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2018 (9) TMI 190 - AT - Money LaunderingPMLA - provisional attachment orders - Properties mortgaged with the Appellant Bank are proceeds of crime as defined u/s 2(1)(u) of PMLA - PMLA priority over SARFEASI and RDDB & FI Act - Held that - The property of the Appellant Bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent is not denying the fact that the Bank is a victim party who is also innocent and is entitled to recover the loan amount. It is also not disputed by the respondent that the properties in dispute are mortgaged with Bank and it has to go to the Bank ultimately. No agree with the argument in this regard in view of amendments in the two statutes. Even otherwise the trial would take number of years. The public money cannot be stalled otherwise Banking system would collapse. The 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 borrower/guarantors 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 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 symbolic possession of the Appellant Bank under the SARFAESI Act. 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. The loan was given by the bank in good faith who has suffered a loss because of non-return of money by the borrower. The borrower is also arrayed as respondent in the appeal filed by the bank. 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. 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 is victim and innocent party who is entitled to recover the loan amount from the said mortgaged properties, but the bank 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. Thus set aside the Impugned Order dated 19.6.2015 and the Provisional Attachment Order dated 9.1.2015.
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. 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 properties in question were mortgaged with the appellant bank under a cash credit limit sanctioned in 2012. These properties became NPA on 29.06.2013, leading the bank to issue statutory notices under the SARFAESI Act. Subsequently, the Economic Offences Wing filed a charge sheet against the borrowers for various offenses, including under the IPC and the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The Government of Odisha directed the attachment of these properties to protect depositors' interests. The appellant bank contested this attachment, arguing that these properties were mortgaged before any alleged criminal activity and thus should not be considered "proceeds of crime." The Tribunal referenced several judgments, emphasizing that properties acquired before any alleged criminal activity and mortgaged in good faith should not be considered "proceeds of crime." The Tribunal noted that the properties were mortgaged prior to the alleged criminal activities, and the bank acted in good faith without any involvement in the alleged offenses. The Tribunal concluded that the properties in question were not "proceeds of crime" as they were acquired before the alleged offenses and mortgaged in good faith. 2. Whether the PMLA has priority over SARFAESI and RDDB & FI Act: The Tribunal examined the conflict between the PMLA and other special acts like SARFAESI and RDDB & FI Act. It referred to several judgments and legal principles regarding the precedence of special acts with non-obstante clauses. The Tribunal emphasized that when two special statutes contain non-obstante clauses, the later statute generally prevails unless the legislature explicitly states otherwise. The Tribunal also noted recent amendments to the SARFAESI Act and RDDB Act, which give overriding effect and priority to secured creditors over other debts, including government dues. The Tribunal concluded that the amended provisions of the SARFAESI Act and RDDB Act, which came into effect in 2016, give secured creditors like the appellant bank priority over other claims, including those under the PMLA. The Tribunal emphasized that the properties in question were mortgaged before the alleged criminal activities, and the bank had a legal right to recover its dues from these properties. Therefore, the PMLA does not have priority over the SARFAESI Act and RDDB Act in this context. Conclusion: The Tribunal set aside the impugned order and the provisional attachment order, allowing the appellant bank to recover its dues from the mortgaged properties as per the SARFAESI Act and RDDB Act. The Tribunal emphasized that the properties were not "proceeds of crime" and that the bank's rights as a secured creditor took precedence over other claims under the PMLA.
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