2019 (4) TMI 137 - AT - Money Laundering

Offence under PMLA - provisional attachment order - proceeds of crime - Appellant Bank priority over the mortgaged property - Attaching the mortgaged properties without any valid reasons - HELD THAT - In order to recover the monies taken by the Respondent Nos. 5&6, the only recourse the Bank has is the Mortgaged properties and if the same is attached the Bank will have no other recourse and will lose large amounts without any fault of the Bank. The consequence of the attachment would be borne by the general public and depositors. The Bank in its usual course of business provides finance and credit facilities to its customers. The Appellant Bank has therefore no reason to doubt the source for which the money has been borrowed by the Bank. Respondent Nos. 5&6 had approached the Appellant Bank in the year 2015 and requested the Appellant and Bank of India to constitute a consortium for sum of ₹ 91.00 Crores (Rupees Ninety One Crores only) on the terms and conditions contained in the respective sanction letters of the said banks and also the terms and conditions contained in the working capital Consortium Agreement dated 13.03.2015 entered into by and among the borrower and the said banks. If the bank is an innocent party and victim from the hand of borrowers, who mortgaged the properties which were not acquired from the proceed of crime, being a secured creditors, the mortgaged properties cannot be attached equivalent to the value thereof if the said properties are not purchased from the proceed of crime or as a result of criminal activity at the time of sanctioning the loan. The finding of both authorities are against law for attaching the mortgaged properties without any valid reasons. Banking system cannot be destroyed in this manner. It is settled law that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime. The Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced - impugned order of attachment is set aside.

Issues Involved:
1. Challenge to the impugned order confirming provisional attachment.
2. Consideration of grounds relied upon by the appellant bank.
3. Legality of attaching secured assets of a bank.
4. Priority of secured creditors over other debts and government dues.
5. Jurisdiction of the Adjudicating Authority and Tribunal.
6. Bona fide acquisition of property and its implications on attachment.

Detailed Analysis:

1. Challenge to the Impugned Order Confirming Provisional Attachment:
The appellant bank challenged the impugned order dated 24.04.2018, which confirmed the provisional attachment order. The bank argued that the Adjudicating Authority did not consider the grounds relied upon by the appellant bank while passing the impugned order. The tribunal noted that the contention of the bank was not considered as per law, and a very casual approach was adopted in passing the confirmation order.

2. Consideration of Grounds Relied Upon by the Appellant Bank:
The bank submitted that the properties under provisional attachment were mortgaged with the bank and were not proceeds of the crime, thus should not be attached. The bank also stated it had no role in the entire transaction and no charges were framed against it. The tribunal found that the Adjudicating Authority failed to consider the bank's contentions and adopted a casual approach in confirming the attachment.

3. Legality of Attaching Secured Assets of a Bank:
The tribunal emphasized that secured assets of a bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the bank and no charge of money laundering against it. The tribunal referred to various precedents, including decisions of the Hon'ble Supreme Court and High Courts, which have consistently held that the bank would be entitled to recover its dues by proceeding against the mortgaged/hypothecated properties under the provisions of SARFAESI Act, 2002, and the RDDBFI Act, 1993.

4. Priority of Secured Creditors Over Other Debts and Government Dues:
The tribunal discussed the non-obstante clause in Section 71 of PMLA, which the respondent relied upon to claim priority over the debts due to the appellant bank. However, the tribunal highlighted the amended provisions of Section 26E of the SARFAESI Act, 2002, and Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, which provide that secured creditors shall have priority over all other debts and government dues. The tribunal cited the Hon'ble Supreme Court's decision in Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd., which held that the non-obstante clause in the later enactment must prevail over the earlier enactment.

5. Jurisdiction of the Adjudicating Authority and Tribunal:
The tribunal asserted its jurisdiction to examine the provisional attachment order or confirmation of attachment. It noted that when writ petitions are filed by aggrieved parties, including banks, in High Courts, the respondent's stand is that the jurisdiction of validity of attachment could be examined by the tribunal. Accepting the respondent's stand, writ petitions are disposed of with liberty to approach the tribunal, which is competent to decide the issue.

6. Bona Fide Acquisition of Property and Its Implications on Attachment:
The tribunal referred to the Hon'ble Andhra Pradesh High Court's decision in B. Rama Raju vs. Union of India & Ors., which held that if the Adjudicating Authority is satisfied with the bona fide acquisition of property, it should relieve such property from provisional attachment. The tribunal found that the properties under question were mortgaged with the banks as collateral for working capital facilities, obtained by following the procedure laid down under banking rules and not as a result of criminal activity. Therefore, the properties could not be attached under Section 5 of PMLA.

Conclusion:
The tribunal set aside the impugned order dated 24.04.2018 and quashed the provisional attachment order concerning the bank. It clarified that the bank's prayer was restricted to the attachment of mortgaged property, and complaints against the borrowers could continue as per law. The tribunal emphasized that the banking system cannot be destroyed by attaching properties without valid reasons and that the money advanced by banks for property purchase cannot be considered proceeds of crime.

← Previous Next →