Legal principle

An order of attachment under PMLA is not illegal merely because a secured creditor holds a prior charge over the property; a bona fide third-party claimant must prove lawful acquisition for adequate consideration without complicity (and due diligence where the interest arose at or after the offence), and the attachment then operates subject to that charge, being restricted to the excess value.

Court decision

Allowing the appeals, the Court set aside the appellate tribunal's decisions and restored the banks' original appeals to the tribunal for fresh factual scrutiny of their claims against seventeen enunciated principles; it held that an attachment under PMLA is not illegal merely because a secured creditor has a prior charge, that a bona fide third-party claim survives only on cogent proof of lawful acquisition for adequate consideration without complicity (with 'due diligence' where the interest was acquired at or after the criminal activity, and priority for the charge where the interest pre-dated it, attachment then operating subject to the charge and confined to the excess value), and that once confirmation attains finality, confiscation is ordered or a Section 4 trial begins, only the Special Court may adjudicate such claims.

Facts

Five appeals under Section 42 PMLA by the Deputy Director, Directorate of Enforcement (and Union of India) challenged orders of the appellate tribunal that had set aside confirmation of provisional attachments (made under Section 5 and confirmed by the adjudicating authority under Section 8) and directed release of properties to banks claiming as secured creditors. The lead case concerned an Audi car purchased by Rajeev Singh Kushwaha on Axis Bank finance under a Loan-cum-Hypothecation Agreement, against the backdrop of demonetization-era interception on 29.11.2016 of Rs 3.70 crore in demonetized Rs 1,000 notes, deposits of Rs 39.26 crore into four fictitious companies, FIR 416/2016 (IPC offences plus Sections 7 and 13(1)(d) PC Act against, inter alia, two Axis Bank officials), ECIR 11/2016 under PMLA, and provisional attachment order 01/2017 dated 27.01.2017 attaching properties worth Rs 3.40 crore including the car, confirmed on 31.05.2017. The appellate tribunal (FPA-PMLA-1848/DLI/2017, dated 25.10.2017) set aside the confirmation and directed return of the vehicle to Axis Bank. The respondent banks (Axis, SBI, IDBI, PNB) claimed priority over the attached assets on account of charges, hypothecations and encumbrances legitimately created in their favour.

Key provisions

• Section 13(2), The Prevention of Corruption Act, 1988 — Criminal misconduct by a public servant.
• Section 68, The Narcotic Drugs and Psychotropic Substances Act, 1985 — Information as to commission of offences.
• Section 68A, The Narcotic Drugs and Psychotropic Substances Act, 1985 — Application.
• Section 7, The Prevention of Corruption Act, 1988 — Offence relating to public servant being bribed.
• Section 5(6), The Prevention of Corruption Act, 1988 — Procedure and powers of special Judge.