attachment because this tribunal is only exclusively having jurisdiction to examine the validity of attachment and to decide the same under section 26 of the Act as to whether attachment was valid or not. The bank and financial institution are entitled to take the remedy before the Special Court after the decision of appeal or during the pendency of appeals. The Appellant has nothing to do and has no connection with the allegation of crime committed by the borrowers. Bank is not involved for the offences of money-laundering. The mortgage properties are admittedly not derived from criminal activities or proceed of crime. The scope of the PMLA is to punish the accused person and not to punish a innocent person who is not involved in the crime within the meaning of Section 2 (u) read with Section 3 of the Act. The appellants are not charge sheeted nor any prosecution complaint has been filed against the appellants - There is no nexus whatsoever, between the alleged crime and the appellants who are 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 Appellant is a Government Company and attachment of these properties would deprive the Appellant from recovering the due amount, which in turn would be a loss of public money. In the appeal filed by Gangwal Real Estate LLP, he said party through its counsel has made the statement to deposit the entire alleged proceed of crime i.e. ₹ 7.37 crores with the respondent without prejudice. The impugned order is set-aside with regard to attachment of properties mortgaged with the appellant - rest of the attachment shall continue - appeal allowed.

Summary

Issues Involved:
1. Legitimacy of the attachment of properties under the Prevention of Money Laundering Act (PMLA).
2. Rights of the Appellant as a bona fide third-party claimant and secured creditor.
3. Jurisdiction and authority of the Appellate Tribunal to adjudicate on the attachment order.

Issue-wise Detailed Analysis:

1. Legitimacy of the Attachment of Properties under PMLA:
The case involves the attachment of properties under the PMLA due to alleged money laundering activities linked to a significant bank fraud. The Enforcement Directorate (ED) had attached properties, including those mortgaged with the Appellant, based on the suspicion that they were proceeds of crime. The Adjudicating Authority had confirmed the attachment, citing that the defendants were in possession of proceeds of crime and had committed the offense of money laundering. The properties attached included various immovable and movable assets owned by the accused and their associates.

2. Rights of the Appellant as a Bona Fide Third-Party Claimant and Secured Creditor:
The Appellant, Rajasthan State Industrial Development and Investment Corporation (RIICO), argued that it was a bona fide third-party claimant with no involvement in the alleged criminal activities. RIICO had provided a loan to M/s A. Gangwal Real Estate LLP, secured by mortgaged properties, prior to the commission of the alleged offenses. The Appellant contended that the mortgaged properties were not acquired from the proceeds of crime and that their statutory rights as secured creditors should not be defeated by the attachment order. The Appellant cited the Delhi High Court judgment in Directorate of Enforcement vs. Axis Bank & Ors., which held that the rights of bona fide third-party claimants acquired prior to the commission of the offense should be protected.

3. Jurisdiction and Authority of the Appellate Tribunal:
The Tribunal confirmed its jurisdiction to adjudicate on the validity of the attachment order, emphasizing that it acts as the court of first appeal under Section 26 of the PMLA. The Tribunal noted that the claims of third parties asserting bona fide and legitimate interests should be inquired into by the Special Court only if the attachment order has attained finality. The Tribunal disagreed with the respondent's argument that claims should be solely adjudicated by the Special Court, stating that the bank and financial institutions are entitled to challenge the attachment order before the Tribunal.

Findings and Conclusion:
The Tribunal found that the Appellant had a legitimate claim over the mortgaged properties, which were not derived from the proceeds of crime. The Tribunal emphasized that the legislative intent of the PMLA is to punish the accused and not innocent third parties. The Tribunal set aside the attachment order concerning the properties mortgaged with the Appellant, allowing RIICO to auction or sell the property to realize its dues. The rest of the attachment order was upheld.

Summary:
The Tribunal concluded that the Appellant, a bona fide third-party claimant and secured creditor, had legitimate rights over the mortgaged properties, which were not acquired from the proceeds of crime. The Tribunal set aside the attachment of these properties, allowing the Appellant to enforce its security interest and recover its dues, while the rest of the attachment order remained in place. The Tribunal confirmed its jurisdiction to adjudicate on the attachment order and emphasized the protection of the rights of innocent third parties under the PMLA.