2019 (8) TMI 680 - AT - Money Laundering

Tribunal upholds attachment under PMLA, clarifies distinction from SARFAESI Act

Sangeeta Garg Versus The Joint Director Directorate of Enforcement, Jalandhar

The Tribunal upheld the attachment of properties under the Prevention of Money Laundering Act (PMLA), dismissing the appeals challenging the legality of ... Money Laundering - Release of attached property - VAT refund - export of the readymade garments to Bangladesh - forged and fabricated shipping bills - scheduled offences or not - proceeds of crime - first contention of the appellant that since the predicate offences were not schedule offences on the day they filed their refund application with the State Government i.e. 11.03.2013, therefore the impugned order is illegal - principles of harmonious construction. HELD THAT:- An interpretation of a statute is best when we know why it was enacted. The interpretation given by the financial institution/Assets Reconstruction company would tantamount to making the PMLA redundant. The legislature has come out with the law of PMLA in fulfillment of our international obligations as laid in the Preamble of the PML Act so that money laundering and proceeds of crime could be effectively dealt with. If we see the intent of PMLA and DRT Act or SARFAESI Act, the purpose of these are entirely different. SARFAESI Act and the DRT Act deal with debts due to any secured creditor which shall have priority over all other debts and all revenues, taxes, cesses and other rates due to the Central Government, State Government or local authority. On the other hand, in PMLA there are no dues, debts, revenues, taxes, cesses and other rates which is payable to the Central Government, State Government or local authorities. Properties are attached under PMLA, they being proceeds of crime - So the powers of confiscation or release of the attached property is only vested with the Special Courts and this Appellate Tribunal does not have any such powers. Hence exercise of the powers of confiscation or release of the attached property by this Appellate Tribunal is beyond the scope of activities of this Tribunal and would be grossly illegal. Moreover as per Section 8(8) even the powers of restoration of such confiscated property or thereof to a claimant with a legitimate interest in the property vests with the Special Court. Section 8(8) was amended by the Finance Act, 2018, introducing a separate proviso to reinforce this point giving the court further powers to allow such restoration even during the course of the trial. Usurping this power by the Appellate Tribunal would be a blatant violation of the law itself. There is no merits in the appeals or the claim of the asset reconstruction company - appeal dismissed. Issues Involved:1. Legality of the attachment of properties under the Prevention of Money Laundering Act (PMLA).2. Applicability of PMLA to offenses committed before its amendment.3. Validity of the appellants' claims regarding the ownership and purchase of properties.4. Rights of third-party claimants under SARFAESI Act versus PMLA.Issue-wise Detailed Analysis:1. Legality of the attachment of properties under PMLA:The appellants challenged the attachment of properties, arguing that the properties were not proceeds of crime. The Tribunal found that the VAT refund of Rs. 1.56 crore was fraudulently obtained and transferred to various accounts owned by the appellants and their relatives. The Tribunal upheld the attachment, stating that the properties were involved in money laundering as defined under PMLA. The Tribunal also noted that the value of attached properties can be variable and that the adjudicating authority correctly followed the law in this regard.2. Applicability of PMLA to offenses committed before its amendment:The appellants argued that since the predicate offenses were not scheduled offenses under PMLA at the time of filing the VAT refund application (11.02.2013), the PMLA should not apply. The Tribunal dismissed this argument, stating that the PMLA was amended on 15.03.2013 to include these offenses as scheduled offenses, and the ECIR was filed on 14.08.2013, making the application of PMLA valid.3. Validity of the appellants' claims regarding the ownership and purchase of properties:The appellants claimed that the properties in question were purchased in 1991, long before the alleged offenses, and thus could not be proceeds of crime. The Tribunal found that the properties were attached not because they were directly proceeds of crime but to arrive at a value equivalent to the proceeds of crime. The Tribunal upheld the attachment, citing Section 2(1)(u) of PMLA, which includes the value of any such property as proceeds of crime.4. Rights of third-party claimants under SARFAESI Act versus PMLA:M/s. Pegasus Reconstruction Pvt. Ltd. argued that as a secured creditor under the SARFAESI Act, they had priority over the attached properties. The Tribunal referred to the Delhi High Court judgment, which stated that PMLA has distinct objectives from SARFAESI Act, and the latter cannot prevail over the former. The Tribunal emphasized that properties attached under PMLA are proceeds of crime and do not fall under the category of debts due to secured creditors under SARFAESI Act. The Tribunal concluded that the claims of the asset reconstruction company could not override the actions under PMLA.Conclusion:The Tribunal dismissed the appeals, upholding the attachment of properties under PMLA. It emphasized the distinct purposes of PMLA and SARFAESI Act, and the precedence of PMLA in cases involving proceeds of crime. The Tribunal also highlighted that the powers of confiscation or release of attached properties are vested with the Special Courts, not the Appellate Tribunal.