In a landmark ruling, the appellate tribunal on matters related to the Prevention of Money Laundering Act has ruled that Enforcement Directorate cannot claim rights over assets of people suspected of criminal activity if banks have created prior rights over them through lending.
The tribunal has ruled in favour of Standard Chartered Bank in a dispute involving the ED on the Winsome Diamonds & Jewellery case saying that it would be against the spirit of the Money Laundering Act if assets pledged are not available for banks to recover their dues. “The mortgaged properties of the appellant bank cannot be attached or confiscated unless link and nexus directly or indirectly established,” Justice Manmohan Singh, chairman of the tribunal wrote in his order passed on August 2. “The mortgaged properties are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to the events of funds diversion and fraud committed by the borrowers.” The ruling could be a huge relief for banks fighting to recover money from defaulters some of whom are also being prosecuted by investigating agencies like ED and CBI.
The adjudicating officer has relied on the definition of ‘proceeds of crime’ to rule that agencies cannot claim rights over assets that were not acquired through criminal activity for which a company or an individual is being prosecuted.
Proceeds of crime is defined as ‘any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property.’