2018 (10) TMI 1011 - AT - Money Laundering

Offence under PMLA - attachment order of mortgaged property - PMLA enactment as subsequent to the SARFAESI Act - properties in question have been mortgaged with the appellants much prior to commission of alleged offences - Held that - The properties in question have been mortgaged with the appellants much prior to commission of alleged offences. The main allegation against the SSIL and Shri G. EswaraRao is that around a sum of ₹ 5,30,55,500/- have been paid to Respondent no.4 Company by Respondent no.2 Company in February, 2009 as share application money against which no shares were allotted as such the properties of Respondent no.4 has been termed as proceeds of crime and the property in question in the present appeals have been attached as value thereof. The properties in question which are already under mortgaged and under personal guarantee with the appellants cannot be attached as value thereof. Since right of appellantshave already been created over the questioned properties after being mortgaged and under personal guarantee of said properties with them. It is further gathered from the materials on record that the appellants have already initiated proceedings under SARFAESI Act against the properties of Respondent no. 4 Company and Shri G. EswaraRao due to nonpayment of loan advanced by the appellants. In view of the aforesaid reasons we are of the view that the appellants who are mortgagees of the properties in question which were purchased before sanctioning the loan, no case of money laundering is made out so far as these properties in question are concerned. The appellants have priority of right to recover the loan amount/debts. In the given facts and circumstances of the case, the Provisional Attachment in the present matter is bad and against the law. In the circumstances the allegation of money laundering, prima facie, so far as present appellants and properties are involved in these appeals are concerned, we find that the impugned order is not sustainable under law, for the purpose of attachment under the PMLA, 2002. We have not gone into other legal issues such as retrospective application of provisions of PMLA. We set aside the impugned order passed by Adjudicating Authority. The mortgaged properties attached so far as properties concerned in these appeals, are released from attachment forthwith.

Summary

Issues Involved:
1. Rights of the Appellants on the sixteen landed properties.
2. Confirmation of Provisional Attachment Order by Adjudicating Authority.
3. Allegations of fraudulent activities and money laundering.
4. Priority of secured creditors under SARFAESI Act and RDDB Act over PMLA.
5. Admissibility of properties as proceeds of crime and their attachment.

Issue-wise Detailed Analysis:

1. Rights of the Appellants on the Sixteen Landed Properties:

The appeals were fixed for clarifications regarding the rights of the Appellants on the sixteen landed properties. The appellants pointed out that these properties were mortgaged with the appellants as a personal guarantee. The Tribunal proceeded to record its findings based on the available materials as no further written submissions were filed by the parties.

2. Confirmation of Provisional Attachment Order by Adjudicating Authority:

Both appeals were against the order confirming Provisional Attachment Order No. 01/HZO/2014. The facts and issues in both appeals were the same, so they were taken up together. The Adjudicating Authority confirmed the attachment of properties, considering them as proceeds of crime or their equivalent value.

3. Allegations of Fraudulent Activities and Money Laundering:

The CBI registered an FIR against SSIL and its Chairman for defaulting on loans and fraudulently availing LC Limits. The charge sheet filed by CBI revealed fraudulent activities involving SSIL and its Chairman. The Directorate of Enforcement (ED) initiated an investigation under PMLA, attaching properties under Section 5(1) of PMLA. The properties included fixed assets of ER Textiles Ltd. and landed properties held by G. EswaraRao and his wife.

4. Priority of Secured Creditors under SARFAESI Act and RDDB Act over PMLA:

The appellants argued that their rights as secured creditors should have priority over the attachment under PMLA. They referred to Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, which provides priority to secured creditors over all other debts and government dues. The Tribunal noted that the SARFAESI Act and RDDB Act have non-obstante clauses, giving priority to secured creditors over PMLA. The Tribunal cited several judgments supporting this view, including the full bench decision in State Bank of India vs. Joint Director, Directorate of Enforcement.

5. Admissibility of Properties as Proceeds of Crime and Their Attachment:

The Tribunal found that the properties in question were mortgaged with the appellants much prior to the commission of the alleged offences. The properties were not acquired out of proceeds of crime but were attached as their equivalent value. The Tribunal held that the properties mortgaged with the appellants, who are innocent parties, cannot be attached as proceeds of crime. The Tribunal emphasized that the appellants have priority rights to recover the loan amount from the mortgaged properties.

Conclusion:

The Tribunal set aside the impugned order of the Adjudicating Authority and released the mortgaged properties from attachment. The Tribunal held that the appellants, as secured creditors, have priority over the properties, and no case of money laundering was made out against them. The Tribunal did not delve into other legal issues such as the retrospective application of PMLA provisions.

Order:

The impugned order dated 12.08.2014 passed by the Adjudicating Authority in O.C. No. 288/2014 was set aside. The mortgaged properties attached under PAO No. 01/HZO/2014 dated 19.03.2014 were released from attachment forthwith. No cost was imposed.