2014 (11) TMI 1168 - AT - Money Laundering

Tribunal directs hearing for State Bank of India to establish property rights

State Bank of India Versus Prabhakant

State Bank of India Versus Prabhakant - 2017 (358) E.L.T. 224 (ATPMLA) Issues Involved:1. Provisional Attachment Order2. Right to be Heard3. Priority of Charge4. Nature of Assets5. Jurisdiction of Adjudicating AuthorityIssue-Wise Detailed Analysis:1. Provisional Attachment Order:The appellant, State Bank of India, challenged the provisional attachment order dated 10-11-2010 issued by the Deputy Director, Enforcement Directorate, and confirmed by the Adjudicating Authority on 6th April 2011. The appellant argued that the order was passed without summoning or hearing them, despite their significant financial interest in the assets attached, which were mortgaged to them to secure loans provided to M/s. Shivans Steel Pvt. Ltd.2. Right to be Heard:The appellant contended that they were not given an opportunity to be heard before the confirmation of the provisional attachment order, violating principles of natural justice. They emphasized that under Section 8(1) of the PMLA, notice should have been served to all persons holding an interest in the attached property. The Tribunal acknowledged this procedural lapse and highlighted that the Adjudicating Authority must provide a hearing to any party with a claimed right in the property, even post-confirmation of the attachment order.3. Priority of Charge:The appellant argued that their charge over the assets of the borrower company, registered with the ROC, takes precedence over any claims by the Enforcement Directorate. They asserted that the bank's right to recover dues from the mortgaged property should be prioritized over any subsequent attachment by the Directorate. The respondent, however, contended that the PMLA does not recognize such priority and that the attachment under the Act supersedes other claims.4. Nature of Assets:The appellant maintained that the assets in question were acquired through legitimate bank loans and not from proceeds of crime. They argued that the funds provided by the bank were used to purchase machinery and other assets, which were then mortgaged to the bank. The respondent alleged that the borrower company received funds from tainted sources linked to corrupt activities, justifying the attachment. The Tribunal noted that the appellant should have the opportunity to prove that the assets were not involved in money laundering.5. Jurisdiction of Adjudicating Authority:The Tribunal discussed whether the Adjudicating Authority becomes functus officio (having no further authority) after confirming the provisional attachment order. It concluded that the Authority retains the power to hear claims from parties with an interest in the attached property, even after confirmation. The Tribunal emphasized that denying such a hearing would lead to irrational consequences and violate the principles of natural justice.Conclusion:The Tribunal disposed of the appeal, directing the appellant to seek a hearing before the Adjudicating Authority to establish their rights in the attached properties. It clarified that the Adjudicating Authority must determine whether the appellant has a prima facie right to the property and then decide on the attachment's validity. The Tribunal refrained from expressing any final opinion on the merits of the appellant's claims, leaving the matter for the Adjudicating Authority to decide.