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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 ..... of the case as per pleadings are given as under:- (a) 2014 : Smt. Banuben R. Patel, Respondent No. 3, sold proprietorship of Hotel namely Sai Leela, and approached the Bank for LT Mortgage Loan of Rs. 3 Crores for construction of a Hotel Building Project and offered mortgaged of certain immovable properties owned by her and standing in her name on the said date in the Revenue Records. (b) 18.12.2014 : Legal opinion on the basis of Appellant's Bank letter dated 16.12.2011 was received by the Bank. (c ) 27.12.2014 : Valuation Certificate received by the Bank. (d) 20.04.2015 : Loan of Rs. 3 Crores was sanctioned vide No. GSCB/L&A/BOD/2015-16/150/814 repayable on or before 20.02.2016 by 120 instalments of Rs. 2,50,000/- as Principal Amount plus interest thereon. Moratorium Period which included 120 months repayment period. Two Loan Sureties was obtained. Respondent No. 1 and 2 herein as Guarantors. (e ) 21.05.2015 : Loan Agreement signed. First Instalment of Rs. 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 Rs. 100,00,000/- was disbursed. (h) 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of allegations mentioned in the charge-sheet. The EIR was recorded vide ECIR /20/STSZO/2017 dated 14.02.2017 under the Prevention of Money Laundering Act, 2002 by the Enforcement Director against Mr. Ramesh Jaggubhai Patel, this wife Mrs. Bhanuben Patel and others under various sections and accordingly Investigation was initiated under the provisions of PMLA, 2002 to identify the proceeds of crime. 10. On 15.02.2017, the ED seized all Deposit Accounts including mortgaged property in question. 11. On 15.11.2017, Deputy Superintendent of Police, SC/ST Cell, Surat filed supplementary Chargesheet, ACB-61, No. III-119 on 15.03.2017 before the Additional Sessions Judge and invoking Section 66 (1) B, 65-A, 65-E, 116 (2), 81, 83, 97 (G), 98 & 99 of the Gujarat Prohibition Act, 1949, Section 13 (1) (d) of the Prevention of Corruption Act, 1988 and Section 120-B-465, 467 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety to the secured conditions for the time being enforced including the provisions of PMLA in so far as recovery of loan by the secured creditor is concerned. Amended provisions are as under :- (i) Section 26E of the SARFAESI Act, 2002 : 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 the cases where 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid appeals are re-produced below:- "FPA-PMLA-1026/KOL/2015 7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows: "32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act." 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions 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 eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sick Companies Act. Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from hanks and financial 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 Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act." 31. The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd. The judgment rendered on 09.02.2016 reported in 1997 (89) company cases 547 (BOM) para 15 of the said judgment read as under: 15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 34. In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993after the words "the date of the application","and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 35. Thus, it is very clear 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 01.09.2016" "4 The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending." "5 The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property." 38. In another Madras High Court judgment in the case of "Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement" has explained the grievances faced by the financial institutions while holding that "For instance, if LIC Housing Finance 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2) process..." 41. The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of India V/s. SatyawatiTondon and Ors. In paras no. 6, 55 & 56 has held as under:- "6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks and financial institutions, but also made provision for ensuring 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED. 44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr. P.C. at the joint request of the parties. 45. Three Judge Bench in Narendra Lal Jain &Ors., (supra) held that during the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues." "70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues. The present petition is maintainable as the same has been filed also on additional grounds and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the mind of the 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, pend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved in money laundering or not." "8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of money-laundering, he can show before the court that he is innocent and has not received any proceeds of crime." It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the 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 attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that- "13. Well then, what is an "attempt"? ...In sum, a person commits the offence of "attempt to commit a particular offence" when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the course of committing that offence." Thus, an "attempt to indulge" would necessarily require not only a positive "intention" to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime. 22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons 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 veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale considerationand the money paid to the seller is also well explained. 22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monies have been given for the purchase of the property by the Appellant Bank and not from any tainted source. The money have gone directly from the Bank accounts to the seller and thereafter the mortgage has been created. It is also not disputed that the monies released by the Banks was sanctioned for the said purpose and were part of the financing program. 24. On account of Amendment in SARFAESI Act by way of addition of Section 26(E) to the said Act and in Recovery of Debt Due to Banks and Financial 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 registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has duly considered the view of various High Courts and the Apex Court on the issue involved wherein it has been held that the Secured Creditor (Bank) are the victims of Conspiracies which have been hatched by the Promoters Borrowers/individuals and cannot be termed or construed as culprit or offender. The interest of the Secured Creditor being an institution cannot be prejudiced due to the acts of the individuals thereby allowing public money to be painted as tainted money. 31. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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