Tribunal allows banks to sell assets attached to crime

A tribunal has allowed a consortium of lenders, led by Standard Chartered Bank, to sell the properties it took as collateral from companies promoted by fugitive Jatin R Mehta and others.

These properties, owned by Winsome Diamonds & Jewellery, were attached by the Enforcement Directorate (ED), which claimed that these were from the proceeds from money laundering. As a result, banks could not sell these and recover their dues.

A Delhi-based appellate tribunal under the Prevention of Money Laundering Act dismissed the attachment made by the ED and allowed banks to sell them to recover their loans to the tune of ~40 billion. The properties were located in Mumbai, Goa, Jodhpur, Surat, Bengaluru and Kolkata.

Ajay Bhargava, partner, Khaitan & Co, said, “The judgement will bring about clarity on this long-pending issue, which was impacting recovery for several banks. While the enforcement agencies’ task is undeniably challenging, the impact on banks was hitting their books and operations.”

He said collateral was the only security a bank accepted. There was no process by which banks could determine at the time of accepting the collateral if it can be attached in the future as proceeds of a crime.

Explaining the case, Bhargava said these properties were mortgaged to the consortium, which also includes Punjab National Bank, Canara Bank, Oriental Bank of Commerce and Axis Bank, between 1989 and 2009.

The accounts were declared non-performing assets (NPAs) in 2013 by Standard Chartered Bank and Punjab National Bank. The consortium filed an application in the Ahmedabad debt-recovery tribunal in 2014.

Thereafter, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act 2002, notice was issued that year and possession of the charged assets was taken under the Act. DRT, Ahmedabad allowed the consortium to get recoveries from these properties.

Later, the Mumbai ED attached some of these properties on the plea that these have been acquired from the proceeds from money laundering. Against this, Standard Chartered Bank went to the appellate tribunal, saying the mortgaged properties are not derived or obtained, directly or indirectly from the criminal activity or the proceeds of crime.