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TMI Blog2012 (7) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... sustain the first contention that since the entire sale consideration for the property was paid by the Bank, it cannot be termed as the proceeds of crime. Prima facie, the property represents the proceeds of crime and it is upto the accused to establish, by evidence, before the criminal court that it is not so. I make it clear that the criminal court should independently go into the question without being influenced by my preliminary finding on this question. The Authority had the leverage and obligation to wait till the disposal of the writ petition or at least till the stay order was vacated. The Courts have repeatedly held that any proceeding initiated, conducted or concluded in violation of an order of interim stay or injunction is non- est in the eye of law. The Adjudicating Authority should have at least waited for this Court to dispose of the writ petition filed by the Bank or in the alternative, directed the impleadment of the Bank as a party. By virtue of the interim order dated 28.2.2012, this Court has permitted the Bank to proceed with the auction sale of the property under the SARFAESI Act, 2002. The action of the Adjudicating Authority in proceeding with the hearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h borrowed monies from the Indian Bank. The factual matrix, out of which the present writ petitions arises, is as follows:- (i) The petitioner in the second writ petition was sanctioned 3 term loans, under a sanction ticket dated 2.1.2006 by the Indian Bank. With the money so advanced by the Indian Bank, the petitioner in the second writ petition, hereinafter referred to as the company , purchased a property at old Door No.14, New Door No.17, Trunk Road (G.S.T. Road), St. Thomas Mount, Chennai-16, under a Sale Deed dated 15.2.2006, registered as document No.280/2006 in the office of the Joint Sub Registrar, Saidapet. (ii) On 31.1.2008, the Indian Bank lodged a complaint with the Superintendent of Police, Central Bureau of Investigation against the company, alleging that the company and the officers of the company, had defrauded the Bank. The complaint lodged by the Indian Bank was registered as RC No.1/E/2008-CBI-EOW/Chennai, on 6.2.2008. (iii) Similarly, the State Bank of India lodged a complaint alleging that the company organised personal loans for 161 persons, showing them as its employees. This complaint was lodged in RC No.11/E/2008-CBI-EOW/Chennai, on 14.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g interim stay, this Court issued a direction to the effect that if the property was auctioned by the Bank, the sale proceeds shall be kept in an interest bearing lien account until further orders. (x) As per Section 5(1) of the Act, the provisional attachment order passed by the Directorate of Enforcement can be in force only for a period of 150 days. But within 30 days, the Directorate can seek a confirmation of the order from the Adjudicating Authority under Section 8. Therefore, the Director of Enforcement filed an application before the Adjudicating Authority and the same was taken on file in O.C.No.129/2012 and notice was issued to the company and its Managing Director. Interestingly, the Bank was not made a party before the Adjudicating Authority in the application filed by the Director of Enforcement. (xi) Immediately upon receipt of the notice from the Adjudicating Authority, the company came up with the second writ petition viz., W.P.No.12854 of 2012, challenging not only the provisional attachment order of the Directorate, but also the complaint lodged by the Directorate with the Adjudicating Authority. (xii) The writ petition filed by the company was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. In order to find an answer to the first question, it is necessary to take a close look at the provisions of The Prevention of Money Laundering Act, 2002. It was enacted with the object of preventing money laundering and for providing for confiscation of property derived from or involved in money laundering and for matters connected therewith or incidental thereto. The expression money laundering is defined under Section 2(1)(p) of the Act to have the same meaning as assigned to it in Section 3. Section 3 states that a person is guilty of the offence of money laundering, if he directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property. Therefore, the stress is on two things viz., (i) involvement in any process or activity connected with the proceeds of crime and (ii) projecting it as untainted property. 8. The expression proceeds of crime is defined in Section 2(1)(u), to mean any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive assertion is by the Indian Bank in paragraphs 2 and 3 of the affidavit in support of the writ petition that the entire sale proceeds for the purchase of the property in question were paid by the Indian Bank; (ii) the very earliest complaint to the Economic Offences Wing of the Central Bureau of Investigation about the alleged fraudulent activities of the company was by the Indian Bank and hence the very foundation for the action of the respondents is the complaint of the Indian Bank and (iii) the original vouchers produced by the Indian Bank during the course of hearing of the writ petitions before me go to show that each one of the payments mentioned in the relevant recitals of the Sale Deed, had gone out of the Indian Bank. Therefore, prima facie, I find that the entire sale consideration for the purchase of the property in question had directly gone from the Bank to the vendors and the vendors executed a Sale Deed in favour of the company. Hence the respondents cannot justify the order of attachment on the sole ground that Indian Bank paid only a part of sale consideration and that the remaining part of the sale consideration flowed out of the funds of the other Banks. I mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Section Description of offence 15 Contravention in relation to poppy straw. 16 Contravention in relation to coca plant and coca leaves 17 Contravention in relation to prepared opium 18 Contravention in relation to opium poppy and opium. 19 Embezzlement of opium by cultivator 20 Contravention in relation to cannabis plant and cannabis. 21 Contravention in relation to manufactured drugs and preparations 22 Contravention in relation to psychotropic substances. 23 Illegal import into India, export from India or transshipment of narcotic drugs and psychotropic substances. 24 External dealings in narcotic drugs and psychotropic substances in contravention of section 12 of the Narcotics Drugs and Psychotropic Substances Act, 1985. 25A Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund for a terrorist organisation 17. Part B of the Schedule to the Act enlists under 25 paragraphs, various offences under various Acts. They can be presented in a tabular column as follows:- PART B PARAGRAPH 1 OFFENCES UNDER THE INDIAN PENAL CODE Section Description of offence 120B Criminal conspiracy 255 Counterfeiting Government stamp 257 Making or selling instrument for counterfeiting Government stamp 258 Sale of counterfeit Government stamp 259 Having possession of counterfeit Government stamp 260 Using as genuine a Government stamp known to be counterfeit 302 Murder 304 Culpable homicide not amounting to murder, if act by which the death is caused is done with the intention of causing death. 307 Attempt to murder. 308 Attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lse property mark 483 Counterfeiting a property mark used by another 484 Counterfeiting a mark used by a public servant. 485 Making or possession or any instrument for counterfeiting a property mark 486 Selling goods marked with a counterfeit property mark 487 Making a false mark upon any receptacle containing goods 488 Punishment for making use of any such false mark. PART B PARAGRAPH 2 OFFENCES UNDER THE ARMS ACT 1959 Section Description of offence 25 To manufacture, sell, transfer, convert, repair or test or prove or expose or offer for sale or transfer or have in his possession for sale, transfer, conversion, repair, test or proof, any arms or ammunition in contravention of section 5 of the Arms Act, 1959. To acquire, have in possession or carry any prohibited arms or prohibited ammunition in contravention of section 7 of the Arms Act, 1959. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORAL TRAFFIC (PREVENTION) ACT 1956 Section Description of offence 5 Procuring, inducing or taking persons for the sake of prostitution 6 Detaining a person in premises where prostitution is carried on 8 Seducing or soliciting for purpose of prostitution 9 Seduction of person in custody PART B PARAGRAPH 5 OFFENCES UNDER THE PREVENTION OF CORRUPTION ACT 1988 Section Description of offence 7 Public servant taking gratification other than legal remuneration in respect of an official Act 8 Taking gratification in order, by corrupt or illegal means, to influence public servant 9 Taking gratification for exercise of personal influence, with public servant 10 Abetment by public servant of offences defined in section 8 or section 9 of the Prevention of Corruption Act 1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority 19 Punishment for commercial dealings in human organs 20 Punishment for contravention of any other provision of this Act PART B PARAGRAPH 13 OFFENCES UNDER THE JUVENILE JUSTICE (CARE AND PROTECTIONOF CHILDREN) ACT 2000 Section Description of offence 23 Punishment for cruelty to juvenile or child 24 Employment of juvenile or child for begging 25 Penalty for giving intoxicating liquor or narcotic drug or psychotropic substance to juvenile or child 26 Exploitation of juvenile or child employee PART B PARAGRAPH 14 OFFENCES UNDER THE EMIGRATION ACT 1983 Section Description of offence 24 Offences and penalties PART B PARAGRAPH 15 OFFENCES UNDER THE PASSPORT ACT 1967 Section Description of offence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PART B PARAGRAPH 21 OFFENCES UNDER THE POTECTION OF PLANT VARIETIES AND FARMERS RIGHTS ACT 2001 Section Description of offence 70 read with section 68 Penalty for applying false denomination etc. 71 read with section 68 Penalty for selling varieties to which false denomination is applied 72 read with section 68 Penalty for falsely representing a variety as registered 70 read with section 68 Penalty for subsequent offence PART B PARAGRAPH 22 OFFENCES UNDER THE ENVIRONMENT PROTECTION ACT 1986 Section Description of offence 15 read with section 7 Penalty for discharging environmental pollutants 15 read with section 8 Penalty for handling hazardous substance PART B PARAGRAPH 23 OFFENCES UNDER THE WATER (PREVENTION AND CONTROL OF POLLUTION) ACT 1974 Section Descriptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, 307, 308, 327, 329, 364A, 384 to 389, 392 to 402, 467, 489-A, 489-B, 412, 413, 414, 417, 418, 419, 420, 421, 422, 423, 424, 467, 471, 472, 473, 475, 476, 481, 482, 483, 484, 485, 486, 487 and 488 of the Indian Penal Code. But with effect from 1.6.2009, the old paragraph 1 of Part B of the schedule to the Act, was substituted by a new Paragraph 1, by the Prevention of Money Laundering (Amendment) Act, 2009. Now Paragraph-1 of Part B lists out only the offences under Sections 120-B, 255, 257, 258, 259, 260, 302, 304, 307, 308, 327, 329, 364-A, 384 to 389, 392 to 402 and 411 IPC. Therefore, the offences under Sections 420, 467 and 471 IPC do not any longer form part of Paragraph 1 of Part B of the schedule to the Act. However, Section 120-B is now included in Paragraph 1 of Part B, though it was not there prior to 1.6.2009. But any offence under Section 120-B has to be read only along with other offences. 20. A careful reading of the complaint filed by the Directorate of Enforcement with the Adjudicating Authority in O.C.No.129/2012 shows that except the offence under Section 120-B, all other offences viz., offences under Sections 420, 467 and 471, of which the company is charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esume that the allegations are true. The respondents have proceeded with the action in terms of the Prevention of Money Laundering Act, 2002 only on the presumption that the allegations made by the Banks in their complaints are true. 24. If, as presumed by the respondents, the allegations made by the Banks in their complaints are true, then these Nationalised Banks are the victims of a fraud committed by the company and its officers. In other words, it is the Banks' money which has actually been made use of by the company and its Directors to buy properties in their names. Where do these victims stand, vis-a-vis accused in such cases? 25. Unfortunately, the Prevention of Money Laundering Act, 2002, does not appear to take note of the above question viz., as to where the victims stand. Interestingly, a look at Paragraph 1 of Part B of the schedule shows that the offence of kidnapping for ransom, punishable under Section 364-A, the offences related to extortion punishable under Sections 384 to 389 and offences relating to robbery and dacoity punishable under Section 392 to 402 have also been made scheduled offences, if the value of the property involved is more than ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiscate such property in terms of Section 8(6). Thereafter, the property would vest in the Central Government free of all encumbrances under Section 9. In other words, the Banks, who were the victims of fraud, may have to lose the property to the Central Government, for no fault of theirs except that they were defrauded by the company. 28. The above disturbing feature which is inbuilt in the Act, was sought to be played down by Mr. M. Dhandapani, learned Standing counsel for the respondents, on the ground that under Section 8(6), the confiscation of the property will not take place automatically and that it would happen only after giving an opportunity to the person concerned. But that argument is hardly convincing. A careful reading of Section 8 would show that there is no provision for the Adjudicating Authority to hand over the properties to third parties, unless they establish that the property does not represent the proceeds of crime. Sub-section (1) of Section 8 enables the Adjudicating Authority to serve a notice on the person who is alleged to have committed an offence under the Act, calling upon him to indicate the source of income and also calling upon him to show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. I am only testing the strengths and weaknesses of the provisions of Sections 5, 8 and 9 for the limited purpose of finding an answer to the second question as to whether the Bank can be left high and dry. In view of the inherent lacuna in the Act, I think the banks cannot be left high and dry. There is also one more reason for me to come to the conclusion. 33. The Prevention of Money Laundering Act, 2002, is a parliamentary enactment. It received the assent of the President on 17.1.2003 and it was published in the Gazette of India dated 20.1.2003. Section 71 of the Prevention of Money Laundering Act, 2002 declares that the provisions of this Act, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. But the SARFAESI Act, 2002 is also a Central enactment which received the assent of the President on 17.12.2002 and published in the Gazette of India dated 18.12.2002. Section 35 of the said Act also declares that the provisions of the Act shall have overriding effect on any other law for the time being in force or any instrument having effect by virtue of such law. In other words, both these enactments are almos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prayer in M.P.No.1 of 2012 in W.P.No.4696 of 2012 filed by the Bank reads as follows:- Petition praying that in the circumstances stated therein and in the affidavit filed therewith, the High Court will be pleased to grant stay of all further proceedings of the order 22.2.2012 of the first respondent viz., the Directorate of Enforcement in File No.ECIR/06/CZO/PMLA/2009, ECIRs 27 and 35/CZO/PMLA/2010. 36. On the above prayer, this Court passed an interim order on 28.2.2012 which reads as follows:- Interim stay for a period of four weeks. Notice. Private Notice is permitted. In the meantime, since it is reported by the petitioner-Bank that the subject property is going to be auctioned tomorrow under SARFAESI Act, by the petitioner-Bank, the sale proceeds of the auction shall be kept in an interest bearing lien account until further orders. 37. The first respondent was served with notice in the miscellaneous petition in the first week of March 2012. The counsel for the first respondent Mr. M. Dhandapani entered appearance on 13.3.2012. Therefore, the first respondent is supposed to be aware of the interim stay order at least on 13.3.2012. But the first resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The first respondent did not even examine such an option. But in total defiance of the order of interim stay granted by this Court, the first respondent filed the original complaint before the Adjudicating Authority. Therefore, the learned Senior Counsel for the petitioner is right in contending that the whole proceedings before the Adjudicating Authority are null and void. 40. What is more intriguing is the fact that in the original complaint filed before the Adjudicating Authority, the first respondent did not even make the Bank a party. After having come to know that the Bank had approached this Court and also obtained not only an interim stay of further proceedings, but also a leave to proceed with the auction sale under the SARFAESI Act, 2002, the first respondent, in all fairness, should have impleaded the Bank as a party to the original complaint before the Adjudicating Authority. The failure of the first respondent to do so cannot be condoned. 41. Today, the first respondent takes a stand that the Bank could have got impleaded by virtue of the proviso to Section 8(2). But unfortunately, for the first respondent, the obligation is not on the part of the Bank to get i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e writ petition filed by the Bank or in the alternative, directed the impleadment of the Bank as a party. By virtue of the interim order dated 28.2.2012, this Court has permitted the Bank to proceed with the auction sale of the property under the SARFAESI Act, 2002. The action of the Adjudicating Authority in proceeding with the hearing of the original complaint despite being aware of the interim stay order and also proceeding to pronounce a final order on 26.6.2012, is clearly in defiance of the interim stay order of this Court. Therefore, the whole proceedings are vitiated and even the order dated 26.6.2012 passed during the pendency of these writ petitions is illegal and are liable to be set aside as null and void. 44. In view of the above, both the writ petitions are allowed, the provisional order of attachment dated 22.2.2012 as well as all further proceedings pursuant thereto including the original complaint and the order of confirmation dated 26.6.2012, are set aside as illegal. I am conscious of the fact that the order of confirmation dated 26.6.2012 was passed during the pendency of these writ petitions and that the same is not under challenge. But it hardly matters, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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