2019 (6) TMI 1150 - AT - Money Laundering

Tribunal upholds third-party rights in property attachment case, emphasizing protection under PMLA

Rajasthan Financial Corporation, Rajasthan State Industrial Development And Investment Corporation Ltd. Versus The Deputy Director Directorate of Enforcement, Jaipur

Rajasthan Financial Corporation, Rajasthan State Industrial Development And Investment Corporation Ltd. Versus The Deputy Director Directorate of ... Issues Involved:1. Legitimacy of the attachment of properties under the Prevention of Money Laundering Act (PMLA).2. Rights of the Appellant as a bona fide third-party claimant and secured creditor.3. Jurisdiction and authority of the Appellate Tribunal to adjudicate on the attachment order.Issue-wise Detailed Analysis:1. Legitimacy of the Attachment of Properties under PMLA:The case involves the attachment of properties under the PMLA due to alleged money laundering activities linked to a significant bank fraud. The Enforcement Directorate (ED) had attached properties, including those mortgaged with the Appellant, based on the suspicion that they were proceeds of crime. The Adjudicating Authority had confirmed the attachment, citing that the defendants were in possession of proceeds of crime and had committed the offense of money laundering. The properties attached included various immovable and movable assets owned by the accused and their associates.2. Rights of the Appellant as a Bona Fide Third-Party Claimant and Secured Creditor:The Appellant, Rajasthan State Industrial Development and Investment Corporation (RIICO), argued that it was a bona fide third-party claimant with no involvement in the alleged criminal activities. RIICO had provided a loan to M/s A. Gangwal Real Estate LLP, secured by mortgaged properties, prior to the commission of the alleged offenses. The Appellant contended that the mortgaged properties were not acquired from the proceeds of crime and that their statutory rights as secured creditors should not be defeated by the attachment order. The Appellant cited the Delhi High Court judgment in Directorate of Enforcement vs. Axis Bank & Ors., which held that the rights of bona fide third-party claimants acquired prior to the commission of the offense should be protected.3. Jurisdiction and Authority of the Appellate Tribunal:The Tribunal confirmed its jurisdiction to adjudicate on the validity of the attachment order, emphasizing that it acts as the court of first appeal under Section 26 of the PMLA. The Tribunal noted that the claims of third parties asserting bona fide and legitimate interests should be inquired into by the Special Court only if the attachment order has attained finality. The Tribunal disagreed with the respondent's argument that claims should be solely adjudicated by the Special Court, stating that the bank and financial institutions are entitled to challenge the attachment order before the Tribunal.Findings and Conclusion:The Tribunal found that the Appellant had a legitimate claim over the mortgaged properties, which were not derived from the proceeds of crime. The Tribunal emphasized that the legislative intent of the PMLA is to punish the accused and not innocent third parties. The Tribunal set aside the attachment order concerning the properties mortgaged with the Appellant, allowing RIICO to auction or sell the property to realize its dues. The rest of the attachment order was upheld.Summary:The Tribunal concluded that the Appellant, a bona fide third-party claimant and secured creditor, had legitimate rights over the mortgaged properties, which were not acquired from the proceeds of crime. The Tribunal set aside the attachment of these properties, allowing the Appellant to enforce its security interest and recover its dues, while the rest of the attachment order remained in place. The Tribunal confirmed its jurisdiction to adjudicate on the attachment order and emphasized the protection of the rights of innocent third parties under the PMLA.