2025 (12) TMI 104 - AT - Money Laundering

SAFEMA allows pre-trial auction of mortgaged property under SARFAESI, with surplus kept in FDR for Enforcement Directorate

The AT under SAFEMA held that, even absent direct proceeds of crime, properties of accused persons, their relatives, associates or employees may be ... Money Laundering - Provisional Attachment Order - absence of proceeds of crime - Power of Appellate Tribunal to grant permission to the Bank to auction the property, even prior to the conclusion of the trial - HELD THAT:- In the absence of direct proceeds of crime, any property in possession of the accused persons, their relatives, associates & employees can be attached as value thereof, seeing their role for helping in layering/siphoning of the proceeds of crime. However, the fact cannot be ignored that in case of mortgaged properties, no useful purpose will be served by directing the bank to wait for conclusion of the trial and thereafter, obtain permission from the trial court for auction of the said properties. There is no bar that this Appellate Tribunal cannot exercise the said power to grant permission to the Appellant Bank even prior to the conclusion of the trial, otherwise, this may result in financial constraint to the Appellant Bank. Accordingly, the present Appeal qua the property at serial no. 1 needs to be allowed, subject to the condition that the Appellant Bank will auction the said property as per the procedure laid down in SARFAESI Act, and after the discharge of its outstanding liabilities, it will deposit the excess amount with the Respondent Directorate by way of FDR. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, in the absence of identifiable 'proceeds of crime', properties in the possession of accused persons or their associates can be attached as 'value thereof' under the Prevention of Money Laundering Act, 2002, even if acquired prior to the commission of the scheduled offence. 1.2 Whether the Appellate Tribunal has the power to permit a secured creditor bank to auction a mortgaged property already attached and its attachment confirmed under the Prevention of Money Laundering Act, 2002, prior to conclusion of the criminal trial, and if so, on what conditions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Attachment of properties as 'value thereof' in absence of direct proceeds of crime Legal framework (as discussed) 2.1 The Court proceeded on the basis of the scheme of attachment under the Prevention of Money Laundering Act, 2002, including attachment of 'proceeds of crime' and of other properties as 'value thereof' when the direct proceeds are not available. Interpretation and reasoning 2.2 The Court noted that, based on investigation and charge-sheets, loan funds sanctioned and disbursed to the borrowing firm had been largely siphoned off and mis-utilized by the borrowers in connivance with certain other accused, resulting in the account turning into a Non-Performing Asset with substantial outstanding dues. 2.3 It was observed that the direct proceeds of crime could not be traced in the possession of the borrowers or their firm, and therefore the Enforcement Directorate had attached four properties as 'value thereof', including the mortgaged flat at serial no. 1, even though that flat had been purchased earlier under a separate housing loan transaction. 2.4 The Court expressly recorded its view that, in the absence of direct proceeds of crime, 'any property in possession of the accused persons, their relatives, associates & employees can be attached as value thereof, seeing their role for helping in layering/siphoning of the proceeds of crime.' Conclusions 2.5 The attachment of properties as 'value thereof' in the hands of accused persons or their associates is permissible where direct proceeds of crime are not available or traceable, irrespective of whether such properties were acquired prior to the commission of the scheduled offence, provided their possession and the role of the concerned persons in the offence justify such attachment. Issue 2 - Power of the Appellate Tribunal to permit auction of attached mortgaged property by the secured creditor before conclusion of trial, and conditions thereof Legal framework (as discussed) 2.6 The Court considered the operation of attachment under the Prevention of Money Laundering Act, 2002, the rights of a secured creditor bank over a mortgaged property, and the procedure for enforcement of security interest under the SARFAESI Act. 2.7 The respondent contended that, under Sections 8(6) to 8(8) of the Prevention of Money Laundering Act, 2002, recourse should be taken before the Special Court (PMLA Court) for auction of an attached property, and that the Appellate Tribunal was not empowered to grant such permission. Interpretation and reasoning 2.8 The Court accepted in principle that properties could be attached as 'value thereof', but distinguished the position where such properties were mortgaged to a bank as a secured creditor. 2.9 It held that, in the case of mortgaged properties, 'no useful purpose will be served by directing the bank to wait for conclusion of the trial and thereafter, obtain permission from the trial court for auction of the said properties.' 2.10 The Court expressly rejected the contention that the Appellate Tribunal lacked power to permit auction before the conclusion of trial, stating that 'there is no bar that this Appellate Tribunal cannot exercise the said power to grant permission to the Appellant Bank even prior to the conclusion of the trial', and cautioned that refusal to do so 'may result in financial constraint to the Appellant Bank.' 2.11 The Court also took note that the appeal was pressed only in relation to the property at serial no. 1, which had been independently mortgaged to the appellant bank under a housing loan well before the generation of the alleged proceeds of crime, and that the loan account of the borrowing firm had subsequently been settled with the bank under a one-time settlement. Conclusions 2.12 The Appellate Tribunal possesses the authority to permit a secured creditor bank to auction an attached mortgaged property even prior to conclusion of the trial under the Prevention of Money Laundering Act, 2002; it is not restricted to directing the bank to seek such relief only from the Special Court under Sections 8(6) to 8(8). 2.13 In exercising such power, the Tribunal may balance the enforcement needs under the Prevention of Money Laundering Act, 2002, with the secured creditor's rights and financial constraints, and can impose conditions to safeguard the interest of the Enforcement Directorate. 2.14 Applying this approach, the Court allowed the appeal in respect of property at serial no. 1 and directed that the appellant bank is permitted to auction the said mortgaged flat in accordance with the procedure laid down in the SARFAESI Act, subject to the condition that, after discharge of its outstanding liabilities from the sale proceeds, the bank shall deposit the excess amount, if any, with the Enforcement Directorate in the form of a fixed deposit receipt, to be dealt with in accordance with law. 2.15 The Court clarified that these directions regarding auction and deposit of surplus amounts are without prejudice to, and shall not affect, the merits of the pending criminal trial.