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2019 (12) TMI 1019 - AT - Money LaunderingMoney Laundering - proceeds of crime - attachment of property - charge or encumbrance of a third party in a property attached under PMLA - scheduled offences - privity/complicity of contract - HELD THAT - The appellant is a third party bonafide claimant of the property - The security interest has been created on the property in question and there are legitimate banking transactions. There is no allegation on the part of Enforcement Directorate that the appellant has not exercised due diligence in sanctioning loan. Such facilities were extended after conducting due diligence and the necessary checks and balances. The security interest has been created in the year on 29.03.2007, whereas the ECIR has been registered much later and the Provisional Attachment Order has been passed on 24.03.2017. Much prior to the year 2017, Section 13(2) notice under SARFAESI Act, 2002 was issued on 25.08.2009 and the DRT proceedings have been finally concluded in the year 2015. The Hon‟ble High Court of Delhi in the recent decision of The Deputy Director, Directorate of Enforcement, Delhi Vs. Axis Bank Ors., reported in 2019 (4) TMI 250 - DELHI HIGH COURT (hereinafter referred to as the Axis Bank Decision ) has rightly held that the interest of a third party in the property of an accused, acquired prior to the commission of the proscribed offence cannot be defeated or frustrated by attachment of such property under Section 8 of the Act - The Hon‟ble High Court further recognized the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property as exceeds the claim of the third party, if any. In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal U/s 26 of the Act and then before the Hon‟ble High Court U/s 42 of the Act against the order of this Tribunal - Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted its remedies in appeal right up to the Hon‟ble High Court, an order confirming the attachment cannot be said to have attained finality. This Tribunal is fully equipped and 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 - the Adjudicating Authority by the Impugned Judgment has erred in failing to recognise the legitimate claim of the Appellant at the stage of confirmation of the PAO itself as the Appellant Bank is a victim of the fraud by M/s. SSPL the effect of the Impugned Judgment, depriving it of pursuing its legal claims against property mortgaged to it. The Appellant has nothing to do and has no connection with the allegation of crime committed by the borrower. They are not involved for the offences of money-laundering. The secured property is admittedly not derived from criminal activities or proceeds 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 appellant is not charge sheeted nor any prosecution complaint has been filed against the appellant - There is no nexus whatsoever, between the alleged crime and the appellant who has secured property and is a victim of the fraud and is innocent party. The definition of proceeds of crime as per Section 2 (u) of the Act comprises of the property which is derived or obtained as a result of criminal activities. The secured property is not acquired from proceeds of crime. Provisional attachment order set aside - appeal allowed.
Issues Involved:
1. Legitimacy of the attachment of property under the Prevention of Money Laundering Act (PMLA). 2. Validity of the security interest created by the appellant banks. 3. Determination of whether the property in question is derived from proceeds of crime. 4. Jurisdiction of the Appellate Tribunal to adjudicate on the attachment order. 5. Rights of the appellant banks as secured creditors. Issue-wise Detailed Analysis: 1. Legitimacy of the attachment of property under the Prevention of Money Laundering Act (PMLA): The Tribunal examined the attachment of the property under PMLA and found that the property in question was not derived from proceeds of crime. The Tribunal noted that the property was secured by the appellant banks much before the alleged criminal activity took place. The attachment order was found to be without proper investigation and application of mind, as the property was not acquired from proceeds of crime but was secured prior to the date of the offense. 2. Validity of the security interest created by the appellant banks: The Tribunal recognized the security interest created by the appellant banks through an agreement to mortgage and a tripartite agreement. The security interest was created on 29.03.2007, and the property was part of the security for credit facilities granted by the banks. The Tribunal noted that the banks had exercised due diligence in sanctioning the loan and that the security interest was lawful and for adequate consideration. 3. Determination of whether the property in question is derived from proceeds of crime: The Tribunal found that the property in question was not derived from proceeds of crime. It was established that the loan amounts and payments towards the property were made much before the date of the alleged criminal activity. The Tribunal emphasized that the property was not purchased from the proceeds of crime and that the banks were not involved in any money laundering activities. 4. Jurisdiction of the Appellate Tribunal to adjudicate on the attachment order: The Tribunal asserted its jurisdiction to adjudicate on the attachment order under Section 26 of the PMLA. It clarified that the Tribunal has the authority to determine the legitimacy of the attachment order and the claims of the appellant banks as secured creditors. The Tribunal also noted that the order of attachment under PMLA would remain valid but would take a backseat to the secured creditors' claims. 5. Rights of the appellant banks as secured creditors: The Tribunal upheld the rights of the appellant banks as secured creditors. It noted that the banks are innocent parties and victims of fraud, and their security interest in the property should be protected. The Tribunal emphasized that the banks' public money should not be jeopardized by the attachment order, and the banks should be allowed to recover their dues through the secured property. Conclusion: The Tribunal allowed the appeal, setting aside the impugned order dated 02.08.2017 and quashing the provisional attachment order in respect of the secured property. The Tribunal recognized the legitimate claims of the appellant banks as secured creditors and emphasized that the property was not derived from proceeds of crime. The Tribunal directed that the attachment order under PMLA would remain valid but would be subject to the satisfaction of the banks' claims. The decision highlighted the importance of protecting the rights of secured creditors and ensuring that public money is not jeopardized by attachment orders under PMLA.
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