2018 (8) TMI 426 - AT - Money Laundering

Tribunal Upholds Banks' Rights in Property Dispute, Emphasizes Secured Creditors' Priority

Standard Chartered Bank, M/s Winsome Diamonds & Jewellery Ltd., Ms Kohinoor Diamonds Pvt. Ltd And M/s Bombay Diamond Company Pvt. Ltd. Versus The Deputy Director Directorate of Enforcement, Mumbai And The Joint Director Directorate of Enforcement, Mumbai

Standard Chartered Bank, M/s Winsome Diamonds & Jewellery Ltd., Ms Kohinoor Diamonds Pvt. Ltd And M/s Bombay Diamond Company Pvt. Ltd. Versus The Deputy ... Issues Involved:1. Prior charge of the consortium of banks over the mortgaged properties.2. Allegation of properties being proceeds of crime.3. Rights of secured creditors under amended laws.4. Innocence of the banks and their entitlement to recover dues.Issue 1: Prior Charge of the Consortium of Banks Over the Mortgaged PropertiesThe consortium of banks led by Standard Chartered Bank (Appellant) had a prior charge over the properties mortgaged by M/s. Winsome Diamonds & Jewellery Ltd., M/s. Kohinoor Diamonds Pvt. Ltd., and M/s. Bombay Diamonds Company Pvt. Ltd. These properties were acquired between 1989 and 2009, well before any alleged criminal activity. The properties were mortgaged to the consortium for securing loans. The banks have a legal right to recover the dues from these properties as they were mortgaged long before the alleged fraud and money laundering activities took place.Issue 2: Allegation of Properties Being Proceeds of CrimeThe Enforcement Directorate (ED) attached the properties under the Prevention of Money Laundering Act (PMLA), alleging they were proceeds of crime. However, there was no evidence presented that the properties were acquired through money laundering activities. The properties were acquired and mortgaged before the loans were obtained, and there was no direct or indirect involvement of the banks in any criminal activity. The ED did not allege that the banks assisted in money laundering or that the properties were purchased with proceeds of crime.Issue 3: Rights of Secured Creditors Under Amended LawsThe amendment to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the SARFAESI Act, 2002, gives secured creditors priority over other debts, including government dues. The rights of secured creditors to realize secured debts by selling assets over which security interest is created shall have priority over all other debts. The Full Bench of the Madras High Court and subsequent judgments upheld the priority of secured creditors, affirming that the amendments apply to pending cases and govern the rights of parties even in ongoing litigation.Issue 4: Innocence of the Banks and Their Entitlement to Recover DuesThe banks, being innocent parties, were entitled to recover their dues from the mortgaged properties. The properties were not purchased with proceeds of crime, and the banks were not involved in any money laundering activities. The banks had a legal right to recover the outstanding amounts through the sale of the mortgaged properties. The provisional attachment by the ED hindered the banks' ability to recover the public money, causing significant financial loss and affecting the banking system's stability.Conclusion:The Tribunal set aside the impugned order of the Adjudicating Authority confirming the provisional attachment of the properties. The appeals filed by the borrowers were disposed of, and the appeal filed by the bank was allowed. The Tribunal emphasized the banks' right to recover their dues from the mortgaged properties, which were acquired and mortgaged before any alleged criminal activity. The Tribunal also highlighted the priority of secured creditors under the amended laws and the innocence of the banks in the alleged money laundering activities.