PMLA :Still A Sword?

The Delhi High Court set aside the decision of the PMLA Appellate Tribunal vide a judgment delivered on April 2, 2019 titled¬†The Deputy Director Directorate of Enforcement Delhi and Ors. v. Axis Bank and Ors. The Hon’ble Delhi High Court appreciated the fact that these legislations had distinct objectives and hence, none could prevail over the other. Hence, a harmonious construction was given to each of them in the light of the facts and circumstances of the case.

These were criminal appeals under Section 42 of the PMLA, 2002 against similar orders passed by the Appellate Tribunal, that arose as a consequence of third party claims due to a charge, lien or encumbrance pertaining to the attached property(s). This clearly amounted to State versus the Third Party. Who had a better claim over the attached property (proceeds of crime or derived from the proceeds of crime or its equivalent in value)? It is also pertinent to note that the money trail in offences involved in the instant matters is difficult to trace due to multiplicity of transactions and attempts to convert the tainted asset/property into an untainted one. The legitimacy of the claim of the third party ought to be examined carefully.

Brief Factual Matrix

Banks and financial institutions had granted credit facilities against hypothecation/charge in five separate criminal appeals. In each of these matters, the holder of the assets was booked under certain provisions of the PMLA (Prevention of Money Laundering Act), 2002 and properties hypothecated to the banks and financial institutions were attached subsequent to the passing of orders with regard to the same. The rights of the banks and financial institutions under RDDBFI (Recovery of Debts due to Banks and Financial Institutions) Act,1993; IBC, 2016 (Insolvency and Bankruptcy Code) and the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act,2002 were affected. The orders of the Appellate Tribunal were impugned before the Delhi High Court.

View taken by the Delhi High Court

Following are the observations and directions of the Delhi High Court in a nutshell on the issues at hand.

  • The enforcement officer is responsible for assessment of the precise value of the proceeds of crime which may be open to variation on the basis of the evidence gathered during the process of investigation.
  • Property of equivalent value to the tainted property (proceeds of criminal activities) may also be attached on account of its nexus with money-laundering.
  • If tainted property is not traceable or unavailable due to some reason, then some other asset of about the same value may be attached.
  • The burden of proving that the property being attached of not ‘proceeds of crime’ is on the person charged and asserting the same.
  • PMLA,2002; RDDBFI Act,1993; IBC,2016; SARFAESI Act,2002 have different objectives and none of have supremacy over the other. They have to be construed harmoniously depending on the facts and circumstances of the matter at hand.
  • Third party claims over the property attached under PMLA cannot be defeated or declared void unless there is material to show that malicious transactions were entered into in order to escape the clutches of law. The legitimacy of the claim of the third party has to be tested through the existence of adequate consideration and the third party not being a facilitator or beneficiary of money laundering.
  • An order of attachment under the PMLA does not nullify the prior charge over the property under the RDDBFI Act and SARFAESI Act and vice-versa.
  • Third party will have to establish that it had taken due diligence and all precautions to ensure that attachable property is not tainted if the party acquired secured interest over it around or after the commission of the criminal activity.
  • If secured interest is acquired over the property by the third party prior to the criminal activity, then the third party is permitted to satisfy its charge. Attachment under PMLA will be confined to such part of the value of the property which is in excess of the claim of the third party.
  • Special Court will adjudicate and inquire into the claim of the third party if the order of attachment has attained finality or if trial under Section 4 of the PMLA has commenced or order of confiscation has been passed.

Conclusion

PMLA would have been rendered incapacitated if the Delhi High Court did not pass the instant ruling. A level playing field ought to be created for all the statutes in question (PMLA,2002; RDDBFI Act,1993; IBC,2016; SARFAESI Act,2002 and legislations in pari materia), keeping in mind the distinct objectives and reasons for which they were enacted. The Delhi High Court has been kind enough to appreciate the aforementioned aspect. The concept of deemed attachable property or alternate attachable property is a useful mechanism to realize the value of attachable property from a different source and adequately penalize the guilty. The aforesaid element is highlighted by the observations of the Hon’ble Court pertaining to the First Appeal. The subject matter of the First Appeal was the Audi Car, which was ultimately sold by the Bank in terms of the order of the Court, as its charge predated the criminal activity and the proceeds of the sale were deposited with the Registrar in the form of interest bearing Fixed Deposit Receipt. However, as rightly noted by the Court the precise value of the attachable property and the transactions involved in the money trail ought to be ascertained.


PMLA :Still a Sword? by Sanya Panjwani

http://mondaq.com/article.asp?articleid=857786

Article was 1st published on Mondaq

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