2017 (10) TMI 1128 - AT - Money Laundering

Appeal under section 26 of Prevention of Money Laundering Act 2002 - Provisional Attachment - Held that - The Adjudicating Authority (PMLA) while passing the Impugned Order did not consider the judicial precedents cited by the appellant on the above propositions of law asserting the supremacy and priority of the charge/rights of the appellants (being Secured inconsistency between the two before giving an overriding effect to the non obstante clause. Neither the respondent no. 1 nor the Adjudicating Authority (PMLA) have indicated what law was being overridden by their use of Section 71 of the Act and how such law was inconsistent with the provisions of the PMLA 2002. The objectives of the PMLA 2002 do not detract or derogate from the protection of legitimate transactions and financial assets as afforded by legislation such as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. The learned Adjudicating Authority (PMLA) has failed to appreciate that the definition of proceeds of crime and/or value thereof has no application to the facts of the present case inasmuch as in the present case the legitimacy of the transaction entered into between the Appellant and the Respondent No. 7 is not in dispute. Therefore the attached vehicle being the subject matter of the Loan Facility which predates the allegations of money laundering against the Respondent No. 7 is clearly identifiable and admittedly not having been obtained or derived out of any criminal activity does not fall within the definition of proceeds of crime or value thereof . Adjudicating Authority (PMLA) has not understand that the Loan Facility provided by the Appellant to the Respondent No. 7 for purchase of the attached vehicle is public money and not proceeds of crime or value thereof. Thus no order can be passed by the Respondent No. 1 prejudicing the genuine business transaction of the Appellant Bank. The impugned order is patently illegal and not sustainable in law. We set-aside the Impugned order dated May 31 2017 confirming the Provisional Order passed by the Respondent No. 1/Directorate of Enforcement with respect and limited to the attachment of the vehicle AUDI Car Model-A3 35 TDI DL 2CAT 4920; and also provisional attachment order no. 01/2017 dated January 27 2017 passed by the Respondent No. 1/Directorate of Enforcement with respect to and limited to the attachment of the vehicle AUDI Car Model-A3 35 TDI DL 2CAT 4920; and also provisional attachment order no. 01/2017 dated January 27 2017 passed by the Respondent No. 1/Directorate of Enforcement with respect to and limited to the attachment of the vehicle AUDI Car Model-A3 35 TDI DL 2CAT 4920. The vehicle in question shall be returned to the appellant forthwith who is entitled to disposed of and after adjustment of loan amount party the appellant is entitled to file the recovery of balance amount as per law.

Issues Involved:
1. Legitimacy of the attachment of the vehicle under the Prevention of Money Laundering Act, 2002 (PMLA).
2. Priority of the appellant bank's charge over the hypothecated vehicle.
3. Interpretation of the term "proceeds of crime" under the PMLA.
4. Applicability of the SARFAESI Act, 2002, and its amendments.

Issue-Wise Detailed Analysis:

1. Legitimacy of the Attachment of the Vehicle under PMLA:
The appeal concerns the attachment of an AUDI Car Model-A3 35 TDI DL 2CAT 4920 by the Directorate of Enforcement under the PMLA. The vehicle was purchased by Respondent No. 7 using a loan from the appellant bank. The Adjudicating Authority confirmed the attachment, considering the vehicle as "proceeds of crime." However, the Tribunal noted that the vehicle was purchased before the demonetization notification and the alleged predicate offence. The vehicle was not procured from the proceeds of crime, as the loan installments were paid before the demonetization.

2. Priority of the Appellant Bank's Charge Over the Hypothecated Vehicle:
The appellant bank had provided a loan to Respondent No. 7 for purchasing the vehicle, secured by a Loan-Cum-Hypothecation Agreement and an Irrevocable Power of Attorney. The agreement allowed the bank to recover the loan and take possession of the vehicle in case of default. The Tribunal emphasized that the appellant bank's charge over the vehicle takes precedence, and the vehicle should not be considered "proceeds of crime" under the PMLA.

3. Interpretation of the Term "Proceeds of Crime" under the PMLA:
The Tribunal clarified that the vehicle does not fall under the definition of "proceeds of crime" as it was purchased using a legitimate loan facility before the alleged criminal activities. The Adjudicating Authority's failure to consider the legitimacy of the loan transaction and the timing of the vehicle purchase led to an erroneous confirmation of the attachment.

4. Applicability of the SARFAESI Act, 2002, and Its Amendments:
The Tribunal referred to various judgments and amendments to the SARFAESI Act, which prioritize the rights of secured creditors over government dues. The SARFAESI Act, being a later enactment with a non-obstante clause, prevails over the PMLA in matters of secured debts. The Tribunal cited the Supreme Court and High Court judgments affirming that secured creditors have priority in recovering their dues, even in cases involving government attachments.

Conclusion:
The Tribunal set aside the Impugned Order dated May 31, 2017, confirming the Provisional Order of attachment of the vehicle. The vehicle should be returned to the appellant bank, which is entitled to dispose of it and recover the loan amount. The appeal and pending applications were disposed of, with no costs awarded.

← Previous Next →