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DELHI HIGH COURT
R.K. Gauba, J.
Deputy Director Directorate
of Enforcement Delhi and Anr. —Appellants
versus
Axis Bank and Ors. —Respondents
Crl.A.143/2018 and Crl.M.A.2262/2018
Crl.A.210/2018 and Crl.M.A.3233/2018
Crl.A.623/2018 and Crl.M.A.10886-87/2018, 48245/2018
Crl.A.764/2018 and Crl.M.A.28500/2018, 199/2019, 202/2019
Crl.A.1076/2018 and Crl.M.A.34565/2018, 34567/2018
Decided on 2.4.2019
(B) Prevention of Money-Laundering Act, 2002 – Sections 5 and 8 – Provisional attachment – Legal sanction – Legislature has made provision forprovisional attachment bearing in mind possibility of circumstances of urgency that might necessitate such power to be resorted to – A person engaged in criminal activity intending to convert proceeds of crime into assets that can be projected as legitimate (or untainted) would generally be in a hurry to render the same unavailable – Entire contours of crime may not be known when it comes to light and enforcement authority embarks upon a probe – Crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting veil whereof is not an easy task – Truth of matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude – Total wrongful gain from criminal activity cannot be computed till investigation is completed – Authority for provisional attachment of suspect assets is to ensure that same remain within reach of law. (Para 105)
(C) Prevention of Money-Laundering Act, 2002 – Sections 5 and 8 – Provisional attachment – Legal sanction – An order of attachment under PMLA, if it meets with statutory pre-requisites, is as lawful as an action initiated by a bank or financial institution, or a secured creditor, for recovery of dues legitimately claimed or for enforcement of secured interest in accordance with RDBA or SARFAESI Act – An order of attachment under PMLA is not rendered illegal only because a secured creditor has a prior secured interest (charge) in subject property – Conversely, mere issuance of an order of attachment under PMLA cannot, by itself, render illegal prior charge or encumbrance of a secured creditor, this subject to such claim of third party (secured creditor) being bonafide – In these conflicting claims, balance has to be struck – On account of exercise of prerogative of State under PMLA, lawful interest of a third party which may have acted bonafide, and with due diligence, cannot be put in jeopardy – Claim of bonafide third party claimant cannot be sacrificed or defeated – Contrary view would be unfair and unjust and, consequently, not intention of legislature – Legislative scheme itself justifies this view. (Paras 149 and 171)
(D) Prevention of Money-Laundering Act, 2002 – Sections 5 and 8 – Provisional attachment – Proceeds of crime constitutes core of offence of money-laundering – Properties which have been targeted in most of he corresponding cases for attachment by enforcement authority under PMLA are not properties which can be described even remotely to be those which had been derived or obtained as a result of criminal activity leading to commission of money-laundering – All such assets were acquired much prior to acts of commission or omission relating to money laundering – Enforcement authority having not been able to lay its hands on property derived or obtained from money laundering has proceeded to reach out to other assets of suspects that appear prima facie to have been acquired earlier from legitimate means because they are properties of same value as would have been value of pecuniary advantage gained by money laundering – If enforcement authority under PMLA has not been able to trace tainted propertywhich was acquired or obtained by criminal activity relating to scheduled offence for money-laundering, it can legitimately proceed to attach some other property of accused, by tapping second (or third) above-mentioned kind provided that it is of value near or equivalent to proceeds of crime – But, for this to be a fair exercise – Objective of legislation in PMLA being distinct from purposes of three other enactments viz. RDBA, SARFAESI Act and Insolvency Code, latter cannot prevail over former – If order confirming attachment has attained finality, or if order of confiscation has been passed or, further if trial of a case for the offence under Section 4 of PMLA has commenced, claim of a party asserting to have acted bonafide or having legitimate interest will have to be inquired into and adjudicated upon only by Special Court – Assets which have been subject matter of attachment in appeals at hand are not tainted property – Impugned decisions of Appellate Tribunal set aside. (Paras 45, 53, 110, 147, 169, 171, 173 and 176)
Result: Appeals allowed.
JUDGMENT
R.K. Gauba, J.—These five appeals presented under Section 42 of the Prevention of Money-Laundering Act, 2002 (“PMLA”, for short) against more or less similar orders of the appellate tribunal (constituted under Section 25), such orders having been rendered on appeals of the respondents (“banks”) vis-à-vis the orders of provisional attachment issued by the enforcement officers under Section 5, as confirmed by the adjudicating authority under Section 8, give rise, inter alia, to certain common questions of law of import concerning nature of property that may be attached under this special law as indeed the conflict arising from claim of bonafide acquisition of interest by third parties. Hence, they have been heard together and are being decided by this common judgment.
The Issues
2. The measure of attachment of property involved in “money laundering”, it essentially representing “proceeds of crime” (as defined in law), is provided to ensure that the ultimate objective of “confiscation” of such ill-gotten property be not frustrated, the power and jurisdiction to order confiscation being vested in the Special Court. As would be seen at length in later part of this judgment, the provisions for attachment (followed by adjudication) leading to confiscation are sanctions in addition to the criminal sanction rendering the act of “money laundering” a penal offence (by virtue of section 4). The order of “confiscation” of property attached under PMLA takes away the right and title of its owner and vests it “absolutely in the Central Government free from all encumbrances” (Section 9).
3. The appeals at hand relate to claims of entities other than the persons in whose name the attached properties are held – to be referred hereinafter as “third party” – such claims of the third party emanating from charge, lien or encumbrances legitimately created. To put it simply, the conflict meriting resolve here concerns the sovereign authority of the State to take away and confiscate the property which has been acquired by a person through criminal activity as against the lawful claim of a third party to reach out to such property to recover, in accordance with law, what is due by attachment and sale of same very property.
4. Bearing in mind the above, the learned counsel on both sides of the divide in these matters repeatedly submitted that the issues presently brought for adjudication are not adversarial in nature, in that both sides concededly have been given certain authority by law to reach out to the properties in question for their respective purposes, the challenge essentially being to prioritize the claims of one over the other. The appellate tribunal (as constituted under PMLA), by its impugned orders, has taken the view that the relevant statutory provisions of PMLA take a back seat, the enactments under which the third parties (the banks) lay a superior claim over the properties in question having primacy. The appellant assails the said view questioning the correctness of the logic and reasoning by which the appellate tribunal has so concluded arguing that if the decision of the tribunal were to prevail it would not only be prone to misuse but also render PMLA toothless.
The Facts
5. Before proceeding further, it would be apposite to take note of the background facts in each case.
Crl.Appeal no. 143/2018 (the case of “Audi Car”)
6. The dispute in the first captioned matter (Crl. A. 143/2018) stems from the conflict arising out of the attachment of car make Audi, model no.A-335TDI bearing registration no.DL-2C-AT-4920 (“the Audi car”) of seventh respondent Rajeev Singh Kushwaha (the registered owner), by the enforcement officer under PMLA, as confirmed by the adjudicating authority, and the claim of the respondent bank (“Axis Bank”) over the said Audi car on account of hypothecation in relation to the finance that had been provided by it for its acquisition by the said registered owner.
7. There is no dispute between the parties here
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