2021 (1) TMI 68 - AT - Money Laundering

Appeal allowed, impugned order set aside in money laundering case. Properties attached pending re-adjudication.

The appeal was allowed, setting aside the impugned order confirming the Provisional Attachment Order (PAO). The case was remanded to the Adjudicating ... Money laundering - seeking release of provisionally attached mortgaged properties (flats) - proceeds of crime - assignment of debts due and payable by borrowers including the loan in favour of the appellant - case of appellant is that the mortgaged properties were purchased by the borrowers when no such alleged scheduled offence were in the picture and that the title deeds have duly been registered and stamped which makes it further clear that the properties were not acquired from the proceed of crime - HELD THAT:- As per the submission of appellant it appears that no order on appellant’s application for substitution has been passed nor the contention raised in the reply, oral arguments advanced and the written submissions filed by the appellant is found placed in the impugned order. The Adjudicating Authority in the internal page 306 to 311 of the impugned order has reflected only the reply/written submissions filed on behalf of Defendant No. 58 i.e. (M/s. Bajaj Finance Limited) wherein it is specifically mentioned in internal page no. 311 para (ix) that the present appellant has been assigned with the loan account and Bajaj Finance Co. Ltd. no longer has any rights, title interest in the Mumbai properties - the Adjudicating Authority neither passed any order of substitution of substituting the present appellant in place of Defendant No. 58. There appears to be non-compliance of the provisions of Sections 8(1) and 8(2)(b) of PMLA, 2002 read with proviso to Section 8(2) of the PMLA, 2002 and also there is violation of principle of natural justice. It appears that the Adjudicating Authority ought to have substituted the present appellant in place of M/s. Bajaj Finance Ltd. and should have considered the submissions made by the present appellant and should have dealt with the same in accordance with law. Having not done so the impugned order, qua the appellant and qua the properties involved herein, is illegal and, therefore, liable to be set aside. The case is remanded to the Adjudicating Authority for re-adjudication of the case qua the appellants and qua the properties involved herein - Appeal allowed y way of remand. Issues Involved:1. Legality of the Provisional Attachment Order (PAO) and subsequent confirmation by the Adjudicating Authority.2. Whether the mortgaged properties are proceeds of crime or property of equivalent value.3. Rights of the appellant as a secured creditor under SARFAESI Act, 2002.4. Applicability of the Prevention of Money Laundering Act (PMLA), 2002, to the mortgaged properties.5. Compliance with principles of natural justice by the Adjudicating Authority.Issue-Wise Detailed Analysis:1. Legality of the Provisional Attachment Order (PAO) and subsequent confirmation by the Adjudicating Authority:The appeal challenges the order dated 05.08.2019 passed by the Adjudicating Authority confirming the PAO dated 14.02.2019. The appellant argued that the Adjudicating Authority passed the impugned order mechanically and without application of judicious mind. The appellant contended that the properties were selectively attached and that the mortgaged properties cannot be attached as ‘value thereof’ or ‘property of equivalent value’ as per the Division Bench of the Hon’ble Punjab & Haryana High Court in ‘Seema Garg and Ors. Vs. The Deputy Director, Directorate of Enforcement’.2. Whether the mortgaged properties are proceeds of crime or property of equivalent value:The appellant argued that the mortgaged properties were purchased in 2007/2008, well before the FIRs were registered in 2017 and the ECIR in 2018. The properties were acquired when no alleged scheduled offences were in the picture, and the title deeds were duly registered and stamped, indicating that the properties were not acquired from the proceeds of crime. The appellant provided a detailed chain of ownership and transactions to support this claim.3. Rights of the appellant as a secured creditor under SARFAESI Act, 2002:The appellant, as a secured creditor, initiated actions against the mortgaged properties under SARFAESI Act, 2002, prior to the PAO under PMLA. The appellant argued that as a bona fide third party, its interest cannot be defeated by the attachment under PMLA. The appellant relied on the judgment of the Hon’ble Delhi High Court in Deputy Director, Directorate of Enforcement Delhi and Ors. V/s. Axis Bank, which held that the attachment under PMLA will take a back-seat allowing the secured creditor to enforce its claim by disposing of the mortgaged properties.4. Applicability of the Prevention of Money Laundering Act (PMLA), 2002, to the mortgaged properties:The appellant contended that the FIRs registered in 2017 under Sections 406, 420, 34 of IPC and Section 3 & 4 of MPID Act, 1999, cannot apply retrospectively to properties acquired in 2007/2008. The appellant argued that Section 420 of IPC was inserted in the schedule under PMLA in 2009 and Section 120B of IPC in 2013, and therefore, properties acquired before these dates cannot be considered proceeds of crime. The appellant cited judgments from the Hon’ble Karnataka High Court and Hon’ble Delhi High Court to support this argument.5. Compliance with principles of natural justice by the Adjudicating Authority:The appellant argued that it was not made a party to the proceedings before the Adjudicating Authority despite having an interest in the mortgaged properties. The appellant filed a substitution application and reply, but the Adjudicating Authority did not consider these submissions. The Tribunal found that there was non-compliance with Sections 8(1) and 8(2)(b) of PMLA, 2002, and a violation of the principles of natural justice. The Tribunal directed the Adjudicating Authority to re-adjudicate the case, giving due opportunity to both parties.Conclusion:The appeal was allowed, and the impugned order dated 05.08.2019 was set aside. The case was remanded to the Adjudicating Authority for re-adjudication, directing the appellant to file an appropriate application within 30 days. The Adjudicating Authority was instructed to decide all legal issues and record findings on whether the properties are involved in money laundering within 150 days. The attachments shall continue until the completion of the proceedings, and both parties were directed to maintain ‘status quo’ concerning the attached properties. No order as to costs was made, and pending applications were disposed of.