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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 ..... icating Authority to follow the judgments of the higher courts and to give due respect. But in the impugned order, no reasons are given the Adjudicating Authority for ignoring the same. 4. Very casual approach was adopted in passing the impugned order which is passed mechanical manner. The Adjudicating Authority has also not considered the reply filed by the bank wherein it was specifically stated that under many reasons the provisional order of mortgaged properties could not have been passed. If the Authority would start ignoring the judgements of the Higher Courts and the real facts of the matter, the system would be suffered. 5. At the admission stage itself, both the parties have made their submission in main appeal itself. I shall now deal with the facts and legal issues involved in the present appeal. Counsel for the appellant is only pressing the relief against the respondent no. 1. 6. The present Appeal has been filed by State Bank of India against the orders of the Adjudicating Authority wherein the properties purchased years prior to the alleged date of generation of Proceeds of Crime & mortgaged with SBI by the borrowers. 7. The Adjudicating Authority has confirmed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3219 Sq. Fts.) 4. 02.07.2010 Office Unit No. 407 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 5. 02.07.2010 Office Unit No. 408 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 6. 02.07.2010 Office Unit No. 409 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 7. 02.07.2010 Office Unit No. 410 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 11. No relief was sought against other respondents in the appeal as according to the appellant, the other respondent are proforma parties. The relief pressed in the present appeal is set-aside the impugned order by which the provisional order passed by the respondent no.-1 was confirmed only pertaining to the properties which are mortgaged with the bank. 12. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3 Company alongwith a Term loan of Rs. 160.00 Crores and Cash Credit Limit of Rs. 35.00 Crores in September 2012 to the Respondent No. 3 Company. The Appellant Bank has nothing to do and has no connection with the alleged crime committed by the Respondent No. 3 and other persons. 17. It is undisputed fact that the Appellant Bank is not holding any funds of the accused/ Respondents, on the other hand, the Appellant Bank itself has to recover more than Rs. 270 Crores from the Respondents No. 2, 3 & ors. 18. The mortgaged property with Appellant Bank is much before the crime date. The allegation of the respondent no. 1 that these properties out have been purchased from the proceeds of crime is incorrect as on the face of record. 19. Property at Sl.No. A of the Schedule of Properties of the PAO admittedly was acquired on 24.11.2008 and the propertyat Sl. No. C (listed as 3) of the Schedule of Properties (page Nos. 22) of the PAO admittedly was acquired on 07.04.2010 and the propertyat Sl. No. C (listed as 4) of the Schedule of Properties (page Nos. 22) of the PAO admittedly was acquired on 23.10.2009 and the properties listed at Sl. No. C (listed as 5to 8) of the Schedule of Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.; b. 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 90 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. 25. The amendment prima facie gives the Secured Creditor, i.e. the Appellant/State Bank of India, a priority over the rights of Central or State Government or any other Local Authority. 26. The amendment has been introduced to facilitate the rights of the Secured Creditors which are being hampered by way of attachments of properties, belonging to the Financial Institutions/Secured Creditors, done by/in favour of the Government institutions. 27. The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd 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." 30. The provisions of the amended SARFAESI Act prevails over the provision of the PML Act because the Amended SARFAESI Act is the subsequent legislation to the PML Act as held by the Hon‟ble Supreme Court in the case of Solidaire India Ltd. Vs Fairgrowth Financial Services Ltd. & Ors., (2001) 3 SCC 71. Therefore the said judgement is now application if favour of the respondent in view of amendment brought by in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection. 56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy." 33. Counsel for the respondent no.-1 argues that what will happen to the criminal complaint pending before the special court if the borrower will settle the matter with the bank. I fail to understand the said argument firstly. No criminal matter is pending against the bank. On the complaint of the banks, the FIR was registered. The main concerned of mortgagee was that borrowers are not paying the amount which is due therefore the action under IPC be taken as per law against the borrowers. Their main concerned is that the money must come to bank. It is a public money. It is Government bank. Even Government is stressing tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power to make such order as may be considered necessary to, inter alia, prevent the abuse of the process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard to the contours of the power available under Section 482 CR.P.C.it must be remembered that continuance of a criminal proceeding which is likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power under Section 482 Cr. P.C. In Sanjay Bhandari V/s. CBI, Crl. M.C. M.C. 5798/2014, Delhi High Court, dated 29.06.2015 "69..... By consent the parties have settled all disputes in the recovery suit, the consent decree of DRT stood to be disposed off as duly 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention was rejected as appeared from the impugned order. 38. This Tribunal in the case of IPRS in appeal no. FPA-PMLA- 1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of the same in para no. 55 to 60 the same read as under:- "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mens rea have been provided under the Act so that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below:- "26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laundering Act was not held unconstitutional and ultra virus, but it was 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 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:- "37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive 'and', makes it luminous that any persons concerned in any process or activity connected with such "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, (1980) 3 SCC 57, the Hon'ble Supreme Court observed that- "13. Well then, what is an "attempt"? ...In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tsoever, oral or documentary, to substantiate any such allegation qua the petitioners, D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or indirect involvement, abetment, conspiracy or 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, may presume that such proceeds of crime are involved in money-laundering. 21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation. '21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, 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 deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal 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." 39. 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 nature transaction involved in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities. None of the provisions are applicable in the facts of the present case. As far as the borrowers are concerned, we are not expressing any opinion with regard to matters pending before the Special Court in relation to schedule offences and the complaint under this Act. These matters are to be considered as per law. 44. There is no money laundering in the present case as far as the bank is concerned. Due to the attachment proceedings by the ED the Appellant bank is not able to recover the public money by way of selling the properties. The proceedings for recovery are pending. 45. The ED in its provisional order as well as in the complaint filed before the Ld. Adjudicating Authority has admitted and acknowledged that the Properties which are mortgaged with the Banks were acquired and possessed by the respective owners much before the Respondents availed the loan from the Appellant Banks and therefore no proceeds of crime are invested in these properties. 46. From the entire impugned order, it was passed without application of mind and consulting the judgments of supreme court, full court of Madras High Court and various High Courts. The Adjudicating Authority does not want t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan, the Bank has a legal right to bring the properties to sale and recover its dues. Valuable right will be lost for the Appellant, by order of attachment and eventual confiscation. 52. The bank in the present case are just victim and not accused. If the attachment would continue against the mortgage property of the banks in this matter, the economy of the country would suffer. The banks in the present case have proceeded with the matter in good faith and are not involved in the offence of money laundering. 53. In the present case, even though the Ld. Adjudicating Authority had all the reasons to believe that the abovementioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/five properties; still the Ld. Adjudicating Authority confirmed the provisional attachment order of the Respondent No. 1 and have caused huge loss to the Appellant/SBI. Both ED and Adjudicating Authority have failed to apply the law on the subject. Had the consulted the law and provisions of PML Act, 2002 in meaning of manner, the PAO and impugned order not to have been passed. 54. The Adjudicating Authority has not examined the law on mortgage an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of property act as there is no dispute as regards the origin of funds or the title of the properties. The bank had to recover its outstanding dues by taking over the possession of the mortgaged properties in case the borrowers are not able to pay back the amount. 58. The Respondent No.-1 has no lien over the said properties as the Appellant bank is now the Legal transferee of said properties. The said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners because the bank is victim and even after trial, he is to receive-back the said properties being victim party u/s 8(8) of the Act. However since the averment is carried out in law, the bank is entitled to dispose the mortgaged property without any delay. 59. There is no nexus whatsoever between the alleged crime and the two bank who are mortgagee of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against bank who has sanctioned the amount which is untainted and pure money. The bank has priority to the secured creditors to recover the loan amount/debts by sale of assets over which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the loans against the securities and mortgaged properties, they are not returning the legal debts. They are simply adopting all sort of tactics by raising defense that their properties are attached by ED. Even they have stopped paying the installments due by raising the plea that why should pay debts once the attachment orders are passed. By way attachment, their properties are also safe so as the due amount. In fact they are happy if the attachment would continue against the mortgaged properties despite of passing the decrees by the DRT in favour of banks and against borrowers. By this mean, the attachment-orders amounting to interference with the judicial system as the Adjudicating authority in many cases has ignored judgements of the Supreme Court, Full bench of Madras High Court and many High Courts and even of this tribunal. Such order are being passed without consulting law and facts of the matter. 64. 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 secur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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