2019 (6) TMI 1026 - AT - Money Laundering

Offence under PMLA - provisional attachment orders - whether no nexus whatsoever between the alleged crime and the PNB Consortium who is the mortgagee of the properties in question and purchased prior to the sanctioning of the loan and bank is a victim of fraud and it is an innocent bonafide claimant and not involved in the money laundering activity and bank is at liberty to move its claim before the Special Court for disposal of the properties in order to recover its dues pending in the loan accounts? - HELD THAT - Admittedly, the mortgaged properties in question were purchased much prior to the commission of Offence of Money Laundering as they were purchased in the years 1994, 1997, 1998, 1999, 2000, 2002, 2003, 2005 when the Borrowers had not been sanctioned any credit limits, therefore, the same do not come within the scope of Proceeds of crime in terms of Section 2(u) of PMLA, 2002. There is no denial that the commencement of alleged commission of offence of Money Laundering was started by the Company and its promoters from the end of the year 2011 and 2012 onwards which is much later to the acquisition of the mortgaged properties in question. Prior mortgage charge of secured creditors have also been registered qua the mortgaged immovable properties stating that these are under the mortgage charge of the Bank since 2005. SARFAESI Act measures under Section 13(2) and Section 13(4) were initiated in the year 2013 and Bank s OA for recovery of dues under RDB, Act was filed in the year 2014 and DRT order dated 20.01.2014 restraining the Borrowers and Guarantors to deal with the mortgaged properties are much prior to the passing of the PAO order 31.03.2016 by the ED. Bank s OA for recovery. The appellant is always at liberty to approach the Special Court to initiate the proceeding for disposal of mortgaged property, if so desired, who is agreeable to deposit the excess amount if such situation will arise. Counsel for appellants after taking the instructions from his clients stated that his clients are duty bound to deposit the excess amount with the respondent. Appellants have nothing to do and has no connection with the allegation of crime committed by the borrowers. They are not involved for the offences of money-laundering. The mortgage properties are admittedly not derived from criminal activities or proceed of crime. The scope of the PMLA is to punish the accused person and not to punish the innocent person who is not involved in the crime within the meaning of Section 2 (v) read with Section 3 of the Act. The appellants are not charge sheeted nor any prosecution complaint has been filed against the appellants. There is no nexus whatsoever, between the alleged crime and the appellants who are mortgagee of the properties and is a victim of the fraud and is innocent party. The definition of proceed of crime as per Section (u) of the Act comprises of the property which is derived or obtained as a result of criminal activities. The mortgaged properties are not acquired from proceed of crime. This Tribunal possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. No doubt the bank and financial institutions are always at liberty to approach the Special Court (if so desired) in order to invoke the amended provision of sub section 8 of Section 8, however, it is wrong to suggest that the bank and financial institutions are not entitled to challenged the order of attachment because this tribunal is only exclusively having jurisdiction to examine the validity of attachment and to decide the same under section 26 of the Act as to whether attachment was valid or not. The bank and financial institution are entitled to take the remedy before the Special Court after the decision of appeal or during the pendency of appeals. Provisional Attachment Order passed by ED and impugned order passed by the Adjudicating Authority, PMLA, confirming the Provisional Attachment Order are to be quashed and set aside.

Summary

Issues Involved:
1. Validity of the Provisional Attachment Order (PAO) dated 31.03.2016.
2. Confirmation of the Provisional Attachment Order by the Adjudicating Authority on 22.09.2016.
3. Whether the mortgaged properties are proceeds of crime under the Prevention of Money Laundering Act (PMLA), 2002.
4. Priority of claims between the secured creditors (banks) and the Enforcement Directorate (ED).
5. Jurisdiction of the Appellate Tribunal versus the Special Court under PMLA.

Issue-wise Detailed Analysis:

1. Validity of the Provisional Attachment Order (PAO) dated 31.03.2016:
The Appellate Tribunal, PMLA, by Order dated 28.06.2018, allowed the banks' appeal, stating that the mortgaged properties were acquired prior to the alleged date of crime. The Tribunal noted that no money disbursed by the bank was invested to acquire these properties. The properties were mortgaged before the date of the alleged crime, and the bank had already initiated measures under the SARFAESI Act, 2002, and filed its Original Application (OA) before the Debts Recovery Tribunal (DRT)-II, New Delhi, for recovery of its dues. The Tribunal found no nexus between the alleged crime and the PNB Consortium, which is the mortgagee of the properties in question. The bank was deemed an innocent bona fide claimant not involved in money laundering activities.

2. Confirmation of the Provisional Attachment Order by the Adjudicating Authority on 22.09.2016:
The Adjudicating Authority confirmed the Provisional Attachment Order on 22.09.2016, which was challenged by the banks. The Tribunal noted that the confirmation order did not legally address the banks' replies and lacked valid reasons to believe as per settled law. The approach taken was deemed casual, and legal issues already decided by the Supreme Court were not properly considered.

3. Whether the mortgaged properties are proceeds of crime under the PMLA, 2002:
The Tribunal found that the mortgaged properties were purchased much before the commission of the alleged offense of money laundering, which started in 2011-2012. The properties were acquired between 1994 and 2005, long before the respondents approached the bank for loans. Therefore, they do not fall within the scope of "proceeds of crime" as defined under Section 2(u) of the PMLA, 2002.

4. Priority of claims between the secured creditors (banks) and the Enforcement Directorate (ED):
The Tribunal emphasized that the secured creditors' (banks') rights, which were established prior to the commission of the alleged offense, cannot be defeated under Section 8 of the PMLA, 2002. The banks' mortgages were registered, and their statutory rights under the SARFAESI Act were protected. The Tribunal highlighted that if the properties were sold, the secured creditors would have their dues realized first, with any balance amount going to the ED.

5. Jurisdiction of the Appellate Tribunal versus the Special Court under PMLA:
The Tribunal highlighted that the jurisdiction to entertain objections to attachment is conferred on both the Appellate Tribunal and the Special Court. However, the Special Court's jurisdiction is invoked only if the order confirming the attachment has attained finality, or if an order of confiscation has been passed, or if the trial for the offense under Section 4 PMLA has commenced. In this case, none of these conditions were met, and the Tribunal retained jurisdiction to adjudicate the appeals.

Conclusion:
The Tribunal quashed and set aside the Provisional Attachment Order dated 31.03.2016 and the impugned order dated 22.09.2016 passed by the Adjudicating Authority, PMLA. The appeals were allowed, and the banks were permitted to recover their dues from the mortgaged properties, with an undertaking to deposit any excess amount with the respondent (ED). The Tribunal emphasized that the banks are innocent parties and victims of fraud, not involved in money laundering activities. The appeals and pending applications were disposed of with no costs.