2019 (1) TMI 329 - AT - Money Laundering

Tribunal Upholds Bank's Priority in Appeal, Excludes Period for Insolvency Resolution Process

The Tribunal set aside the impugned order and Provisional Attachment Order, allowing the appeal. It emphasized the Appellant Bank's priority as a secured ... Provisional attachment of assets - recovery of dues by banks - mortgaged/hypothecated properties - charge/lien over the property - priority over debts due to the Appellant Bank - Section 26E of the SARFAESI Act, 2002 - Section 31B of the Recovery of Debts due to Banks and Financial' Institutions Act, 1993 - non-obstante clause - Held that:- The Appellant-Bank being a Secured Creditor, since it had lent its own money to the Predicate Offender earlier, is entitled to priority over all other debts and government dues, including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Hence, the Respondent - Deputy Director has no power to attach the property of the mortgagors. The Hon'ble Andhra Pradesh High Court in the case of B. Rama Raju vs. Union of India &Ors. [2012 (5) TMI 240 - HIGH COURT OF ANDHRA PRADESH] in which the Hon'ble High Court has held that if the Adjudicating Authority is satisfied as to the bona fide acquisition of property, it should relieve such property from provisional attachment by declining to pass anOrder of confirmation of the provisional attachment. The Adjudicating Authority also has no power to confirm the Attachment under Section8(2) of PMLA. Similarly, it is a simple case of recovery by the Appellant-Bank from its Borrower its own stressed Asset, since the Bank had already lent the money owned by it, which the Bank is entitled to recover the same - In the present case, this Appellant - Bank is an innocent party since it had already lent its own money to the Predicate Offender and the property in question being mortgaged to the Bank which is provisionally attached by the Respondent- Deputy Director ought to have been released by the Adjudicating Authority under Section 8(2) of PMLA. The provisions of The Prevention of Money-Laundering Act, 2002 cannot be construed and implemented to the detriment of third parties having no connection with and involvement in the scheduled offences which fall within the domain of the Act. The provisions of the Act can only entail penal consequences on those who are not guilty of committing of scheduled offences - The rights of a third party having no involvement in the scheduled offences cannot be jeopardized and decimated by the operation of Act as the same would be violative of their legal right under bond fide contracts. The provisional attachment order is legally erroneous and untenable and could not have been passed more particularly in view of the fact that the complainant was aware of the fact that there is an exclusive and paramount claim of the Appellant Bank, therefore, The Adjudicating Authority had no justification/jurisdiction for attachment of the aforesaid hypothecated/Equitably Mortgaged Moveable and immovable properties. Issues Involved:1. Legality of the Provisional Attachment Order (PAO) under PMLA.2. Priority of Secured Creditors over other debts under SARFAESI Act and RDDBFI Act.3. Impact of Moratorium under IBC on proceedings under PMLA.4. Adjudicating Authority's power and jurisdiction under PMLA.Detailed Analysis:1. Legality of the Provisional Attachment Order (PAO) under PMLA:The Appellant Bank challenged the PAO No. 03/2018 dated 28.03.2018, confirmed by the Adjudicating Authority on 17.09.2018, arguing that the attached property was hypothecated/equitably mortgaged to the bank and not acquired through 'proceeds of crime.' The Tribunal highlighted that the bank's money was 'untainted and pure,' and the Adjudicating Authority failed to establish a nexus between the alleged criminal activity and the hypothecated properties.2. Priority of Secured Creditors over other debts under SARFAESI Act and RDDBFI Act:The Tribunal emphasized that under Section 26E of SARFAESI Act and Section 31B of RDDBFI Act, secured creditors have priority over all other debts and government dues. The Tribunal referred to the Supreme Court's ruling in Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd., which held that the non-obstante clause in the later enactment prevails over the earlier one. Consequently, the Appellant Bank, being a secured creditor, had a priority claim over the mortgaged property.3. Impact of Moratorium under IBC on proceedings under PMLA:The Tribunal noted that the NCLT Mumbai had declared a moratorium against the Respondent No.2 Company under Section 14 of the IBC, 2016, which prohibits the continuation of pending suits or proceedings against the corporate debtor. The Tribunal held that the Adjudicating Authority should have stayed the proceedings under PMLA following the moratorium order and that the continuation of such proceedings was contrary to the intention of the legislature.4. Adjudicating Authority's power and jurisdiction under PMLA:The Tribunal criticized the Adjudicating Authority for confirming the PAO despite the bank's secured creditor status and the absence of any charge of money laundering against the bank. The Tribunal reiterated that the Adjudicating Authority has no power to confirm the attachment of properties that are not 'proceeds of crime' as defined under Section 2(1)(u) of PMLA. The Tribunal also highlighted that the Adjudicating Authority is bound by the law laid down by higher courts and should not ignore established legal precedents.Conclusion:The Tribunal set aside the impugned order dated 17.09.2018 and the PAO No. 03/2018, allowing the appeal. The Tribunal emphasized that the Appellant Bank, being a secured creditor, has priority over the mortgaged property and that the proceedings under PMLA should have been stayed following the NCLT's moratorium order. The Tribunal also excluded the period of continuation of proceedings before the Adjudicating Authority and the Tribunal from the date of commencement of the moratorium order while calculating the limitation period for the Corporate Insolvency Resolution Process.