2017 (12) TMI 840 - AT - Money Laundering

Offence under PMLA - provisional attachment order- Complaints filed by the banks making allegation against the company for availment of Agri Loans by forged and fabricated documents, which were disbursed to the appellant no. 1 company - Held that - Admittedly, no notice was issued nor any opportunity was granted to the banks of being heard. Thus, the impugned order is liable to be set- aside. Had any notice been issued to all the banks and opportunity was granted for hearing, the banks could have made their claim and argued that the properties in question were not involved in the money laundering. As is evident that ED as well as AD failed to considered the reply filed by the appellant contrary to 8(2) of the Act. The issue of mortgage of properties was already available with ED while recording the statement of appellant under section 50 of the Act. Even the Adjudicating Authority failed to considered the reply filed by the appellant where the full details were disclosed. However, both ED and Adjudicating Authority chose not to discuss the main issue. The impugned order is completely silent and has been passed without even considering the documents and explanation provided by the appellants by way of reply and compilation as filed before the Adjudicating Authority.Prima facie, the provisional attachment order as well as the impugned order is an arbitrary order passed by the Adjudicating Authority whereby five (5) properties of the appellants have been attached, without any cogent reason or any basis. In view of the above, the appeal is allowed the impugned order is set aside. The matter is remanded back to the Adjudicating Authority for re-hearing after issuing the notice to all banks and shall consider and discuss the reply filed by the appellant and to be filed by the banks before passing the order on merit. Since, it is an important matter, the final order be passed within 180 days from today.

Summary

Issues Involved:
1. Legitimacy of the Provisional Attachment Order (PAO) under the Prevention of Money Laundering Act, 2002 (PMLA).
2. Validity of the properties' attachment considering their acquisition dates and mortgage status.
3. Compliance with procedural requirements under Sections 5 and 8 of the PMLA.
4. Consideration of the banks' interests and their right to be heard.

Detailed Analysis:

1. Legitimacy of the Provisional Attachment Order (PAO):
The appellant challenged the PAO dated 26.12.2014, confirmed by the Adjudicating Authority's order dated 25.05.2015. The Enforcement Directorate (ED) based the PAO on allegations of the appellant company availing Agri Loans using forged and fabricated documents, rerouting the funds through various transactions to purchase properties, invoking Section 23 of the PMLA.

2. Validity of the Properties' Attachment:
The appellant argued that the attached properties were acquired prior to the sanction of the Agri Loans in 2009. The properties in question were:
- Plot No. 14 and 14-A, Petrochemical Complex, Vadodara (acquired in 2006).
- Industrial Land and Construction Property, Itola-Padra Road, Vadodara (acquired in 2005).
- Ekalbara Block No. 495-P, Village Ekalbara, Vadodara (acquired in 2006).
- Hill Park, Flat No. 4, Malabar Hill, Mumbai (acquired in 2004).
- Makarpura Plot No. 117, Makarpura Industrial Estate, Vadodara (acquired in 2005).

The properties were mortgaged to various banks before the PAO, and the banks had initiated recovery proceedings under Section 13(2) of the SARFAESI Act. The Tribunal found that the properties were not purchased from the proceeds of the Agri Loans and were subject to existing mortgages and recovery proceedings.

3. Compliance with Procedural Requirements:
The Tribunal noted that the ED failed to comply with the procedural requirements under Sections 5 and 8 of the PMLA. The ED did not issue notices to the banks, who were the mortgagees and had a vested interest in the properties. The Tribunal emphasized that the proviso of Section 8(1) mandates serving notice to any person holding the property on behalf of another, which includes the banks in this case.

4. Consideration of the Banks' Interests:
The Tribunal highlighted that the banks were bona fide lenders and not involved in the scheduled offense. The properties were mortgaged to secure loans, and the banks had initiated recovery actions before the PAO. The Tribunal referenced a similar case (State Bank of India and Ors. Vs. The Joint Director, Directorate of Enforcement, Kolkata) where it was held that mortgaged properties, purchased before the offending transactions, could not be attached under PMLA.

Conclusion:
The Tribunal found that the PAO and the impugned order were arbitrary and passed without considering the banks' interests and the procedural requirements under the PMLA. The Tribunal set aside the impugned order and remanded the matter back to the Adjudicating Authority for re-hearing after issuing notices to all banks. The Adjudicating Authority was directed to consider the replies filed by the appellants and the banks and pass a fresh order within 180 days.

Final Order:
The appeal was allowed, the impugned order was set aside, and the matter was remanded for re-hearing. The Tribunal clarified that it had not expressed any opinion on the merits of the case, and the Adjudicating Authority was to pass a fresh order discussing all legal issues raised by the parties. No costs were awarded.