2025 (9) TMI 131 - AT - Money Laundering

Secured banks can claim under PMLA s.8(7) before trial by filing affidavit and depositing excess realisation as FDRs

M/s Tata Capital Financial Services Ltd. And Tata Capital Housing Finance Ltd. Versus The Deputy Director Directorate of Enforcement, Mumbai

M/s Tata Capital Financial Services Ltd. And Tata Capital Housing Finance Ltd. Versus The Deputy Director Directorate of Enforcement, Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether immovable properties mortgaged to secured creditors can be attached by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 where those properties were acquired/mortgaged during the period of alleged predicate offences. 2. Whether secured creditors whose security has been attached under PMLA can proceed with realization (auction/sale) of mortgaged properties under the SARFAESI/other recovery laws, or must they seek relief under PMLA; and the interplay between SARFAESI and PMLA (including the effect of Section 71 PMLA). 3. Whether a secured creditor can seek permission to realize mortgaged property before conclusion of the criminal trial under Section 8(7) of PMLA, and on what conditions such permission may be granted (including treatment of any excess sale proceeds). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of attachment of mortgaged immovable properties under PMLA Legal framework: PMLA empowers attachment of proceeds of crime and properties subject to adjudication and confirmation. Attachment may include properties acquired or mortgaged during the period of commission of predicate offences where they form part of proceeds of crime or are otherwise traceable. Precedent Treatment: No specific judicial precedent is relied upon or overruled in the text; the Tribunal applies the statutory scheme and the material collected by investigative agencies as sufficient to sustain attachment pending adjudication. Interpretation and reasoning: The Court treated the attachments as lawful where investigation and interlinked police inquiries established substantial material indicating that the properties were purchased/mortgaged in the period corresponding to the alleged frauds and thus fell within the attachment scope under PMLA. The Adjudicating Authority's satisfaction based on the Original Complaint, investigation material and Section 50 statements was accepted as a valid basis to confirm the provisional attachment order. Ratio vs. Obiter: Ratio - The Tribunal affirms that properties acquired/mortgaged during the period of commission of predicate offences may be attached under PMLA where investigative material connects them to proceeds of crime. Obiter - Factual assessments of particular property valuations are case-specific and do not establish a broader valuation principle. Conclusions: Attachment of the challenged mortgaged properties by the enforcement agency was sustained as within the scope of PMLA based on the material before the Adjudicating Authority. Issue 2 - Interplay between SARFAESI/secured-creditor rights and PMLA; precedence of PMLA Legal framework: PMLA contains a special regime for attachment, adjudication and disposal of properties involved in money-laundering offences; Section 71 recognizes PMLA's special character relative to other laws. SARFAESI and other secured-creditor remedies operate under separate statutes but do not automatically override PMLA attachment proceedings. Precedent Treatment: The Tribunal did not cite or displace specific case law; it applied statutory hierarchy and the express scope of PMLA to resolve the conflict between secured-creditor remedies and PMLA attachment. Interpretation and reasoning: The Tribunal rejected the blanket proposition that SARFAESI provisions automatically take precedence over PMLA proceedings. It held that PMLA, being a special enactment, has primacy in matters of attachment of proceeds of crime and that the Special Judge under PMLA has jurisdiction to deal with mortgaged properties in the course of the PMLA adjudicatory and trial process. However, the Tribunal recognized that secured creditors are not left remediless and may seek relief within the PMLA framework. Ratio vs. Obiter: Ratio - PMLA's special scheme and Section 71 mean PMLA proceedings can prevail over other recovery statutes in attachment matters; secured-creditor relief must be pursued under PMLA mechanisms unless and until the attachment is vacated. Obiter - The Tribunal's emphasis that Special Judge can dispose of mortgaged properties after trial is explanatory of practice rather than a novel legal principle. Conclusions: SARFAESI does not automatically override PMLA attachment; secured creditors must seek redress under PMLA procedures, and the PMLA regime takes precedence in matters of attachment and disposal of properties alleged to be proceeds of crime. Issue 3 - Entitlement and procedure for secured creditors to realise mortgaged properties under Section 8(7) PMLA before conclusion of trial; treatment of excess sale proceeds Legal framework: Section 8(7) PMLA permits persons claiming an interest in attached property to apply to the Special Judge for release of such property on specified conditions; the Special Judge has discretion to deal with such applications, including before the conclusion of trial. Precedent Treatment: The Tribunal relied on the statutory provision and procedural competence of the Special Judge rather than on precedent. No prior decisions were expressly followed or distinguished. Interpretation and reasoning: The Tribunal construed Section 8(7) as enabling secured creditors to move the Special Judge during pendency of trial for permission to realize mortgaged securities. The Tribunal granted liberty to secured banks to file applications under Section 8(7) with an affidavit/undertaking to deposit any excess sale proceeds arising from auction into fixed deposit receipts (FDRs) in favor of the enforcement agency, to be disposed of as per law among claimants after trial. The Special Judge was empowered to invite objections from other interested parties before permitting sale, thereby balancing the secured creditor's right to realize security with the enforcement agency's interest in preserving proceeds for eventual confiscation or restitution. Ratio vs. Obiter: Ratio - A secured creditor whose mortgaged property is attached under PMLA may apply under Section 8(7) to the Special Judge for permission to realize the security even before trial, subject to judicial discretion and conditions (including depositing any excess proceeds with the Enforcement Directorate by FDR). Obiter - Practical directions relating to inviting objections and administrative handling of FDRs are procedural guidance contextual to this case. Conclusions: Secured creditors are entitled to seek permission under Section 8(7) PMLA to auction mortgaged properties before trial, provided they furnish appropriate undertakings (notably to deposit excess realisation with the enforcement agency). The Special Judge may permit auction after hearing objections and shall ensure excess funds are preserved and distributed in accordance with law after final adjudication. Ancillary Conclusion - Preservation of rights in criminal trials Interpretation and reasoning: The Tribunal clarified that the liberty granted to secured creditors to move under Section 8(7) and the directions regarding deposit of excess proceeds do not impinge upon the rights of parties in the criminal trials; all substantive and procedural rights in criminal proceedings remain unaffected. Ratio: The Court's directions preserve the primacy of PMLA adjudication while allowing secured creditors a conditional procedural route to realize mortgaged security, without prejudicing criminal proceedings or the distribution of proceeds post-adjudication.