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2019 (6) TMI 1206 - AT - Money LaunderingOffence under PMLA - attachment of property involved in money laundering - connection with the allegation of crime committed by the borrowers and other persons concerned involved for the offences of money-laundering - commission of offence under Section 420, 467, 468, 471 r/w 120-B of IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 - HELD THAT - Since the action taken by the Bank of India was in accordance with law and was prior to the proceedings initiated under PMLA Act, the proceedings initiated by the Bank of India under the Code is ought to be given precedence over the proceedings initiated under PMLA Act in respect of the aforementioned properties - The said position has been clarified by the Hon ble High Court of Delhi in the matter of THE DEPUTY DIRECTOR DIRECTORATE OF ENFORCEMENT DELHI, UNION OF INDIA VERSUS AXIS BANK ORS., STATE BANK OF INDIA ORS. IDBI BANK LTD., PUNJAB NATIONAL BANK 2019 (4) TMI 250 - DELHI HIGH COURT wherein it was held that the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party. The rights of Appellant Bank being the secured creditor would survive in spite of the order of the attachment under PMLA remains operative. Therefore, the Appellant being the lawful mortgagee/transferee of the interest in the Subject Properties are entitled to recover its dues with the sale of the Subject Properties. The acquisition of such interest cannot be presumed to have been created with mala fide intent to defeat and/ or frustrate the proceeding under the PMLA Act and hence the said properties can be held to be tainted property . Since in the present case, the bona fide third party claimant, secured creditor, had initiated action in accordance with law for enforcement of interest prior to the order of attachment under PMLA, the PMLA attachment takes a back seat allowing the secured creditor to enforce its claim and only the remainder to be made available for purposes of PMLA. The properties in the present case are thus not liable to be attached even as alternative attachable property . In the present case once it has been showed by the Bank of India that proper due diligence was conducted before the properties/ assets were mortgaged to them, the properties thus cannot be attached, neither as a tainted property nor as alternative attachable property since it is nobody s case that the secured creditor had not done the due diligence and/or the transactions were not legitimate. This Tribunal is of the considered opinion that the proceeding u/s 8 of PMLA,2002 before the Adjudicating Authority is a civil proceeding and the Adjudicating Authority should have stayed the proceedings on passing of the moratorium order by the NCLT. The continuation of the proceedings from 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 - In the facts of the present case, it appears that hurdle has been created in the process after passing the order of NCLT which ought not to have been done. The question of registering ECIR does not arise. The passing of provisional attachment order was not application of mind and without consulting the facts and law. The period of continuation of proceedings before the Adjudicating Authority, PMLA, and before this Tribunal till the passing of the present judgment and order, from the date of commencement of the moratorium order, be treated as excluded while calculating limitation of the period of completion of the Corporate Insolvency Resolution Process. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Legitimacy of the Provisional Attachment Order (PAO) under PMLA. 2. Relationship and responsibilities of the Appellant (Bank) vis-a-vis the Borrowers. 3. Applicability of the Delhi High Court's judgment in Deputy Directorate of Enforcement vs Axis Bank. 4. Prior actions taken by the Appellant under SARFAESI Act and Insolvency and Bankruptcy Code (IBC). 5. Determination of "proceeds of crime" under PMLA. 6. Validity of the Adjudicating Authority's order confirming the PAO. 7. Rights of the secured creditors versus the Enforcement Directorate's attachment under PMLA. Detailed Analysis: 1. Legitimacy of the Provisional Attachment Order (PAO) under PMLA: The Appellant challenged the Impugned Order dated 1st October 2018, confirming the PAO issued on 24th April 2018. The PAO was based on allegations of fraud and money laundering by the borrowers, leading to a loss of ?2654.40 crore to a consortium of banks. The PAO was issued on the grounds that the attached properties were "proceeds of crime" under Section 2(u) of PMLA. 2. Relationship and Responsibilities of the Appellant (Bank) vis-a-vis the Borrowers: The Appellant argued that it had no connection with the alleged crimes committed by the borrowers. The Appellant, as a secured creditor, had sanctioned various credit facilities to the borrowers between 2008 and 2015 after conducting due diligence. The properties mortgaged to the Appellant were acquired much before the alleged criminal activities, and the Appellant was not in possession of any "proceeds of crime." 3. Applicability of the Delhi High Court's Judgment in Deputy Directorate of Enforcement vs Axis Bank: The Appellant relied on the Delhi High Court's judgment, which held that the charge or encumbrance of a third party in property attached under PMLA cannot be declared void unless it was created to defeat the PMLA. The judgment emphasized that a bona fide third party claimant must show that it had acquired interest in the property lawfully and for adequate consideration, not being privy to the offence of money laundering. 4. Prior Actions Taken by the Appellant under SARFAESI Act and Insolvency and Bankruptcy Code (IBC): The Appellant had initiated proceedings under the SARFAESI Act and filed an application under Section 7 of IBC for initiating Corporate Insolvency Resolution Process against the borrowers, which was admitted by NCLT Ahmedabad. The Appellant argued that these actions, taken before the initiation of proceedings under PMLA, should take precedence over the attachment under PMLA. 5. Determination of "Proceeds of Crime" under PMLA: The Appellant contended that the mortgaged properties were not "proceeds of crime" as defined under Section 2(u) of PMLA. The properties were acquired by the borrowers between March 1993 and January 2008, much before the alleged criminal activities. The Appellant had conducted due diligence before creating the mortgage and found no evidence that the properties were purchased from proceeds of crime. 6. Validity of the Adjudicating Authority's Order Confirming the PAO: The Tribunal found that the Adjudicating Authority failed to apply its mind and did not provide any reasoning to show how the attached properties were "proceeds of crime." The Authority did not consider the Appellant's reply and assumed that the properties were proceeds of crime without analyzing the facts. The Tribunal held that the order suffered from a fundamental error and lacked understanding of the statute. 7. Rights of the Secured Creditors versus the Enforcement Directorate's Attachment under PMLA: The Tribunal emphasized that the rights of the Appellant Bank, being a secured creditor, would survive despite the attachment order under PMLA. The Appellant, as a lawful mortgagee, was entitled to recover its dues from the sale of the mortgaged properties. The Tribunal referred to the Delhi High Court's judgment, which stated that the attachment under PMLA would be valid subject to the satisfaction of the charge of the secured creditor and restricted to the value in excess of the claim of the secured creditor. Conclusion: The Tribunal allowed the appeals, set aside the Impugned Order dated 1st October 2018, and quashed the PAO dated 24th April 2018 in relation to the Appellant. The Tribunal also directed that the period of continuation of proceedings before the Adjudicating Authority and this Tribunal be excluded while calculating the limitation period for the completion of the Corporate Insolvency Resolution Process. No costs were awarded.
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