2017 (8) TMI 755 - AT - Money Laundering

Tribunal overturns order due to non-compliance with notice requirements under PMLA

M/s. Hina Trading & Manufacturing Pvt. Ltd. Versus The Deputy Director Directorate of Enforcement, Mumbai

The tribunal set aside the confirmation of the Provisional Attachment Order (PAO) due to the failure to comply with mandatory notice requirements under ... Prevention of money laundering - Provisional Attachment Order - sale of property before the attachment orders - Held that:- In the present case it is not denied by the respondent that the sale deed was registered prior to the date of provisional attachment order. The mandatory notice under section 8 has not been issued to the appellant. Thus, the impugned order is not sustainable and impugned order dated 20th January, 2017 is set aside only in relation to the property no. 1 which has been purchased by the appellant prior to the date of passing the provisional order. The appellant is granted four weeks time to file reply to the notice. The Adjudicating Authority, thereafter, shall decide the matter after considering all the pleas raised by the appellant including the plea of the appellant claiming itself as a bonafide purchaser and no tainted money was paid to the vendor. The appellant would also be entitled to raise its plea under section 5(3) of the Act, which shall be also considered by the Adjudicating Authority and decide the same as per law. Issues Involved:1. Confirmation of Provisional Attachment Order.2. Compliance with mandatory notice requirements under Section 8 of PMLA.3. Validity of the sale deed executed prior to the Provisional Attachment Order.4. Allegation of property being proceeds of crime.5. Rights of a bona fide purchaser under PMLA.Issue-wise Detailed Analysis:1. Confirmation of Provisional Attachment Order:The appeal challenges the confirmation of the Provisional Attachment Order (PAO) No. 15/2016 dated 11.08.2016 by the Adjudicating Authority on 20.01.2017. The PAO attached multiple properties, including the disputed property purchased by the appellant on 14th July 2016.2. Compliance with Mandatory Notice Requirements under Section 8 of PMLA:The appellant argued that the mandatory notice under Section 8(1) and (2) of PMLA was not issued, which is a prerequisite before confirming a PAO. The tribunal noted that the Adjudicating Authority failed to serve the notice to the appellant, who had purchased the property before the PAO. This omission violated the statutory requirement, rendering the impugned order unsustainable.3. Validity of the Sale Deed Executed Prior to the Provisional Attachment Order:The sale deed for the disputed property was executed and registered on 14th July 2016, before the PAO dated 11th August 2016. The tribunal emphasized that once a sale deed is registered, it relates back to the date of execution. Thus, the ownership of the property had legally transferred to the appellant before the PAO, making the attachment of this property invalid.4. Allegation of Property Being Proceeds of Crime:The tribunal examined whether the property in question was acquired using proceeds of crime. The appellant provided evidence of payment through cheques and argued that the property was purchased from lawful earnings. The tribunal noted that the Enforcement Directorate (ED) did not present any evidence to prove that the sale consideration was undervalued or that the appellant was involved in the alleged criminal activities. Hence, the property could not be considered proceeds of crime under Section 2(u) of PMLA.5. Rights of a Bona Fide Purchaser under PMLA:The tribunal recognized the appellant as a bona fide purchaser who had acquired the property for fair market value without any involvement in the alleged criminal activities. It was argued that the PMLA does not empower authorities to attach properties purchased by bona fide buyers with lawful earnings. The tribunal agreed, stating that attaching such properties would unjustly deprive the buyer of possession and contravene Article 300A of the Constitution of India.Conclusion:The tribunal concluded that the Adjudicating Authority violated mandatory provisions of Section 8(1) and (2) of PMLA by failing to issue notice to the appellant. The sale deed executed before the PAO was valid, and the property could not be considered proceeds of crime. The impugned order dated 20th January 2017 was set aside concerning the disputed property. The case was remanded back to the Adjudicating Authority for re-hearing after giving the appellant an opportunity to present their case, including their status as a bona fide purchaser. The appeal was allowed, and no costs were imposed.