Manager, Indian Bank Vs Deputy Director (Appellate Tribunal under SAFEMA, New Delhi)
Prior Mortgage Does Not Automatically Override PMLA Attachment: Tribunal Dismisses Indian Bank’s Appeal
The Appellate Tribunal under SAFEMA, New Delhi, has held that a bank’s prior mortgage and recovery proceedings under the SARFAESI Act do not automatically invalidate an attachment under the Prevention of Money Laundering Act, 2002. The secured creditor must establish the circumstances justifying protection of its interest, including its bona fides and adequate due diligence.
Dismissing Indian Bank’s appeal concerning land valued at Rs. 43,54,10,927, the Tribunal declined to release the attached property or permit its auction. However, it granted the bank liberty to approach the Special Court under section 8(8) of PMLA.
Background of the Mortgage and Recovery Proceedings
Indian Bank, formerly Allahabad Bank, sanctioned a bank guarantee of Rs. 9.18 crore to ABW Infrastructure Ltd. in April 2011 against an equitable mortgage over property belonging to Mahamaya Exports Pvt. Ltd.
The bank subsequently sanctioned a term loan of Rs. 15 crore on October 31, 2011, against extension of the mortgage over the same land, measuring 14 acres, 6 kanals and 11.5 marlas.
The borrower’s account became a non-performing asset on September 29, 2016. The bank initiated proceedings under the SARFAESI Act and obtained physical possession of the property on May 18, 2018.
An auction followed in August 2018. Although the bank subsequently obtained permission to confirm the sale, the highest bidder failed to deposit the complete consideration. The part payment was refunded pursuant to a High Court order.
Attachment under PMLA
The Enforcement Directorate provisionally attached the property on July 25, 2019. The Adjudicating Authority confirmed the attachment by an order dated January 10, 2020.
The investigation concerned the alleged land acquisition scam involving Manesar, Naurangpur and Lakhnoula in Haryana. The ED alleged that funds transferred from ABW Infrastructure Ltd. to Mahamaya Exports Pvt. Ltd. had been used to purchase the attached land.
Accordingly, the property was identified as proceeds of crime arising from the alleged scheduled offences.
The bank challenged the confirmation, asserting that its mortgage and SARFAESI enforcement preceded the attachment. It also emphasised that the mortgage was created in 2011, whereas the FIR was registered in 2015.
Prior Mortgage Did Not Automatically Defeat Attachment
The Tribunal relied on the Delhi High Court’s decision in Deputy Director, Directorate of Enforcement Vs Axis Bank.
It observed that PMLA attachment is not illegal merely because a secured creditor holds a prior charge over the property. Equally, attachment does not automatically invalidate a prior security interest. Protection of the creditor’s claim depends on its bona fides and the applicable statutory requirements.
A third-party claimant must substantiate lawful acquisition of its interest for adequate consideration and compliance with the law. Where applicable, reasonable precautions and due inquiry concerning the legitimacy of the asset and transaction must also be demonstrated.
The Tribunal therefore rejected the proposition that the bank’s status as a secured creditor, by itself, entitled it to release of the property.
FIR Date Was Not Determinative
The Tribunal held that the date of registration of the FIR could not independently determine whether the property was liable to attachment.
It observed that the alleged criminal activity preceded creation of the mortgage in 2011. The relevant question was whether the property had the necessary statutory connection with proceeds of crime, rather than whether the mortgage preceded the FIR.
The Tribunal referred to Rameshwar Vs State of Haryana, in which the Supreme Court found that the underlying land transactions were brought about through fraudulent influence and that the governmental decisions examined constituted fraud on power.
It also referred to Vijay Madanlal Choudhary Vs Union of India, recognising proceeds of crime as the essential foundation for invoking PMLA.
SARFAESI Possession and Absence of Connivance
The Tribunal held that SARFAESI and PMLA proceedings operate in different fields. Possession and auction action under SARFAESI did not confer immunity from valid attachment proceedings.
The bank also relied on the absence of allegations that it participated or connived in the scheduled offence. The Tribunal explained that the property’s liability to attachment was distinct from the bank’s personal culpability.
Consequently, absence of criminal allegations against the bank did not itself establish that the property was free from attachment where the statutory ingredients were otherwise satisfied.
Due Diligence and Final Decision
The Tribunal acknowledged that bona fide secured creditors may receive protection under the statutory framework. However, commercial loan documentation and an equitable mortgage did not, by themselves, sever the property’s connection with the alleged proceeds of crime.
Finding insufficient evidence establishing adequate due diligence, it declined the bank’s request for release and auction.
The appeal was therefore dismissed with liberty to seek relief before the Special Court under section 8(8) of PMLA. The decision preserved that remedy while rejecting automatic precedence based solely on the earlier mortgage, possession or recovery proceedings.
Cases Discussed
- Deputy Director, Directorate of Enforcement v. Axis Bank & Ors. — 2019 SCC OnLine Del 7854 (Delhi High Court); relevant TaxGuru discussion, not direct case page.
- Rameshwar & Ors. v. State of Haryana & Ors. — (2018) 6 SCC 215 (Supreme Court); exact TaxGuru case page not verified.
- Vijay Madanlal Choudhary v. Union of India — 2022 SCC OnLine SC 929 (Supreme Court).
FULL TEXT OF THE ORDER OF APPELLATE TRIBUNAL UNDER SAFEMA
This Order disposes of the Appeal No. FPA-PMLA-3514/ CHD/2020 filed by The Manager, Indian Bank (erstwhile Allahabad Bank), against the Order dated 10.01.2020 (Impugned Order) passed by the Ld. Adjudicating Authority (AA) under the Prevention of Money Laundering Act, 2002 (PMLA) in the Original Complaint No. 1181/2019 (OC). The Provisional Attachment Order No. 05/2019 dated 25.07.2019 (PAO) issued in ECIR No. ECIR/CDZO/04/2015 dated 24.09.2015 was confirmed vide the Impugned Order. Thus, the attachment of the property comprising of 14 acres 6 Kanals and 11.5 Marlas of land of value of Rs. 43,54,10,927/- in the name of M/s Mahamaya Exports Pvt. Ltd. was confirmed.
2. Ld. Counsel for the Appellant Bank submitted that Shri Atul Bansal and Smt. Sona Bansal opened the bank account in the name of ABWIL (M/s ABW Infrastructure Ltd.) with the Appellant Bank on 22.03.2010 in Nehru Place Branch, New Delhi. The account was then shifted to New Friends Colony Branch, New Delhi. Shri Atul Bansal and Smt. Sona Bansal then approached the Appellant Bank for sanctioning of Bank Guarantee of Rs. 9.18 Crores. Pursuant to the request made by them, the Bank had sanctioned the bank guarantee vide sanction letter dated 13.04.2011 against mortgaging the property of M/s Mahamaya Exports Pvt. Ltd. (Guarantor). Ld. Counsel for the Appellant Bank submitted that Shri Atul Bansal and Smt. Sona Bansal submitted an application dated 22.10.2011 with request for Term Loan of Rs. 15 Crores against the same said property of M/s Mahamaya Exports Pvt. Ltd. which was mortgaged earlier. Fresh term loan of Rs. 15 Crores was sanctioned to M/s ABWIL against the extension of equitable mortgage of the land in the name of M/s Mahamaya Exports Pvt. Ltd. vide sanction letter dated 31.10.2011. Ld. Counsel submitted that the bank guarantee of Rs. 9.18 crore and term loan of Rs. 15 Crores had been granted to M/s ABWIL and Respondent No. 2 & 3 namely Shri Atul Bansal and Smt. Sona Bansal against equitable mortgage of land measuring 14 acres 6 kanals 11.5 marlas in the name of M/s Mahamaya Exports Pvt. Ltd. Ld. Counsel for the Appellant Bank submitted that it is an admitted fact by Shri Atul Bansal as mentioned in the original complaint that the equitable mortgage had been created/ executed by Shri Atul Bansal and Smt. Sona Bansal in favour of the Appellant in favour of the aforesaid immovable property i.e. 14 acres 6 kanals 11.5 marlas of land vide sanction letter NFC/ADV/145 dated 31.10.2011. The loan account in the name of M/s ABWIL became NPA on 29.09.2016.
3. Ld. Counsel for the Appellant Bank submitted that the Appellant Bank then issued a notice under Section 13(2) of SARFAESI Act to M/s ABWIL vide notice REF NO. NFC/REC- SARFAESI/2016-17/45 Dated 03.10.2016. An application was moved in the Court of Sh. Vinay Pratap Singh, District Magistrate, Gurugram by the Appellant seeking permission to take the possession of the mortgaged land under the provision of SARFAESI Act. The District Magistrate accepted the said application and passed an order dated 17.04.2018 appointing a receiver in order to send the notice to Shri Atul Bansal and Smt. Sona Bansal and take possession of the land. The physical possession of the land was then taken by the Appellant on 18.05.2018 vide possession notice dated 18.05.2018. Ld. Counsel for the Appellant Bank submitted that the Appellant also issued Auction Sale Notice dated 28.06.2018 under the provisions of SARFAESI Act, 2002 wherein the Auction was successfully conducted 08.08.2018. Ld. Counsel for the Appellant Bank submitted that before the date of auction, Shri Shashikant Chaurasia approached DRT-II, Delhi by filing a Securitization Application bearing SA no. 160/2018 against the SARFAESI action initiated by the Bank. The Hon’ble DRT-II, Delhi vide its order dated 08.08.2018 directed the Appellant Bank to go ahead with the sale/auction of the property in issue but refrained the Appellant Bank from confirming the same. He further submitted that Appellant aggrieved by the order, approached the Hon’ble DRAT, Delhi by filing Misc. Appeal bearing no. 418/2018, wherein the above said order of DRT-II, Delhi was set aside by the Hon’ble DRAT, Delhi vide its order 16.10.2018 and the Appellant Bank was permitted to confirm the sale in favour of highest bidder of auction held on 08.08.2018. The highest bidder then failed to deposit complete sale consideration in terms of auction held on 08.08.2018, however, the part payment deposited by highest bidder was refunded to the auction purchaser in terms of order dated 14.05.2019 passed by the Hon’ble Punjab and Haryana High Court, Chandigarh in CR no. 8890/2018 titled Allahabad Bank vs. M/s RSDR Builders Pvt. Ltd.
4. Ld. Counsel for the Appellant Bank submitted that the Respondent herein issued PAO No. 05/2019 dated 25.07.2019 provisionally attaching the property of M/s Mahamaya Exports Pvt. Ltd. i.e., 14 acres 6 Kanals 11.5 marlas of land which was mortgaged to the Appellant Bank by Shri Atul Bansal and Smt. Sona Bansal. Ld. Counsel for the Appellant Bank submitted that the Respondent filed an Original Complaint No. 1181/2019 in the PAO No. 05/2019 against the Appellant. The Ld. Adjudicating Authority issued notice to the Appellant Bank on 30.08.2019 in OC No. 1181/2019. The Appellant submitted its reply dated 04.11.2019 against OC No. 1181/2019. Ld. Counsel for the Appellant Bank submitted that the Respondent issued notice for eviction of premises of the subject property in the said matter however the possession of the said property is with the Appellant Bank being a secure creditor. Ld. Counsel therefore pleaded to allow the Appeal.
5. Ld. Counsel for the Respondent submitted that FIR dated 12.08.2015 registered a case under Sections 420, 465, 467, 468, 471 and 120-B of the Indian Penal Code and u/s 13 of the Prevention of Corruption Act, 1988, on 12.8.2015 at Police Station, Manesar, Gurgaon. Thereafter, the investigation of the aforesaid case was transferred to Central Bureau of Investigation, ACB, Chandigarh. FIR No. RCCHG2015A0019 under Sections 420, 465, 467, 468, 471 and 120B of the Indian Penal Code and under Section 13 of the Prevention of Corruption Act, 1988 was registered by CBI, ACB, Chandigarh on 15.09.2015 against unknown public servants of Government of Haryana and unknown private persons on the basis of written request dated 28.08.2015 of Sh. Jagat Singh, Under Secretary Home to Government of Haryana, Home Department, Chandigarh.
6. Ld. Counsel for the Respondent submitted that the Government of Haryana had issued notification u/s 4 of the Land Acquisition Act, 1894 on 27.08.2004 and had issued notification u/s 6 of the said Act on 25.08.2005 for acquisition of land measuring about 912 acres for setting up an Industrial Model Township in Villages Manesar, Naurangpur and Lakhnoula of Distt., Gurgaon. A large number of land owners, in haste, had to sell about 350 acres of their land at throwaway rates of Rs.20 to 25 Lakhs per acre to private builders. It was alleged that when some land was not sold by the farmers, the Government issued Notification u/s 9 of the said Act and thereafter, the private builders had purchased remaining 50 acres of land at the rate of even Rs.1.50 crores per acre. It was further alleged that when all the land had been grabbed by land mafia from the land owners under the threat of acquisition at meagre rates, an order was passed by the Competent Authority i.e. the Director of Industries on 24.08.2007 for releasing this land from the acquisition process and the land was released in violation of the Government Policy, in favour of the builders, their Companies and agents, instead of the original land owners of these villages. In the above manner, land measuring about 400 acres, whose market value at that time was above Rs. 4 crores per acre, totalling about Rs. 1600 crores, was purchased by the builders from the innocent land owners for only about Rs. 100 crores. Thus, some politicians who were also important functionaries of the State Government, Government Officers and their agents caused a wrongful loss of Rs.1500 crores to the land owners of Village Manesar, Naurangpur and Lakhnoula of District, Gurgaon and corresponding wrongful gains to themselves.
7. Ld. Counsel for the Respondent submitted that it may be seen that the bank and its officials cannot give clean chit to themselves and become judge of their own cause as while distributing public money and coming into the shoe of a so called ‘secured creditor‘, they should have done due diligence. When the Enforcement Directorate has unearthed the proceeds of crime, the Appellant bank is trying to portray that being a ‘secured creditor‘ the provisions of PMLA should not be enforced. Being a Bank, working under the same economic system, the perpetrators of such economic crimes should not be shielded in such manner as is being done by the Bank. The survival of Bank should have been seen at the time of sanctioning of such loans etc. to such economic offenders and not at the stage when the attachments under PMLA were initiated. The Bank even failed to place on record any internal investigation report etc. to satisfy this Hon’ble Authority as to who was responsible as per Bank internal mechanism for disbursal of such Loans. Ld. Counsel therefore pleaded to dismiss the Appeal.
8. We have carefully considered the rival submissions advanced by the Ld. Counsels for the Appellant Bank and for the Respondent as well as have perused the material available on record. Since the present Appeal arises from the same Impugned Order which has also been assailed in the connected matters, the findings herein are confined to the subject property measuring 14 acres 6 kanals 11.5 marlas standing in the name of M/s Mahamaya Exports Pvt. Ltd. and mortgaged in favour of the Appellant Bank.
9. The principal contention of the Appellant Bank is that it is a secured creditor having an equitable mortgage over the subject property since the year 2011 and that it had initiated proceedings under the SARFAESI Act much prior to the provisional attachment order dated 25.07.2019. It has, therefore, been argued that its prior security interest deserves to be protected and that the attachment under the PMLA cannot operate to its prejudice. There is no dispute that the Bank Guarantee of Rs.9.18 crore was sanctioned to M/s ABWIL against the mortgage of the subject property and that subsequently a Term Loan of Rs.15 crore was sanctioned vide sanction letter dated 31.10.2011 against the extension of the equitable mortgage. It is also not disputed that the loan account was classified as NPA on 29.09.2016 and that thereafter proceedings under the SARFAESI Act were initiated by the Appellant Bank. However, the mere fact that the Appellant Bank is a secured creditor or that its security interest came into existence prior to the provisional attachment does not, by itself, render the attachment under the PMLA illegal. The Appellant Bank has contended that the provisions of the PMLA could not have superseded the provisions of the SARFAESI Act. To resolve the issue of conflicting claims on the Impugned Property made on the basis of contentions about the overriding effects of the various Acts, the following Paragraphs in the Judgement of the Hon’ble Delhi High Court in the matter of Deputy Director, Directorate of Enforcement v. Axis Bank & Ors., [2019 SCC OnLine Del 7854], are being cited below:
“139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, SARFAESI Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is “due” to the claimant i.e. the banks or the financial institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process.”
10. The Hon’ble Delhi High Court in Axis Bank (supra), while considering the very question of conflict between the PMLA and the rights of secured creditors, held that an attachment under the PMLA is not rendered illegal merely because a secured creditor has a prior secured interest in the property. The Court emphasised that the question has to be examined in the light of the statutory prerequisites of the PMLA and the bona fides of the third-party claimant. In this regard Paragraph 171 is reproduced below:
“171. It will be advantageous to summarise the conclusions reached by the above discussion, as under:
(i) The process of attachment (leading to confiscation) of proceeds of crime under the PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering.
(ii) The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation.
(iii) The empowered enforcement officer has the authority of law in the PMLA to attach not only a “tainted property”—that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence—but also any other asset or property of equivalent value of the offender of money-laundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering.
(iv) If the “tainted property” respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset (“the alternative attachable property” or “deemed tainted property”) of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the Government of illicit gains of crime.
(v) If the person accused of (or charged with) the offence of money- laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him.
(vi) The objective of the PMLA being distinct from the purpose of the RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former.
(vii) The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with “money-laundering” and “proceeds of crime” relating thereto.
(viii) The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been “derived or obtained” as a result of “criminal activity relating to a scheduled offence” and consequently being “proceeds of crime”, within the mischief of the PMLA.
(ix) If the property of a person other than the one accused of (or charged with) the offence of money-laundering, i. e., a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of money- laundering (or his abettor), or it was involved in a transaction which had inter-connection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends.
(x) The charge or encumbrance of a third party in a property attached under the PMLA cannot be treated or declared as “void” unless material is available to show that it was created “to defeat” the said law, such declaration rendering such property available for attachment and confiscation under the PMLA, free from such encumbrance.
(xi) A party in order to be considered as a “bona fide third party claimant” for its claim in a property being subjected to attachment under the PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money- laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered.
(xii) An order of attachment under the PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in the RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under the PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from the PMLA attachment being dependent on its bona fides.
(xiii) If it is shown by cogent evidence by the bona fide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken “due diligence” (e. g., taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest.
(xiv) If it is shown by cogent evidence by the bona fide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the third party will not be subjected to confiscation so long as the charge or encumbrance of such third party subsists, the attachment under the PMLA being valid or operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.
(xv) If the bona fide third party claimant (as aforesaid) is a “secured creditor”, pursuing enforcement of “security interest” in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under the PMLA, the directions of such attachment under the PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.
(xvi) In the situations covered by the preceding two sub- paragraphs, the bona fide third party claimant shall be accountable to the enforcement authorities for the “excess” value of the property subjected to the PMLA attachment.
(xvii) If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under section 4 of the PMLA has commenced, the claim of a party asserting to have acted bona fide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.”
11. Therefore, the issue before us is not merely whether the Appellant Bank had a prior mortgage, but whether the subject property falls within the statutory ambit of “proceeds of crime” and whether the Bank has established such circumstances as would warrant exclusion of the property from the attachment notwithstanding its security interest. The case arises out of the alleged land acquisition scam in Manesar, Naurangpur and Lakhnoula area. The Hon’ble Supreme Court in Rameshwar & Ors. v. State of Haryana & Ors., (2018) 6 SCC 215, Civil Appeal No.8788/2015 and in connected matters, examined the very land acquisition process in question. The Hon’ble Apex Court found that the decisions dated 24.08.2007 and 29.01.2010 suffered from fraud on power and therefore set aside the same. The Hon’ble Apex Court further held that the transactions between the landholders and builders/private entities were not voluntary and were brought about by fraudulent influence. Relevant Para of the judgement (supra) is reproduced below:
“32. We thus hold that:-
a] The transactions entered into between the landholders and the concerned builders/private entities in the present case were not voluntary and were brought about by fraudulent influence. Certain ‘middlemen’ and builders enriched themselves at the expense of the landholders and public interest which was to be achieved by acquisition.
b] The decisions dated 24.08.2007 and 29.01.2010 as well as entertaining of applications for grant of licence from those who had bought the lands after the acquisition was initiated, were not bona fide exercise of power by the State machinery. The exercise of power under the Act was guided by considerations extraneous to the provisions of the Act and as a matter of fact, was designed to enrich the builders/private entities. These decisions were nothing but fraud on power.”
12. The judgment Rameshwar (supra) assumes significance because the subject property cannot be examined in isolation from the underlying transactions and the chain of properties and entities forming part of the alleged scheduled offence. The Hon’ble Supreme Court in Vijay Madanlal Choudhary v. Union of India, [2022 SCC OnLine SC 929], while explaining Section 2(1)(u) of the PMLA, has held that “proceeds of crime” is the core ingredient for invocation of the provisions of the PMLA and that the property must be derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence.
“365. Needless to underscore that the 2002 Act is intended to initiate action in respect of money laundering activity which necessarily is associated with the property derived or obtained by any person, directly or indirectly, as a result of specified criminal activity. The prosecution under this Act is not in relation to the criminal activity per se but limited to property derived or obtained from specified criminal activity. Resultantly, the inclusion of criminal activity which has been regarded as non-cognizable, compoundable or minor offence under the legislation concerned, should have no bearing to answer the matter in issue. In that, the offence of money laundering is an independent offence and the persons involved in the commission of such offence are grouped together as offenders under this Act.
There is no reason to make distinction between them insofar as the offence of money laundering is concerned. In our opinion, therefore, there is no merit in the argument under consideration.
xxxxx
378. It is urged that there is no gradation of punishment depending on the nature of offence which may be committed by the principal offender and other offenders. Section 4 of the 2002 Act makes no distinction between person directly involved in the process or activity connected with the proceeds of crime and the other not so directly involved. Further, the scheduled offence may have been committed by someone else and the offence of money laundering by third person owing to being involved in the process or activity connected with the proceeds of crime. The petitioners have relied on Sections 201 and 212 IPC. It is their case that this distinction is absent in Section 4 of the 2002 Act which provides that the term of rigorous imprisonment shall not be less than three years and extend up to seven years or ten years, as the case may be, with fine. This argument to say the least is flimsy and tenuous. For, the punishment under Section 4 is not in relation to the predicate offence, but offence of money laundering under Section 3 of the 2002 Act. The person may be involved in any one or more than one process or activity connected with the proceeds of crime. All of them are treated as one class of offender involved in money laundering. The proceeds of crime may be derived or obtained as a result of criminal activity with which the offender involved in money laundering offence may not be directly concerned at all. Even so, he becomes liable to be proceeded with under Section 3 and punished under Section 4 of the 2002 Act. The principle of an accessory after the fact will have no application to the offence of money laundering. Suffice it to observe that the argument under consideration is devoid of merit.”
13. In the present case, the Respondent has not sought to attach the subject property merely because it belongs to a borrower of the Appellant Bank. The attachment has been made pursuant to the investigation into the scheduled offences and into the alleged chain of transactions involving the land and the entities connected with M/s ABWIL. The property has accordingly been identified by the Respondent Directorate as proceeds of crime. The Respondent Directorate has stated in the OC 1181/2019 that huge amount was transferred from the account of M/s AWBIL and was credited in the account of M/s Mahamaya Exports Pvt. Ltd. The amount so transferred was used for procuring the attached land i.e. 14 acres 6 Kanals and 11.5 Marlas in the name of M/s Mahamaya Exports Pvt. Ltd. Due to this reason the property is said to be acquired from the tainted money of M/S ABWIL and is therefore “proceeds of crime“.
14. The Appellant Bank has relied heavily upon the fact that the mortgage was created in 2011 and that the FIR was registered only in 2015. This circumstance, by itself, cannot be determinative. The relevant question under the PMLA is whether the property sought to be attached has the statutory nexus with the proceeds of crime and whether the property represents the proceeds of crime or the value thereof. Moreover, it is not in dispute that the alleged offence had occurred even before the mortgage was created in 2011 as is also obvious from the Judgment (supra-Rameshwar & Ors.). The date of registration of the FIR cannot, in isolation, determine whether a property is liable to attachment under the PMLA. We again reiterate the following observations made by the Hon’ble Delhi High Court in the matter of Axis Bank (supra) is cited below:
“171. (xiii) If it is shown by cogent evidence by the bona fide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken “due diligence” (e. g., taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest.”
15. The contention of the Appellant Bank that it had taken possession of the property under the SARFAESI Act in May 2018 and had thereafter initiated auction proceedings also does not confer immunity from PMLA proceedings. The SARFAESI proceedings and the PMLA proceedings operate in different fields and the existence of proceedings under one enactment cannot nullify proceedings validly undertaken under the other. It is equally important that the rights of a secured creditor cannot be elevated above the statutory objective of the PMLA where the property itself is found to constitute, or represent the value of, proceeds of crime. The PMLA is a special legislation intended to deprive persons of the benefit of property generated through scheduled criminal activity and to ultimately secure confiscation of such property in accordance with law. The Appellant Bank has also contended that there is no allegation of participation or connivance on its part in the scheduled offence. This submission, however, does not by itself warrant release of the attached property. The attachment proceeding is directed primarily against the property which is alleged to constitute proceeds of crime. The liability of the property for attachment cannot be defeated merely because the person claiming an interest therein is not himself an accused in the scheduled offence. The distinction between the liability of the property and the culpability of the person claiming an interest therein is material. The absence of criminal liability on the part of the Appellant Bank does not, by itself, establish that the property is free from attachment if the statutory ingredients for attachment under Section 5 are otherwise satisfied.
16. The Appellant has further relied upon its contention of having conducted due diligence and the fact that the loan was sanctioned against an equitable mortgage. However, in the present case, the Bank’s security interest was created in respect of property connected with the entities and transactions which subsequently came under investigation for the scheduled offences. The existence of a commercial transaction or security documentation does not by itself sever the nexus of the property with the proceeds of crime. At the same time, we are conscious of the observations in Axis Bank that a bona fide secured creditor having a legitimate interest is entitled to protection in accordance with the statutory scheme. However, the said principle does not lay down an absolute immunity in favour of secured creditors. In the present case, the question whether the Bank had exercised adequate due diligence at the time of creation of the mortgage assumes relevance because the property was subsequently found connected with the alleged scheduled offence and allegedly constituted proceeds of crime. We cannot lose sight of the fact that the Supreme Court in the matter of Rameshwar & Ors. (Supra) found the underlying land transactions to have been vitiated by fraud on power. The said finding lends considerable weight to the Respondent’s case that the transactions concerning the subject land cannot be treated as isolated, ordinary commercial transactions divorced from the criminal activity under investigation. In the absence of any evidence as to determine that the due diligence conducted was adequate, we are unable to allow the release and the auction of the impugned properties. However, the contention that the Appellant Bank is a bona fide secured creditor may entitle it to pursue such remedies as are available to it under the Act. Therefore, the Appellant Bank has the liberty to stake its claim for the impugned property under Section 8 (8) of PMLA before the Special Court of PMLA.
17. In view of the aforementioned discussions and the analysis, we therefore dismiss the Appeal No. FPA-PMLA-3514/CHD/2020 filed by The Manager, Indian Bank (erstwhile Allahabad Bank), with liberty to the Appellant Bank to move an application before the Special Court of PMLA under Section 8 (8) of PMLA.
Applications pending, if any, are disposed of accordingly.
