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In a victory for the consortium of banks owed money by Vijay Mallya, the Appellate Tribunal for Prevention of Money Laundering Act (PMLA) at Delhi has passed an interim order stating that the Enforcement Directorate (ED) cannot hold lien over the attached properties of Mallya and his companies till the end of the trial.
The Bench of Justice Manmohan Singh upheld the right of the banks as secured creditors over the properties of Mallya and his companies Kingfisher Airlines, United Breweries, and Kingfisher Finvest.
The interim order was passed in an appeal filed by State Bank of India and eleven other banks against two orders passed by the Adjudicating Authority confirming the Provisional Attachment Orders passed by the ED attaching the properties in question.
The appellant banks were initially satisfied with the ED’s investigation and the confirmation orders, but once they came to know that the ED was not agreeable to letting them take over and dispose of the attached properties, they decided to challenge the aforementioned orders before the Appellate Tribunal.
The banks claimed prior right over the movable and immovable properties as per personal guarantee and corporate guarantee agreements signed between them and the companies, as well as the order of the Debts Recovery Tribunal, Bangalore passed on January 19, 2017. This order held that Mallya and his companies were jointly and severally liable to pay a sum of Rs. 6,203 crore to the banks at an interest of 11.5% per annum from the date of the original application till the date of recovery.
Despite this, the ED failed to implead the banks in their action against Mallya, stating that the properties cannot be disposed of until the trial against Mallya in completed. However, Justice Singh took a dim view of this argument, stating,
“This Tribunal is of the considered opinion that as a matter of fact, ED has failed to perform his duty not to implead the appellants (lenders) banks despite of having full knowledge that the loan amounts have to be returned by Vijay Mallya and his associate company to the banks who are the mortgagees of the attached properties. One is failed to understand why have not done so when they were full aware.”
With this in mind, the Appellate Tribunal allowed the application for condonation of delay filed by the banks.
Noting that the banks are running from “pillar to post” to recover the amount due to them, and that the trial in the case may take several years to complete, the Tribunal decided to pass the interim order in their favour.
The Tribunal further noted that as per Section 31B of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 passed to amend the SARFAESI Act, which states that secured creditors have a priority to be paid debts due and payable to them by sale of assets over which security interest is created. After relying on a number of high court decisions on the topic, Justice Singh held,
“…I am of the opinion that the appellant bank is the rightful claimant who have already obtained decree against the borrower from DRT under the SARFAESI Act and has a priority rights to recover the loans amount forthwith.
The Respondent No.1 is not having any lien over the said properties as the Appellant banks are now the Legal transferee of said properties. The Respondent No. 1 may not retain the said property till the trial is over. They have no legal title and the property is to be returned to the persons lawfully entitled to recover the debts as they are the victim.”
It was also observed that prima facie, no case of money-laundering is made out against the banks. Further, it was highlighted that the main appeal will be considered on the next date of hearing and that the banks would be granted interim relief.
“I am of the opinion that once the banks are secured creditors and have obtained the final decree from the court which has attained finality, the banks are bound to receive the default loan amount from Vijay Mallya and his companies. He was/is the active person of the companies. The loans amount has to be paid by the borrowers. It is a banks money. It must come to the banks. These are public sector banks. The decretal amount is recoverable in law being public money.”
Thus, the Appellate Tribunal restrained Vijay Mallya from dealing with and altering the status of the movable and immovable properties till the next date of hearing. It further held that the ED shall maintain status quo with regard to the properties.
The Appellate Tribunal issued notice to Mallya and his companies and directed the ED to file its reply within six weeks. The matter will come up for hearing on November 26.
The appellant banks were represented by Rana Mukherjee with Chitranshul Sinha and Sonali Khanna from Dua Associates. Rajeev Awasthi appeared for the ED.
Read the order: