2018 (11) TMI 97 - AT - Money Laundering

Tribunal quashes Provisional Attachment Order, upholds bank's rights as secured creditor under SARFAESI Act.

Punjab National Bank & Ors. Versus The JointDirector Directorate of Enforcement, Mumbai

The Tribunal set aside the impugned order and quashed the Provisional Attachment Order (PAO) concerning the mortgaged property. It upheld the rights of ... Offence under PMLA - provisional attachment orders - mortgaged property in favour of the appellant bank - Held that:- There is no nexus whatsoever between the alleged crime and the Bank who is mortgagee of the properties in question which were purchased before sanctioning the loan. Thus, no case of money-laundering is made out against Bank who has sanctioned the amount which is untainted and pure money. They have priority right to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Adjudicating Authority has not appreciated the facts and law involved in the matter and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima-facie view on available material and facts produced. In the present appeal, this Tribunal is concerned with only mortgaged property in favour of the appellant bank. As far as the criminal proceedings and complaint under PMLA, 2002 are concerned against the borrower, the same have to be decided by the Special Court in accordance with the law. With regard to impugned order is concerned where this Tribunal is only to examine as to whether the PAO has been rightly passed as per law or not. In view of settled law on this aspect, the respondent no. 1 and adjudicating authority has not considered the Judgement of Supreme Court, High Courts and final orders passed by this Tribunal. Considering the facts of this case as well as settled law on the subject,the impugned order dated 4.12.2017 is liable to be set aside. Consequently,the PAO dated 11.5.2016 is also quashed with regard to the mortgaged property of the appellant. The borrowers are restrained not to deal with thes aid properties directly or indirectly. Issues Involved:1. Legality of the Provisional Attachment Order (PAO) No. 07/2017.2. Rights of the Appellant Bank under SARFAESI Act, 2002.3. The applicability of the Prevention of Money Laundering Act (PMLA), 2002.4. Priority of secured creditors under Section 31B of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, and Section 26E of the SARFAESI Act, 2002.5. The role and involvement of the accused in the alleged money laundering activities.6. Interpretation of the term 'proceeds of crime' under Section 2(1)(u) of PMLA.7. The impact of amendments to SARFAESI Act and RDDB Act on PMLA.Detailed Analysis:1. Legality of the Provisional Attachment Order (PAO) No. 07/2017:The Appellant Bank challenged the PAO No. 07/2017 dated 16.06.2017, issued under Section 5(1) of PMLA, which attached the property mortgaged to the bank. The Adjudicating Authority confirmed the PAO, citing that the property was involved in money laundering activities. However, the Tribunal found that the property was purchased in 2013 and mortgaged to the bank before the alleged money laundering activities occurred, thus questioning the legality of the attachment.2. Rights of the Appellant Bank under SARFAESI Act, 2002:The Appellant Bank had initiated proceedings under the SARFAESI Act, 2002, for taking physical possession of the property due to non-payment of the loan by M/s Polestar Traders Pvt. Ltd. The Tribunal emphasized that the bank, as a secured creditor, had the right to recover its dues by selling the mortgaged property, which had priority over other claims.3. The applicability of the Prevention of Money Laundering Act (PMLA), 2002:The Tribunal noted that the property in question was purchased and mortgaged before the alleged money laundering activities. Therefore, it could not be considered as 'proceeds of crime' under PMLA. The Tribunal criticized the Adjudicating Authority for not properly considering whether the property was acquired using the proceeds of crime.4. Priority of secured creditors under Section 31B of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, and Section 26E of the SARFAESI Act, 2002:The Tribunal highlighted that Section 31B of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, and Section 26E of the SARFAESI Act, 2002, provide that secured creditors have priority in realizing secured debts over other debts and government dues. The Adjudicating Authority failed to appreciate this priority, leading to an erroneous decision.5. The role and involvement of the accused in the alleged money laundering activities:The Tribunal examined the involvement of Mr. Manish Babel, a director of M/s Polestar Traders Pvt. Ltd., who was alleged to have played a key role in the money laundering activities. However, it was noted that the property in question was purchased with clean funds and mortgaged to the bank before the alleged activities, thus disconnecting it from the proceeds of crime.6. Interpretation of the term 'proceeds of crime' under Section 2(1)(u) of PMLA:The Tribunal clarified that for a property to be attached under PMLA, it must be ascertained that it was purchased using the proceeds of crime. The Adjudicating Authority failed to establish this connection, leading to an unjust attachment of the property.7. The impact of amendments to SARFAESI Act and RDDB Act on PMLA:The Tribunal emphasized that the amendments to SARFAESI Act and RDDB Act in 2016, which prioritize the rights of secured creditors, should prevail over PMLA. The Tribunal concluded that the mortgaged property could not be attached under PMLA as it was acquired with clean funds and the bank had a prior charge over it.Conclusion:The Tribunal set aside the impugned order dated 4.12.2017 and quashed the PAO dated 16.06.2017 concerning the mortgaged property. The Tribunal upheld the rights of the Appellant Bank as a secured creditor under SARFAESI Act and RDDB Act, emphasizing that the property was not involved in money laundering and was acquired before the alleged criminal activities. The Tribunal directed that the bank could proceed with the recovery of its dues by selling the mortgaged property.