2020 (1) TMI 900 - AT - Money Laundering

Tribunal Quashes Attachment Orders, Banks Upheld as Secured Creditors

Indian Overseas Bank & Others, Andhra Bank, State Bank of Hyderabad, Canara Bank, Vijaya, Bank, Bank of Baroda, State Bank of India, Oriental Bank of Commerce, Punjab National Bank And Union Bank of India Versus The Joint Director, New Delhi

The Tribunal quashed the provisional attachment order and confirmation order by the Adjudicating Authority regarding properties mortgaged with the banks. ... Money Laundering - Provisional attachment of properties - properties mortgaged with the Banks have been acquired out of tainted money - proceeds of crime - HELD THAT:- The bonafide as well as due diligence in sanctioning the loans by the appellants to M/s. CCL have not been doubted by the respondent no.1 at any point of time. It could not be explained by the respondent no.1 as to how the properties in question are acquired out of proceeds of crime. In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal under Section 26 of the Act and then before the Hon’ble High Court under Section 42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted its remedies in appeal right up to the Hon’ble High Court, an order confirming the attachment cannot be said to have attained finality - Therefore, this Tribunal is fully equipped and possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. The impugned order confirming the provisional attachment order is passed without application of mind and without understanding the law, it is liable to be quashed with regards to mortgaged properties in question - there is no nexus whatsoever between the alleged offence and the Appellant Banks as institutions who are the mortgagee of the properties in question which were purchased from the bank’s money and mortgage of the same with them. Thus, no case of money laundering is made out against Appellant Banks who had sanctioned the amounts which are untainted and pure money. The Provisional Attachment Order passed by the Adjudicating Authority, PMLA, confirming the Provisional Attachment Order is liable to be quashed and set aside - Appeal allowed. Issues Involved:1. Compliance with the Delhi High Court's remand order.2. Allegations against the borrowers and the provisional attachment of properties.3. Legitimacy and bonafides of the banks' claims on the attached properties.4. Applicability of the Delhi High Court's judgment in the Axis Bank case.5. Jurisdiction and authority of the Appellate Tribunal for PMLA.6. Validity of the provisional attachment order and its confirmation by the Adjudicating Authority.Detailed Analysis:Compliance with the Delhi High Court's Remand OrderThe Delhi High Court remanded the case back to the Appellate Tribunal for PMLA, directing the Tribunal to restore the appeal and decide it within six weeks. The Tribunal complied by restoring the appeals and hearing both parties afresh.Allegations Against the Borrowers and Provisional Attachment of PropertiesThe main allegations involved M/s. Century Communication Ltd. (CCL) and its directors, who were accused of defrauding a consortium of banks by availing credit facilities through fraudulent means. The Enforcement Directorate (ED) provisionally attached properties worth Rs. 111.96 crores, which were confirmed by the Adjudicating Authority, leading to the banks challenging this order.Legitimacy and Bonafides of the Banks' Claims on the Attached PropertiesThe banks argued that the properties were mortgaged to them against loans and were not acquired from proceeds of crime. They emphasized that they had exercised due diligence and were not involved in the alleged money laundering activities. The Tribunal noted that the properties were mortgaged much before the registration of the FIR and ECIR, and the banks had initiated recovery actions under the SARFAESI Act prior to the provisional attachment.Applicability of the Delhi High Court's Judgment in the Axis Bank CaseThe Tribunal heavily relied on the Delhi High Court's judgment in the Axis Bank case, which outlined that the PMLA does not override the rights of secured creditors if they have acted in good faith and with due diligence. The judgment emphasized that the attachment under PMLA should not defeat the legitimate claims of third-party secured creditors.Jurisdiction and Authority of the Appellate Tribunal for PMLAThe Tribunal asserted its jurisdiction to adjudicate the appeals and determine the legitimacy of the banks' claims. It clarified that the Special Court's jurisdiction to inquire into claims arises only if the attachment has attained finality or if the trial has commenced, which was not the case here.Validity of the Provisional Attachment Order and Its Confirmation by the Adjudicating AuthorityThe Tribunal found that the provisional attachment order and its confirmation were passed without proper application of mind and without sufficient evidence to prove that the properties were acquired from proceeds of crime. It concluded that the banks were victims and had lawfully acquired the properties through mortgages.ConclusionThe Tribunal quashed the provisional attachment order and the confirmation order by the Adjudicating Authority concerning the properties mortgaged with the banks. It upheld the banks' claims, recognizing them as bona fide secured creditors who had acted in good faith. The Tribunal directed that the banks' claims should take precedence, and any excess value from the properties could be subject to PMLA attachment. The appeals were allowed, and the impugned orders were set aside with no costs.