2018 (7) TMI 444 - AT - Money Laundering

Offence under PMLA - provisional attachment order - product of proceeds of crime allegedly generated in the instant case - Held that - There is no nexus whatsoever between the alleged crime and the Appellant Bank who is the mortgagee of the properties in question which were purchased before sanctioning the loan. Thus, no case of money-laundering is made out against Appellant 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. The Adjudicating Authority has not appreciated the facts and law involved in the matter. The primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. The contentions raised by the Respondent s Advocate have no substance. The provisional attachment in the present matter is bad in law hence liable to be set aside. Even the stand of the respondent in almost in all the cases where it was found that the attached properties are mortgaged properties which were not purchased from proceeds of crime, the Bank are victim parties and are innocent parties who are entitled to recover the loan amount from the said mortgaged properties, but the banks be allowed to dispose the properties after the trial and final out-come of criminal complaints filed against the borrowers under schedule offence and prosecution complaint. The said argument cannot be accepted in view of settled law and new amendment in sub-section 8 of section 8 of the Act. Thus, the stand earlier taken by the respondent no. 1 is wholly vague and without any substance. The provisional attachment order thus apparently bad and against the scheme of the Act. once it was found that the appellant is a innocent party who is not involved in the money laundering directly or indirectly or assist any party and the mortgaged property is also not purchased from the proceeds of crime then the question of provisional attachment order and confirmation thereof does not arise and the victims/innocent party i.e. innocent party would be entitled to disposed of the said property. In the fact and circumstances and material available in the present case, the allegation of money laundering, prima facie, so far as present appellant & properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002.

Summary

Issues Involved:
1. Whether the properties mortgaged with the Appellant Bank are "proceeds of crime" as defined under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 (PMLA).
2. Whether the provisions of PMLA have priority over the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB & FI Act).

Issue-wise Detailed Analysis:

1. Whether the properties mortgaged with the Appellant Bank are "proceeds of crime" as defined under Section 2(1)(u) of PMLA:

The appellant argued that the secured property was purchased by the Respondent No. 2 on 17.10.2002, much before the commencement of the alleged conspiracy related to the NRHM scam, which started in 2009. The property was mortgaged to the appellant through a loan agreement dated 28.12.2011, and the borrowers failed to make timely payments, leading to the classification of the debt as a non-performing asset and subsequent arbitral proceedings. The appellant contended that the property could not be considered "proceeds of crime" as it was acquired before the alleged criminal activities and that the provisional attachment order was passed without proper application of mind and contrary to law.

The tribunal noted that the PMLA requires the pre-conditions under Section 5(1)(a) and (b) to be satisfied for an attachment to be sustainable. The provisional attachment order failed to demonstrate that the secured property was likely to be concealed, transferred, or dealt with in a manner that could frustrate confiscation proceedings. The tribunal found that the property was purchased in 2002, much prior to the alleged offenses, and was mortgaged to the appellant, negating the basis for its attachment as "proceeds of crime."

2. Whether the provisions of PMLA have priority over SARFAESI and RDDB & FI Act:

The tribunal referenced several judgments, including those of the Delhi High Court and the Supreme Court, which emphasized that the provisions of SARFAESI and RDDB & FI Act have an overriding effect over other laws, including PMLA, when it comes to the recovery of debts by secured creditors. The amendments made to SARFAESI and RDDB & FI Act in 2016 further reinforced the priority of secured creditors over other debts and government dues.

The tribunal highlighted that the properties involved were mortgaged to the appellant bank before the alleged criminal activities, and the bank had a legitimate right to recover its dues. The properties were not acquired from "proceeds of crime," and the bank, being an innocent party, was entitled to recover its loans by selling the mortgaged properties.

Conclusion:

The tribunal concluded that the provisional attachment order and the confirmation order were unsustainable in law. The properties mortgaged to the appellant bank were not "proceeds of crime" as they were acquired before the alleged criminal activities. The provisions of SARFAESI and RDDB & FI Act, which prioritize the rights of secured creditors, prevailed over the PMLA. Consequently, the impugned orders were set aside, and the appellant was allowed to recover its dues by selling the mortgaged properties.