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2018 (2) TMI 413 - ATPMLA Money Laundering

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Issues: (i) whether the mortgaged properties of the appellant bank, which were acquired before the alleged crime and were already under recovery action under SARFAESI and DRT proceedings, could still be provisionally attached and continued under the Prevention of Money Laundering Act, 2002; (ii) whether, on the material on record, the attached properties could be treated as proceeds of crime so as to justify confirmation of attachment against the appellant bank.

Issue (i): whether the mortgaged properties of the appellant bank, which were acquired before the alleged crime and were already under recovery action under SARFAESI and DRT proceedings, could still be provisionally attached and continued under the Prevention of Money Laundering Act, 2002.

Analysis: The appellant bank was not arraigned as an accused in the scheduled offence or in the money-laundering proceedings. The properties in question stood mortgaged in favour of the bank much prior to the alleged criminal activity, and recovery proceedings had already been initiated under the SARFAESI framework. The Tribunal held that the later amendments to the SARFAESI Act and the Recovery of Debts and Bankruptcy Act, 1993 conferred priority on secured creditors, and that such statutory priority had to be given effect in the factual setting of the case. The Tribunal also held that the general overriding clause in the PMLA could not be applied to defeat the secured creditor's rights where the bank was an innocent third party and the mortgages predated the alleged offence.

Conclusion: The attachment could not be sustained against the appellant bank's mortgaged properties, and the bank's claim as secured creditor was accepted.

Issue (ii): whether, on the material on record, the attached properties could be treated as proceeds of crime so as to justify confirmation of attachment against the appellant bank.

Analysis: The Tribunal found no material showing that the bank's mortgaged assets were derived from criminal activity or had any nexus with the alleged scheduled offence. The sale deeds and mortgage transactions predated the alleged offence by several years, and the record did not establish that the bank or its officials had participated in, conspired in, or had knowledge of any money-laundering activity. In the absence of proof that the properties themselves were proceeds of crime, the statutory basis for provisional attachment and confirmation under the PMLA was held to be lacking.

Conclusion: The properties were not proved to be proceeds of crime, and the attachment could not be confirmed against the appellant bank.

Final Conclusion: The Tribunal set aside the impugned order and the provisional attachment to the extent of the properties covered by the appeal, thereby releasing the mortgaged properties from attachment in favour of the appellant bank.

Ratio Decidendi: An innocent secured creditor whose mortgage predates the alleged offence cannot be deprived of its security merely on the basis of a PMLA attachment unless the attached asset is shown, on material, to be proceeds of crime with a demonstrable nexus to money laundering.

Secured creditor priority prevails where mortgaged assets predate the alleged offence and are not shown to be proceeds of crime.
An innocent secured creditor whose mortgage predates the alleged offence cannot be deprived of its security merely because the assets were provisionally attached under PMLA. The Tribunal noted that the bank was not an accused, the properties had been mortgaged and subjected to SARFAESI/DRT recovery proceedings before the alleged crime, and the later statutory priority given to secured creditors had to be respected. It also found no material linking the mortgaged assets to criminal activity or showing that they were proceeds of crime. On that basis, the attachment and its confirmation were not sustainable against the bank.

Provisional attachment under the Prevention of Money Laundering Act - proceeds of crime - overriding effect between special statutes - priority of secured creditors under amended SARFAESI/Recovery enactments (2016) - innocent/mere mortgagee/third party relief - role and duty of the Adjudicating Authority under Section 8 of PMLAProvisional attachment under the Prevention of Money Laundering Act - proceeds of crime - Whether the immovable properties mortgaged to the bank, acquired prior to the alleged scheduled offences, constitute proceeds of crime and were liable to provisional attachment under PMLA. - HELD THAT: - The Tribunal examined the PAO, OC and material on record and found no substantial material to establish that the properties in question were acquired out of proceeds of crime. The sale deeds show acquisition prior to the alleged offences; the Adjudicating Authority's conclusion that the assets were proceeds of crime was not supported by elucidated reasoning or evidentiary basis. Where properties were mortgaged to the bank ante dating the alleged crime and no nexus was demonstrated between the properties and proceeds of criminal activity, the prerequisite for attachment under the PMLA was absent. On the material before it, the Tribunal held that the prima facie allegation of money laundering so far as these mortgaged properties is concerned was unsustainable for the purpose of attachment. [Paras 22, 23, 26, 30, 35]The provisional attachment of the mortgaged properties is set aside as they are not shown to be proceeds of crime.Overriding effect between special statutes - priority of secured creditors under amended SARFAESI/Recovery enactments (2016) - Whether the non obstante and priority provisions introduced by the 2016 amendments to the SARFAESI/Recovery enactments operate to displace the application of PMLA in respect of secured creditors' rights over mortgaged assets. - HELD THAT: - The Tribunal analysed the effect of the 2016 amendments to the SARFAESI Act and the Recovery of Debts and Bankruptcy Act which introduce express "notwithstanding" language and confer priority on secured creditors to realize secured debts. Applying the principle that where two special statutes contain non obstante clauses the later enactment may prevail, and having regard to the amendments specifically granting priority to secured creditors (including Sections such as 26E/31B as inserted), the Tribunal concluded that those amendments demonstrate legislative intent to protect secured creditors' rights in respect of realization of their security notwithstanding other laws. Consequently the Adjudicating Authority's reliance on the overriding clause of PMLA alone was inadequate in the factual matrix where secured creditors held prior charges and remedies under SARFAESI/DRT were being pursued. [Paras 23, 28, 33, 34]The 2016 amendments conferring priority to secured creditors must be given effect; PMLA's non obstante clause cannot be read to nullify the statutory priority created for secured creditors in the amended enactments in the facts of this case.Innocent/mere mortgagee/third party relief - role and duty of the Adjudicating Authority under Section 8 of PMLA - Whether the appellant bank, as an innocent secured creditor and mortgagee not implicated in scheduled offences, was entitled to release of the attached mortgaged properties and whether the Adjudicating Authority properly considered the bank's plea. - HELD THAT: - The Tribunal observed that the bank was neither named in the FIR nor charge sheeted, had created charge on the properties prior to the alleged crime, and had pursued recovery remedies under SARFAESI/DRT. The scheme of Section 8 of PMLA permits the Adjudicating Authority to consider claims of persons asserting that attached properties are not involved in money laundering; the Authority must assess bona fides and evidence adduced by innocent claimants. The Adjudicating Authority in the impugned order failed to adequately consider the bank's factual and legal contentions concerning antecedent charge, prior acquisition of the properties, and ongoing recovery proceedings, and incorrectly rejected the bank's claim largely on the basis of PMLA's overriding provision without dealing with the bank's submissions on merits. [Paras 16, 17, 23, 27, 34]The bank, being an innocent secured creditor whose mortgage pre dated the alleged offence and who was not involved in money laundering, is entitled to release of the attached properties; the Adjudicating Authority's order is set aside for failure to appreciate these aspects.Final Conclusion: The Tribunal set aside the Adjudicating Authority's order and the provisional attachment insofar as the mortgaged properties before it, holding that those properties were not shown to be proceeds of crime, that the 2016 amendments confer statutory priority to secured creditors which must be given effect in the facts of this case, and that the innocent secured creditor (the bank) is entitled to release of the attached properties.

2018 (8) TMI 182 - ATPMLA Money Laundering

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Dispute over Confiscated Property Ownership: Stay Granted, Deposit Required
The appellant contested the ownership of a property subject to confiscation under the Prevention of Money-laundering Act, citing it as a tenancy property. They raised concerns about procedural irregularities and violations of natural justice principles. The Tribunal granted an interim stay against dispossession, requiring the appellant to deposit a specified amount monthly. Both parties agreed to continue the attachment order until the criminal complaint's resolution, with the appellant depositing charges until then. The judgment disposed of the appeal, allowing relief if proceedings favored the appellant, including charge refunds and property release.

Interim stay of dispossession - Provisional attachment under Prevention of Money laundering Act - Tenancy rights and attachment - Deposit of user and occupation charges pending appeal - Preservation of rights pending outcome of criminal proceedings - Restriction on creating third party rightsInterim stay of dispossession - Deposit of user and occupation charges pending appeal - Interim relief in the form of stay of dispossession from the disputed premises subject to deposit of user/occupation charges. - HELD THAT: - The Tribunal, after considering prima facie case, balance of convenience and irreparable loss, granted an interim stay against dispossession of the appellant from Room No. 39, 3rd Floor, Ambulkar Sadan, and directed the appellant to deposit user and occupation charges of Rs. 181 per month from 1st September, 2014. The Tribunal fixed timelines for payment of arrears and future monthly deposits and recorded the parties' agreement to these terms. The stay was held operative during the pendency of the appeal unless vacated or modified on grounds raised by the respondent. [Paras 4]Stay of dispossession granted subject to deposit of user and occupation charges as directed.Restriction on creating third party rights - Tenancy rights and attachment - During the pendency of the appeal the appellant shall not surrender tenancy rights, part with possession or create third party rights without prior permission of the Tribunal. - HELD THAT: - The Tribunal expressly prohibited the appellant from surrendering tenancy rights in favour of the landlord, parting with possession to any other person or creating any third party rights in respect of the premises during the appeal. This restriction was imposed as a term of the interim order to preserve the status quo and protect the subject property from alteration of rights while the appeal and related criminal proceedings remain pending. [Paras 4]Prohibition on surrendering tenancy rights, parting with possession, or creating third party rights without Tribunal's prior permission.Preservation of rights pending outcome of criminal proceedings - Provisional attachment under Prevention of Money laundering Act - Continuation of provisional attachment and interim measures until final outcome of related proceedings before the Special Court, with a direction for appropriate remedy if proceedings are decided in appellant's favour. - HELD THAT: - The Tribunal disposed of the appeal by continuing the interim arrangement until the final outcome of the criminal complaint pending before the Special Court. The order records that if the Special Court proceedings are decided in favour of the appellant, he would be entitled to file appropriate application for refund of the amounts deposited as user/occupation charges and for release of the flat. The disposition therefore preserved the provisional attachment and interim protections while leaving the appellant a remedy in the event of a favourable criminal adjudication. [Paras 5, 7]Attachment and interim directions to continue until the Special Court proceedings conclude; appellant entitled to seek refund and release if Special Court decides in his favour.Final Conclusion: The Tribunal granted an interim stay of dispossession subject to payment of user/occupation charges and imposed restrictions on surrendering or alienating tenancy rights; the provisional attachment and interim regime are to continue until the Special Court disposes of the criminal complaint, with liberty to the appellant to seek refund and release if the Special Court rules in his favour.

2017 (12) TMI 1103 - ATPMLA Money Laundering

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Earnest money in a bona fide land sale was not treated as proceeds of crime, and attachment against an innocent third party failed.
Earnest money received under a bona fide land sale agreement, and later forfeited on the purchaser's default, was not established as proceeds of crime under PMLA where the appellant was not named in the scheduled offence and no material showed her knowledge, nexus, or participation in the alleged criminal activity. The Tribunal found that a civil-commercial transaction, without proof of derivation from criminal activity, could not sustain attachment against an innocent third party. The attachment and confirmation orders were therefore held unsustainable, and the attached immovable properties were ordered to be released.

Proceeds of crime - knowledge / mens rea - innocent bona fide purchaser - provisional attachment under PMLA - adjudicating authority's duty on claim of innocence - forfeiture of earnest moneyProceeds of crime - forfeiture of earnest money - Whether the amount received by the appellant as earnest money in 2006 constituted proceeds of crime and could be subject to attachment under the PMLA. - HELD THAT: - The Tribunal held that 'proceeds of crime' under Section 2(u) means property derived or obtained as a result of criminal activity relating to a scheduled offence. The appellant received the earnest money in 2006 pursuant to a bona fide agreement of sale and, by contract terms, forfeited the earnest money when the vendee failed to perform. At the time of receipt and forfeiture there was no FIR or PMLA proceeding against the buyer. The Enforcement Directorate produced no material to show that the appellant had knowledge that the amount paid to her was tainted, or that the property was acquired with tainted money. Applying the established principles on forfeiture of earnest money, and the requirement that proceeds of crime must be shown to be so derived, the Tribunal found no link, nexus or mens rea on the part of the appellant to attract the definition of proceeds of crime. [Paras 38, 40, 41, 43, 44]The amount received by the appellant as earnest money in 2006 is not proceeds of crime and cannot be treated as tainted for purposes of attachment under the PMLA.Provisional attachment under PMLA - adjudicating authority's duty on claim of innocence - innocent bona fide purchaser - knowledge / mens rea - Whether the Adjudicating Authority was justified in confirming provisional attachment orders against the appellant and her relatives without establishing nexus, knowledge or involvement, and whether an innocent person can seek release of attached property. - HELD THAT: - The Tribunal applied authority and statutory scheme recognizing that an innocent person may approach the Adjudicating Authority to show bona fides and lack of knowledge, and that confirmation of attachment requires a finding that the properties are involved in money laundering. The Adjudicating Authority and ED failed to produce material showing direct or indirect involvement, knowledge, or any nexus between the appellant (or her relatives) and the scheduled offences. The Tribunal found the impugned orders to be mechanical and lacking application of mind, noting that where the vendor's receipt of advance and its forfeiture predated any FIR and no contemporaneous taint was shown, attachment could not be sustained. Reliance on principles protecting bona fide purchasers without notice was affirmed. [Paras 56, 57, 58, 59, 60]The Adjudicating Authority's confirmations of the provisional attachment orders are unsustainable for want of proof of nexus or knowledge; the attachments are set aside and the immovable properties released.Final Conclusion: The appeals are allowed. The Tribunal set aside the provisional attachment orders and their confirmations insofar as they relate to the appellant and released the immovable properties, holding that the earnest money received in 2006 was not proceeds of crime and that ED/Adjudicating Authority failed to establish knowledge, nexus or involvement to justify attachment; criminal proceedings against the accused third parties continue unaffected.

2017 (12) TMI 840 - ATPMLA Money Laundering

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Issues: (i) Whether the provisional attachment of mortgaged properties acquired before the alleged loan transactions could be sustained without proper consideration of the appellant's reply and supporting materials; (ii) Whether the mortgagee banks, being persons interested in the attached properties, were required to be served notice and given an opportunity of hearing before confirmation of attachment.

Issue (i): Whether the provisional attachment of mortgaged properties acquired before the alleged loan transactions could be sustained without proper consideration of the appellant's reply and supporting materials.

Analysis: The properties attached had been acquired before the sanction and disbursement of the agri-loans. They were already subject to mortgages and recovery steps by banks under the SARFAESI regime. The record showed that the enforcement authorities were aware of these facts, yet the impugned order did not meaningfully deal with the appellant's reply or the documentary material showing prior acquisition and existing encumbrances. In proceedings under section 5(1) of the Prevention of Money Laundering Act, 2002, attachment must rest on material showing possession of proceeds of crime and a likelihood of concealment, transfer, or dealing so as to frustrate confiscation proceedings.

Conclusion: The attachment could not be sustained on the existing consideration and materials and was liable to be set aside.

Issue (ii): Whether the mortgagee banks, being persons interested in the attached properties, were required to be served notice and given an opportunity of hearing before confirmation of attachment.

Analysis: Section 8(1) of the Prevention of Money Laundering Act, 2002 requires notice to persons holding property on behalf of others, and section 8(2) requires consideration of replies and hearing of the aggrieved person and other interested claimants. Since the banks were mortgagees and secured creditors with a direct interest in the properties, and since the authorities were aware of the mortgages before attachment, omission to issue notice and hear them was contrary to the statutory procedure and the principles of natural justice.

Conclusion: Notice to the banks and opportunity of hearing were mandatory, and their omission vitiated the confirmation order.

Final Conclusion: The appeal succeeded, the impugned order was set aside, and the matter was sent back for fresh adjudication after notice to all concerned banks and consideration of their as well as the appellant's replies.

Ratio Decidendi: Where attached property is already mortgaged and third-party secured creditors have a direct claim over it, the adjudicating process under the Prevention of Money Laundering Act, 2002 must include notice and hearing to such persons, and failure to follow that procedure renders the attachment order unsustainable.

PMLA attachment of mortgaged property requires notice to secured creditors and proper consideration of objections before confirmation.
Provisional attachment under the Prevention of Money Laundering Act could not be sustained where the attached properties had been acquired before the alleged loan transactions and were already mortgaged, yet the authorities did not meaningfully consider the appellant's reply and supporting documents. The order was also vitiated because mortgagee banks, as secured creditors with a direct interest in the properties, were not served notice or given a hearing before confirmation of attachment. Sections 5(1), 8(1), and 8(2) required proper material, notice to interested persons, and consideration of their objections; failure to follow that procedure rendered the attachment unsustainable and required fresh adjudication.

Provisional attachment under Section 5 of the PMLA - notice and opportunity to mortgagee under Section 8(1) proviso and Section 8(2) of the PMLA - attachment of mortgaged property - rehearing/remand for compliance with procedural fairnessNotice and opportunity to mortgagee under Section 8(1) proviso and Section 8(2) of the PMLA - provisional attachment under Section 5 of the PMLA - Validity of provisional attachment and its confirmation without issuing notice to banks who were mortgagees and without giving them an opportunity of being heard - HELD THAT: - The Tribunal found that prior to passing the provisional attachment order the Directorate of Enforcement was aware that the attached properties were mortgaged to banks and that statements under section 50 had been recorded disclosing mortgages and pending recovery proceedings. The proviso to Section 8(1) requires service of a copy of the notice where property is held on behalf of another, and Section 8(2) mandates that a person claiming the property (other than the person to whom notice was issued) be given an opportunity to be heard. No notice was issued to the mortgagee banks nor were they given an opportunity to be heard before confirmation of the provisional attachment. The Adjudicating Authority failed to consider the appellant's reply and material regarding mortgages, and the confirmation order was silent on these matters. For these reasons the impugned confirmation of the provisional attachment was held to be procedurally invalid and arbitrary, necessitating setting aside and remand for fresh consideration after issuing notice to the banks and hearing all parties. [Paras 20, 21, 22, 23, 26]Impugned order confirming provisional attachment set aside; matter remanded to Adjudicating Authority for rehearing after issuing notice to the banks and considering the appellant's and banks' replies.Attachment of mortgaged property - provisional attachment under Section 5 of the PMLA - Appropriateness of attaching properties which were acquired prior to the alleged offences and stood mortgaged with banks - HELD THAT: - The Tribunal noted on the record that the properties were acquired prior to the dates of the alleged Agri Loans and that several properties were mortgaged and subject to pending recovery/attachment proceedings under the SARFAESI and sales tax regimes before the provisional attachment. While observing that these facts were material and were available to the Enforcement Directorate and the Adjudicating Authority, the Tribunal did not decide the merits on whether such mortgaged properties constituted 'proceeds of crime'. Instead, because the authorities failed to afford procedural rights to mortgagees and did not consider the appellant's explanations, the Tribunal remanded the matter for fresh adjudication on merits after giving proper notice and hearing. [Paras 9, 16, 24, 26, 27]Merits not finally adjudicated; matter remanded to Adjudicating Authority to consider, on merits, whether the mortgaged properties are involved in money-laundering after hearing the banks and the appellant.Final Conclusion: The appeal is allowed: the Adjudicating Authority's confirmation of the provisional attachment is set aside as procedurally infirm for failure to serve notice on mortgagee banks and to afford them an opportunity to be heard; the matter is remanded for rehearing and fresh final order within 180 days, with no expression of opinion on merits.

2017 (12) TMI 1102 - ATPMLA Money Laundering

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Tribunal allows appeal due to custody delay, orders costs to respondent's counsel.
The Tribunal granted condonation of delay in filing the appeal under Section 26 of the Prevention of Money Laundering Act, acknowledging the appellant's judicial custody as sufficient cause for the delay. Relying on legal precedents emphasizing substantial justice over technicalities, the Tribunal allowed the appeal, subject to the appellant paying costs to the respondent's counsel. The respondent was directed to file a reply within six weeks, with the next hearing scheduled for 25th April 2018.

2017 (12) TMI 98 - ATPMLA Money Laundering

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Issues: (i) Whether the proceedings under the Prevention of Money Laundering Act, 2002 could be sustained when the alleged predicate acts and the relevant scheduled offence regime were prior to the amendment bringing the underlying offence within the Schedule. (ii) Whether the provisional attachment under section 5 of the Prevention of Money Laundering Act, 2002 could survive after the connected PMLA proceedings had been quashed and in the absence of a sustainable basis for the formation of "reason to believe".

Issue (i): Whether the proceedings under the Prevention of Money Laundering Act, 2002 could be sustained when the alleged predicate acts and the relevant scheduled offence regime were prior to the amendment bringing the underlying offence within the Schedule.

Analysis: The attachment and prosecution were founded on allegations relatable to disproportionate assets and the offences under the Prevention of Corruption Act, 1988. The relevant transactions were found to be of a period prior to the amendment that brought the relevant provisions into the Schedule of the Prevention of Money Laundering Act, 2002. Retrospective application of penal consequences was held impermissible, and Article 20(1) of the Constitution of India was relied upon to hold that criminal liability could not be imposed for conduct occurring before the law made it punishable in the relevant form.

Conclusion: The PMLA proceedings could not be sustained on a retrospective basis and were held unsustainable.

Issue (ii): Whether the provisional attachment under section 5 of the Prevention of Money Laundering Act, 2002 could survive after the connected PMLA proceedings had been quashed and in the absence of a sustainable basis for the formation of "reason to believe".

Analysis: The provisional attachment depended upon the existence of proceedings under the Act and upon a valid satisfaction that the properties were proceeds of crime and were likely to be dealt with in a manner prejudicial to confiscation. Once the connected PMLA proceedings had already been quashed, the foundation for attachment was removed. The order was also found unsustainable on the facts, as the record did not justify the requisite statutory satisfaction.

Conclusion: The provisional attachment was held unsustainable and the attached properties were directed to be released.

Final Conclusion: The appellate tribunal set aside the impugned order and held that the provisional attachment could not be maintained in view of the quashing of the PMLA proceedings and the impermissibility of retrospective penal application.

Ratio Decidendi: A provisional attachment under the Prevention of Money Laundering Act, 2002 cannot be sustained where the alleged predicate offence was not a scheduled offence at the relevant time and the connected PMLA proceedings have been quashed, since retrospective penal operation is barred and the statutory basis for attachment falls away.

Retrospective PMLA liability and provisional attachment fail where the predicate offence was not scheduled at the relevant time.
Retrospective penal operation under the Prevention of Money Laundering Act, 2002 was held impermissible where the alleged predicate conduct and the relevant scheduled-offence regime predated the amendment bringing the underlying offence within the Schedule. Article 20(1) was relied on to exclude criminal liability for conduct not punishable in the relevant form at the time. The provisional attachment under section 5 also could not survive once the connected PMLA proceedings were quashed, because the statutory foundation for attachment and the required "reason to believe" were no longer sustainable. The attached properties were directed to be released.

Retrospective application of the Prevention of Money Laundering Act to acts committed prior to inclusion of scheduled offences - Article 20(1) - protection against retrospective criminal liability - Sustainability of provisional attachment under Section 5 of the PMLA once the underlying PMLA proceedings are quashed - Inclusion of offences in the Schedule to the PMLA (effect of the 2009 amendment) - Binding effect of a High Court judgment on a Tribunal - Requirement of a genuine "reason to believe" supported by independent material for provisional attachmentSustainability of provisional attachment under Section 5 of the PMLA once the underlying PMLA proceedings are quashed - Retrospective application of the Prevention of Money Laundering Act to acts committed prior to inclusion of scheduled offences - Article 20(1) - protection against retrospective criminal liability - Inclusion of offences in the Schedule to the PMLA (effect of the 2009 amendment) - Provisional attachment under Section 5 of the PMLA is not sustainable where the PMLA proceedings have been quashed because the alleged acts occurred prior to the inclusion of the relevant offences in the Schedule and cannot be prosecuted retrospectively. - HELD THAT: - The Tribunal examined the High Court's reasoning that the alleged transactions took place before the amendments (which inserted provisions of the Prevention of Corruption Act into the Schedule to the PMLA effective 1.6.2009) and that invoking the PMLA for acts committed prior to inclusion amounts to retrospective application of criminal liability contrary to Article 20(1). The High Court had quashed the PMLA proceedings on that basis, noting the absence of explanation for the delay in invoking sections 3 and 4 and the constitutional bar on retrospective penal liability. Given that the check-period admitted by the CBI fell before the effective date of the Schedule amendment, the Tribunal held that the Attachment Order under Section 5 could not stand once the underlying PMLA prosecution was set aside. The Tribunal further relied on analogous High Court decisions addressing the same retrospective-application issue and concluded that the attachment was contrary to law and must be lifted. [Paras 21, 22, 24, 25]Impugned attachment order set aside; attached properties released forthwith and appellants permitted to take possession as per law.Binding effect of a High Court judgment on a Tribunal - Requirement of a genuine "reason to believe" supported by independent material for provisional attachment - A binding High Court decision on the retrospective applicability of the PMLA must be respected by the Tribunal; where that decision quashes PMLA proceedings, the Tribunal cannot take a different view and must give effect to the High Court's findings. - HELD THAT: - The Tribunal acknowledged the High Court judgment (unappealed at the time of hearing) which dealt with the retrospective operation of the PMLA amendments and found the proceedings unsustainable. The Tribunal stated that it is bound to respect that judgment between the parties and, accordingly, cannot maintain an attachment order founded on the very PMLA proceedings that the High Court quashed. The Tribunal also referred to precedent on the need for a proper factual and legal basis - beyond mere reproduction of the phrase "reason to believe" - for passing attachment orders, indicating that absence of such independent material undermines maintainability. [Paras 24]Tribunal followed the High Court ruling; attachment was held to be unlawful and ordered to be released.Final Conclusion: The appeals are allowed. The impugned adjudicating authority's confirmation of the provisional attachment was set aside because the PMLA proceedings were quashed by the High Court on the ground that the alleged acts pre dated inclusion of the relevant offences in the PMLA Schedule (raising Article 20(1) objections); the attached properties are ordered to be released forthwith. The pending criminal complaint under the Prevention of Corruption Act is to be decided on its own merits by the Special Court uninfluenced by this order.

2017 (12) TMI 97 - ATPMLA Money Laundering

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Provisional attachment cannot be confirmed after a High Court quashes the underlying attachment proceedings.
An adjudicatory authority cannot confirm or continue a provisional attachment when a High Court has already quashed the underlying attachment order. The confirmation order was passed in disregard of the subsisting judicial decision and therefore lacked legal basis. The attachment could not survive, and the impugned confirmation was set aside, with the attached property required to be returned in accordance with procedure.

Provisional attachment under PMLA - confirmation of provisional attachment - quashing of provisional attachment order by a High Court - duty to respect orders of a higher court - reason to believeProvisional attachment under PMLA - confirmation of provisional attachment - quashing of provisional attachment order by a High Court - duty to respect orders of a higher court - reason to believe - Validity of the Adjudicating Authority's confirmation of a provisional attachment after the Madras High Court had quashed that provisional attachment. - HELD THAT: - The Madras High Court had quashed the Provisional Attachment Order No. 09/2017 dated 07.04.2017 and the Original Complaint, and that judgment was reserved and delivered prior to the Adjudicating Authority's confirmation order dated 21.07.2017. The Adjudicating Authority and the Enforcement Directorate were parties to the writ proceedings before the High Court and thus were aware of the challenge and of the High Court's decision. The Tribunal found that the confirmation of the provisional attachment after the High Court had quashed the order was made contrary to the duty to respect orders of a higher court. The Adjudicating Authority's purported explanation of a communication gap or ignorance was held to be insubstantial, particularly where the authority had appeared in the writ petition. In these circumstances the confirmation could not stand, because the High Court had already concluded that there was no sufficient material to sustain the attachment and had quashed the provisional order. The Tribunal therefore allowed the appeal, set aside the impugned confirmation, and directed that the attachment shall cease and the appellant be entitled to regain possession of the attached properties in accordance with the prescribed procedure to release properties. [Paras 12, 13, 15]The confirmation order dated 21.07.2017 is set aside; the provisional attachment does not survive and the appellant is entitled to possession of the attached properties as per the procedure for release.Final Conclusion: Appeal allowed; confirmation of the provisional attachment passed after the Madras High Court had quashed the provisional order was set aside, the attachment is declared non-existent and the appellant is entitled to the release of the attached properties.

2017 (11) TMI 1499 - ATPMLA Money Laundering

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Issues:
- Appeal against order passed by Adjudicating Authority under PMLA Act
- Non-consideration of Tribunal's judgment by Adjudicating Authority

Analysis:
1. The appeal was filed under section 26 of the PMLA Act against the order dated 13.09.2017 passed by the Adjudicating Authority. The appellant's case was found similar to a previous case decided by the Tribunal, where it was established that the attached properties were purchased before the offending loans were sanctioned, and the banks were not involved in the scheduled offense. The Tribunal emphasized that the mortgaged properties, being security for loans, should not be subject to attachment when purchased prior to the events of fund diversion and fraud by the borrowers.

2. The Tribunal expressed concern that its previous judgment was not considered or followed by the Adjudicating Authority, highlighting the importance of respecting higher authorities' decisions. The Authority failed to discuss the judgments of the Supreme Court and High Courts, which were referred to in the Tribunal's decision. It raised a serious issue of non-compliance with judgments from higher courts and the Tribunal, emphasizing the need for consultation with legal members before disregarding such precedents.

3. The Tribunal noted that the member who passed the impugned order was not a judicial member and should have consulted at least the legal member before ignoring judgments from higher authorities. The respondent accepted the notice and requested time to file a reply, which was granted. The appeal was scheduled for final disposal on 15th January, 2018, with the operation of the impugned order stayed in the appellant's case until then.

4. The Tribunal directed the copy of the order to be sent to the Ministry and provided "Dasti" copies to both parties. The issues raised in the appeal highlighted the importance of adherence to legal precedents and the need for proper consideration of judgments from higher authorities to ensure fair and just decisions in matters under the PMLA Act.

Tribunal overturns Adjudicating Authority's order under PMLA Act
The Tribunal allowed the appeal against the Adjudicating Authority's order under the PMLA Act. It found the appellant's case similar to a previous case where properties were purchased before the sanctioned loans, and banks were not involved in the offense. The Tribunal criticized the Authority for not considering its judgment and failing to discuss relevant Supreme Court and High Court decisions. It emphasized the necessity of respecting higher authorities' decisions and consulting legal members. The impugned order was stayed until final disposal, stressing the importance of following legal precedents for just decisions under the PMLA Act.

Interim stay of order - bona fide lender - prior purchase and mortgage as defence to attachment - precedent adherence and judicial respect - requirement for consultation with judicial/legal memberInterim stay of order - bona fide lender - prior purchase and mortgage as defence to attachment - Interim continuation of the impugned Adjudicating Authority order stayed in favour of the appellant and prima facie acceptance of the appellant's plea that it is a bona fide lender whose charged properties were purchased and mortgaged prior to the offending transactions. - HELD THAT: - The Tribunal noted that the factual matrix in this appeal is closely similar to its earlier decision in State Bank of India and Ors. where it was held that properties purchased and mortgaged prior to the commission of the scheduled offence, and where the bank was not involved in the offence, could not be subjected to attachment. Relying on that reasoning and the undisputed fact that the properties were acquired and mortgaged before the offending loans were sanctioned, the Tribunal granted an interim stay of the impugned order insofar as it affects the appellant. The stay preserves the appellant's position pending final disposal, reflecting the Tribunal's view that the appellant is a bona fide lender and that the attached properties are security created prior to the alleged diversion and fraud. [Paras 2, 7]Operation of the impugned order is stayed in respect of the appellant; appeal admitted and listed for final disposal.Precedent adherence and judicial respect - requirement for consultation with judicial/legal member - Adjudicating Authority criticised for failing to consider binding precedent and for not involving a judicial/legal member before passing the impugned order. - HELD THAT: - The Tribunal recorded that the Adjudicating Authority did not consider or follow the Tribunal's earlier judgment which had been grounded on higher court authorities. The failure to discuss that precedent was regarded as a serious omission. The Tribunal further observed that the member who passed the impugned order was not a judicial member and ought to have consulted the legal member before disregarding higher authority. These observations amount to a judicial admonition directing that due regard be had to precedent and that appropriate consultation occur within the Authority when legal issues arise. [Paras 3, 4]Adjudicating Authority's non-consideration of the Tribunal's prior judgment noted and the need to consult a judicial/legal member emphasized.Final Conclusion: Appeal admitted; notice issued and reply directed within four weeks; interim stay granted in favour of the appellant; the Adjudicating Authority's failure to consider precedent and to involve a judicial/legal member has been recorded and brought to notice; matter listed for final disposal on 15 January 2018.

2017 (11) TMI 838 - ATPMLA Money Laundering

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Tribunal grants appellant escrow access, upholds recovery rights from attached properties.
The Tribunal allowed the appellant to operate the escrow accounts and withdraw amounts owed by the borrowers, modifying the impugned order. The attachment of immovable properties shall continue until the decision of the appeals filed by the borrowers. The appellant's entitlement to recover its dues from the attached properties was upheld, recognizing its status as a bona fide lender.

Attachment under PMLA - innocent third party / bona fide mortgagee protection - requirement of nexus and knowledge for property to be treated as proceeds of crime - power to allow mortgagee to access and retain escrow funds pending recovery or adjudication - burden on respondent to prove property involvement in money launderingPower to allow mortgagee to access and retain escrow funds pending recovery or adjudication - Rule 8 of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 - Whether the mortgagee (appellant) may be permitted to operate the escrow accounts and withdraw rents/instalments legitimately due to it despite provisional attachment. - HELD THAT: - The Tribunal held that it has power to direct that a mortgagee bank may be allowed to access and retain funds in respect of a confirmed attached property, subject to further orders and on terms to protect the ultimate rights of the authority and other parties. Having considered the tripartite escrow arrangements, the absence of any contention that the rents in the escrow accounts are proceeds of crime, and the undertaking by the appellant to restitute amounts if required and not to dispose the properties without permission, the Tribunal permitted the appellant to operate the two specified escrow accounts and withdraw amounts comprising instalments legitimately owed by the borrowers. The Tribunal recorded that the appellant would release amounts due for amenities and would restituate withdrawn EMIs if it ultimately loses the appeal, and that attachment of the immovable properties shall continue until decision in the borrowers' appeals. [Paras 24, 25, 26, 43, 44]Appellant permitted to operate the specified escrow accounts and withdraw instalments legitimately owed, subject to its undertaking and continuation of attachment until disposal of borrowers' appeals.Innocent third party / bona fide mortgagee protection - requirement of nexus and knowledge for property to be treated as proceeds of crime - burden on respondent to prove property involvement in money laundering - Whether the immovable properties mortgaged to the appellant (acquired in 2005) are, on the material before the Adjudicating Authority, shown to be involved in money laundering so as to justify confirmation of provisional attachment. - HELD THAT: - The Tribunal applied the principle that properties acquired and mortgaged prior to the alleged offending transactions and where the mortgagee is a bona fide lender cannot be treated as proceeds of crime without proof of nexus or knowledge linking the property or mortgagee to the scheduled offences. Relying on the Tribunal's earlier findings and judicial authorities reproduced in the order, the Tribunal observed that the respondent failed to show that the appellant or the tenants were accused, that the rents are proceeds of crime, or that there exists any nexus between the appellant and the alleged diversion of funds. Consequently, while the provisional attachment was not set aside in toto, the Tribunal modified the impugned order to protect the mortgagee's right to recover instalments from the escrow accounts and recorded that attachment would continue pending the borrowers' appeals. [Paras 26, 31, 33, 39, 44]Respondent failed to establish requisite nexus/knowledge to treat the mortgaged properties as proceeds of crime; attachment continued but mortgagee's right to recover legitimate instalments upheld and the impugned order modified accordingly.Final Conclusion: The Tribunal modified the adjudicating authority's order: attachment of the immovable properties remains in force pending disposal of the borrowers' appeals, but the appellant (mortgagee) is permitted to operate the specified escrow accounts and withdraw rent instalments legitimately owed for loan recovery subject to its undertakings, with restitution obligations if the appellant ultimately loses.

2017 (10) TMI 1128 - ATPMLA Money Laundering

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Issues: (i) Whether a vehicle purchased from bank finance before the alleged predicate offence could be treated as "proceeds of crime" or its "value thereof" and be confirmedly attached under the Prevention of Money Laundering Act, 2002. (ii) Whether the secured bank's hypothecation and enforcement rights over the vehicle could be displaced by the attachment under the Prevention of Money Laundering Act, 2002.

Issue (i): Whether a vehicle purchased from bank finance before the alleged predicate offence could be treated as "proceeds of crime" or its "value thereof" and be confirmedly attached under the Prevention of Money Laundering Act, 2002.

Analysis: The vehicle was purchased out of loan funds much before the demonetisation-linked allegations and long before the alleged defaulted conduct relied on by the enforcement authority. The vehicle was not shown to have been acquired from criminal proceeds or to have any direct nexus with the alleged predicate offence. On the admitted facts, the loan transaction was genuine, the asset was identifiable, and the mere existence of allegations against the borrower did not convert the bank-financed vehicle into tainted property.

Conclusion: The vehicle could not be treated as "proceeds of crime" or "value thereof", and its attachment was unsustainable.

Issue (ii): Whether the secured bank's hypothecation and enforcement rights over the vehicle could be displaced by the attachment under the Prevention of Money Laundering Act, 2002.

Analysis: The loan-cum-hypothecation arrangement created a security interest in favour of the bank, and the bank had acted to preserve the asset. The decision also proceeded on the principle that secured creditors' rights are protected where the property is acquired through legitimate financing and the asset is not established as criminal proceeds. The enforcement attachment could not defeat the bank's prior secured interest in the absence of a proven taint on the financed asset.

Conclusion: The bank's secured interest prevailed, and the attachment against the vehicle was set aside.

Final Conclusion: The provisional and confirmed attachment of the vehicle was quashed, and the vehicle was directed to be released to the appellant with liberty to proceed for recovery of any outstanding loan dues in accordance with law.

Ratio Decidendi: Property acquired through a genuine and prior secured financing transaction cannot be attached as proceeds of crime unless a direct nexus with criminal activity is established, and the rights of a prior secured creditor are not displaced merely because money-laundering proceedings are initiated against the borrower.

Prior secured financing protects vehicle ownership from PMLA attachment absent proof of criminal taint
Property acquired through genuine prior bank financing cannot be treated as proceeds of crime or its value unless a direct nexus with the alleged criminal activity is established. A vehicle purchased on loan funds before the alleged predicate offence was found untainted, so attachment under PMLA was unsustainable. The secured bank's hypothecation and enforcement rights were also protected because a prior valid security interest could not be displaced by attachment in the absence of proven taint. The provisional and confirmed attachment was quashed, and release of the vehicle was directed with liberty to recover outstanding loan dues according to law.

Provisional attachment - proceeds of crime - hypothecation - security interest - priority of secured creditors - overriding effect of amended SARFAESI provisions - bona fide acquisition - enforcement of securityProvisional attachment - proceeds of crime - bona fide acquisition - Validity of provisional attachment of the vehicle as 'proceeds of crime'. - HELD THAT: - The Tribunal found that the vehicle was purchased in December 2015 pursuant to a bank loan and that the alleged predicate offence (relating to demonetization) occurred in November 2016. The bank had advanced the loan and instalments were paid prior to the Demonetization Notification; default occurred only thereafter. On these facts the vehicle could not be said to have been procured out of the alleged 'proceeds of crime'. The Adjudicating Authority's confirmation of the provisional attachment proceeded on the erroneous premise that ownership vested in the borrower and that the vehicle therefore fell within the definition of 'proceeds of crime'. The Tribunal held that where acquisition is shown to be bona fide and predates the alleged criminal activity, the provisional attachment cannot be sustained. [Paras 14, 15, 25]Provisional attachment of the vehicle as 'proceeds of crime' was set aside insofar as it relates to that vehicle.Hypothecation - security interest - enforcement of security - Whether the bank's hypothecation/security interest entitled it to possession and enforcement against the vehicle despite the provisional attachment. - HELD THAT: - The Loan cum Hypothecation Agreement conferred on the bank the right, upon default, to take physical possession of the hypothecated vehicle and to enforce the security for recovery of the loan, including sale, without court intervention. The bank had marked freezes and satisfied the Adjudicating Authority that the vehicle was hypothecated and that the loan predated the alleged offence. The Tribunal held that these contractual rights accrued on default and that the Adjudicating Authority failed to appreciate or apply the contract terms and the bank's entitlement to enforce its security. [Paras 17, 19, 20, 24]Bank entitled to take possession and enforce its security in respect of the vehicle; Adjudicating Authority's confirmation of attachment ignored the bank's enforceable rights.Priority of secured creditors - overriding effect of amended SARFAESI provisions - Effect of statutory amendments conferring priority to secured creditors vis-a -vis attachments under PMLA. - HELD THAT: - The Tribunal referred to the post 2016 amendments to the SARFAESI/DRT statutes which give priority to secured creditors 'notwithstanding anything contained in any other law'. It relied on judicial authorities and the legislative amendment to conclude that secured creditors' rights to realise secured debts have priority and that the Adjudicating Authority did not demonstrate any inconsistency of those rights with PMLA that would justify overriding the bank's charge. The Tribunal held that the Adjudicating Authority erred in treating the PMLA attachment as superseding the bank's prior security without applying the amended statutory scheme and relevant precedent. [Paras 16, 31, 33, 36]The bank's priority as a secured creditor under the amended SARFAESI/DRT scheme prevails; the attachment could not be sustained against the hypothecated vehicle.Final Conclusion: The confirmation of the provisional attachment of the specified vehicle is set aside insofar as it relates to that vehicle. The vehicle shall be returned forthwith to the bank, which may dispose of it after adjustment of the loan and pursue recovery of any balance in accordance with law. The appeal is allowed and the provisional attachment order in respect of the vehicle is vacated.

2017 (10) TMI 907 - ATPMLA Money Laundering

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Tribunal deems search and seizure illegal under PMLA, orders return of documents.
The tribunal found the search and seizure conducted on the appellant's premises to be illegal due to non-compliance with statutory requirements under Section 17(1) of the PMLA. The Adjudicating Authority's order allowing retention of seized documents was set aside, directing the return of the documents to the appellant. The appeal was allowed under section 26 of the PMLA, emphasizing the importance of strict compliance with statutory procedures in such actions. No costs were awarded, and the tribunal did not delve into the merits of other parties involved.

Reason to believe - Recording and communication of reasons - Compliance with prescribed form and procedure for search and seizure - Validity of authorisation for search and seizure - Retention of seized records under statutory procedure - Nullity for failure to follow mandatory statutory mannerReason to believe - Recording and communication of reasons - Compliance with prescribed form and procedure for search and seizure - Validity of authorisation for search and seizure - Nullity for failure to follow mandatory statutory manner - Legality of the search and seizure at the appellant's premises in the absence of reasons recorded specifically against the appellant and non-compliance with the form and procedure prescribed under Section 17(1) PMLA and the 2005 Rules. - HELD THAT: - The Tribunal found that the single 'reasons to believe' order dated 6.7.2015 did not record any reasons pertaining to the appellant and no copy of any reasons was served on the appellant. The search authorisation neither identified a specific authorised officer nor complied with the form prescribed by Rule 3(1)/Form I, and the seizure memo did not comply with Rule 4(2)/Form II in respect of the appellant. Reliance was placed on settled authorities holding that where a statute prescribes the manner of doing an act, that manner must be followed and that recorded reasons must be communicated to affected persons because failure to do so materially prejudices them. In those circumstances the authorisation for search and seizure was held to be wholly illegal and therefore void insofar as the appellant was concerned. [Paras 10, 11, 12, 13, 15]Search and seizure at the appellant's premises was unlawful for want of recorded and communicated reasons and for non-compliance with prescribed forms and procedure; the authorisation was invalid as to the appellant.Retention of seized records under statutory procedure - Recording and communication of reasons - Nullity for failure to follow mandatory statutory manner - Validity of the Adjudicating Authority's order under Section 17(4) PMLA permitting retention of records seized from the appellant when the initial search/ seizure authorisation and reasons were deficient. - HELD THAT: - The Tribunal held that the respondent could not for the first time supply or rely upon reasons in its Section 17(4) application when no reasons had been recorded with respect to the appellant at the time of search, and the 'Reason to Believe' annexed did not specify reasons concerning the appellant. Given the illegality of the initial action and absence of requisite recorded/communicated reasons, the Adjudicating Authority's order permitting retention of the appellant's records could not be sustained. Following this conclusion the application under Section 17(4) was dismissed as to the appellant and the documents were ordered to be returned forthwith. [Paras 14, 16, 18]The Adjudicating Authority's order permitting retention of the seized records from the appellant is set aside; application under Section 17(4) dismissed as to the appellant and seized documents to be returned.Final Conclusion: Appeal allowed insofar as the appellant is concerned; the impugned order is set aside/modified as to the appellant, the application under Section 17(4) PMLA dismissed as to the appellant, and seized documents belonging to the appellant are directed to be returned forthwith; no costs.

2017 (10) TMI 567 - ATPMLA Money Laundering

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Appeal outcome: Adjudicating Authority to decide after hearing. Parties to appear by 10th Oct. Final order within 180 days.
The Tribunal concluded that the issues should be decided by the Adjudicating Authority after a hearing. The appeal was disposed of with a direction for the parties to appear before the Adjudicating Authority on 10th October 2017. The Adjudicating Authority was instructed to hear all parties on the issues raised and pass a final order before the expiry of 180 days from the date of the Provisional Attachment Order. The appeal and miscellaneous applications were accordingly disposed of, and a specific line from the last order dated 26th September 2017 was deleted with the consent of the parties.

Corporate insolvency resolution process - moratorium - provisional attachment - adjudicating authority's jurisdiction - remand for fresh consideration - overriding effect of subsequent statuteAdjudicating authority's jurisdiction - remand for fresh consideration - Whether the matters raised in the appeal should be adjudicated by the Adjudicating Authority or by this Tribunal - HELD THAT: - The Tribunal held that the questions raised by the parties - including the validity of the provisional attachment and the interplay between proceedings under the Prevention of Money Laundering Act and initiation of the corporate insolvency resolution process - are to be heard and decided by the Adjudicating Authority. The Tribunal accepted the IRP's contention that the Adjudicating Authority has competent jurisdiction to determine the validity of the provisional attachment and other contested issues and therefore remitted the matters for adjudication by that Authority after hearing all parties. [Paras 9, 10]All issues raised in the appeal are remitted to the Adjudicating Authority for adjudication after hearing the parties.Corporate insolvency resolution process - moratorium - provisional attachment - Time bound directions for adjudication and final order by the Adjudicating Authority - HELD THAT: - The Tribunal directed the parties to appear before the Adjudicating Authority on the date already fixed and ordered that the Adjudicating Authority shall hear all parties on the issues raised and pass the final order, positively before the expiry of 180 days from the date of the public announcement of the insolvency process (PAO). This is an administrative and case management direction to ensure expeditious disposal consistent with the insolvency framework. [Paras 10]Adjudicating Authority to hear all issues and pass final order before expiry of 180 days from the date of PAO; parties to appear on the fixed date.Adjudicating authority's jurisdiction - Conduct of the Adjudicating Authority in relation to directions issued by the Tribunal - HELD THAT: - The Tribunal observed that the Adjudicating Authority had proceeded to hear the matter despite an earlier direction of this Tribunal to adjourn, remarking that such conduct is a serious matter. The Tribunal cautioned the Adjudicating Authority to be careful in future and to follow directions issued by higher authority. [Paras 3]Adjudicating Authority admonished to follow directions of higher authority in future.Remand for fresh consideration - Modification of an earlier recorded statement in the Tribunal's order - HELD THAT: - With the consent of the parties, the Tribunal deleted a specific sentence from its last order dated 26.09.2017 that had recorded a particular averment about rejection of the appellant's application. The deletion was effected by consent and recorded in the present order. [Paras 12]The specified sentence in the earlier order dated 26.09.2017 is deleted by consent of the parties.Final Conclusion: The appeal is disposed of by remitting all substantive issues, including the challenge to the provisional attachment and the interplay between PMLA proceedings and initiation of corporate insolvency resolution process, to the Adjudicating Authority for hearing and final adjudication; the Adjudicating Authority is directed to hear the parties on the fixed date and to pass a final order within 180 days from the date of PAO; the Adjudicating Authority is admonished to comply with directions of higher fora, and a sentence in the Tribunal's earlier order is deleted by consent.

2017 (10) TMI 146 - ATPMLA Money Laundering

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Unavailable relied-upon records justified setting aside the adjudication order when merits could not be fairly examined.
The appeal was allowed and the impugned adjudication order was set aside because the relied upon material and proof of service of notices were not traceable, leaving the matter incapable of effective examination on merits. The appellant had repeatedly sought the documents, but the investigation file was unavailable and the earlier stage hearing had not been properly completed. In these circumstances, continuation of the penalty order would have caused prejudice, and interference was warranted in the interests of justice.

Non-production of record - service of notice - right of appeal - quashing of adjudication order - forfeiture of pre-depositNon-production of record - right of appeal - service of notice - Whether the appeal could be adjudicated on merits despite the enforcement record being not traceable and absence of proof of service of notices on the appellant. - HELD THAT: - The Tribunal recorded that despite repeated directions the Enforcement Directorate was unable to trace or produce the investigation/adjudication file and relied documents required for disposal of the appeal. The appellant consistently maintained that he had not been served with the show cause notice while he was outside India and that proof of service had not been produced. The Bench observed that more than eighteen years had elapsed since initiation of proceedings, directions of the High Court to produce the documents had not been complied with, and that the absence of the requisite record prejudiced the appellant's ability to prosecute or defend the appeal. In these circumstances, and having regard to the appellant's pleaded non-availability in the country when notices were issued, the Tribunal found that the appellant's valuable right of appeal and of being heard would be defeated if the matter were adjudicated without the record; fairness required setting aside the impugned adjudication order. [Paras 16, 18, 19, 21, 22]The appeal is allowed on account of non-production of the investigation/adjudication record and absence of proof of service; the impugned adjudication order is set aside.Forfeiture of pre-deposit - Disposition of the portion of penalty pre-deposited by the appellant pending appeal. - HELD THAT: - The appellant had deposited 10% of the penalty as directed earlier by the Tribunal. In light of the order allowing the appeal for want of traceable record, and upon the appellant's express agreement, the Tribunal directed that the deposited amount be retained by the Enforcement Directorate and the appellant shall not claim its refund. The Tribunal recorded this arrangement as a without-prejudice settlement of the deposited amount. [Paras 13, 23]The pre-deposit (10% of the penalty) shall be retained by the respondent and the appellant shall not claim its refund.Final Conclusion: The appeal is allowed because the Enforcement Directorate could not produce the investigation/adjudication record and failed to furnish proof of service of notices; the adjudicating order imposing penalty is set aside, and the appellant's 10% pre-deposit is ordered to be retained by the respondent by agreement of the parties.

2017 (10) TMI 32 - ATPMLA Money Laundering

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Issues: (i) Whether the attachment could be sustained without issuing notice to the secured creditor bank under the adjudication provisions of the PMLA; (ii) Whether properties acquired before the alleged offence and already mortgaged to the bank could be treated as proceeds of crime and attached under the PMLA.

Issue (i): Whether the attachment could be sustained without issuing notice to the secured creditor bank under the adjudication provisions of the PMLA.

Analysis: The statutory scheme under Section 8 requires the Adjudicating Authority to issue notice and hear the person whose interest in the property is directly affected before confirming attachment. Where the bank had prior mortgage interest and had placed relevant material before the enforcement authorities, omission to serve notice deprived it of an opportunity to establish that the properties were not involved in money laundering. The mandatory hearing requirement is integral to valid adjudication.

Conclusion: The attachment could not be sustained for want of notice and hearing to the bank.

Issue (ii): Whether properties acquired before the alleged offence and already mortgaged to the bank could be treated as proceeds of crime and attached under the PMLA.

Analysis: The properties were shown to have been acquired prior to the alleged criminal activity and thereafter mortgaged to the bank against loans. The materials indicated that the bank was a victim and secured creditor, while the loan funds themselves were public monies advanced by the bank and not tainted assets. In the absence of a demonstrated nexus between the specific properties and criminal activity relating to a scheduled offence, the statutory definition of proceeds of crime was not satisfied. A bona fide secured creditor and genuine acquisition could not be overridden on mere suspicion.

Conclusion: The mortgaged properties could not be treated as proceeds of crime and were not liable to attachment.

Final Conclusion: The provisional attachment was set aside and the appeals succeeded, with the challenge to attachment of the mortgaged properties failing on both mandatory notice and merits.

Ratio Decidendi: For confirmation of attachment under the PMLA, the Adjudicating Authority must hear all persons whose proprietary interest is affected, and property cannot be treated as proceeds of crime unless a real nexus with criminal activity relating to a scheduled offence is established; bona fide secured interests and pre-existing acquisitions are not liable to confiscation absent such nexus.

Secured creditor rights prevail where mortgaged property lacks a demonstrated nexus to scheduled-offence criminal activity under PMLA.
Under the PMLA adjudication framework, attachment cannot be confirmed without notice and hearing to a secured creditor whose prior mortgage interest is directly affected. Failure to give the bank an opportunity to establish that the property is unconnected with money laundering invalidates the attachment. Property acquired before the alleged scheduled offence and genuinely mortgaged to a bank cannot be treated as proceeds of crime without a demonstrated nexus to criminal activity. Where the bank is a bona fide secured creditor and the loan funds are not tainted assets, its secured interest and pre-existing acquisition cannot be displaced on suspicion alone; the provisional attachment is therefore unsustainable.

Provisional attachment under PMLA - Proceeds of crime - Requirement of nexus between scheduled offence and property - Burden of proof and mens rea in money laundering - Notice under Section 8(2) and right to be heard of secured creditor - Priority of secured creditor's rights under SARFAESI and related recovery lawsNotice under Section 8(2) and right to be heard of secured creditor - Validity of confirmation of provisional attachment where the Adjudicating Authority did not serve notice on the secured creditor (Syndicate Bank) despite the properties being mortgaged to the Bank - HELD THAT: - The Tribunal held that the Adjudicating Authority failed to comply with the mandatory statutory requirement to issue notice under Section 8(1) proviso and Section 8(2) to the Syndicate Bank, although the record showed that the properties were mortgaged to and claimed by the Bank and that the Bank had supplied documents and taken recovery steps. The omission to hear the secured creditor vitiated the confirmation order because the statute contemplates that a party claiming an interest in attached property must be given an opportunity to prove that the property is not involved in money laundering. The Tribunal concluded that non service and non hearing of the Bank was a ground to set aside the impugned order of confirmation of attachment. [Paras 20, 28, 33]Impugned confirmation order set aside for failure to issue and consider the Bank's statutory notice and claim.Provisional attachment under PMLA - Proceeds of crime - Requirement of nexus between scheduled offence and property - Whether monies advanced by the Bank and the properties mortgaged to the Bank constitute 'proceeds of crime' and were rightly confirmed as attached under the PMLA - HELD THAT: - The Tribunal found that the loans were advances of the Bank's funds and that the Bank itself was the victim of any alleged conspiracy by its employee and the borrowers. The mere fact that a bank employee may have colluded with borrowers does not convert the Bank's money into 'proceeds of crime'. For property to qualify as 'proceeds of crime' there must be a connection between the property and criminal activity relating to a scheduled offence; mere irregularity or excess of delegated power by a bank official does not make the loan proceeds tainted. The Adjudicating Authority's confirmation paragraph failed to explain how the attached properties were derived from criminal activity; it lacked reasoning and did not apply the statutory tests under Sections 2(u), 3, 5 and 8. Consequently, attachment of mortgaged properties-already subject to bank's security, possession or recovery processes-could not be sustained on the record before the Authority. [Paras 18, 19, 21, 24, 29]Held that the attached mortgaged properties are not shown to be 'proceeds of crime'; confirmation of attachment is quashed.Burden of proof and mens rea in money laundering - Proceeds of crime - Extent of enquiry required under Sections 5 and 8 of the PMLA at the stage of confirmation and the role of mens rea/knowledge in adjudicating whether property is involved in money laundering - HELD THAT: - The Tribunal emphasised that Sections 5 and 8 read together require prima facie material to show possession of proceeds of crime and that on confirmation the Adjudicating Authority must consider replies and relevant material showing sources of income. Section 3 requires knowledge or active involvement to attract money laundering liability. If a person in possession discloses legitimate sources for the property, attachment cannot be sustained. The Authority must record reasons showing nexus between the scheduled offence and the property; absent such material the statutory presumption cannot be mechanically applied. The Tribunal criticised the impugned order for lacking analysis on these statutory prerequisites. [Paras 23, 24, 25, 26]Adjudicating Authority erred in not applying the statutory tests in Sections 5 and 8 and in failing to assess mens rea/connection; confirmation cannot stand.Priority of secured creditor's rights under SARFAESI and related recovery laws - Whether attachment under PMLA could override the rights and remedies of the secured creditor in respect of mortgaged property - HELD THAT: - The Tribunal observed that it was not deciding the merits of the Bank's recovery proceedings but noted the practical and legal difficulty of treating mortgaged securities of a bank as proceeds of crime without adequate enquiry. The decision records that the Bank had initiated and, in some cases, taken symbolic or physical possession under SARFAESI and filed recovery suits before DRT/Higher Courts. While recognising judicial authority on interaction between special enactments, the Tribunal held that in the facts of this case the Adjudicating Authority's order, which ignored the Bank's rights and claim, could not be sustained. [Paras 16, 31]The attachment was set aside insofar as it affected mortgaged properties claimed by the secured creditor; the Bank's rights under recovery laws remain to be enforced in appropriate fora.Final Conclusion: The Tribunal set aside the Adjudicating Authority's confirmation of provisional attachment in respect of the mortgaged properties, holding that the Authority failed to comply with mandatory notice/hearing requirements and did not demonstrate a nexus or requisite mens rea to treat bank advances or mortgaged assets as 'proceeds of crime'; the provisional attachments are quashed, without prejudice to the pending criminal proceedings against the appellants and to the Bank's recovery remedies.

2017 (9) TMI 1446 - ATPMLA Money Laundering

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Pre-existing secured creditor priority prevails over later PMLA attachment, allowing enforcement against a hypothecated vehicle.
A valid pre-existing security interest of a bona fide secured creditor in a hypothecated vehicle takes priority over a later provisional attachment under the PMLA where the asset is not shown to be proceeds of crime and the creditor is not implicated in money laundering. The tribunal relied on the statutory priority given to secured creditors under section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, together with the SARFAESI framework, to hold that enforcement of the bank's security could proceed. The attachment was therefore not sustainable, and the bank was permitted to sell the vehicle to recover its dues.

Priority of secured creditors under amended SARFAESI and its effect on competing PMLA attachments - Right of hypothecation and realization by sale under SARFAESI / secured creditor's right to recover dues - Provisional attachment under PMLA and protection for bona fide secured creditors - Bona fide acquisition and requirement of mens rea/knowledge for property to constitute proceeds of crimePriority of secured creditors under amended SARFAESI and its effect on competing PMLA attachments - Right of hypothecation and realization by sale under SARFAESI / secured creditor's right to recover dues - Provisional attachment under PMLA and protection for bona fide secured creditors - Whether the Adjudicating Authority was justified in confirming the provisional attachment under the PMLA of a vehicle hypothecated to the bank, thereby preventing the bank (a secured creditor) from selling the vehicle to realize its dues. - HELD THAT: - The Tribunal held that the appellant bank had an existing hypothecation and a first charge over the vehicle and had exercised its right under the security agreement to take possession and realize the security. The subsequent legislative amendment giving secured creditors priority in realization of secured debts prima facie operates to protect the bank's right to recover its dues over competing attachments by government authorities. The Adjudicating Authority erred in confirming the provisional attachment because the vehicle was procured and hypothecated to the bank prior to the alleged scheduled offences and there was no material to establish that the vehicle constituted proceeds of crime or that the bank itself was involved in money laundering. The Tribunal relied on the principles that provisional attachment under the PMLA requires a prima facie link between the property and proceeds of crime and that bona fide secured creditors who acquired security prior to any taint cannot be deprived of their statutory remedies absent a demonstrated nexus. Applying these principles, the Tribunal concluded that the provisional attachment was unsustainable and that the bank must be permitted to realize its security to recover outstanding dues; any balance may be pursued as per law and the bank's entitlement under the PMLA (including Section 8(8) for victims) was acknowledged. [Paras 16, 23, 27, 65, 66]Impugned confirmation of provisional attachment set aside; provisional attachment order annulled and the bank permitted to sell the hypothecated vehicle to recover its dues, with the bank entitled to pursue the remaining balance as per law.Final Conclusion: The appeal succeeds: the Adjudicating Authority's order confirming provisional attachment is set aside and the bank - having prior hypothecation and a secured right to realize the vehicle - is permitted to sell the vehicle to recover its outstanding dues; residual claims may be pursued according to law.

2017 (8) TMI 1747 - APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI Money Laundering

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Issues: (i) Whether the secured creditor's rights under SARFAESI prevail over attachment proceedings under the Prevention of Money Laundering Act; (ii) whether the properties in question could be continued under attachment when the banks were not shown to be involved in money laundering and held prior security interests.

Issue (i): Whether the secured creditor's rights under SARFAESI prevail over attachment proceedings under the Prevention of Money Laundering Act.

Analysis: The amended scheme of SARFAESI, particularly the provision giving priority to secured creditors, was treated as decisive. The later legislative mandate was read as conferring overriding priority on secured creditors for recovery of secured debts, including against competing claims arising under the money-laundering attachment regime. The Tribunal relied on the statutory amendment and the settled principle that a later special enactment with a non obstante clause prevails over an earlier inconsistent special law.

Conclusion: The secured creditors' rights under SARFAESI prevail over the attachment under the Prevention of Money Laundering Act.

Issue (ii): Whether the properties in question could be continued under attachment when the banks were not shown to be involved in money laundering and held prior security interests.

Analysis: The properties had been mortgaged to the banks before the alleged crime and there was no finding that the banks were parties to the scheduled offence or otherwise connected with the generation or projection of proceeds of crime. In the absence of nexus between the banks and the alleged laundering activity, and in view of the banks' status as bona fide secured creditors, the attachment was treated as unsustainable against them.

Conclusion: The attachment could not be sustained against the banks' secured interests.

Final Conclusion: The impugned attachment orders were set aside and the secured properties were released, with the banks' recovery rights protected as against the money-laundering attachment.

Ratio Decidendi: A later special statute conferring priority on secured creditors overrides inconsistent attachment claims, and property held as bona fide security by an uninvolved secured creditor cannot be treated as attachable proceeds of crime in the absence of nexus with money laundering.

Secured creditor priority over money-laundering attachment protects prior mortgage rights and defeats inconsistent claims
The amended SARFAESI framework is described as giving secured creditors overriding priority for recovery of secured debts, even against attachment claims under the Prevention of Money Laundering Act. The commentary also states that where banks held prior mortgages, were not shown to be involved in the scheduled offence, and had no nexus with alleged laundering activity, the attachment of such properties is unsustainable against their secured interests. The practical effect, as stated, is that bona fide secured creditors retain recovery rights and the attached secured properties are released from the competing money-laundering attachment regime.

2017 (9) TMI 1006 - ATPMLA Money Laundering

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Issues: (i) Whether the rights of secured creditors under the SARFAESI regime prevail over provisional attachment under the Prevention of Money-Laundering Act, 2002. (ii) Whether the mortgaged properties of the appellant banks, acquired and charged as security before the alleged criminal activity, could be confirmed as attached properties under the Prevention of Money-Laundering Act, 2002.

Issue (i): Whether the rights of secured creditors under the SARFAESI regime prevail over provisional attachment under the Prevention of Money-Laundering Act, 2002.

Analysis: The amended secured-creditor provisions were treated as conferring priority on secured creditors notwithstanding any other law. The later statutory regime was held to override inconsistent claims under the money-laundering attachment process, particularly where the banks were not accused of any laundering activity and had initiated recovery under the security-interest law. The reasoning proceeded on the footing that the secured creditors' statutory priority could not be displaced by attachment of assets already charged in their favour.

Conclusion: The rights of the secured creditors were held to prevail over the attachment under the Prevention of Money-Laundering Act, 2002.

Issue (ii): Whether the mortgaged properties of the appellant banks, acquired and charged as security before the alleged criminal activity, could be confirmed as attached properties under the Prevention of Money-Laundering Act, 2002.

Analysis: The properties were found to have been acquired much before the alleged offence and were already mortgaged to the appellant banks for bona fide lending transactions. The banks were not accused of any scheduled offence or money-laundering activity. On that basis, the attachment was held unsustainable because the properties lacked the requisite nexus with proceeds of crime so far as the banks were concerned, and innocent secured creditors could not be made to suffer for the alleged conduct of the borrowers.

Conclusion: The provisional attachment and its confirmation in respect of the appellant banks' mortgaged properties were set aside.

Final Conclusion: The Tribunal held that the secured creditors' statutory priority protected the mortgaged assets from confirmation of attachment under the money-laundering proceedings, and the impugned attachment orders were unsustainable.

Ratio Decidendi: Where secured assets are lawfully mortgaged to innocent secured creditors and the creditors are not shown to be involved in the scheduled offence or money-laundering activity, the statutory priority of secured creditors prevails and the properties cannot be retained under provisional attachment merely because the borrower is alleged to have generated proceeds of crime.

Secured creditor priority prevails over money-laundering attachment for mortgaged assets owned before the alleged offence.
Secured creditors' statutory priority under the SARFAESI regime was treated as prevailing over provisional attachment under the Prevention of Money-Laundering Act where the lenders were innocent of any scheduled offence or laundering activity. The mortgaged properties had been acquired and charged to the banks before the alleged criminal activity, so they lacked the necessary nexus with proceeds of crime as against the secured creditors. On that basis, the attachment could not be sustained against assets already validly mortgaged for bona fide lending transactions, and the provisional attachment and its confirmation were set aside.

Overriding effect of SARFAESI Act vis-a -vis PMLA - priority to secured creditors / priority of security interest - provisional attachment under PMLA and Section 8 adjudication - innocent third party / bona fide purchaser relief against attachment - release of property from attachment and rights of secured creditor to realise securityOverriding effect of SARFAESI Act vis-a -vis PMLA - priority to secured creditors / priority of security interest - Whether the rights of secured creditors under the SARFAESI/Recovery enactments prevail over attachment proceedings under the PMLA in the facts of these appeals. - HELD THAT: - The Tribunal held that the amended provisions inserted by Parliament (notably provisions giving priority to secured creditors) confer overriding effect and priority to secured creditors in realisation of secured debts notwithstanding other laws, and that this principle governs even pending lis. Relying on its earlier unanimous decision dated 14.07.2017 and subsequent High Court full bench and Supreme Court principles on later special statutes with non obstante clauses, the Tribunal concluded that the SARFAESI/Recovery amendments secure a priority for secured creditors which defeats a competing attachment by ED in the present circumstances. The Tribunal applied this legal principle to the facts where banks had prior mortgage/charge and had moved under SARFAESI. [Paras 19, 31, 33, 36]The SARFAESI/Recovery enactments (as amended) have overriding effect and priority in respect of secured creditors' rights, and that principle defeats the provisional attachment in these appeals.Provisional attachment under PMLA and Section 8 adjudication - innocent third party / bona fide purchaser relief against attachment - Whether the provisional attachment of the mortgaged properties could be sustained where the appellant banks are innocent secured creditors who acquired a prior charge and where the properties were acquired before the alleged offences. - HELD THAT: - The Tribunal affirmed that the PMLA adjudication under Section 8 permits innocent third parties or claimants to demonstrate lack of nexus between the property and proceeds of crime and that the Adjudicating Authority must consider such pleas. On the facts, the banks were not accused of the scheduled offences, the properties were acquired prior to the alleged crimes and were mortgaged to the banks; the Adjudicating Authority had not properly appreciated these aspects. Applying settled authorities on the need to protect bona fide purchasers/innocent parties and the statutory scheme of Section 8, the Tribunal found prima facie that the allegation of money laundering was unsustainable for attachment purposes as against these secured creditors. [Paras 21, 55, 56, 65]The provisional attachment was prima facie unsustainable as regards the mortgaged properties held by the appellant banks, and the banks were entitled to relief.Release of property from attachment and rights of secured creditor to realise security - provisional attachment under PMLA and Section 8 adjudication - Relief and mode of enforcement: whether the attached mortgaged properties should be released and whether the banks may realise their security. - HELD THAT: - Applying the conclusions on priority and on the innocence of the banks, the Tribunal set aside the impugned order confirming the provisional attachment and ordered release of the scheduled properties from attachment. In the interest of justice the Tribunal directed that the appellant banks may take possession and are permitted to sell the mortgaged properties in the presence of nominated officers of the Enforcement Directorate; after sale and adjustment of dues the banks shall deposit any surplus with the Enforcement Directorate. The Tribunal recorded that the allegation of money laundering was prima facie found unsustainable for attachment. [Paras 19, 20, 21, 22]Schedule 'A', 'B' and 'C' properties are released from attachment; appellant banks may take possession and sell the properties in presence of ED officers and deposit any surplus with ED.Final Conclusion: The Tribunal allowed the appeals, set aside the Adjudicating Authority's confirmation of the provisional attachment, held that the amended SARFAESI/Recovery provisions confer priority to secured creditors which governs these facts, found the provisional attachment prima facie unsustainable as against the innocent secured banks, released the mortgaged properties from attachment and directed the banks to realise their security with provision for depositing any surplus with the Enforcement Directorate.

2017 (9) TMI 54 - ATPMLA Money Laundering

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Secured creditor priority overrides later attachment where a prior mortgage exists and SARFAESI recovery rights have already been invoked.
A prior and subsisting security interest in mortgaged property was treated as having statutory priority over a later provisional attachment under the Prevention of Money Laundering Act, 2002. The Tribunal applied the 2016 amendments introducing Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and Section 26E of the SARFAESI Act, and held that secured creditors retain priority in recovery over inconsistent claims. Because the bank had already initiated SARFAESI measures as a secured creditor, the attachment and confirming order were unsustainable against the bank, and the property was to be released from attachment.

Overriding effect of a later special enactment over an earlier special enactment - priority of secured creditors under amended SARFAESI/DRT statutes - provisional attachment under the Prevention of Money Laundering Act - innocent/third party bona fide purchaser defence to attachment - prima facie satisfaction for confirmation of provisional attachmentOverriding effect of a later special enactment over an earlier special enactment - priority of secured creditors under amended SARFAESI/DRT statutes - Whether the provisions of the SARFAESI/Recovery enactments (as amended) override and take priority over the PMLA for purposes of realization of secured debt and attachment of mortgaged assets. - HELD THAT: - The Tribunal considered the effect of amendments to the SARFAESI Act and the Recovery of Debts Act (insertion of Section 26E of SARFAESI and Section 31B of the Recovery Act with 'notwithstanding' clauses) and examined judicial authorities dealing with conflicts between special statutes. It held that the post 2016 amendments give secured creditors statutory priority for realization of secured debts notwithstanding other laws, and that on harmonious construction (and in view of legislative intent and the express 'notwithstanding' language) the SARFAESI/Recovery provisions prevail over inconsistent provisions of the PMLA insofar as the rights of secured creditors to recover dues by sale of assets are concerned. The Tribunal applied its earlier common judgment in State Bank of India v. Enforcement Directorate (dated 14.07.2017) and related authorities to conclude that the amended provisions govern rights even in pending lis and grant priority to secured creditors. [Paras 12, 32, 33, 35]SARFAESI/Recovery Act (as amended) has overriding effect and gives priority to secured creditors over inconsistent provisions of the PMLA in respect of realization of secured debts.Provisional attachment under the Prevention of Money Laundering Act - innocent/third party bona fide purchaser defence to attachment - prima facie satisfaction for confirmation of provisional attachment - Whether the provisional attachment of the scheduled mortgaged property under the PMLA and its confirmation by the Adjudicating Authority were legally sustainable. - HELD THAT: - The Tribunal examined the material and factual matrix: the property was purchased prior to the alleged scheduled offence; the bank (appellant) held a mortgage, had taken steps under SARFAESI and DRT, and possession/action under SARFAESI pre dated the PMLA attachment. Relying on principles that the Adjudicating Authority must record a prima facie view based on materials and that innocent third parties / bona fide secured creditors can establish lack of nexus with proceeds of crime, the Tribunal found that the ED had not shown that the mortgaged property was derived from proceeds of crime or that the bank was implicated. Applying the statutory scheme and earlier decisions (including the Tribunal's common judgment), it held the provisional attachment and its confirmation to be legally incorrect in the circumstances of this case. [Paras 10, 56, 61, 65]The provisional attachment and the adjudicating authority's confirmation are not sustainable and are set aside in respect of the scheduled mortgaged property.Release of attached property and restoration of secured creditor's possession - Relief to be granted following the finding that attachment was unsustainable. - HELD THAT: - Having found that the PMLA attachment could not be sustained against the mortgaged asset and that the amended SARFAESI/Recovery provisions grant priority to the secured creditor, the Tribunal ordered release of the scheduled property from attachment and directed that the appellant bank may take possession of the mortgaged property as secured asset. The Tribunal also recorded that, on the facts, money laundering allegations were prima facie unsustainable for the purpose of attachment. [Paras 17, 19, 20, 21]The scheduled property is released from attachment and the appellant bank may take possession; money laundering allegation found prima facie unsustainable for attachment purposes.Final Conclusion: Appeal allowed. The Tribunal held that, in light of the 2016 amendments and relevant authorities, the SARFAESI/Recovery enactments prevail to protect the priority rights of secured creditors; the provisional attachment and its confirmation in respect of the mortgaged scheduled property were quashed and the property released to the bank for realization of secured debt.

2017 (8) TMI 1642 - APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI Money Laundering

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Issues Involved:
1. Fresh appeal filed under section 26 of Prevention of Money Laundering Act, 2002 against the order dated 12th July, 2017.
2. Interim order sought in view of the notice under section 8(4) of the Act regarding provisional attachment order of two properties.
3. Prima facie case for grant of interim protection based on the appellant's submissions and undertakings.

Analysis:

Issue 1: Fresh appeal under PMLA, 2002
The appeal was filed against an order dated 12th July, 2017, under section 26 of the Prevention of Money Laundering Act, 2002. The respondent was served notice, and their counsel accepted it. The respondent sought six weeks to file a reply, and the appellant was given the opportunity to file a rejoinder within four weeks after receiving the reply. The appeal was listed for hearing on 2nd February, 2018.

Issue 2: Interim order for provisional attachment of properties
The appellant sought an interim order concerning the provisional attachment of two properties based on a notice under section 8(4) of the Act. The properties in question were described in detail, and the appellant argued that the directors associated with the properties were not charged with any proceeds of crime. The appellant provided details of the property purchase dates and undertook that the properties would not be disposed of until the appeal was finally decided. The appellant's counsel argued for interim protection, and objections raised by the respondent's counsel were to be addressed at the next hearing. The appellant was granted protection against any coercive action by the respondent until the matter was resolved.

Issue 3: Prima facie case for interim protection
The appellant made a prima facie case for the grant of interim protection by providing details regarding the properties, the lack of charges against the directors, and the undertaking not to dispose of the properties. The appellant's counsel argued for protection against any coercive action by the respondent. The court considered these submissions and granted protection subject to the conditions mentioned, listing the matter for further hearing on 2nd February, 2018.

This comprehensive analysis covers the issues involved in the legal judgment, detailing the proceedings related to the fresh appeal, the interim order sought for the properties, and the considerations for granting interim protection based on the appellant's submissions.

Appeal for Interim Protection Granted in Money Laundering Case
The appellant filed a fresh appeal under the Prevention of Money Laundering Act, 2002 against an order dated July 12, 2017. An interim order was sought regarding the provisional attachment of two properties. The appellant presented a prima facie case for interim protection, detailing the properties and providing undertakings. The court granted protection against coercive action by the respondent until the matter was resolved, with the next hearing scheduled for February 2, 2018.

Provisional attachment and interim protection under the Prevention of Money Laundering Act, 2002 (notice under section 8(4)) - Undertaking as condition for interim relief - Stay on disposal or creation of third-party rights in attached properties - Procedural timeline for filing reply and rejoinder in appellate proceedingsProvisional attachment and interim protection under the Prevention of Money Laundering Act, 2002 (notice under section 8(4)) - Stay on disposal or creation of third-party rights in attached properties - Undertaking as condition for interim relief - Grant of interim protection in respect of two properties provisionally attached, subject to an undertaking and prohibition on coercive action. - HELD THAT: - The Tribunal entertained the appellant's application for interim relief against the provisional attachment confirmed by the impugned order. The appellant stated that no directors are charged with proceeds of crime, no prosecution complaint is pending against the appellant, and the properties predate the alleged offences. The appellant undertook that the attached properties will not be disposed of directly or indirectly until final disposal of the appeal. On this prima facie basis the Tribunal concluded that interim protection should be granted. The protection granted is limited and conditional: the appellant's undertaking not to dispose of the properties or create third-party rights is a precondition, and the respondent is restrained from taking coercive action in view of the notice issued under section 8(4) of the Act.Interim protection granted subject to appellant's undertaking; no disposal or creation of third party rights and no coercive action to be taken by the respondent pending final disposal of the appeal.Procedural timeline for filing reply and rejoinder in appellate proceedings - Directions for filing of respondent's reply and appellant's rejoinder and listing of the appeal. - HELD THAT: - The Tribunal issued notice to the respondent who accepted service and sought time to file a reply. The Tribunal directed the respondent to file the reply within six weeks and to serve an advance copy on the appellant's counsel; the appellant was permitted to file a rejoinder within four weeks thereafter. The matter was listed for further hearing on the specified date.Reply to be filed within six weeks with advance copy to appellant; rejoinder to be filed within four weeks thereafter; matter listed for further hearing on the stated date.Adjournment for consideration of remaining objections - Other objections raised by the respondent reserved for consideration on the next date of hearing. - HELD THAT: - The Tribunal recorded that other objections advanced by the respondent would be considered on the next date. Those objections were not decided on the merits in the present order and are to be taken up for adjudication after the filing of pleadings and further hearing.Remaining objections remanded for fresh consideration on the next date of hearing.Final Conclusion: Interim protection granted in respect of the two attached properties on the appellant's undertaking; respondent directed to file reply within six weeks, appellant to file rejoinder within four weeks, and other objections remanded for consideration at the next hearing; matter listed for the specified date.

2017 (8) TMI 755 - ATPMLA Money Laundering

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Tribunal overturns order due to non-compliance with notice requirements under PMLA
The tribunal set aside the confirmation of the Provisional Attachment Order (PAO) due to the failure to comply with mandatory notice requirements under Section 8 of PMLA. It ruled that the sale deed executed before the PAO was valid, and the property was not considered proceeds of crime. Recognizing the appellant as a bona fide purchaser, it emphasized that authorities cannot attach properties acquired legitimately. The impugned order was overturned, and the case was remanded for re-hearing, allowing the appellant to present their case. The appeal was successful, with no costs imposed.

Mandatory notice under section 8 of the PMLA - provisional attachment under section 5 of the PMLA - attachment ceasing under section 5(3) of the PMLA - registered sale deed relates back to date of execution - protection of bonafide purchaser - rehearing/remand for consideration of replies and pleas - burden to prove untainted property under section 24 of the PMLAMandatory notice under section 8 of the PMLA - provisional attachment under section 5 of the PMLA - registered sale deed relates back to date of execution - attachment ceasing under section 5(3) of the PMLA - Validity of confirmation of provisional attachment in respect of property purchased by the appellant prior to the provisional attachment order - HELD THAT: - The Adjudicating Authority failed to issue the notice mandated by section 8(1) and to comply with the proviso to section 8(2) before confirming the provisional attachment imposed under section 5. The registered sale deed in favour of the appellant was executed on 14.07.2016, prior to the provisional attachment order dated 11.08.2016, and, in law, the registration relates back to the date of execution. The mandatory procedural requirement of issuing notice could not be ignored; non-compliance vitiated the confirmation of the provisional attachment as regards the property purchased prior to the POA. In consequence, having regard to section 5(3) (which contemplates cessation of attachment on expiry of the specified period or on an order under section 8(2), whichever is earlier), the Adjudicating Authority's confirmation of attachment without compliance with section 8 could not be sustained. [Paras 18, 20, 29]Impugned order dated 20.01.2017 is set aside insofar as it confirms the provisional attachment of property no. 1 purchased by the appellant prior to the provisional attachment order.Rehearing/remand for consideration of replies and pleas - protection of bonafide purchaser - burden to prove untainted property under section 24 of the PMLA - attachment ceasing under section 5(3) of the PMLA - Further procedure to be followed and scope of consideration on remand - HELD THAT: - Rather than finally deciding the merits in the appellant's absence, the Tribunal directed that the matter be remanded to the Adjudicating Authority for fresh hearing. The appellant is granted four weeks to file a reply; the Adjudicating Authority is to hear the parties, consider the appellant's claim of being a bonafide purchaser having paid untainted money, and address the appellant's plea under section 5(3) regarding cessation of attachment. The Tribunal also directed that the rehearing be conducted before a bench including Member (Legal). The Tribunal did not express any final view on the merits and confined its order to setting aside the confirmation insofar as the impugned property is concerned and directing de novo adjudication after affording the appellant an opportunity. [Paras 28, 30, 31]The matter is remanded to the Adjudicating Authority for re-hearing after the appellant files its reply within four weeks; the Adjudicating Authority shall consider all pleas including bonafide purchaser and section 5(3) issues and decide afresh, with hearing conducted before a bench including Member (Legal).Final Conclusion: The appeal is allowed: the Adjudicating Authority's confirmation of the provisional attachment is set aside in respect of the property purchased by the appellant before the provisional attachment order; the matter is remitted for de novo adjudication after the appellant is given four weeks to file a reply and a hearing before a bench including Member (Legal).

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