2019 (9) TMI 933 - AT - Money Laundering

Offence under PMLA - Provisional Attachment orders - HELD THAT - The appellant is a Public Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers which may take many years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the commercial market. The trial may continue against the borrowers. One is failed to understand why the bank loan amount be blocked in view of settled law. 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. Orders are set-aside by allowing the appeals. The attachment order with regard to the mortgaged property is quashed. The appellants are at liberty to take further steps in accordance with law.

Summary

Issues Involved:
1. Confirmation of Provisional Attachment Orders under PMLA.
2. Rights of Secured Creditors under SARFAESI Act vs. PMLA.
3. Validity of attachment of properties mortgaged prior to alleged criminal activity.
4. Application of the Axis Bank judgment by the Delhi High Court.

Issue-wise Detailed Analysis:

1. Confirmation of Provisional Attachment Orders under PMLA:
The appellant challenged the confirmation of Provisional Attachment Orders (PAOs) issued under Section 5(1) of the PMLA, 2002. The orders attached properties, including Hotel Radisson Blu, as alleged proceeds of crime. The appellant argued that these properties were mortgaged to secure loans long before the alleged criminal activities and thus should not be subject to attachment under PMLA.

2. Rights of Secured Creditors under SARFAESI Act vs. PMLA:
The appellant, a secured creditor under the SARFAESI Act, 2002, argued that the enforcement of their security interest should take precedence over the attachment under PMLA. The appellant had initiated proceedings under SARFAESI and taken possession of the attached property before the issuance of the PAOs. The Tribunal noted that the appellant's rights as a secured creditor would survive despite the attachment under PMLA, as clarified by the Delhi High Court in the Axis Bank judgment.

3. Validity of attachment of properties mortgaged prior to alleged criminal activity:
The Tribunal emphasized that properties mortgaged prior to the alleged criminal activity cannot be considered proceeds of crime unless there is evidence showing the mortgage was created to defeat the PMLA. The Tribunal found that the appellant had conducted due diligence before the mortgage, and there was no evidence that the properties were purchased from the proceeds of crime. The attachment order lacked reasoning and failed to demonstrate how the properties were proceeds of crime.

4. Application of the Axis Bank judgment by the Delhi High Court:
The Tribunal relied on the Axis Bank judgment, which held that a third-party charge or encumbrance on a property cannot be declared void under PMLA unless it was created to defeat the PMLA. The judgment also stated that a secured creditor's claim should be satisfied before any attachment under PMLA. The Tribunal concluded that the appellant, as a bona fide secured creditor, had a legitimate claim on the mortgaged properties, which should not be subject to attachment under PMLA.

Conclusion:
The Tribunal set aside the impugned orders confirming the PAOs and quashed the attachment of the mortgaged property (Hotel Radisson Blu). The appellant was allowed to proceed with the recovery of its dues in accordance with the law. The Tribunal clarified that the criminal liabilities of the borrowers would be decided separately and did not express any opinion on those matters. No costs were awarded.