2018 (7) TMI 445 - AT - Money Laundering

Tribunal Overturns Orders, Banks' Rights Prevail Over PMLA, Secured Creditors Priority

Punjab National Bank & Others, DBS Bank Ltd. Versus The Deputy Director Directorate of Enforcement, Delhi & Others

The Tribunal set aside the Impugned Order and Provisional Attachment Order, ruling that the properties mortgaged with the banks were not 'proceeds of ... Offence under PMLA - Provisional Attachment - properties purchased from the proceed of crime - Held that:- It is admitted position that the loan was given by the banks in good faith who has suffered a loss because of non-return of money by the borrowers i.e. serial no. 11 (as a appellant). The borrower is also arrayed as one of the respondent in the appeal filed by the banks. It is evident from the said proviso that in case the claimant would be able to satisfy the Special Court that it has acted in good faith and suffered the loss despite of having taken all the reasonable precautions and is also not involved in the offence of money laundering then the Special Court is empowered to restored such property during the trial of the case. In the facts of the present case, the mortgaged properties are not purchased from the proceed of crime. Those were purchased prior to FIR against borrower/accused and even prior to execution of mortgaged deed agreement. The question of proceed of crime qua those properties does not arise. Even the stand of the respondent in almost in all the cases where it was found that the attached properties are mortgaged properties which were not purchased from proceeds of crime, the Bank are victim parties and are innocent parties who are entitled to recover the loan amount from the said mortgaged properties, but the banks be allowed to dispose the properties after the trial and final out-come of criminal complaints filed against the borrowers under schedule offence and prosecution complaint. The said argument cannot be accepted in view of settled law and new amendment in sub-section 8 of section 8 of the Act. Thus, the stand earlier taken by the respondent no. 1 is wholly vague and without any substance. The provisional attachment order thus apparently bad and against the scheme of the Act. In view of the reasons amendment in the PMLA and once the provisional attachment order is set aside, the property is released the borrower/accused and the banks can only dispose of the said property after passing the order by the special court in favour of the complaint. In case the provisional attachment order and impugned orders are set-aside, the complainant may not be able to dispose of the property in order recover the loan amount even if the special court restore such properties during the trial. The allegation of money laundering, prima facie, so far as present appellant & properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002. Both set of appeals are allowed. Thus, for reasons recorded above, set aside the Impugned Order dated22.09.2016 and the Provisional Attachment Order dated31.03.2016. In view of the amendment of sub section 8 of Section 8 proviso (1) and (2), the bank is at liberty to move its claim before the Special Court for disposing of the said property in accordance with the law. The present appeals are accordingly disposed of in view of aforesaid directions. Till that time, all parties to the appeals shall not sell and dispose of the property in any manner directly or indirectly which can only to be disposed in order to recover the amount due once the Special Court will pass the appropriate orders . Issues Involved:1. Whether the properties mortgaged with the Appellant Bank are 'proceeds of crime' as defined under Section 2(1)(u) of PMLA.2. Whether the PMLA has priority over SARFAESI and RDDB & FI Act.Detailed Analysis:1. Whether the properties mortgaged with the Appellant Bank are 'proceeds of crime' as defined under Section 2(1)(u) of PMLA:The primary contention of the appellants was that the properties in question were mortgaged to the banks before the commission of any alleged crime and thus cannot be considered 'proceeds of crime.' The properties were mortgaged between 2005 and 2007, and the alleged financial irregularities were discovered in 2013, making it clear that the properties were not acquired through any criminal activity. The appellants argued that the properties were used as security for loans and were not derived from any criminal activity, thus falling outside the purview of 'proceeds of crime' as defined under Section 2(1)(u) of the PMLA.The Tribunal noted that the properties were acquired much before the alleged criminal activities and were mortgaged in good faith. The properties were not obtained through any proceeds of crime, and hence, their attachment under the PMLA was not justified. The Tribunal emphasized that the properties could not be considered 'proceeds of crime' since they were not acquired as a result of any criminal activity.2. Whether the PMLA has priority over SARFAESI and RDDB & FI Act:The Tribunal addressed the issue of whether the PMLA has priority over the SARFAESI Act and RDDB Act. It was noted that both SARFAESI and RDDB Acts have non-obstante clauses, giving them overriding effect over other laws. The Tribunal referred to the amendments made in 2016 to both the SARFAESI Act and RDDB Act, which explicitly state that the rights of secured creditors to realize secured debts shall have priority over all other debts, including government dues.The Tribunal cited multiple judgments, including the Full Bench decision of the Madras High Court and the Supreme Court's ruling in United Bank of India v. Satyawati Tondon, which affirmed that the rights of secured creditors take precedence over other claims. The Tribunal concluded that the amendments to the SARFAESI Act and RDDB Act in 2016 give these Acts priority over the PMLA, particularly concerning the recovery of debts by secured creditors.Conclusion:The Tribunal set aside the Impugned Order dated 22.09.2016 and the Provisional Attachment Order dated 31.03.2016, concluding that the properties mortgaged with the banks were not 'proceeds of crime' and that the banks' rights as secured creditors under the SARFAESI and RDDB Acts take precedence over the provisions of the PMLA. The Tribunal directed that the banks could move their claim before the Special Court for the disposal of the properties in accordance with the law.