2026 (1) TMI 1079 - AT - Money Laundering

Money laundering property attachment and third-party encumbrance: Appellate forum versus special court jurisdiction limits clarified

Money laundering attachment of properties: where a bona fide third party (a bank) held a prior legitimate interest, the attachment must yield to ... Money Laundering - scheduled offences - attachment of properties - validity of encumbrance of a third party in a property attached under PMLA - Appellate Tribunal is the appropriate forum for such a bonafide third party with prior interest in the property to seek redress or not. Money Laundering - scheduled offences - attachment of properties - validity of encumbrance of a third party in a property attached under PMLA - HELD THAT:- In the present case it is not disputed even by the respondent directorate that the appellant Bank is a bonafide third party which had a legitimate and prior interest in the properties which subsequently became the subject-matter of attachment under the PMLA. Therefore, in accordance with the order of the Hon’ble Delhi High Court, the attachment would have to take a back seat, allowing the Bank to enforce its claim by disposal of the subject property. Only the remainder of the value of the property, if any, thereafter is to be made available to for purposes of PMLA. Appellate Tribunal is the appropriate forum for such a bonafide third party with prior interest in the property to seek redress or not - HELD THAT:- The Appellate Tribunal may pass such orders as it thinks fit “confirming, modifying or setting aside the order appealed against”. An aggrieved party is entitled to invoke the said jurisdiction of the Appellate Tribunal. But, at the same time, the Act also confers jurisdiction on the Special Court to entertain such claim for purposes of restoration of the property during the trial of the case under section 8. The jurisdiction of the Appellate Tribunal and the Special Court in this regard may be co-ordinate, to an extent. However, it has further been held that where the order confirming the attachment has attained finality, or if the order of confiscation has been passed or, further if the trial of a case for the offence under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest will have to be inquired into and adjudicated upon only by the special court. The present appeals filed before this Appellate Tribunal are hereby dismissed. Issues: (i) Whether a bank, as a bona fide third party with a prior interest in immovable property attached under the PMLA, can enforce its security interest notwithstanding the attachment; (ii) Whether the Appellate Tribunal is the appropriate forum for adjudication of a bona fide third party's claim to restoration or enforcement of rights in attached property, or whether the Special Court under the PMLA is the proper forum.Issue (i): Whether a bona fide third party secured creditor with a prior interest can enforce its claim against attached property despite attachment under the PMLA.Analysis: The legal framework includes the provisions of the PMLA regarding provisional attachment and confirmation by the Adjudicating Authority, and the principle that third party interests acquired prior to the scheduled offence cannot be defeated unless created to defeat the law. The prior decision of the Delhi High Court in the same matter is binding and establishes that where a third party's interest predates the criminal activity and is bona fide, the attachment remains valid but is restricted so that the secured creditor may enforce its charge; the PMLA entitlement applies only to the remainder of the property's value exceeding the third party's claim.Conclusion: A bona fide third party secured creditor with a prior interest may enforce its security interest against the attached property and the attachment is restricted to the value in excess of that claim.Issue (ii): Whether the Appellate Tribunal is the appropriate forum for adjudicating the third party's claim, or whether the Special Court under the PMLA is the proper forum.Analysis: The statutory scheme and the binding pronouncement of the Delhi High Court recognize both the Appellate Tribunal's jurisdiction to confirm, modify or set aside orders of the Adjudicating Authority and the Special Court's jurisdiction to adjudicate third party claims during trial. The High Court clarified that where confirmation of attachment has attained finality, confiscation order passed, or trial under Section 4 PMLA has commenced, claims asserting bona fide prior interest must be inquired into and adjudicated only by the Special Court. The present appeals concern attachments where parallel criminal proceedings and adjudications are in place, and the High Court's decision binds the Tribunal on forum competence.Conclusion: The Appellate Tribunal is not the appropriate forum to adjudicate the bank's claim in the circumstances; the appropriate remedy is to approach the Special Court under the PMLA for enforcement of rights.Final Conclusion: The bank's appeals before the Appellate Tribunal are dismissed as the tribunal must defer to the jurisdictional Special Court for adjudication of bona fide third party claims where the attachment confirmation or criminal trial situations set out by the High Court obtain; the bank remains entitled to pursue its rights before the Special Court and the attachment remains subject to the limited effect described above.Ratio Decidendi: Where a bona fide third party acquired a prior interest in property before the scheduled offence, that interest is protected such that PMLA attachment is operative only to the extent the property's value exceeds the third party's secured claim, and where attachment confirmation is final or trial under Section 4 has commenced, adjudication of the third party's claim lies with the Special Court under the PMLA rather than the Appellate Tribunal.