2019 (12) TMI 1094 - HC - Money Laundering

Money Laundering - proceeds of crime - attachment of mortgaged property - tri-partite agreement - criminal activity or not - HELD THAT - Admittedly, the factory premises were purchased in the year 2005. Therefore, the Tribunal accepted the contention that the said property, which was mortgaged to Bank of Baroda, could not be subject to attachment as proceeds of crime. Admittedly, the said properties had been acquired prior to the commission of the alleged crime, which is stated to be committed somewhere in 2011-12. Thus, the said properties could not be stated to be assets which were derived from any criminal activity. The proceeds of crime are defined to mean any property derived or obtained directly or indirectly by any person, as a result of criminal activity relating to a scheduled offence. Indisputably, the properties involved in this petition were not derived or obtained as a result of any criminal activity as the same had been acquired much prior to commission of the alleged scheduled crime. The contention that the value of any property derived from criminal activity can also be attached as proceeds of crime, is misconceived in the facts of this case. It is an admitted fact that the properties, as sought to be attached by the appellant, had been acquired and mortgaged by respondent no.1 prior to the commission of any scheduled offence. Thus, on the date of commission of the offence and on the date of the attachment order, the said properties did not vest with respondent no.1. Respondent no.1, being the mortgagor, was left with equity of redemption and all interest in the said property stood transferred to the mortgagee (respondent no.2), prior to the order of provisional attachment - There is no dispute that the respondent no.2 bank had acquired the mortgage of the property in question for valuable consideration. Therefore, any interest in the property acquired by them cannot, by any stretch, be considered as proceeds of crime in the hands of the mortgagee bank. The said order of Provisional Attachment, whereby the properties in question were attached and the order passed by the Adjudicating Authority confirming the said attachment, are wholly unsustainable - appeal dismissed.

Summary

Issues:
1. Impugning an order passed by the Appellate Tribunal under the Prevention of Money Laundering Act, 2002.
2. Confirmation of attachment of immovable properties by the Adjudicating Authority.
3. Allegations of conspiracy to sell sub-standard products and causing loss to the Government exchequer.
4. Challenge to the attachment of factory premises under the Prevention of Money Laundering Act.
5. Interpretation of 'proceeds of crime' under the Prevention of Money Laundering Act.
6. Rights of the mortgagee bank in case of attachment of properties.

Detailed Analysis:

Issue 1:
The Enforcement Directorate appealed under the PMLA against the Appellate Tribunal's order, challenging the confirmation of attachment of immovable properties. The Tribunal had set aside the provisional attachment order and the order confirming attachment.

Issue 2:
The Adjudicating Authority confirmed the attachment of properties, including B-42 Ashok Vihar Phase-I, New Delhi, and the factory premises at HSIIDC, Rai, Sonepat, Haryana. The appeal by the respondent against this order was allowed by the Appellate Tribunal.

Issue 3:
Allegations of conspiracy to sell sub-standard products under the National Rural Health Scheme were made against the respondent, leading to an FIR and chargesheet. The Enforcement Directorate registered an ECIR under the PMLA.

Issue 4:
The controversy centered around the attachment of the factory premises at HSIIDC, Rai, Sonepat, Haryana. The Tribunal set aside the attachment, noting the property was acquired before the alleged criminal activity and was mortgaged to a bank.

Issue 5:
The interpretation of 'proceeds of crime' under the PMLA was crucial. The Tribunal held that properties acquired before the criminal activity could not be considered proceeds of crime, emphasizing the date of acquisition and lack of connection to criminal activity.

Issue 6:
The rights of the mortgagee bank were considered in case of property attachment. The bank had already enforced its security interest by selling the factory premises and recovering the proceeds, leaving no surplus for distribution to the borrower or respondent.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision to set aside the attachment orders. The Court found the properties were acquired before the alleged crime, and the mortgagee bank's rights were duly exercised. The judgment emphasized the lack of connection between the properties and criminal activity, leading to the dismissal of the appeal.