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2025 (5) TMI 77 - AT - Money LaunderingMoney Laundering - scheduled offences - provisional attachment of properties mortgaged with appellant banks - HELD THAT - Admittedly the period of commission of scheduled offence is from 2010 to 2017 and FIR was registered in the year 2018. Two Loans of Rs. 4 Crore each were sanctioned by SBI on 16.11.2015 against the two properties mortgaged to it as mentioned in para no. 1 above. 14 properties were mortgaged to Axis Bank including the two mortgaged properties with SBI against the loan of Rs. 40 Crore sanctioned on 28.12.2015. The contention of learned counsel for Respondent ED is agreed upon that collusion of the officials/management of banks with the mortgagors and Directors of M/s DPIL is not ruled out. However this issue needs to be decided by learned Special Judge PMLA Court whether the appellant banks were part and parcel of any conspiracy for sanctioning and releasing the loan without due diligence or by overvaluation of the mortgaged properties. However being a secured mortgagee of the aforementioned properties the appellant banks are at liberty to stake its claim before learned Special Judge PMLA Court u/s 8(5) to section 8(8) of the PMLA 2002 with notice to the other secured and unsecured creditors and after seeing the role of present appellants for colluding with accused M/s DPIL and its Directors for releasing loan against the norms if any. Ld. Special Judge PMLA Court can also entertain the application for auction of the mortgaged properties even before the conclusion of trial u/s 8(7) of PMLA is filed by the Consortium of banks for auction sale and the proportionate distribution amongst them as per the respective outstanding liabilities of the borrowers/guarantors with condition that any excess amount (if any) after realization of outstanding liabilities will be kept by way of FDR in the name of ED for disposal as per final outcome of the trial in the PMLA case. Conclusion - The Adjudicating Authority being satisfied with the allegations made in the Original Complaint coupled with the statements recorded under Section 50 of PMLA and the relied upon documents formed the reasonable belief and thereby issued the Show Cause Notice and confirmed the Provisional Attachment Order. Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 (PMLA) are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Provisional Attachment of Mortgaged Properties by ED under PMLA Relevant legal framework and precedents: Under Section 5 of PMLA, the ED may provisionally attach property suspected to be proceeds of crime, subject to forming a reasonable belief. The attachment must be confirmed by an Adjudicating Authority. The scope of attachment under "value of such property" includes properties equivalent in value to proceeds of crime. Jurisprudence such as the Punjab and Haryana High Court's decision in Seema Garg v. Deputy Director clarifies the extent and conditions for attachment under PMLA. Court's interpretation and reasoning: The Court noted that the ED attached properties mortgaged with appellant banks without completing full investigation or making explicit queries to the banks. However, the Adjudicating Authority, on examining statements and documents, formed reasonable belief to confirm attachment. The Court recognized the ED's statutory power to attach properties equivalent in value to proceeds of crime. Key evidence and findings: The investigation revealed fraudulent activities by M/s DPIL, causing a loss of Rs. 2654.40 Crore to a consortium of banks. The FIR and statements under Section 50 of PMLA disclosed fictitious transactions, diversion of funds, and bogus invoices. Proceeds of crime amounting to Rs. 11,22,72,08,030/- were provisionally attached, including mortgaged properties. Application of law to facts: The Court held that the attachment was based on material collected and reasonable belief formed by the Adjudicating Authority. The fact that the appellant banks were not made parties during investigation did not invalidate the attachment. The ED's action was within the statutory framework. Treatment of competing arguments: While appellants contended that attachment was premature and without reason to believe, the Court deferred to the Adjudicating Authority's satisfaction based on material. The Court acknowledged the possibility of collusion but reserved such determinations for the trial. Conclusion: The provisional attachment of properties, including those mortgaged with appellant banks, was validly confirmed by the Adjudicating Authority under PMLA. Issue 2: Status of Mortgaged Properties as Proceeds of Crime and Rights of Secured Creditors Relevant legal framework and precedents: Section 2(1)(u) of PMLA defines proceeds of crime, and Section 8(5) to 8(8) provide for claims by third parties, including secured creditors, in attached properties. The SARFAESI Act, 2002 governs enforcement of security interests by banks. Section 71 of PMLA states that PMLA provisions shall have overriding effect over other laws. Court's interpretation and reasoning: The Court recognized that the properties mortgaged with appellant banks were secured against bona fide loans but observed that the banks' role in sanctioning loans without due diligence or colluding with DPIL was a matter for trial. The Court held that the appellant banks, as secured creditors, have the right to stake claims before the Special Judge under PMLA Sections 8(5) to 8(8). Key evidence and findings: The appellant banks had original title deeds and had initiated SARFAESI proceedings due to Non-Performing Assets (NPA) status of loans. However, the investigation revealed fraudulent diversion of funds and fictitious transactions by DPIL, affecting the value and legitimacy of the mortgaged properties. Application of law to facts: The Court emphasized that the rights of secured creditors are preserved, but subject to scrutiny of their involvement in the alleged offences. The banks may apply for auction of mortgaged properties under PMLA Section 8(7) even before trial conclusion, with conditions to safeguard proceeds for final adjudication. Treatment of competing arguments: Appellants argued that SARFAESI provisions should prevail and that properties should not be attached as proceeds of crime. The Court rejected this, citing PMLA's overriding effect and special status. The ED's contention that the properties represent value equivalent to proceeds of crime was accepted. Conclusion: Mortgaged properties can be attached under PMLA, but secured creditors retain rights to claim and enforce security subject to trial findings on their complicity. Issue 3: Precedence of PMLA Proceedings over Other Laws and Enforcement of Security Interests Relevant legal framework and precedents: Section 71 of PMLA states that its provisions have overriding effect over other laws. The SARFAESI Act allows banks to enforce security interests but does not supersede PMLA where proceeds of crime are involved. Court's interpretation and reasoning: The Court held that the submission of appellant banks regarding SARFAESI precedence was incorrect. PMLA, being a special statute dealing with money laundering and proceeds of crime, takes precedence. Therefore, enforcement of security interests must be balanced with PMLA's provisions. Key evidence and findings: The loans had become NPAs and banks initiated SARFAESI proceedings. However, the ED's attachment under PMLA was based on ongoing investigation of scheduled offences and proceeds of crime. Application of law to facts: The Court clarified that while banks have rights under SARFAESI, such rights are subject to PMLA's overriding provisions. The banks may proceed with claims but within the framework and restrictions imposed by PMLA. Treatment of competing arguments: The Court balanced the competing rights of banks and the ED, maintaining the supremacy of PMLA in matters of proceeds of crime. Conclusion: PMLA proceedings override SARFAESI Act provisions in cases involving proceeds of crime, and banks' enforcement actions are subject to PMLA restrictions. Issue 4: Procedure for Banks to Stake Claims and Seek Auction of Mortgaged Properties under PMLA Relevant legal framework and precedents: Sections 8(5) to 8(8) and Section 8(7) of PMLA provide the mechanism for third-party claims, including secured creditors, and allow auction of attached properties with safeguards. Court's interpretation and reasoning: The Court granted liberty to appellant banks to stake claims before the Special Judge PMLA Court, with notice to other creditors, and to apply for auction of mortgaged properties even before trial conclusion. The Court also prescribed that any excess proceeds from auction be kept in fixed deposits in the name of ED for disposal as per final trial outcome. Key evidence and findings: The properties are mortgaged with appellant banks securing loans which are NPAs. The banks have initiated recovery proceedings under SARFAESI but are restrained by PMLA attachment. Application of law to facts: The Court balanced the interests of secured creditors and the State's interest in preserving proceeds of crime, providing a procedural mechanism to protect both. Treatment of competing arguments: Appellants sought release of properties; the Court instead provided a regulated procedure preserving their rights while safeguarding the investigation. Conclusion: Banks may stake claims and seek auction of attached mortgaged properties under PMLA with conditions to protect the interests of all parties. Issue 5: Allegation of Collusion and Role of Banks in Loan Sanction and Release Relevant legal framework and precedents: The role of banks in sanctioning loans and possible complicity in offences under PMLA and IPC is subject to criminal trial and investigation. Court's interpretation and reasoning: The Court acknowledged the possibility of collusion between bank officials and DPIL directors but held that such issues must be adjudicated by the Special Judge in the PMLA trial. The Court declined to decide on complicity at the appellate stage. Key evidence and findings: FIR and investigation revealed fraudulent activities, including inflated turnover projections, diversion of funds, and violation of sanction terms. The involvement of bank officials is under investigation. Application of law to facts: The Court maintained that the banks' complicity is a factual issue for trial, and until proven, banks retain rights as secured creditors. Treatment of competing arguments: Appellants denied complicity and asserted bona fide transactions; the Court preserved their rights subject to trial findings. Conclusion: Allegations of collusion are to be examined during trial; meanwhile, banks' rights are preserved with procedural safeguards. 3. SIGNIFICANT HOLDINGS "The Adjudicating Authority being satisfied with the allegations made in the Original Complaint, coupled with the statements recorded under Section 50 of PMLA and the relied upon documents, formed the reasonable belief and thereby issued the Show Cause Notice... and confirmed the Provisional Attachment Order." "The appellant banks, being secured mortgagees of the aforementioned properties, are at liberty to stake their claim before the learned Special Judge, PMLA Court, under Sections 8(5) to 8(8) of the PMLA, with notice to other secured and unsecured creditors and after examining the role of the appellants for collusion, if any." "The Special Judge, PMLA Court can entertain the application for auction of the mortgaged properties even before the conclusion of trial, under Section 8(7) of PMLA, filed by the consortium of banks for auction sale and proportionate distribution amongst them as per the respective outstanding liabilities, with the condition that any excess amount after realization will be kept by way of FDR in the name of ED for disposal as per final outcome of the trial." "The submission that SARFAESI provisions get precedence over provisions of PMLA is not correct, as PMLA is a special Act and proceedings under PMLA get precedence over other Acts in terms of Section 71 of the Act." "The possibility of collusion of the officials/management of banks with the mortgagors and Directors of M/s DPIL is not ruled out, but this issue needs to be decided by the learned Special Judge, PMLA Court." The Court's final determination was to dismiss the appeals with liberty to the appellant banks to assert their claims and seek auction of mortgaged properties under PMLA, preserving the rights of all parties and without prejudice to the ongoing criminal trial and investigation.
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