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TMI Blog2018 (4) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... e classified as non-performing loans in India. The crises of banks in India is become worse. The intention of the Act could not have been to block the loan amount against the mortgaged properties being innocent person as is sought to be done in the instant case. If the impugned order is taken as correct, it would be a patently absurd situation once substantial securities of the bank are not available for the benefit of Bank. Such a result does not advance the objects of the Act. For the above said reasons as mentioned above, the impugned order dated 24.10.2017 is set-aside, consequently the provisional attachment also does not survive and the same is quashed. This judgement & order is without prejudice to the matters pending against the borrowers before the Special Court. The attachment of mortgaged properties with the appellant bank is lifted. X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2016 & 25.05.2017 u/s 13(2) of the SARFAESI Act and in the said Notice, the properties mortgaged with the Appellant Bank has been mentioned. Before the Bank should take the action u/s 13(4) of the SARFAESI Act, the ED started its proceedings and attached the properties. The notice u/s 13(2) is filed as ANNEXURE 89 of the Appeal paper-book). The mortgage properties mentioned at Sl. No. A and C of the provisional attachment order matches with the description of the properties mentioned by the bank in the notice. 10. The date of acquisition and the description of the respective properties is detailed at para 4(a) of the appeal and the same are reproduced here below. Sl. No. Date of acquisition of the property Description of the immovable property Area 1. 24.11.2008 Hotel Oyster, Plot No. 30, behind IBP petrol pump, Piplod, Surat (Plot along with the construction erected thereon) Plot admeasuring 489.62 sq. mtrs. along with the construction erected thereon. 2 07.04.2010 Duplex row house No. D/16 (A&B) in Block B2 in the scheme known as "Emirates Hills" situated at S. Nos. 13/2/1/1, 17, 18, within the limits of Gram Panchayat of Village Somatne, Taluka-Mawal, Pune 425 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Loan dated 25.03.2013 for the purchase of 465 Vehicles; and d) the existing three TLs were restructured on 11.02.2015 with total outstanding amount of ₹ 213.07 crores of which share of TL I is ₹ 5.68 crores; the share of TL II is ₹ 47.12 crores; the share of TL III is ₹ 135.92 crores and the share of FITL is ₹ 24.35 crores for total 1005 vehicles. 13. The Appellant Bank as per pleading is to recover ₹ 206.20 Crores with interest from 29.11.2014 from the Borrower/ Guarantors/ Securities/ Mortgage Properties/ Personal Assets. The present amount recoverable by the Appellant Bank is more than ₹ 270.00 Crores which the Borrower and the Guarantors have failed to pay to the Appellant Bank, despite various persuasions and reminders. 14. The account of the Respondent No. 3 with the Appellant Bank is already a Non-Performing Asset (NPA) since 28/2/2016. The Appellant Bank has also filed its OA for recovery of ₹ 26,59,63,068.09 which is pending before Ld. DRT, Ahmedabad. The Appellant Bank could not proceed further with its action of taking over the possession and selling the Mortgage properties because of the action of the Respondent No. 1/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as a result of criminal activity relating to a scheduled offence or the value of any such property." It is clear that the properties at Sl. No. A & C (listed from 3to 8) of the Schedule of Properties of the PAO are not derived or obtained, directly or indirectly from the criminal activity or the proceeds of crime. 22. The provision of PML Act is to punish the accused person involved in money laundering, but not to the innocent who is not involved in the crime. 23. Counsel for the respondent no. 1 does not deny that the bank is a victim who is entitled to recover the money, however this sole argument is that the bank is entitled to sell the properties against loan amount after the trial of accused parties i.e. borrowers and final judgment is delivered by the Special Court. Thereafter u/s 8(8) of the Act, the mortgaged properties can be delivered to the bank who can recover the amount after selling the same. His only argument is that the mortgaged property should not be released at this stage, it should be released after trial and final judgment against the borrowers. It is not denied that the trial would take many years. The bank is not an accused and no criminal complaint is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending." 28. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras "State Bank of India Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors. MANU/TN/3619/2016", while upholding the Amendment Act, 2016 inserting Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same Court in The Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) lifted the attachment entry and held that: "In other words, not only should the amendment apply to pending lis, but the declaration that the right of a Secured Creditor to realize the Secured Debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime. Today, if the Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act." 32. 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 brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt request of the parties. Secondly, why the bank should want for number of years till the trial is over against the borrowers and final judgment is passed. 35. 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 which was rejected by the trial court but eventually was allowed by the High Court. The charges in the matter were framed under Section 120-B/420 IPC by the learned trial Judge against the private parties. As far as bank officials are concerned, charges were framed under different provisions of the Prevention of Corruption of Act, 1988. Being dissatisfied with the said order, the CBI had preferred an appeal by obtaining special leave and in that context the court observed that the accused respondent had been charged under Section 120-B/420 IPC and the civil liability of the respondent to pay the amount had already been settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner 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 Court in whose favour it would be decided." "71. In view of above mentioned reasons, this Court is inclined to quash the proceedings pending against the petitioners, arising out of R.C. No. 4A/94/SIU(X) dated 23rd May, 1994, titled 'CBI vs. N. Bhojraj Shetty & Ors.‟, being C.C. No.65/11, pending in the Court of Spl. Judge (CBI), Tis Hazari Courts, Delhi." The said decision has been upheld by the Hon‟ble Supreme Court. 36. In the present case the attached properties were purchased which are mortgaged properties much prior to the period when the facility of loan sanctioned to the borrowers. The banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 plea of innocence raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party. 57. This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are involved in money laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part of any of the petitioners. B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY: In JotiParshad v. State of Haryana, 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows- "5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of "intention" or "knowledge" or "reason to believe". We are now concerned with the expressions "knowledge" and "reason to believe". "Knowledge" is an awareness on the part of the person concerned indicating his state of mind. "Reason to believe" is another facet of the state of mind. "Reason to believe" is not the same thing as "suspicion" or "doubt" and mere seeing also cannot be equated to believing. "Reason to believe" is a higher level of state of mind. Likewise "knowledge" will be slightly on a higher plane than "reason to believe". A person can be supposed to know where there is a direct appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without having any direct/ indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea or knowledge is missing. 60. Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director, Prevention of Money Laundering Act, Directorate of Enforcement (Respondent) MANU/TN/4087/2015 decided on 14.10.2015, relevant portion of which are reproduced below:- " 20. The said sections read as follows:-- "23. Presumption in inter-connected transactions Where money-laundering involves two or more interconnected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor. 23. Considering the materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164 Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 tainted could be subjected to Provisional Attachment Order. 23. In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any knowledge that properties have been acquired directly or indirectly through scheduled offence could be subject matter of provisional attachment order. 24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA." Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case. 25. A reading of paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent no. 1. 41. The mortgaged properties are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to the events of funds diversion and fraud committed by the borrowers. The appellant Bank is entitled to recover amounts in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the appellant bank much before the alleged criminal action. 42. The appellant bank is the rightful claimants of the said properties which 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 Ors. (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 held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken away from the Appellant Bank by the ED vide Attachment Order dated 08.06.2017 and by the Ld. Adjudicating Authority vide Impugned Order 24.10.2017. The Adjudicating Authority failed to understand that the Appellant Bank has stakes in the said properties at Sl. No. A & C (listed from 3to 8) of the Schedule of Properties (page Nos. 21-23) of the PAO. The Appellant Bank has the right to recover the loan amount against the mortgaged properties under law. The valuable right will be lost if the Order of attachment would continue. The impugned order passed by Adjudicating Authority would cause miscarriage of justice if it is not set-aside. 49. Even ED as well as the Ld. Adjudicating Authority had fully aware but despite in the reason to believe that the said properties mortgaged to the Appellant Bank (SBI) had the superseding rights over the properties attached by the Enforcement Directorate; still the Ld. Adjudicating Authority confirmed the provisional attachment Order and has caused huge loss to the Appellant Bank. In case the legal-amount due which is not paid by the borrowers by the Enforcement Directorate and Adjudicating Authority has to take the matter seriously and apply th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties without examining the case of the banks. The evidence on record suggested that all the properties were acquired by the accused much before the alleged date of crime. The Bank has already filed the Suit for recovery and has also had taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be unjustified. 56. 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. 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 prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submissions made by the Respondent No. 1/ED and has not given due weightage to the facts brought before the eyes of law by the Appellant Bank. Also, the Ld. Adjudicating Authority has gone against the decision of this Hon‟ble Appellate Tribunal in the case of State Bank of India Vs The Joint Director, Directorate of Enforcement, Kolkata [FPA-PMLAI026/ KOL/2015] wherein it was held that the Banks are the Legal transferee of the mortgaged properties and such properties cannot be attached when there is no illegality or unlawfulness in the title of the Appellant and there is no charge of money laundering on the Appellant. It was held that the Banks are the secured creditors and as such they have the priority to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid and if the Banks are asked to await till the trial is over, the systems in these types of cases, the economy would collapse. 62. The complainant in the criminal case is the Bank who is victim. Had the Bank not filed a criminal complaint. If the security of the Bank, is treated as proceeds of crime and is confiscated under the Act, in future, no Bank in such circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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