A division bench of the Delhi High Court in case of The Deputy Director Directorate of Enforcement Delhi v. Axis Bank & Others (decided on April 2, 2019) while jointly considering 5 appeals against the order of Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (“PMLA”) held that provisions of Recovery of Debts and Bankruptcy

Act, 1993 (“RDBA”), the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI”) and the Insolvency and Bankruptcy Code, 2016 (“IBC”) do not prevail over provisions of the PMLA and observed that these legislations are to be construed harmoniously, without one being in derogation of the other.

FACTS
In five different cases, banks and financial institutions had granted credit facilities against hypothecation / charge over certain assets. In each of these cases, the owner of the assets was charged under certain provisions of the PMLA and orders were passed for attachment of properties charged to banks and financial institutions affecting their vested rights under other statutes such as RDBA, SARFAESI and IBC. The Appellate Tribunal set aside these attachment on various grounds. The orders of the Appellate Tribunal were challenged before the Delhi High Court.

ISSUES
The issues formed by the Delhi High Court for determination were:

1. Whether the provisions of RDBA, SARFAESI and IBC prevail over PMLA?
2. Whether interest created in a property prior to event of money laundering leading up to the attachment of property takes priority over the attachment?
3. Whether a mere nexus between the attached property where it did not qualify as “proceeds of crime” under the PMLA and the party accused of money laundering was sufficient for the attachment to take place?

IMPORTANT OBSERVATIONS AND CONCLUSIONS OF THE DELHI HIGH COURT
a) It is not only a “tainted property” that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence which can be attached, but also any other asset or property of equivalent value of the offender of money-laundering which has a link or nexus with the offence (or offender) of money-laundering.

b) If the “tainted property” is not traceable, or cannot be reached, or to the extent found is deficient, any other asset of the person accused or charged under PMLA can be attached provided it is near or equivalent in value, the order of confiscation being restricted to take over by the government of illicit gains of crime.

c) The objective of PMLA being distinct from the purpose of RDBA, SARFAESI and IBC, the latter three legislations do not prevail over the former. The PMLA, by virtue of Section 71, has the overriding effect over other existing laws in the matter of dealing with “money-laundering” and “proceeds of crime” relating thereto. The PMLA, RDBA, SARFAESI and IBC 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.

d) An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest in the property, within the meaning of the expressions used in RDBA and SARFAESI. Similarly, mere issuance of an order of attachment under PMLA does not render illegal a prior charge of a secured creditor, the claim of the latter for release from PMLA attachment being dependent on its bonafides.

e) In case of secured creditor pursuing enforcement of “security interest” in the property sought to be attached under PMLA, such secured creditor having initiated action for enforcement prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.

f) If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 of the PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.

Vaish Associates Advocates View
Notably, the decision of the Delhi High Court took a harmonious construction of RDBA, SARFAESI, IBC and PMLA and provided clarity that there are in fact no inconsistencies in the provisions of the said legislations given their distinctive objectives. The Delhi High Court emphasized the need for holding to the provisions of the PMLA as providing other statutes with overriding power over its provisions would negate the object of PMLA and defeat the entire purpose of its enactment.

A different view could conceivably also provide a means of raising challenges against proceedings under PMLA by offenders who could raise an ostensibly legitimate claim under RDBA, SARFAESI or IBC. Another important principle laid down is that not only can assets out of proceeds of crime be attached but even any asset having a link or nexus with the offence (or offender) of money-laundering could be attached. If the attached asset is not traceable or cannot be reached or is deficient, then any other asset of the person accused of equivalent value can also be attached.

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