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2025 (6) TMI 1179 - AT - Money LaunderingMoney Laundering - Provisional Attachment Order - obtaining loans fraudulently by creating false fake and fabricated documents - HELD THAT - It is an admitted fact that the alleged period of offence was committed by the accused persons during the period July 2013 to August 2013 by obtaining loan to the extent of Rs. 8 Crore from Aditya Birla Finance Ltd. by tendering forged and fabricated documents. The Provisional Attachment Order was passed by ED only on 30.10.2018 without appreciating the fact that the said properties were already auctioned by the appellant on 29.08.2018. The property could not be transferred in the name of successful bidder due to letter dated 27.06.2018 issued by the ED to the Office of PSIEC Chandigarh. Being the secured creditor and seeing the fact that properties are already auctioned and purchased by the auction purchaser the question of setting aside the said auction sale does not arise seeing the fact that the right of appellant finance company will prevail over the right of unsecured creditor Aditya Birla Finance Ltd. There is nothing on record that M/s Aditya Birla Finance Ltd. is co- mortgagee or in possession of title deeds. Accordingly the auction sale already affected in favor of auction purchaser needs to be maintained if the said auction purchaser has not taken back the tendered amount of auction sale from the appellant India Infoline Finance Ltd. Therefore any excess amount realised by this appellant finance company needs to be tendered to ED in the form of FDR so that the unsecured creditors can claim their right over the same before Ld. Special Judge PMLA Court. Now coming to the four properties mortgaged with SBI the appellant bank being the secured creditor can move application under Section 8(7) of PMLA 2002 before Ld. Special Judge PMLA Court for permission to e-auction the mortgaged property even before the conclusion of trial. Ld. Special Judge may allow the said application after inviting the objections of the other secured and unsecured creditors/claimants especially Aditya Birla Finance Company so that the unsecured creditor can claim its right over the excess amount realized by the appellant SBI after deducting the outstanding dues. The appellant SBI shall deposit the excess amount (if any) in the form of FDR with ED. The said FDR and other attached properties will be disposed of by Ld. Special Judge PMLA Court as per law when the trial attains finality. Conclusion - The Provisional Attachment Order confirming attachment of properties mortgaged with the appellants was to the extent set aside or modified preserving secured creditors rights to possession auction and recovery. Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Appellate Tribunal include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Provisional Attachment Order under PMLA over properties mortgaged with secured creditors in light of alleged fraud on unsecured creditor Relevant legal framework and precedents: The PMLA empowers the ED to provisionally attach properties that are proceeds of crime as defined under Section 2(1)(u). The attachment can be confirmed by the Adjudicating Authority if satisfied that such properties are involved in money laundering. The SARFAESI Act provides secured creditors with rights to take possession and auction mortgaged properties upon default. Court's interpretation and reasoning: The Tribunal recognized that the alleged predicate offences (fraud and forgery) were committed during July-August 2013, involving fraudulent loans of Rs. 8 crore obtained from Aditya Birla Finance Ltd. (ABFL) by submitting forged invoices and documents. However, the properties mortgaged with the appellants (India Infoline Finance Ltd. and State Bank of India) were mortgaged prior to the commission of the offence and prior to the fraudulent loan transactions with ABFL. The Tribunal noted that the secured creditors had initiated SARFAESI proceedings and taken symbolic possession of the mortgaged properties well before the ED's Provisional Attachment Order dated 30.10.2018. In particular, India Infoline Finance Ltd. had auctioned one mortgaged property on 29.08.2018, prior to the attachment order, and had informed the ED accordingly. Key evidence and findings: The properties mortgaged with India Infoline Finance Ltd. and SBI were secured by valid mortgage deeds executed before the alleged fraudulent transactions with ABFL. The secured creditors had possession and had initiated recovery under SARFAESI. The ED's attachment came after these steps, and the properties were not in possession of ABFL or co-mortgaged with ABFL. Application of law to facts: The Tribunal held that the properties mortgaged with the appellants cannot be treated as proceeds of crime merely because the accused fraudulently obtained loans from an unsecured creditor. The secured creditors' rights under SARFAESI and mortgage take precedence over the ED's attachment in absence of any direct link between the properties and the proceeds of crime. Treatment of competing arguments: The appellants argued that the attachment was illegal as it ignored their prior mortgage rights and possession. The ED contended that the properties represented proceeds of crime under PMLA and hence were liable for attachment. The Tribunal sided with the appellants, emphasizing the priority of secured creditors and the absence of any co-ownership or possession by ABFL. Conclusions: The attachment of mortgaged properties with the appellants was not justified to the extent that the properties were already auctioned or in possession of the secured creditors. The auction sale by India Infoline Finance Ltd. was valid and should be maintained unless the auction purchaser cancels the deal due to attachment. In such case, a fresh auction with prior notice to ABFL would be appropriate. Issue 2: Rights of secured creditors under PMLA to move for e-auction of attached properties before trial conclusion and distribution of excess proceeds Relevant legal framework and precedents: Section 8(7) of the PMLA allows the Special Judge to permit sale of attached properties before trial conclusion, subject to objections by other claimants. The SARFAESI Act empowers secured creditors to recover dues by auctioning mortgaged assets. Court's interpretation and reasoning: The Tribunal held that the secured creditor SBI could apply under Section 8(7) of PMLA for permission to e-auction the mortgaged properties attached by ED. The Special Judge may allow such application after hearing objections from other creditors, including unsecured creditors like ABFL. Key evidence and findings: SBI had possession of the properties and outstanding dues. The properties were attached by ED, preventing sale. The Tribunal recognized the secured creditor's interest in recovery and the need to balance it with rights of unsecured creditors. Application of law to facts: The secured creditors' right to recover dues through auction is not extinguished by attachment under PMLA. The Special Judge's permission and due process ensure equitable distribution of sale proceeds, with excess proceeds to be deposited with ED for claims by unsecured creditors. Treatment of competing arguments: The secured creditors sought to proceed with auction despite attachment, while ED emphasized preservation of attached properties. The Tribunal provided a balanced approach allowing auction with safeguards for other claimants. Conclusions: Secured creditors can move for e-auction of attached properties under PMLA with prior notice to other creditors. Excess proceeds after satisfying secured dues must be deposited with ED to facilitate claims by unsecured creditors. Issue 3: Treatment of auction sale already conducted by secured creditor prior to attachment and effect of ED's attachment on transfer of title Relevant legal framework and precedents: SARFAESI Act allows secured creditors to auction mortgaged properties upon default. PMLA attachment prohibits transfer of attached properties unless permitted by Special Judge. Court's interpretation and reasoning: The Tribunal noted that India Infoline Finance Ltd. had auctioned the mortgaged property on 29.08.2018, prior to ED's attachment order dated 30.10.2018. The transfer of title could not be registered due to a letter from ED to the PSIEC Chandigarh. However, the Tribunal held that the auction sale itself is valid and the secured creditor's right prevails over the unsecured creditor's claim under PMLA. Key evidence and findings: The auction sale was conducted following due process under SARFAESI. The ED's letter was issued after the auction, preventing registration. There was no evidence that ABFL had any co-mortgage or possession of title deeds. Application of law to facts: The secured creditor's prior mortgage and possession rights take precedence. The ED's attachment cannot invalidate an auction sale already effected. The auction purchaser's rights must be protected unless the purchaser cancels the deal due to attachment. Treatment of competing arguments: The secured creditor argued for recognition of auction sale; ED argued that attachment prohibits transfer. The Tribunal favored secured creditor's rights with conditions. Conclusions: The auction sale by secured creditor prior to attachment is valid and should be maintained. If the auction purchaser cancels the deal, a fresh auction with due notice to unsecured creditors is warranted. 3. SIGNIFICANT HOLDINGS "The right of appellant finance company will prevail over the right of unsecured creditor Aditya Birla Finance Ltd. There is nothing on record that M/s Aditya Birla Finance Ltd. is co-mortgagee or in possession of title deeds." "The present appellant bank being the secured creditor can move application under Section 8(7) of PMLA, 2002, before Ld. Special Judge, PMLA Court for permission to e-auction the mortgaged property, even before the conclusion of trial." "Any excess amount realised by this appellant finance company needs to be tendered to ED in the form of FDR, so that the unsecured creditors can claim their right over the same before Ld. Special Judge, PMLA Court." Core principles established include:
Final determinations on each issue were that the Provisional Attachment Order confirming attachment of properties mortgaged with the appellants was to the extent set aside or modified, preserving secured creditors' rights to possession, auction, and recovery. The appeals were disposed with directions to allow secured creditors to proceed with auction subject to statutory procedures and to protect unsecured creditors' interests through deposit of excess proceeds with ED.
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