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2019 (4) TMI 152 - AT - Money LaunderingOffence under PMLA - attachment or property pre-mortgaged with bank - HELD THAT - In the present case, this Appellant - HELD THAT - Bank is an innocent party since it had already lent its own money to the Predicate Offender and the property in question being mortgaged to the Bank which is provisionally attached by the Respondent- Deputy Director ought to have been released by the Adjudicating Authority under Section 8(2) of PMLA. The proceedings before the authority and this tribunal are of civil proceedings. It is wrong to allege that this tribunal has no jurisdiction to pass such order. 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. 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. In the light of above, the impugned order is set-aside. Consequently, the provisional attachment order is also quashed as far as Bank is concerned. It is clarified that the Bank has only restricted his prayer qua attachment of mortgaged property. The complaints against the borrowers may continue as per law for which the Bank has no concerned.
Issues Involved:
1. Legality of the attachment of properties mortgaged to the bank. 2. Priority of secured creditors under SARFAESI Act and RDDBFI Act. 3. Applicability of non-obstante clauses in conflicting statutes. 4. Bank's entitlement to recover dues from mortgaged properties. 5. Bank's role and connection with alleged money laundering offenses. Detailed Analysis: 1. Legality of the attachment of properties mortgaged to the bank: The appellant, Union Bank of India, challenged the order dated 24th April 2018 by the Adjudicating Authority, which affirmed the attachment of properties mortgaged to the bank. The properties were mortgaged in 2011, well before the alleged offenses during demonetization in 2016. The bank argued that these properties could not be considered proceeds of crime as they were acquired before the alleged criminal activities. 2. Priority of secured creditors under SARFAESI Act and RDDBFI Act: The tribunal emphasized that the bank, as a secured creditor, has priority over all other debts and government dues under the amended Section 26E of the SARFAESI Act and Section 31B of the RDDBFI Act. These provisions, effective from 16.08.2016, grant secured creditors precedence in recovering their dues from the sale of mortgaged assets. 3. Applicability of non-obstante clauses in conflicting statutes: The tribunal referred to the principle established by the Supreme Court in Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd., where it was held that the non-obstante clause in the later enactment prevails over the earlier one. Thus, the non-obstante clauses in the SARFAESI Act and RDDBFI Act take precedence over the PMLA, ensuring the bank's priority in recovering its dues. 4. Bank's entitlement to recover dues from mortgaged properties: The tribunal reiterated that the bank is entitled to recover its dues from the mortgaged properties under the SARFAESI Act and RDDBFI Act. The properties were mortgaged as security for loans, and the bank had initiated proceedings under these acts to recover the outstanding amounts. The tribunal noted that the properties were legally transferred to the bank, and the Directorate of Enforcement had no lien over them. 5. Bank's role and connection with alleged money laundering offenses: The bank maintained that it had no connection with the alleged offenses under the Prevention of Money Laundering Act (PMLA). The tribunal supported this stance, stating that the bank is an innocent party that lent money in good faith and is now seeking to recover its dues. The mortgaged properties were not acquired from the proceeds of crime, and the bank's actions were in line with its recovery policy and RBI guidelines. 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 limited to the attachment of mortgaged properties, and proceedings against the borrowers could continue as per the law. The bank, as a secured creditor, has the right to recover its dues from the mortgaged properties, which were not acquired from the proceeds of crime. The tribunal emphasized the importance of protecting the banking system and ensuring that financial institutions are not prejudiced by unwarranted attachments.
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