9911796707
TMI Blog2018 (2) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the appellant and against the contesting respondents. FACTS IN BRIEF 2. The Punjab National Bank (PNB) was arrayed as defendant No. 5 in the OC No. 537/2016. It appears that the bank has been arrayed as a defendant because two properties mentioned below, secured against loan, have been attached by the Enforcement Directorate vide PAO No. 03/2015 dated 08.12.2015 in OC No. 537/2016. The details of properties attached and involved in the present appeal are as follows: i. Undivided 24.27% share and interest in Nazul plot No. A-6 (New. 7) of mouza-Lendra together with RCC super structure comprising Unit No. 1 covering super built up area about 261.92 sq. mts. On the ground floor and; ii. Undivided 21.31% share and interest in Nazul plot no. A-6 (New. 7) of mouza-Lendra together with RCC super structure comprising Unit No. 2 covering super built of about 230.21 sq. mts. On the first floor on the building known as "Devashraya Apartments" bearing corporation House No. 28, Nazul Sheet No. 18-C situated at 2nd Lane, Balraj Marg, Dhantoli, Nagpur within the limits of Nagpur Municipal Corporation, ward No. 3 & 5 respectively in Tehsil and District Nagpur. 3. Under the said PAO, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge sheet bearing No. 14/2014 dated 28.10.2014 before the Court of Special Judge (CBI, Patiala House Court, New Delhi) against M/s. GIL Nagpur, Shri Mukesh Gupta, then Director of M/s. GIL for commission of offence punishable under Section 420 of IPC, 1860. In the said charge sheet it is, inter alia, alleged that M/s. GIL misrepresented the facts in the application for and also misrepresented the facts in the present status of end use plant for which were submitted under the signature of Shri Mukesh Gupta. 4.4 It is revealed that Enforcement Directorate investigated the matter under the PMLA, 2002. During the course of investigation a letter dated 25.08.2014, was issued to Punjab National Bank, Sitabuldi Branch, for seeking the details of A/c statement of M/s. Grace Industries Ltd., Shri Mukesh Gupta & Smt. Seema Gupta, copy of KYS Norms, certified copies of the documents to obtained Loan, collateral securities provided at the time of loan and other details. The Bank vide letter dated 10.09.2014 provided the copy of sale deed bearing No. 4860/1996, copy of registered mortgage deed bearing No. 1474 dated 19.03.2010, copy of two valuation reports dated 17.02.2010 in respect of prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupta did not regularize the account in spite of various opportunities given to him. 8. The said loan account of Shri Mukesh Gupta was declared Non Performing Asset (NPA) as per norms of RBI therefore, the bank proceeded under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002 and has issued the notice under Section 13(2) on 09.12.2013. that even then defendants failed to respond the said demand notice and failed to pay the outstanding dues of the appellant Bank. Consequently being compelled the appellant Bank issued notice u/s 13(4) of the SARFESAI Act and have taken the possession of the mortgaged properties vide notice dated 18.03.2014. 9. It is the case of the Bank that the realization of dues under the aforesaid SARFAESI Act, 2002 has been stayed by the Debts Recovery Tribunal (DRT)-I, Mumbai by granting status quo subject to deposit of Rs. 50 lakhs. 10. According to the bank, the recovery proceedings was filed before the DRT for recovery of Rs. 4,62,96,909.97/- which is pending before DRT, Nagpur vide OA No. 78/2015. 11. It is the case of the bank, inter alia, that the properties in question are not proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of such secured creditors. It is also useful to refer to sub-Section 20(A)(B) of Section 19 of Recovery of Debts & Bankruptcy Act, 1993 which ordains that notwithstanding anything to the contrary contained in any law for the time being in force, the proceeds from sale of secured assets shall be appropriated first towards the recovery of costs and thereafter towards the debts owed to the banks or financial institutions. Further, Section 31B of the aforesaid Act postulates that notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize 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 due to the Central Government, State Government or Local Authority. The aforesaid provisions which have been newly inducted in the Act would certainly override the provisions of the Prevention of Money Laundering Act, 2002 in case of inconsistency and repugnancy between the provisions thereof. 13. On the other hand, the Enforcement Directorate, vide its reply, inter alia, contended that the property attac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt with the contention of the PNB in following manner. The relevant portion of the impugned order is produced below: "13. It is the case of D-4 and D-5 that the assets mortgaged to them are "secured assets". The necessary proceedings for recovery of Rs. 7,33,52,678.33/- have been initiated by D-4 before DRT, Nagpur, which is pending. Similarly, D-5 has contended that they have initiated necessary proceedings under SARFAESI Act for recovery of Rs. 4,62,96,909.97/-, which is pending before DRT. It need to be borne in mind that Section 71 of PMLA has an overriding effect. Consequently, the provisions of PMLA shall have effect and prevail over provisions of any other Act or its provisions. Looking at the scheme of the Act and the provisions made there under, it cannot be held otherwise but, that once the assets attached are found to be proceeds of crime and found to be involved in Money-Laundering, such assets attached cannot be permitted to be returned, utilized or adjusted in any manner, save and except in the manner in which the provisions of the PMLA, made for confiscation of the proceeds of crime, vesting of the same into Central Government and management of such vested prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riding 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 time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act." 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from hanks and financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verriding 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 cases 547 (BOM) para 15 of the said judgment read as under: 15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 35. Thus, it is very clear fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 institution, which is a secured creditor having the benefit of the mortgaged property." 38. In another Madras High Court judgment in the case of "Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement" has explained the grievances faced by the financial institutions while holding that "For instance, if LIC Housing Finance Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itimate 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 and A.K. Ganguly, JJ) in the case of United Bank of India V/s. Satyawati Tondon and Ors. In paras no. 6, 55 & 56 has held as under:- 6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks and financial institutions, but also made provision for ensuring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme 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 and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the mind of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attached under sub- section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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'ble Supreme 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 an act during the course of committing that offence." Thus, an "attempt to indulge" would necessarily require not only a positive "intention" to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;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 be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime. 22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttached 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 vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is taint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 21. From the scheme of the Prevention of Money Laundering Act, 2002 and its object, it is clear that the intention of the legislature was not to apply the Act to the transactions subject matter of the present case. 22. In the PAO as well as in O.C. it is admitted that the properties herein are mortgaged with the appellant PNB Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime. The relevant sale deed of the mortgaged properties are of 1996 so the date of acquisition is prior to the date of alleged commission of crime in the present case. 23. In the present case the Adjudicating Authority has come to a conclusion at para no. 13 of the impugned order that the assets are found to be proceeds of crime and found to be involved in money laun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with Ld. Adjudicating Authority that the mortgaged properties are acquired out of proceeds of crime or that it could be attached as a value of proceeds of crime particularly when the properties are mortgaged with the Bank. 26. 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 Guptas and have been mortgaged with the PNB much prior to the date of alleged offence which shows that no proceeds of crime are involved in the acquiring 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. 27. The Ld. Adjudicating Authority has failed to understand that PNB has heavy stakes in the properties as they have lent its valuable money to the borrowers. The property is mortgaged with the PNB. If, in future, any borrower fails to repay the loan, the Bank has a legal right to bring the properties to sale and recover its dues. Valuable right will be lost for Appellant, be order of attachment and eventual confiscation. As a mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any manner. In this case there was absent of such requirement. The said properties are already in the possession of the Appellant Bank under the SARFAESI Act. 31. 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 revenue to that extent hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant Bank it is liable to be recovered by the Appellant Bank. 32. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the Appellant Bank and there is no charge of money laundering against the Bank. The mortgage of property is the transfer under the Transfer of Property Act as there is no dispute as regards the origin of funds or the title of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
