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TMI Blog2018 (7) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... tand of the respondent in almost in all the cases where it was found that the attached properties are mortgaged properties which were not purchased from proceeds of crime, the Bank are victim parties and are innocent parties who are entitled to recover the loan amount from the said mortgaged properties, but the banks be allowed to dispose the properties after the trial and final out-come of criminal complaints filed against the borrowers under schedule offence and prosecution complaint. The said argument cannot be accepted in view of settled law and new amendment in sub-section 8 of section 8 of the Act. Thus, the stand earlier taken by the respondent no. 1 is wholly vague and without any substance. The provisional attachment order thus apparently bad and against the scheme of the Act. In view of the reasons amendment in the PMLA and once the provisional attachment order is set aside, the property is released the borrower/accused and the banks can only dispose of the said property after passing the order by the special court in favour of the complaint. In case the provisional attachment order and impugned orders are set-aside, the complainant may not be able to dispose of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant Nos. 22-25 are banks which are members of a consortium which has granted credit facilities to SVIL Mines, a group company of Respondent No. 4. 4. The Respondent No. 2 3, namely Mr. Rajiv Jain and Mr. Sanjay Jain are the Directors of the Respondent No. 4 Company and also stood as guarantors for the repayment of the loan amounts sanctioned and disbursed by consortium members including the Appellant Bank to the Respondent No. 4 Company, by way of personal guarantees. Respondent No. 5 is a group company of Respondent No. 4, which also executed a corporate guarantee to secure the credit facilities. The Respondent No. 4 Company was majorly engaged in the business of trading of Agro-Commodities and Manufacturing and marketing of essence Oils, Perfumery Compounds, Flavors, Fragrances and Aromatic Chemicals. 5. The aforesaid financing facilities were provided by the Appellant Banks upon the Respondents executing various documents including creation of mortgages over the attached properties. It is pertinent to note that the attached properties were mortgaged by the Respondents with the Appellant Banks as early as 2005 and 2007 and the said properties were acquired by the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Recovery Tribunal, Delhi seeking recovery of a sum of ₹ 2071 Crores from the Respondents 2-4. The DRT vide its order dated 20.01.2014 granted an injunction order restraining the Respondents No. 2 to 4 from alienating or creating any encumbrance whatsoever in respect of properties that were mortgaged with the consortium for the purpose of securing the credit facilities. 11. That in parallel proceedings before the High Court of Delhi moved by certain secured creditors, the High Court appointed a provisional liquidator who took possession of certain properties of the Respondent No. 4 Company. 12. The Enforcement Directorate, Delhi Zonal Office is pursuant to the recording of the ECIR No. DLZO 101/2015/AD (VM) dated 12.02.2015 which came to be filed on the basis of Assistant General Manager, Punjab National Bank filing written complaint dated 09.12.2013 to the Banking Securities and Fraud Cell(BSFC),CBI, New Delhi for registration of a case for commission of fraud by M/s. Surya Vinayak Industries Ltd (SVIL) (Defendant no. 3) and its Directors, as they got loan/CC limit for SVIL on the basis of forged record/accounts details of the company. Accordingly, an FIR came to be reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent No. 4) 11.04.1997 24.06.2008 4 Land and building at D-259, Ground Floor, Ashok Vihar 1, Delhi 10 052 measuring 167.22 sq. mts Rajiv Jain (Respondent No. 3) 6.10.1999 1.3.2005 27.12.2005 5 Land and building on plot of land bearing Khewat No. 90 at Village Naya Bans, Sampla District, Rohtak, Haryana measuring 3025 sq. Yards. Rajiv Jain (Respondent No. 3) 9.7.1999 27.05.2005 6 Land bearing Khewat No. 134 (4446.75 sq. Yds.) and 145 (6897 sq. yds.) at Village Naya Bans Sampla, District Rohtak, Haryana measuring 11343.75 sq. yds. Rajiv Jain (Respondent No. 3) 11.08.2000 21.06.2000 27.05.2005 7 Land measuring 18422.25 sq. yards at Village Naya Bans, Sampla, District Rohtak, Haryana. Rajiv Jain (Respondent No. 3) 11.10.1998 4.10.1999 21.10.1999 27.05.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties attached by way of the said Provisional Attachment Order were mortgaged to the consortium of banks, including the Appellant herein, on the basis of whose complaint the proceedings under the Act were initiated. Proceeds of Crime‟ has been defined under Section 2(1)(u) of the Prevention of Money Laundering Act ( the Act ), which reads as under: proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property; Upon reading the conditions provided under Section 5(1) of the Act with the definition of proceeds of crime‟ provided under Section 2(1)(u) of the Act it is clear that the primary requirement for the purpose of issuing an order of attachment under Section 5 of the Act is that the person ought to be in possession of any proceeds of crime‟ i.e. any property derived‟ or obtained‟ directly or indirectly as a result of criminal activity of a scheduled offence or the value of such property. 20. In the present case, it is submitted on behalf of the banks that the Respondents No. 2 to 4 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Adjudicating Authority has failed to consider that the Attached Properties having not been obtained/acquired directly or indirectly from or through any criminal activity cannot be considered for any purpose whatsoever as proceeds of crime‟ in terms of Section 2(1)(u) of the Act. 23. Both the parties have made their submissions. I have heard them with regards to the aforesaid properties involved in the present appeal and considered the material available on record. 24. The main important issue involved in the present appeal are whether the properties mortgaged with the Appellant Bank are proceeds of crime as defined u/s 2(1)(u) of PMLA. Secondly, whether the PMLA has priority over SARFEASI and RDDB FI Act. The three member Bench of this Tribunal, to which we were part of the said Bench, decided the appeals on 14.07.2017 in the group of matters i.e. State Bank of India vs. Joint Director, Directorate of Enforcement, Kolkata in appeal no. FPA-PMLA-1026/KOL/2015 followed by several other decision in different matters including recently decided in the matter of IDBI Bank Ltd. Vs. Deputy Director, Directorate of Enforcement, Delhi in FPA-PMLA- 2147/DLI/2018 on 10.05.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of the said decision is as follows: Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned. 11. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed provisions are reproduced as under: (i) Section 26E of the SARFAESI Act, 2002 : 26E. Priority to secured creditors Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or 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. (ii) Section 31B of the Recovery of Debts and BankruptcyAct, 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 37. The Assistant Commissioner (CT) Vs. The Indian Overseas Bank, Madras High Court, WP No. 2675 of 2011 (Full Bench) 2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principle Act, Which reads as under:- 31B. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors. , while upholding the Amendment Act, 2016 to 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 realise the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold good qua 2002 Act as well. 40. B. RAMA RAJU V. UOI AND ORS.Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition of property in para 103. The same read as under:- 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter. 42. It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant i.e. Union of India in order to pay the remaining out-standing amount. The undertaking in this regard is recorded in Court. It is written agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to pay the remaining out- standing amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power can be faulted or held to be erroneous. Section 482 of the Code inheres in the High Court 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded. 47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly did so but their contention was rejected as appeared from the impugned order. 48. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional order of attach 56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents) MANU/UP/0777/2016decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money laundering. 58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017wherein 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 'attem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has sufficient cause to believe the same. The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence. C. Actually involved: Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter- connected transaction. 24. Burden of proof In any proceeding relating to proceeds of crime under this Act, (a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and (b) in the case of any other person the Authority or 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 ₹ 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge. 24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives. 26. In the present case, the respondent failed to prove that 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 investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces for operating in clandestine manner. The PML Act was created to forfeit illegal properties and to prevent the money laundering activities which are threat to financial system of the country and its integrity and sovereignty. Further the question of prevalence of a subsequent legislation will only come into picture when there is a conflict between the two statutes. The Securitization Act has been enacted for the purpose of establishing a expeditious system for recovery of debts due to Banks and for matters connected therewith or incidental thereto. It only lays down a procedure for recovery of debts due to Banks. The Prevention of Money Laundering act vests the statutory authorities with a power to forfeit proceeds of crime involved in money laundering to the State. There is thus no apparent conflict between the two statues. The two statues operate in their exclusive fields. The question is only who will have his first claim on any property where the claim of the State concurs with the claim of any other person. In the light of above a harmonious construction has to be arrived that keeping in view the facts of the case vis. a vis the statutes involved. In the present case the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent is not denying the fact that the Bank is a victim party who is also innocent and is entitled to recover the loan amount. It is also not disputed by the respondent that the properties in dispute are mortgaged with Bank and it has to go to the Bank ultimately. I do not agree with the argument in this regard in view of amendments in the two statutes. Even otherwise the trial would take number of years. The public money cannot be stalled otherwise Banking system would collapse. 31. 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 mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in acquiring of these properties and hence the same cannot be attached. 32. The Adjudicating Authority has failed to consider that the ED has attached the properties without examining the case of the bank. The evidence on record suggests that the properties were acquired by the borrower/guarantors much before the alleged date of crime. No money disbursed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. The contentions raised by the Respondent's Advocate have no substance. The provisional attachment in the present matter is bad in law hence liable to be set aside. 37. Recently there are amendments in the Prevention of Money Laundering Act, 2002 (15 of 2003) as amended by Finance Act, 2018 (13 of 2018) including in the proviso of Sub-section 8 of Section 8 of PMLA, 2002 by adding another proviso which is read as under:- Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering: Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as ma be prescribed. 38. It in the present ten appeals i.e. (serial no. 1 to 10). It is admitted position that the loan was given by the banks in good faith who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in the PMLA and once the provisional attachment order is set aside, the property is released the borrower/accused and the banks can only dispose of the said property after passing the order by the special court in favour of the complaint. In case the provisional attachment order and impugned orders are set-aside, the complainant may not be able to dispose of the property in order recover the loan amount even if the special court restore such properties during the trial. 43. In the fact and circumstances and material available in the present case, the allegation of money laundering, prima facie, so far as present appellant properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002. Both set of appeals are allowed. 44. Thus, for reasons recorded above, I set aside the Impugned Order dated22.09.2016 and the Provisional Attachment Order dated31.03.2016. 45. In view of the amendment of sub section 8 of Section 8 proviso (1) and (2), the bank is at liberty to move its claim before the Special Court for disposing of the said property in accordance with the law. The present appeals are accordingly disposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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