2019 (1) TMI 188 - AT - Money Laundering

Provisional attachment - attachment of Penthouse No. 2001/2101 jointly owned by Bimal Ramgopal Agarwal and his wife, Barkha Bimal Agarwal on the alleged ground that Bimal Agarwal derived or obtained proceeds of crime as a result of criminal activity relating to a scheduled offence by assisting the Joint Director in taking bribes/illegal gratifications - Held that - The Appellant-Bank is an innocent party which is not involved in the money laundering directly or indirectly or assisted in any manner, any party or the said Predicate Offender-Bimal Ramgopal Agarwal and others; that the mortgaged property was also not purchased from the proceeds of crime; that the said property not being owned by Bimal Agarwal, cannot form the value of proceeds of crime. Thus, the question of provisional attachment order and confirmation thereof, does not arise and the Bank being the legal owner. Thus, the appellant is entitled to recover the amount if not paid, the same can be recovered from mortgaged of the said property by disposing the same as per court of law. The ED and Adjudicating Authority did not understand the real issue of the mortgages executed in favour of the Appellant - Bank by its Customer. The Bank had, while executing the mortgages in its favour, already parted with its own money as loans to its Customer-Shri Bimal Ramgopal Agarwal and his wife-Barkha Bimal Agarwal. The Impugned Order as well as the Provisional Attachment Order are set-aside qua the present appellant as the same are bad and passed against the law - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Legality of the Provisional Attachment Order (PAO) under the Prevention of Money Laundering Act (PMLA).
2. Validity of the mortgage created in favor of the appellant bank.
3. Priority of secured creditors over other debts under SARFAESI Act and Recovery of Debts Due to Banks and Financial Institutions Act.
4. Alleged proceeds of crime and the definition under PMLA.
5. Jurisdiction of the Deputy Director of Enforcement to attach property.
6. Application of non-obstante clauses in conflicting statutes.
7. Bona fide acquisition of property and its implications under PMLA.

Detailed Analysis:

1. Legality of the Provisional Attachment Order (PAO) under PMLA:
The appellant challenged the PAO dated 07.02.2018, arguing that the property in question was mortgaged to the bank in 2011, well before the alleged criminal activities in 2015. The Tribunal noted that the Deputy Director of Enforcement could only attach property if it constituted "proceeds of crime" as defined under Section 2(1)(u) of PMLA. The Tribunal found that the property was acquired in 2010, thus predating the alleged criminal activities, and therefore could not be considered proceeds of crime.

2. Validity of the Mortgage Created in Favor of the Appellant Bank:
The appellant bank provided extensive documentation showing that the property was mortgaged multiple times between 2011 and 2017 to secure various credit facilities. The Tribunal accepted these documents as evidence of a legally sustainable equitable mortgage, created before the alleged criminal activities occurred. The Tribunal concluded that the bank had a valid mortgage over the property, making it a secured creditor.

3. Priority of Secured Creditors Over Other Debts:
The Tribunal emphasized the amended provisions of Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, which prioritize the debts of secured creditors over other debts and government dues. The Tribunal cited several judgments, including those of the Supreme Court and High Courts, to support the principle that secured creditors have precedence.

4. Alleged Proceeds of Crime and Definition Under PMLA:
The Tribunal examined the definition of "proceeds of crime" and found that the property in question, purchased in 2010, could not be proceeds of crime from activities alleged to have occurred in 2015. The Tribunal noted that the Deputy Director of Enforcement failed to provide any grounds or reasons to believe that the property was acquired with proceeds of crime.

5. Jurisdiction of the Deputy Director of Enforcement to Attach Property:
The Tribunal scrutinized the jurisdictional authority under Section 5(1) of PMLA, which requires a reason to believe that a person is in possession of proceeds of crime. The Tribunal found that the Deputy Director lacked such reason, as the property was acquired before the alleged criminal activities. Consequently, the attachment order was deemed beyond the Deputy Director's jurisdiction.

6. Application of Non-Obstante Clauses in Conflicting Statutes:
The Tribunal addressed the non-obstante clauses in PMLA and SARFAESI Act, concluding that the later enactment (SARFAESI Act) prevails over the earlier one (PMLA). The Tribunal cited the Supreme Court's decision in Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd., affirming that the non-obstante clause in the later statute takes precedence.

7. Bona Fide Acquisition of Property:
The Tribunal referenced the Andhra Pradesh High Court's ruling in B. Rama Raju vs. Union of India, which mandates that properties acquired bona fide and for fair market value should be relieved from provisional attachment. The Tribunal found that the property was purchased bona fide in 2010, and the bank had lent its own money in good faith, making the attachment order unjustifiable.

Conclusion:
The Tribunal allowed the appeal, setting aside the Provisional Attachment Order and the Adjudication Order. The Tribunal directed the release of the attached property and its possession to be handed over to the appellant bank. The Tribunal emphasized that the appellant bank, being a secured creditor with a bona fide mortgage, had priority over other debts and government dues. The Tribunal also highlighted the failure of the Deputy Director to establish that the property was proceeds of crime, thus invalidating the attachment.

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