2017 (9) TMI 1006 - AT - Money Laundering

Tribunal Releases Properties from Attachment, Banks Allowed to Recover Dues

The Tribunal set aside the Provisional Attachment Order under the Prevention of Money Laundering Act, releasing the properties from attachment. The banks, ... Complaint u/s 5(5) of the Prevention of Money Laundering Act - Provisional Attachment Order - overriding effect of SARFAESI Act, 2002 viz. a viz. the provisions of PMLA-2002 - Held that:- Admittedly, neither the banks nor employees of these appellants are accused in any criminal proceedings nor any allegations against them that they are involved in the commission of alleged crime or generating proceeds of crime. The amounts of loan sanctioned are public money and they are entitled to get back their money by selling the mortgaged property as a first change. In these appeals, the appellant have raised the question of overriding effect of SARFAESI Act, 2002 over the PMLA-2002. The Adjudicating Authority has not discussed anything about the same. The Parliament has amended the SARFAESI Act, 2002 by inserting the section 31 B in the said Act w.e.f. 01.09.2016. The effect of the said amendment as already been discussed in our judgment dated 14th July, 2017. The facts and the legal issues involve in the present appeals are identical to the facts and the legal issues involved in the groups of matter which has been decided by this tribunal on 14.07.2017 . Thus we are of the considered view that the Impugned Order dated 16.06.2016 and the Provisional Attachment Order dated 17.12.2015 are not legally correct and liable to be set aside. In the light of above, the schedule ‘A’, ‘B’ and ‘C’ properties are released from the attachment and the appellant Banks may take the possession of these properties mortgaged with them as secured assets. It is noted here that PNBHF Ltd. Bank and ICICI bank, appellants in FPA- PMLA-1388/JL/2016 and FPA-PMLA-1423/JL/2016 respectively, during the course of pendency of the appeal prayed this tribunal to allow them to sell the mortgaged properties i.e. scheduled ‘A’ & ‘B’ properties below and after selling and adjustment of their dues to deposit the surplus, if any, with the respondent i.e. Enforcement Directorate. The State Bank of Patiala has not filed any such application. However, in the interest of justice, it is hereby ordered that the appellant banks to sell the schedule ‘A’, ‘B’ & ‘C’ properties in the presence of nominated officers of the respondent. The appellant banks after sell and adjustment of dues shall deposit the surplus amount with the respondent. Issues Involved:1. Legality of the Provisional Attachment Order (PAO) under the Prevention of Money Laundering Act (PMLA) 2002.2. Overriding effect of the SARFAESI Act, 2002 over the PMLA, 2002.3. Rights of the banks as secured creditors under the SARFAESI Act, 2002.4. Involvement of the appellants in the alleged illegal activities of the borrowers.Detailed Analysis:1. Legality of the Provisional Attachment Order (PAO) under the Prevention of Money Laundering Act (PMLA) 2002:The respondent filed a complaint under Section 5(5) of the PMLA 2002 before the Adjudicating Authority for confirmation of PAO 04/2015 dated 17.12.2015. The properties in question (Schedule ‘A’ to ‘C’) were attached on the grounds that they were acquired from proceeds of crime related to drug smuggling and money laundering. The appellants, who were not initially defendants in the original complaint, intervened during the proceedings and filed objections against the attachment.2. Overriding effect of the SARFAESI Act, 2002 over the PMLA, 2002:The appellants contended that the provisions of the SARFAESI Act, 2002, which allow banks to recover dues by selling mortgaged properties, should have overriding effect over the PMLA, 2002. They argued that the properties were mortgaged to them as secured assets and that the attachment under PMLA was illegal. The Tribunal referred to its previous decision dated 14.07.2017 in a similar case, where it was held that the SARFAESI Act, 2002 has overriding effect over the PMLA, 2002, especially after the amendment inserting Section 31B in the SARFAESI Act, 2002, which gives priority to secured creditors.3. Rights of the banks as secured creditors under the SARFAESI Act, 2002:The Tribunal acknowledged that the appellant banks had advanced loans against the security of the scheduled properties and had taken recourse to the SARFAESI Act, 2002 for possession of these properties after the loan accounts became Non-Performing Assets (NPAs). The banks argued that the money advanced by them was public money and could not be treated as proceeds of crime. The Tribunal agreed, stating that the banks, as secured creditors, have the right to recover their dues by selling the mortgaged properties, and this right should not be defeated by the attachment under PMLA.4. Involvement of the appellants in the alleged illegal activities of the borrowers:The Tribunal noted that none of the appellant banks were charge-sheeted, nor were there any allegations of their involvement in the illegal activities of the borrowers. The Tribunal emphasized that the appellants were innocent parties and their conduct was bona fide. It was also noted that the properties in question were purchased much before the alleged illegal activities and were mortgaged to the banks as security for loans.Conclusion:The Tribunal set aside the Impugned Order dated 16.06.2016 and the Provisional Attachment Order dated 17.12.2015, releasing the scheduled properties from attachment. The appellant banks were allowed to take possession of the properties and sell them, with any surplus amount after adjusting their dues to be deposited with the respondent. The Tribunal concluded that the allegation of money laundering was unsustainable for the purpose of attachment under the PMLA, 2002, and upheld the overriding effect of the SARFAESI Act, 2002. The appeals were allowed, and the properties were ordered to be released from attachment.