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TMI Blog2017 (9) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... ited herein above in the group of matters of State Bank of India and 11 others Banks (Supra), we are of the considered view that the Impugned Order dated 16.06.2016 and the Provisional Attachment Order dated 17.12.2015 are not legally correct and liable to be set aside. Accordingly the appeal is allowed. The schedule property is released from the attachment and the appellant s Bank may take the possession of the property mortgaged with them as secured assets.In the circumstance, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002. X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are concerned with only one property that has mentioned in the scheduled below:- 5. CONTENTIONS OF THE APPELLANT The appellant has in its appeal has contended the following:- (i) The scheduled property was purchased on 14.10.2005 that is prior to the registration of FIR against the GIL even much prior to the reference from CVC. (ii) The property was mortgaged with the appellant prior to the passing of the PAO and impugned order. The scheduled property cannot be said to be purchased out of "proceeds of crime". (iii) The possession of the Scheduled Property under the Securitization and Re-construction of Financial Assets and Enforcement of Security Interest, 2002 (SARFAESI) is much prior to the passing of the PAO. (iv) No reasons has been recorded for treating the schedule property acquired out of "proceeds of crime". (v) Neither the PAO, nor the impugned order contains any reasons to believe. (vi) The provisions of SARFAESI would have overriding effect over the provisions of the PML Act in view of the fact that a secured creditor has taken over possession of the secured asset under a statute. (vii) Sh. Mukesh Deodutta Gupta, Smt. Seema Mukesh Gupta and M/s Gupta Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance on section 71 of the PMLA regarding over-riding effect of PMLA Act, 2002 over SARFAESI Act, 2002. (vi) The reasoning of Adjudication Authority confirming the PAO on the premise that since the proceed of crime are not easily available or traceable, other assets of the accused can be confiscated. This reasoning of Adjudicating Authority is contrary to law. (vii) The Enforcement Directorate has no justification to attach the scheduled property possession of which had been taken by the appellant under the provision of SARFAESI Act. The impugned order, as per the contention of the appellant are concerned, is a non speaking and un-reasoned order and is, thus, violative of principle of natural justice. 7. THE CONTENTIONS OF THE RESPONDENT (i) The contentions of the respondent, inter-alia, are that the provisionally attached properties including the scheduled properties are acquired out of the "proceeds of crime" i.e. ₹ 24,92,49,850 and section 71 of PMLA Act, 2002 provides for the over-riding effect of the Act notwithstanding anything inconsistent therewith contained in any other law for the time being in force. (ii) The aforesaid stand of the respondent remains the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted in the year 2016 and judgment of Hon‟ble Supreme Court and the latest judgment of full bench of Madras High Court. We have also discussed several other judgments in the said common judgment dated 14.7.2017. 13. The relevant paras of our said judgment dated 14.7.2017 are reproduced below:- "30. We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. & Ors. Wherein after discussion in para 7-11 it was held that later enactment would prevail with a non-obstante clause. Paras 7-11 reads as under:- "7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows: "32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13. that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are in agreement with the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act." 31. The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd. The judgment rendered on 09.02.2016 reported in 1997 (89) company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of debt shall be subject to the provisions of that Code." (ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 : 31B. Priority to secured creditors - Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and other rates due to the Central Government, State Government or local authority. Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 34. In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 after the words "the date of the application", "and includes any liability towards debt securities which remains unpaid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation. - for the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." "3 There is, thus, no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 01.09.2016" "4 The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending." "5 The aforesaid would, thus, answer question (a) in favour of the financial ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2) process…" 41. The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the State Bank of India in order to clear their liabilities once the attached properties are sold and even otherwise. Copy of the settlement of the borrowers and the complainant Bank of India was filed before us. As far as the schedule offence is concerned, we do not wish to make any comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High Court u/s 482 Cr. P.C. could be filed. 43. It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED. 44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr. P.C. at the joint request of the parties. 45. Three judge bench in narendra lal jain & ors., (supra) held that during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied. There is hence no force in the submission of respondents that the complainant bank has not exonerated the petitioners, first being the Civil Procedure Code, and the second being the OTS Scheme of the Reserve Bank of India, which the petitioners have extensively referred to in the original petition. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. The complainant bank in choosing to enter into such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues." "70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues. The present petition is maintainable as the same has been filed also on additional grounds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55. Whether innocent party whose properties i.e. movable or immovable are attached can approach the Adjudicating Authority for release of attached property. The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not. "8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s observed by the Karnataka High Court that the property of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of money-laundering, he can show before the court that he is innocent and has not received any proceeds of crime." It is clear that innocent person can approach the Adjudicating Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot;proceeds of crime" relating to a "scheduled offence" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two prerequisites are satisfied i.e.- "(i) Firstly, if he- (a) directly or indirectly 'attempts' to indulge, (b) „knowingly‟ either assists or is a party, or (c) is „actually involved‟ in such activity; and (ii) Secondly, if he also projects or claims it as untainted property;" 38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients- "A. RE: DIRECT OR INDIRECT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'bleSupreme Court observed that- "13. Well then, what is an "attempt"? ...In sum, a person commits the offence of "attempt to commit a particular offence" when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common intention, nor is any such case made out even on prima facie basis against any of them." 39. The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, would be utmost necessary, which however is lacking in the instant case." 59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money- laundering. The only defense or explanation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration and the money paid to the seller is also well explained. 22. Against the above arguments veheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank." 49. From the scheme of the Prevention of Money Laundering Act, 2002 and its object, it is clear that the intention of the legislation was not to apply the Act to the transaction subject matter of the present case. 50.The ED………………………………………………………………. ………………………&hell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002. 55. The ED has also filed the copies of the sale deeds/ title deeds of the properties which shows the date of acquisition of all the properties. The original title deeds of all the properties are lying with the Appellant Bank. The Appellant Banks are having the mortgage charge over the properties. 56. That the definition of "proceeds of crime" as per Section 2(u) of the PML Act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, all the properties have been purchased by the Respondents and have been mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in the obtention of these properties and hence the same cannot be attached by the ED because the same would result in hampering the interest of the Appellant Bank. 57. The Ld. Adjudicating Authority………………………………………………………………………………money laundering. 58. Thus, in the present case, even though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged fraud would be unjustified. 62. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case it is clear by the order of the Adjudicating Authority that the funds were transferred for the satisfaction of the bigger credit facilities taken by the respondents from the appellant bank which they could not pay due to the losses suffered by the companies. The said properties are already in the possession of the appellant bank under the SARFAESI Act. The Hon'ble Supreme Court of India in the case of Attorney-General of India and others reported in AIR 1994 SC 2179 while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and has held that the illegally acquired properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, the state is deprived of legitimate re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. All the contentions raised by Mr. Matta has no substance. The provisional attachment in the present matter is bad and against the law. In the circumstances available in the present case, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002. 66. In view of aforesaid facts and circumstances in the present case and for reasons referred above, we set aside the Impugned Order dated 02.07.2015 and the provisional attachment order dated 04.02.2015. All the eight properties are released from attachment forthwith." 14. Admittedly, neither the banks nor employees of these appellants are accused in any criminal proceedings nor there is any allegations against them that they are involved in the commission of alleged crime or generating "proceeds of crime". The amounts of loan sanctioned are public money and they are entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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