2019 (9) TMI 943 - AT - Money Laundering

Tribunal Quashes Asset Attachment, Allows CIRP Appeal to Proceed

M/s. PMT Machines Ltd. Versus The Deputy Director Directorate of Enforcement, Delhi

The tribunal set aside the Impugned Order and quashed the Provisional Attachment Order, allowing the appeal. It was emphasized that the Corporate ... Offence under PMLA - Attachment of property involved in money-laundering - mortgage properties in favour of banks which are not purchased from proceeds of crime - HELD THAT:- In the event of the attachment being lifted, the RP would take steps to get a viable Resolution Plan. A Resolution Plan is a scheme and provides for payment of debts owed to various creditors of the company. The Committee of Creditors (“CoC”) is vested with the power to take a decision to approve, or reject a Resolution Plan. In the event that the CoC approves a particular Resolution Plan, it requires confirmation and approval by the Adjudicating Authority (National Company Law Tribunal). After approval of the Resolution Plan, the enterprise as a going concern would be handed over to the Resolution Applicant, under the supervision of the Monitoring Committee, which would oversee the implementation of the Resolution Plan. This order is being passed in relation to mortgage properties in favour of banks which are not purchased from proceeds of crime. The same were purchased and mortgage with the banks prior to the of crime period. ED is not precluded to attach other private properties and all other assets of the alleged accused. It is clarified that this order shall have no bearing in any proceedings initiated against the alleged accused including extradition proceedings pending or proposed to be initiated in any part of the world. Those are to be considered as per law and without any influence of this order which is being passed in the interest of public as bank money is a public money. Most of the banks are public sector banks. Their valid and legal recovery cannot be blocked for years without valid reasons. Therefore, the issue in hand is being decided only for limited purposes The impugned order is pertaining to the appellant is set-aside. Consequently, the provisional attachment order also quashed by allowing the appeal. Issues Involved:1. Validity of the Provisional Attachment Order under the Prevention of Money Laundering Act, 2002 (PMLA).2. Impact of the Corporate Insolvency Resolution Process (CIRP) on the attachment of assets.3. Rights of secured creditors in the context of PMLA attachment.4. Legal implications of prior mortgages and charges on the attached properties.Detailed Analysis:1. Validity of the Provisional Attachment Order under PMLAThe appeal was filed against the Impugned Order dated 20.11.2018 by the Adjudicating Authority under PMLA, confirming the attachment of assets belonging to M/s. PMT Machines Limited. The Enforcement Directorate (ED) had attached these assets under Section 5(1) of PMLA, suspecting them to be 'proceeds of crime.' The tribunal noted that the primary objective of PMLA is to deprive offenders of enjoying 'illegally acquired' assets. However, it was established that the assets in question were acquired and mortgaged much before the alleged criminal activities took place.2. Impact of CIRP on the Attachment of AssetsThe National Company Law Tribunal (NCLT) had initiated the CIRP for M/s. PMT Machines Limited, aiming to resolve its insolvency and maximize the value of its assets. The attachment of assets by the ED was found to be hindering the CIRP. The tribunal emphasized that the CIRP should not be affected by the attachment, as the primary goal is to ensure the recovery of public funds and the continuation of the business as a going concern.3. Rights of Secured Creditors in the Context of PMLA AttachmentThe tribunal highlighted that the secured creditors, represented by the Committee of Creditors (CoC), had significant financial stakes in the attached properties. It was noted that the banks had granted financial facilities to M/s. PMT Machines Limited and had created charges/mortgages on the assets before the alleged offenses. The tribunal referred to the Delhi High Court's judgment in Deputy Directorate of Enforcement Vs. Axis Bank & Ors., which stated that a bona fide third-party claimant's interest in the property, acquired before the commission of the alleged offense, should not be defeated by PMLA attachment.4. Legal Implications of Prior Mortgages and Charges on the Attached PropertiesThe tribunal observed that the properties were mortgaged to the banks much before the alleged criminal activities. The legal implication of a mortgage is that the mortgagee (banks) has the right to take possession and realize the property, while the mortgagor (borrower) retains only the equity of redemption. The tribunal reiterated that the attachment under PMLA should not affect the rights of secured creditors who had lawfully acquired interest in the properties.Conclusion:The tribunal set aside the Impugned Order and quashed the Provisional Attachment Order, allowing the appeal. It was emphasized that the CIRP should proceed without the hindrance of asset attachment, ensuring the recovery of public funds and the continuation of the business. The tribunal clarified that this order pertains only to the mortgaged properties and does not preclude the ED from attaching other private properties of the accused. The decision was made in the interest of public money, particularly considering the involvement of public sector banks.