Banks are in crisis: PMLA Appellate Tribunal backs PNB, sets aside ED attachment order
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Banks are in crisis: PMLA Appellate Tribunal backs PNB, sets aside ED attachment order

Aditya AK

The Prevention of Money Laundering Act (PMLA) Appellate Tribunal has set aside an order passed by the Adjudicating Authority which allowed the Enforcement Directorate (ED) to attach properties of a company indebted to Punjab National Bank (PNB).

While doing so, Chairman of the Tribunal Justice Manmohan Singh observed that no attempt should be made to worsen the position of ailing public sector banks in the market.

The company, Vandana Vidhyut Limited, had approached a consortium of banks for availing a loan. A sum of Rs. 546.77 crore was taken from PNB, one of the banks of the consortium.

On failure to repay the same, the ED had passed a provisional attachment order in March 2018, attaching movable and immovable property of the company.

Meanwhile, the Mumbai Bench of the National Company Law Tribunal (NCLT) had declared a moratorium against the company under Section 14 of the Insolvency and Bankruptcy Code, 2016, on an application made by State Bank of India (being a Financial Creditor as well as a member of the consortium of banks).

Regardless, the Adjudicating Authority confirmed the attachment of the properties vide an order passed on September 17, 2018. Thus, PNB approached the PMLA Appellate Tribunal against this order.

At the outset, the Tribunal observed that it has time and again held that the secured asset of a bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the bank and that there is no charge of money laundering against the bank.

The ED relied on the non-obstante clause in Section 71 of the PMLA to claim priority over the debts. Per contra, PNB cited Section 26E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), 2002 and Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, which state,

“Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.”

The above-mentioned provisions had come into force with effect from August 2016, more than a decade after the PMLA.

Justice Singh in his judgment noted that the Adjudicating Authority had failed to take into account various decisions of the Supreme Court and the High Courts which have established that if a non-obstante clause is contained in two enactments, the non-obstante clause in the later enactment shall prevail over the non-obstante clause in the earlier enactment.

“The Adjudicating Authority failed to appreciate that the provisions of the Prevention of The Money Laundering Act, 2002 do not override the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as also those of Recovery of Debts and Bankruptcy Act, 1993…”

It was further held that there was no evidence to suggest that the property attached by the ED was acquired out of “proceeds of crime” as defined in Section 2(1)(u) of the PMLA, and therefore, the same cannot be attached under Section 5 of the PMLA by the Enforcement Directorate.

“…a bare perusal of the afore mentioned section 2(1)(u) of PMLA very clearly stipulates that the property can be attached under the provisions only when, such property has either been derived or obtained, directly or indirectly as a result of a criminal activity relating to a scheduled offence.”

Moreover, the Tribunal observed that the Adjudicating Authority had failed to consider that the NCLT Mumbai had declared a moratorium under Section 14 of the IBC, 2016. This provision prohibits the continuation of pending suits or proceedings against the corporate debtor. It was also noted that the proceedings before the Adjudicating Authority were civil in nature, and therefore, could not continue in light of the moratorium.

The Tribunal also made the following observations regarding the precarious position of public sector banks in the market.

“In earlier matters, it was also observed by this tribunal that the bank if told to wait for the conclusion of the trial, the economy would collapse…

…The appellant is a Public Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers which may take many years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the commercial market.”

Therefore, the Tribunal allowed PNB’s appeal and set aside the order of the Adjudicating Authority.

Read the judgment:

PNB-v-ED-PMLA-order-Jan-2.pdf
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