2018 (5) TMI 925 - AT - Money Laundering

Provisional attachment order - offence under PMLA - nexus between the alleged crime and the Bank who is mortgagee of the properties in question which were purchased before sanctioning the loan - overriding effect of PMLA - date of acquisition of property - Held that - It is an admitted fact that the properties herein are mortgaged with the appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime. The relevant sale deed of the mortgaged properties are of 2003 so the date of acquisition is much prior to the date of alleged commission of crime in the present case. The only thing was in his mind that section 71 of PMLA has an overriding effect. The provisions of PMLA shall have effect and prevail over provisions of any other Act or its provisions. To this we are not in agreement with the Ld. Adjudicating Authority because of the amendment of 2016 made in SARFAESI Act RDDB Act. The IDBI Bank is the rightful claimants of the said property which are already in its possession under SARFAESI Act. Even recovery certificate has been issued by DRT. That the definition of proceeds of crime as per Section 2(u) of the PML Act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, both the properties have been purchased by the Respondent Sh. Arun Suri and have been mortgaged with the IDBI much prior to the date of alleged offence which shows that no proceeds of crime are involved in the acquiring of these properties and hence the same cannot be attached. Adjudicating Authority has failed to consider that the ED has attached the properties without examining the case of the bank. The evidence on record suggests that the properties were acquired by the borrowers much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The Bank has already filed the suit for recovery and has also taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be legally unjustified. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case there was absence of such requirement. The said properties are already in the possession of the Appellant Bank under the SARFAESI Act. There is no nexus whatsoever between the alleged crime and the Bank who is mortgagee of the properties in question which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against Bank who has sanctioned the amount which is untainted and pure money. They have priority right to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. Allegation of money laundering prima facie, so far as present appellant & properties involved in this appeal, found to be unsustainable for the purpose of attachment under the PMLA, 2002.

Issues Involved:
1. Overriding Effect of Special Acts: PMLA vs. SARFAESI Act and RDDBFI Act.
2. Legitimacy of Attached Properties.
3. Rights of Secured Creditors vs. Government Claims.
4. Retrospective Application of Penal Laws.
5. Procedural Validity of Provisional Attachment Order (PAO).

Detailed Analysis:

1. Overriding Effect of Special Acts: PMLA vs. SARFAESI Act and RDDBFI Act
The primary issue addressed was whether the PMLA has an overriding effect over the SARFAESI Act and the RDDBFI Act. The Adjudicating Authority held that by virtue of Section 71 of PMLA, the PMLA has an overriding effect. However, the Tribunal disagreed, citing recent amendments to the SARFAESI Act and RDDBFI Act, which give priority to secured creditors over other debts and government dues. The Tribunal emphasized that the amendments, effective from 01.09.2016, were intended to facilitate the rights of secured creditors, thereby giving them precedence over PMLA in cases of property attached for recovery of secured debts.

2. Legitimacy of Attached Properties
The Tribunal scrutinized whether the properties in question were acquired from proceeds of crime. It was established that the properties were purchased in 2003, long before the alleged criminal activities occurred in 2014-2015. The Tribunal noted that the properties were mortgaged to the appellant bank in 2009, and there was no evidence to suggest that they were acquired through proceeds of crime. The Adjudicating Authority failed to demonstrate any direct link between the properties and the alleged criminal activities.

3. Rights of Secured Creditors vs. Government Claims
The Tribunal upheld the rights of secured creditors, emphasizing that the appellant bank had a legitimate mortgage over the properties since 2009. The Tribunal referred to several judgments, including the Full Bench decision of the Madras High Court, which affirmed the priority of secured creditors over government claims. The Tribunal highlighted that the SARFAESI Act and RDDBFI Act amendments were introduced to ensure that secured creditors' rights are not hampered by government attachments.

4. Retrospective Application of Penal Laws
The Tribunal addressed the issue of retrospective application of penal laws, noting that the offences under sections 120-B and 420 of IPC, as well as section 13 of the PC Act, became scheduled offences under PMLA only from 01.06.2009. Since the properties were acquired in 2003, they could not be considered proceeds of crime under the PMLA. The Tribunal stressed that penal laws cannot be applied retrospectively unless expressly provided by the statute, which was not the case here.

5. Procedural Validity of Provisional Attachment Order (PAO)
The Tribunal examined the procedural validity of the PAO, noting that the Adjudicating Authority did not provide sufficient reasons or evidence to justify the attachment of the properties. The Tribunal found that the PAO was issued without fulfilling the necessary conditions under Section 5(1) of the PMLA, particularly the requirement that the properties were likely to be concealed, transferred, or dealt with in a manner that would frustrate proceedings. The Tribunal concluded that the attachment was unjustified and ordered the release of the properties from attachment.

Conclusion:
The Tribunal set aside the impugned order dated 27.11.2017 and the Provisional Attachment Order dated 28.07.2017, releasing the properties from attachment. The Tribunal recognized the priority of secured creditors under the amended SARFAESI Act and RDDBFI Act, affirmed the legitimacy of the properties acquired before the alleged criminal activities, and emphasized the non-retrospective application of penal laws.

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