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TMI Blog2018 (7) TMI 707X X X X Extracts X X X X X X X X Extracts X X X X ..... ached 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 case the Special Court passes the order to release the property of the victim and innocent party is mortgaged property could be disposed of for the purpose of adjustment of the amount due from the borrowers. Once it was found that the appellant is a innocent party who is not involved in the money laundering directly or indirectly or assist any party and the mortgaged property is also not purchased from the proceeds of crime then the question of provisional attachment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst Instalment of ₹ 100,00,000/- was disbursed. (f) 20.06.2015 : Deed of Mortgage was executed and registered between the Bank and the Respondent No. 3. (g) 22.06.2015 : Second Installment of ₹ 100,00,000/- was disbursed. (h) 14.08.2015 : Third Installment of ₹ 75,00,000/- was disbursed. (i) 19.08.2015 : Fourth Installment of ₹ 25,00,000/- was disbursed. 4. Hypothecated / Mortgaged Property of the Goa State Cooperative Bank are as follows :- a. Agriculture Land admeasuring 500 Sq. mtrs situated at Survey No. 175, Village Janivankad, Daman; purchased by Ms. Bhanuben Rameshpatel on 15.12.2008. Value of ₹ 1,50,000/-. b. Agriculture Land admeasuring 1200 Sq. mtrs situated in Survey No. 174/6, Village Janivankad, Daman; purchased by Ms. Bhanuben Rameshpatel on 20.08.2009. Value of ₹ 2,52,000/-. C. Agriculture Land admeasuring 1100 Sq. mtrs situated at Survey No. 174/5, Village Janivankad, Daman; purchased by Ms. Bhanuben Rameshpatel on 20.03.2013. Value of ₹ 5,50,000/-. Also, Bank Account No. 00251010000779 with a balance of ₹ 5,72,458/-. A/c. 00251010000802 with a balance of ₹ 2,30,111/-. A/c. 00251010000748 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 471 of the Indian Penal Code, 1860. 12. 17.07.2017: Accordingly, on the basis of the said Investigation, Appellant s Bank hypothecated / mortgaged property, were attached by the Provisional Attachment Order No. 4/2017 dated 17.07.2017 in ECIR /02/2017 under Section 8 (3) of the PMLA Act, 2002 read with Regulation 23 along with other properties. (The said provisional Attachment Order dated 17.07.2017 is marked as Annexure A-3 to the main Appeal.) 13. Admittedly, O.C. No. 805/2017 for confirmation of the provisional Attachment Order dated 17.07.2017 was filed by the E.D. before the Adjudicating Authority on 12.08.2017. Thereafter, the notice under section 8(1) was issued who on 09.10.2017 filed detailed Reply to the said O.C. . On 27.11.2017 the Respondent/ED filed Rejoinder to the said Reply. 14. After hearing on 28th December, 2017 the impugned order passed by Adjudicating Authority confirming the provisional attachment order dated 17.07.2017. 15. The said order under Section 26 of PML Act, 2002 has been challenged by the bank. . 16. It is submitted on behalf of the appellant that the impugned Order is illegal, perverse, contrary to law as there is no link betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in payment of debt shall be subject to the provisions of that Code. . (ii) Section 31 B of the Recovery of Debts and Bankruptcy Act, 1993: 31B. Priority to secured creditors Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to 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 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 the cases where of 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. . In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 19993 after the words the date of the application , and includes any liability towards debt securities whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing anything inconsistent therewith contained in any other law except to the provisions of the Foreign ExchangeRegulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: 13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority. 9. It is clear that both these Acts are special Acts. This Court has laid down in nouncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. v. State Industrial investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal; AllahabadBankv.Canara Bank and Ram Narainv. Simla Banking Industrial Co. Ltd. 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The whole aim of these provisions is to ensure that monies which are siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the legislature wanted to provide otherwise, they would have specifically so provided. 32. Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. 33. The amended provisions give ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities 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 from above that the secured creditor, get a priority over the rights of Central or State Government or any other Local Authority. 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. 36. The Full Bench of the Madras High Court whileacknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors. that There is, thus, no doubt that the rights of a secured creditor to realise 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the 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 petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 that defaulting borrowers are not able to invoke the jurisdiction of the civil courts for frustrating the proceedings initiated by the banks and other financial institutions. 55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 and further there was no grievance on the part of the bank. Taking note of the fact that offence under Section 420 of IPC is compoundable and Section 120-B is not compoundable, the Court eventually opined thus:- 11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore 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. 46. In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt 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 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, MANU/SC/0161/1993 : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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-launder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 though 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Institutions Act by Section 31B of the Amended Act, the Appellant Bank would have superior right of recovery of debt dues and the debt due to the Secured Creditors shall be paid in priority of all other debts and other revenue/taxes/cess payable to the Central Government/State Government/Local Authorities. 25. After the promulgation of PML Act, amendments were brought to the SARFESI Act by the Legislature whereby Section 26(E) was introduced to the SARFASI Act and Section (31B) Recovery of Debt Due to Banks and Financial Institutions Act and the said Acts reads as under :- 26E. 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, cess and other rates payable to Central Government or State Government or State Government or local authority. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 may be prescribed. 32. In the present appeal it is admitted position that the loan was given by the bank in good faith who had suffered a loss because of non-return of money by the borrowers. It is evident from the said proviso that incase the claimant would be able to satisfy the Special Court that it has acted in good faith and suffered the loss despite of having taken all the reasonable precautions and is also not involved in the offence of money laundering then the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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