2018 (7) TMI 707 - AT - Money Laundering

Offence under PMLA - attachment Order in regard to properties mortgaged/hypothecated with the Appellant Bank - mortgaged properties purchased from the proceed of crime - Held that - It is admitted position that the loan was given by the bank in good faith who had suffered a loss because of non-return of money by the borrowers. It is evident from the said proviso that in case the claimant would be able to satisfy the Special Court that it has acted in good faith and suffered the loss despite of having taken all the reasonable precautions and is also not involved in the offence of money laundering then the Special Court is empowered to restored such property during the trial. In the facts of the present case, the mortgaged properties are not purchased from the proceed of crime. Those were purchased prior to FIR against borrower/accused and even prior to execution of mortgaged deed agreement. The question of proceed of crime qua those properties does not arise. 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. In case the Special Court passes the order to release the property of the victim and innocent party is mortgaged property could be disposed of for the purpose of adjustment of the amount due from the borrowers. 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. The allegation of money laundering, 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. Both set of appeals are allowed.

Summary

Issues Involved:
1. Whether the properties mortgaged with the Appellant Bank are “proceeds of crime” as defined under Section 2(1)(u) of PMLA.
2. Whether the PMLA has priority over SARFAESI and RDDB & FI Act.

Detailed Analysis:

1. Proceeds of Crime:
The central issue was whether the properties mortgaged with the Appellant Bank could be classified as "proceeds of crime" under Section 2(1)(u) of the Prevention of Money Laundering Act (PMLA). The Tribunal noted that the properties in question were purchased before the loan was sanctioned and were mortgaged as part of a bona fide transaction. The Tribunal emphasized that the properties were not acquired using the proceeds of any criminal activity and thus could not be classified as "proceeds of crime." The Tribunal also highlighted that the Bank was not involved in any scheduled offenses under the PMLA.

2. Priority of PMLA over SARFAESI and RDDB & FI Act:
The Tribunal examined whether the PMLA takes precedence over the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act (RDDB & FI Act). The Tribunal referred to amendments in the SARFAESI Act and RDDB & FI Act, specifically Sections 26E and 31B, which give priority to secured creditors over other debts and government dues. The Tribunal cited several judgments, including the Supreme Court's decision in Solidaire India Ltd. vs. Fair Growth Financial Services Ltd., and the Bombay High Court's decision in Bhoruka Steel Ltd. vs. Fair Growth Financial Services Ltd., which established that the later special statute prevails in case of conflicting provisions. The Tribunal concluded that the secured creditors' rights under SARFAESI and RDDB & FI Act have priority over the PMLA.

Conclusion:
The Tribunal set aside the impugned order dated 29.12.2017 and the Provisional Attachment Order dated 17.07.2017. It was held that the properties mortgaged with the Appellant Bank were not "proceeds of crime," and the Bank, being a secured creditor, had priority over other claims, including those under the PMLA. The Tribunal directed that the Bank could move its claim before the Special Court for disposing of the property in accordance with the law. The appeal and pending applications were disposed of, and the parties were instructed not to sell or dispose of the property until the Special Court passed appropriate orders.