The Karnataka High Court recently ruled that properties that were mortgaged to a bank could not be attached under the Prevention of Money Laundering Act (PMLA).
In the order dated October 17, a division bench of Justices D K Singh and Venkatesh Naik noted that attachment could only be with regard to property which was the fruit of crime, and not those properties which were offered as collateral.
The Central Bureau of Investigation (CBI) registered a case for criminal conspiracy and corruption against several people, including senior officials of a Syndicate Bank branch in Mandya, based on a complaint from the chief vigilance officer. The bank officials allegedly conspired to disburse loans, overdrafts, etc, to certain persons, violating procedures and exceeding their powers, which allegedly caused a loss of Rs 12 crore to the bank.
The Enforcement Directorate (ED) then filed a complaint under the PMLA and filed an attachment order in 2012 for certain properties connected to the accused. The confirmation for this attachment order was quashed by the Appellate Tribunal in 2017, after which the ED approached the high court.
The high court noted that the attachment order was against seven properties, which were mortgaged to the bank and belonged to one of the accused and his relatives.
The court also noted that the bank had initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and had taken physical possession of one of the properties after a 2010 notice. Proceedings regarding the others had also been initiated before a debt recovery tribunal.
With regard to the properties, the bench said, “The bank could not be said to have entered into conspiracy and it was only the branch manager and the manager of the bank against whom the allegation of criminal conspiracy has been levied along with the borrowers… When prima facie the properties mortgaged to the bank are not the proceeds of the crime, we are of the view that the attachment order passed by the adjudicating authority in respect of the seven properties mortgaged to the bank for advancement of loans, cannot be justified in law.”
Story continues below this ad
Dismissing the ED’s appeal, the court added, “If the Enforcement Directorate is permitted to proceed with the matter, this conflict puts the bank in a precarious position. Their address on SARFAESI Act, which empowers the bank to enforce security interests without court’s intervention, would be undermined by a simultaneous Enforcement Directorate’s action.”
