Tribunal quashes invalid Provisional Attachment Order, upholds appellant's rights under SARFAESI Act

The Tribunal set aside the order confirming the Provisional Attachment Order (PAO) on the appellant's property, ruling that the attachment was invalid as the property was not acquired from proceeds of crime. The appellant, a bona fide third party, was allowed to continue recovery proceedings under the SARFAESI Act and sell the property to recover dues. The Tribunal found the "reason to believe" for the PAO inadequate and emphasized that the Prevention of Money Laundering Act did not apply to the appellant's legitimate transactions. The appeal was allowed, and the PAO was quashed with no costs imposed.

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Issues Involved:
1. Validity of the Provisional Attachment Order (PAO) and its confirmation.
2. The appellant's connection to the alleged crime and possession of proceeds of crime.
3. The appellant's rights under the SARFAESI Act and the impact of the PAO on these rights.
4. The necessity and adequacy of the "reason to believe" recorded by the authorities.
5. The applicability of the Prevention of Money Laundering Act (PMLA) to the appellant's case.

Issue-Wise Detailed Analysis:

1. Validity of the Provisional Attachment Order (PAO) and its Confirmation:
The Tribunal examined the PAO dated 16.05.2018, which attached the appellant’s secured property on the grounds of outstanding dues against fraudulent loans disbursed by Syndicate Bank. The Tribunal noted that the PAO and the subsequent confirmation order failed to consider the appellant’s legitimate claim over the mortgaged property. The Tribunal emphasized that the mortgaged property was not acquired from proceeds of crime, thus invalidating the attachment.

2. The Appellant's Connection to the Alleged Crime and Possession of Proceeds of Crime:
The appellant argued that it had no connection with the alleged crimes committed by the defendants and was not holding any funds derived from criminal activities. The Tribunal concurred, noting that the appellant was neither charge-sheeted nor involved in any money laundering activities as per Section 2(v) read with Section 3 of the PMLA. The appellant was a bona fide third party and a victim of the fraud, having legitimately disbursed a loan and created a mortgage over the property prior to the commission of the scheduled offence.

3. The Appellant's Rights under the SARFAESI Act and the Impact of the PAO on These Rights:
The Tribunal highlighted that the appellant had initiated recovery proceedings under the SARFAESI Act and the RDDBFI Act, and insolvency proceedings under the I&B Code, prior to the provisional attachment. The Tribunal cited the Delhi High Court’s judgment in Directorate of Enforcement v. Axis Bank & Ors., which held that the interest of a third party acquired prior to the commission of the offence could not be defeated by attachment under the PMLA. The Tribunal allowed the appellant to continue its proceedings under the SARFAESI Act and sell the secured property to recover its dues.

4. The Necessity and Adequacy of the "Reason to Believe" Recorded by the Authorities:
The Tribunal scrutinized the "reason to believe" recorded by the Deputy Director before issuing the PAO. It was found that the reasons were not adequately detailed and were a mechanical reproduction of statutory language. The Tribunal emphasized that valid reasons to believe must be based on material evidence and not mere suspicion, as per the guidelines laid down by the Supreme Court in various judgments. The lack of detailed reasons invalidated the PAO and subsequent notices.

5. The Applicability of the Prevention of Money Laundering Act (PMLA) to the Appellant's Case:
The Tribunal noted that the PMLA primarily targets proceeds of crime related to scheduled offences. In this case, the appellant’s property was not derived from criminal activities, and the appellant was not involved in money laundering. The Tribunal concluded that the PMLA could not be applied to the appellant’s legitimate transactions and that the attachment of the mortgaged property was contrary to the legislative intent of the Act.

Conclusion:
The Tribunal set aside the impugned order dated 9th November 2018, confirming the PAO concerning the appellant’s mortgaged property. Consequently, the provisional attachment order was quashed, allowing the appellant to proceed with the sale of the secured property under the SARFAESI Act to recover its outstanding dues. The appeal was allowed, and no costs were imposed.

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