2025 (5) TMI 1136 - AT - Money Laundering

Bank wins appeal against money laundering account attachment after compensating victim with Rs. 25 crore plus interest

The Appellate Tribunal under SAFEMA allowed the appellant bank's appeal against attachment of bank accounts under money laundering proceedings. The bank ... Money Laundering - attachment of bank accounts - proceeds of crime - fraudulent siphoning of funds - HELD THAT:- The contention of the Ld. Counsel for the appellant was that it has already restored the said amount of Rs. 25 Crore to the NCL on 16.11.2009 alongwith interest from 23.07.2009. The Ld. Sessions Court (Trial court) has also granted relief to the appellant bank by ordering the defreezing and transfer of the eleven bank accounts in the petition filed by the appellant bank before it, vide order dated 15.12.2014, which favours the stance of the appellant bank. Hence, in view of the order dated 15.12.2014 passed by the Ld. Sessions Court, the appeal filed by the appellant bank needs to be allowed in the interest of justice and the amount appropriated by the ED from the bank accounts of the accused persons, and kept by the way of FDR with ED, needs to be released to the appellant bank, as the appellant bank has already compensated the complainant NCL for sum of Rs. 25 crore along with interest for the intervening period. Conclusion - The attachment of property under PMLA is primarily to prevent concealment or dissipation of proceeds of crime, but where the actual owner exists and has compensated the victim, attachment may be reconsidered. The present appeal is hereby allowed and consequences to follow accordingly. It is made clear that nothing expressed herein will affect the right of any party in the criminal trials. 1. ISSUES PRESENTED and CONSIDERED- Whether the attached amounts in various bank accounts are proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA) and liable to be confiscated by the Enforcement Directorate (ED).- Whether the appellant bank, having compensated the original victim (M/s Northern Coal Fields Ltd.) for the fraudulently siphoned Rs. 25 crores along with interest, has a rightful claim to the attached amounts and locus standi to challenge the attachment.- Whether the action of the ED in attaching and continuing the attachment of the disputed amounts is justified in light of the ongoing criminal proceedings and the orders passed by the trial court freezing and subsequently defreezing the accounts.- The applicability and interpretation of the provisions of Sections 5(1), 8(4), and 26(1) of the PMLA concerning provisional attachment, confirmation of attachment, possession of property, and appellate remedies.- The legal effect of the doctrine of tracing back and the rights of the bank to recover the amounts wrongfully diverted due to fraud.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the attached amounts are proceeds of crime under PMLA and liable for confiscationThe legal framework under PMLA mandates that where any property is involved in money laundering, the ED may provisionally attach such property under Section 5(1). The attachment is to prevent the property from being concealed, transferred, or dealt with in any manner. Upon confirmation by the Adjudicating Authority under Section 5(3), the ED takes possession as per Section 8(4).The Court examined the facts that Rs. 25 crores were fraudulently siphoned from the account of M/s NCL, a public sector undertaking, through collusion between certain individuals and bank officials. The money was transferred to various accounts, including those of the accused and their associates. The Deputy Director of ED traced the money trail in detail, establishing that the attached amounts in the accounts of M. Kandaswamy, T.R. Ratnakumari (wife of accused), M/s Arvindh Traders, R. Ravi Shankar, and M/s Krishna Traders originated from the tainted Rs. 25 crores.The Court noted that the ED had filed an Original Complaint and the Adjudicating Authority confirmed the provisional attachment after considering the evidence and statements of involved parties, including admissions by some account holders acknowledging the funds as proceeds of crime.The Respondent ED's counsel argued that the attachment proceedings under PMLA are independent of the criminal trial and that the amounts are clearly proceeds of crime involved in money laundering. The ED complied with statutory requirements, including possession and deposit of attached amounts as Fixed Deposit Receipts (FDRs).However, the appellant bank contended that the monies lying in some accounts are untainted funds belonging to it, and that the fraudulent transfer does not convert the bank's funds into proceeds of crime. The bank emphasized that it had compensated the original victim (M/s NCL) fully with interest, thereby stepping into the shoes of the victim and acquiring the rightful claim to the funds.The Court's reasoning acknowledged the detailed money trail and the findings of the Adjudicating Authority but also considered the appellant bank's compensation to NCL and the trial court's order defreezing the accounts in favor of the bank. The Court found that the apprehension of the property being concealed or transferred was mitigated by the CBI's prior freezing and ongoing criminal proceedings.Issue 2: Whether the appellant bank has locus standi and rightful claim to the attached amountsThe appellant bank argued that by compensating M/s NCL for the Rs. 25 crores fraudulently siphoned along with interest, it had acquired the right to the funds and was entitled to recover the amounts. The bank relied on the doctrine of tracing back, which allows recovery of lost property by tracing the proceeds through various transactions.The bank further contended that the ED's action in attaching the funds would result in liquidity loss and non-performance accounts, causing irreparable harm. It argued that confiscation under PMLA is applicable only where the actual owner is not identifiable, such as in cases involving extortion, smuggling, or disproportionate assets, and not where the rightful owner exists and has been compensated.The Respondent ED contended that the appellant bank had no locus standi as it was not a party or noticee in the attachment proceedings. The Adjudicating Authority had dismissed the bank's miscellaneous application claiming the attached assets, holding that the bank had no rightful claim to the property.The Court took note of the trial court's order dated 15.12.2014, which had defrozen the accounts for transfer of the amounts to the appellant bank, recognizing its compensation to NCL. This order was a significant factor in the Court's decision to allow the appeal. The Court held that the appellant bank's compensation to the victim and the trial court's relief established the bank's right to the attached amounts.Issue 3: Interpretation and application of PMLA provisions regarding attachment and release of propertyThe Court analyzed Sections 5(1), 8(4), and 26(1) of the PMLA. Section 5(1) allows provisional attachment where proceeds of crime are likely to be concealed or transferred. Section 8(4) mandates possession of attached property upon confirmation by the Adjudicating Authority. Section 26(1) provides appellate remedy against orders of the Adjudicating Authority.The Court observed that the ED had complied with the statutory requirements for attachment and possession. However, the overriding consideration was the trial court's order defreezing the accounts in favor of the appellant bank, which had compensated the victim. The Court interpreted that where the actual owner exists and compensation has been made, the rationale for attachment under PMLA is weakened.The Court also emphasized that the present order would not affect the rights of any party in the ongoing criminal trials, and the appellant bank was directed to furnish an undertaking/indemnity bond to indemnify any claimant as per the trial court's directions.Issue 4: Treatment of competing arguments and final application of law to factsThe Court balanced the competing contentions: the ED's mandate to attach proceeds of crime to prevent their dissipation and the appellant bank's claim as a compensated victim entitled to recover its funds. The Court gave weight to the trial court's order defreezing the accounts and the fact that the bank had restored the amount with interest to the original victim.The Court found that the apprehension of the property being concealed or dissipated was no longer valid given the criminal investigation and judicial orders. The Court thus concluded that the amounts appropriated by the ED should be released to the appellant bank, subject to compliance with any future directions in the criminal trial.3. SIGNIFICANT HOLDINGS'In view of the order dated 15.12.2014 passed by the Ld. Sessions Court, I am of the view that the appeal filed by the appellant bank needs to be allowed in the interest of justice and the amount appropriated by the ED from the bank accounts of the accused persons, and kept by the way of FDR with ED, needs to be released to the appellant bank, as the appellant bank has already compensated the complainant NCL for sum of Rs. 25 crore along with interest for the intervening period.''It is made clear that nothing expressed herein will affect the right of any party in the criminal trials. Appellant bank is hereby directed to furnish an undertaking/indemnity bond to the trial court to make the compliance of any order to indemnify any claimant (if any) as per direction of Ld. Special Judge, PMLA Court in due course/conclusion of trial.'Core principles established include:The attachment of property under PMLA is primarily to prevent concealment or dissipation of proceeds of crime, but where the actual owner exists and has compensated the victim, attachment may be reconsidered.The doctrine of tracing back supports the right of a compensated party (such as a bank) to claim recovery of funds diverted by fraud.Locus standi in attachment proceedings under PMLA depends on the claimant's legal right or interest in the attached property.The ED's attachment proceedings are independent but must be balanced against rights recognized in concurrent criminal proceedings and civil remedies.The release of attached property to a claimant who has compensated the original victim does not prejudice ongoing criminal trials, subject to appropriate safeguards.Final determinations:The appeal by the appellant bank is allowed.The amounts attached and held by the ED as FDRs are to be released to the appellant bank.The appellant bank must furnish an undertaking/indemnity bond to the trial court to indemnify any claimant as per directions in the criminal trial.The order does not affect rights of any party in the criminal proceedings.