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Money laundering law prevails over Bankruptcy Act, insolvency code: HC

Press Trust of India  |  New Delhi 

The has held that the laundering law, PMLA, prevails over the Act and code when it comes to attachment of properties obtained as "proceeds of crime".

The court said the Prevention of Laundering Act (PMLA), Recovery of and Act (RDBA), Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFAESI Act) and and Code (IBC) must co-exist and be enforced in harmony with the

"... (these laws) 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 PMLA," Justice R K Gauba said in a 105-page judgement.

The court passed the verdict on a batch of appeals by the (ED) against the orders of appellate tribunal on the pleas of various banks.

The ED, through Amit Mahajan, had challenged the tribunal's orders on the issue of third party rights over a property attached by the agency.

The tribunal had held that third parties, banks in this case, which have legitimately created rights such as a charge, lien or other encumbrances, have a superior claim over such properties.

The high court set aside the appellate tribunal's order and held that the objective of being distinct from the purpose of RDBA, SARFAESI Act and IBC, the latter three legislations do not prevail over the former.

It remanded the matters to the appellate tribunal for further consideration. "An order of attachment under 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 RDBA and SARFAESI Act.

"Similarly, mere issuance of an order of attachment under 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 PMLA attachment being dependent on its bonafides," it said.

The court also said that by virtue of Section 71, the PMLA has the overriding effect over other existing laws in the matter of dealing with "money-laundering" and "proceeds of crime".

The ED had argued that if the contentions of the banks were to be upheld and the view taken by the appellate tribunal endorsed, the law under PMLA would stand defeated because the sovereign authority to take away the property of the money-launderer "free from all encumbrances" would stand frustrated.

And the wrong-doer (the borrower who has indulged in money-laundering) would derive illegitimate pecuniary advantage by getting a discharge for the by using an asset the right to hold which had been forfeited, it had said.

The banks had argued that the legislative intent and command is that the RDBA, SARFAESI Act and the Code must prevail over PMLA, the authority of enforcement agency taking a back-seat.

They had also urged that a harmonious construction of PMLA and the legislations (RDBA and SARFAESI Act) under which the banks seek remedy has to be achieved such that the objective of each is sub-served and none defeated.

The high court said the empowered has the authority of law in PMLA to attach not only a "tainted property" which is acquired or obtained directly or indirectly from proceeds of criminal activity, but also any other asset or property of equivalent value of the offender of laundering.

The other asset should not bear any taint but being alternative attachable property on account of its link or nexus with the offence or offender of money laundering, it said.

The court added that if the offender objects to the attachment on the ground that the property attached was not acquired or obtained from criminal activity, the burden of proving facts in support of such claim is to be discharged by him.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Sun, April 14 2019. 15:00 IST