Navigating Intersection Of Anti-Money Laundering And Recovery Laws: The Imperative For Collaboration And Cooperation

The legislative efforts to combat money laundering activities in the country and the legislative measures to deal with the recovery of nonperforming assets in the Banking sector without the intervention of courts of law coincided in the same year with the passage of two special Acts in the year 2002. An Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a Central database of security interests created on property rights, and for matters connected therewith or incidental thereto Important definitions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002: Security Interest: Section 2 “security interest” means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes— any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred, or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset;] Security Creditor: Section 2 defines “secured creditor” means— any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause. Interplay of the provisions of law by the two statutory Authorities: The actions taken by one of the Authorities is likely to have an impact on the rights of the other.For example if a provisional attachment is ordered by the Anti Money Laundering Authorities, in all probability the same is likely to face legal challenges from the Public Sector Banks who may have a mortgage over the same property which was attached on a provisional basis in the first instance The first intersection between the Authorities under the prevention of money laundering Act and the Authorities under SRFA& ESI Act happens when the Section 13 notice and the Provisional attachment made by the Directorate of Enforcement come into play. 4.Secured creditors conniving with the promoters in accepting property acquired out of Money Laundering activities: If it is established that the mortgaged property was bought by the owner of the property with proceeds of crime and subsequently mortgaged, then the Enforcement Directorate would press for continuation of the proceedings against the owners.Further if there is any connivance or complicity by the Bank in accepting such property acquired with proceeds of crime, the Bankers also run the risk of being prosecuted under the Anti Money Laundering Law 5.Enforcement Directorate intervenes at the stage of taking possession by the Secured creditor and at the stage of issuance of rule 8 notice and sale notice under Rule 9 of the Security Interest Enforcement Rules 2002 Apart from the three scenarios mentioned above, there is every possibility of the Prevention of Money laundering Authorities intervening with the course of measures being taken by the secured creditor at other stages of enforcement of security interest. The Appellate Tribunal has set aside the attachment of the properties by the Enforcement Directorate Punjab National Bank Vs Dy Director Enforcement Directorate: The Appellate Tribunal for Prevention of Money Laundering Authority in this case was considering an appeal filed by Punjab National Bank challenging the attachment of the Mortgaged property by the Enforcement Directorate under Section 8 of the PML Act 2002 The Bank had primarily contended that the property attached by the Enforcement Directorate was in no way involved in money laundering activities as the same was acquired and mortgaged to the Bank much prior to the enforcement directorate swung into action.