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TMI Blog2018 (11) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent. Those provisions referred by the respondent are only applicable in those cases if the subject matter of property is acquired from proceed of crime. It is an admitted fact that the properties herein are mortgaged with the appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime. The relevant sale deed of the mortgaged properties are of 2003 so the date of acquisition is much prior to the date of alleged commission of crime in the present case. The property of the Bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent 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 Bank ultimately. There is no nexus whatsoever between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stainable. The same is set-aside pertaining to subject matter of mortgaged property. The provisional attachment is also quashed. The attached property is released forthwith. The time spent from the date of provisional attachment order till today shall be deducted if the chosen to continue the proceedings against the borrowers under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). - FPA-PMLA-2173/MUM/2018, MP-PMLA-4604/MUM/2018 (E.H.) in MP-PMLA-4224/MUM/2018 (Stay) And FPA-PMLA-2155/MUM/2018 - - - Dated:- 31-10-2018 - Justice Manmohan Singh Chairman For the Appellant : Shri V. Seshagiri, Advocate Shri Anchit Tripathi, Advocate And Shri Sanjay Bhatt, Advocate For the Respondent : Shri Rajeev Awasthi, Advocate, Shri Jatin S. Sethi, Advocate And Shri Bhagirath Patel, Advocate JUDGEMENT FPA-PMLA-2173 2155/MUM/2018 1. By this order, I propose to decide the two appeals filed by the above mentioned appellants. The appeal no. FPA-PMLA-2173/MUM/2018 is filed under Section 26 of the Prevention of Money Laundering Act, 2002 (hereinafter referred to as the PMLA, 2002) by the Bank of India (being the Lead Bank of Consortium of banks comprising of Can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing agreement dated 30.03.2013, and Copy of the memorandum of Entry ( MOE ) Oral Assent Registers along with various documents dated 21.04.2013 shows that the aforementioned Subject Property was mortgaged by TIPL to the Appellant Bank to secure the due repayment of the facilities advanced by the Appellant Bank are filed as - ( Annexure No. A/3 (Colly) . 7. It is the case of the bank that as on 07.02.2018, an amount of INR INR. 1,21,87,24,635.55/- (Rupees Hundred Twenty One Crore Eighty Seven Lakh Twenty Four Thousand Six Hundred Thirty Five and Paise Fifty Five Only) is due and payable by TIPL to the Appellant Bank comprising of a principal amount of INR. 59,61,47,873.77/- (Rupees Fifty Nine Crore Sixty One Lakh Forty Seven Thousand Eight Hundred Seventy Three and Paise Seventy Seven Only) together with interest at the rate of 16.50% per annum until 07.02.2018 with further interest till the date of payment and/or realization of the outstanding amounts thereof. 8. It is stated that the outstanding amount due unto the Appellant Bank is public money and that the Appellant Bank has the right to the Subject Property. 9. The Appellant Bank in accordance with the guideline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs under PMLA are of criminal nature. It is settle law that the criminal proceedings will override the civil proceedings, if any conflict arises during the implementation of the law. The Adjudicating Authority, NCLT, Ahmedabad Bench in CP (I.B) No. 89/7/NCLT/AHM/2017 during the proceedings under Insolvency Bankruptcy Code 2016 vide order dated 13.09.2017 has issued moratorium and at the same time, concluded as under: 14. The moratorium declared by this Adjudicating Authority is not applicable to the criminal proceedings, if any, initiated under the provisions of Prevention of Money Laundering Act, 2002 by the Enforcement Directorate and to the criminal case, if any, initiated by the Central Bureau of Investigation against the Respondent Company. In view of the above said categorical order of the NCLT, Ahmedabad Bench, the primacy of PMLA, 2002 in case where moratorium on the assets of the concerned companies is declared by virtue of section 1(1)(a) read with 14 of the Insolvency and Bankruptcy Code, 2016 is established. Therefore, the proceedings under PMLA will override under the Insolvency Bankruptcy Code, 2016. (ii) Section 71 of the PMLA reads as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deliberative design and motive of personal gain, regardless of the consequences to the members of the society, cannot be brushed aside. (vi) In this connection, the objective of the IBC, 2016 and PMLA, 2002 are as under:- IBC, 2016 An Act to consolidate and amend the laws relating to reorganization and insolvency, resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all stake holders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for the matters connected therewith or incidental thereto. PMLA, 2002 An Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, moneylaundering and for matters connected therewith or incidental thereto. Therefore, as seen from the objectives of IBC, 2016 and PMLA, 2002, the provisions therein are independent. 16. As per settled law, the rights of a bona fide party cannot be prejudiced on account of any alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rittensubmissions have also been filed. 30. We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. Ors. Wherein after discussion in para 7-11 it was held that later enactment would prevail with a nonobstante clause. Paras 7-11 reads as under:- 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 effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of 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 distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions 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 and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruptcy 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 realise 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 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, 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 ninety days served upon the borrower by the debenture trustee or any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 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. 3 There is, thus, no doubt that the rights of a secured creditor to realize 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, 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 mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined 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 market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under Section 8(1) and the material or evidence furnished along therewith to establish 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 Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties stood transferred by way of mortgage to the appellant bank much before the alleged criminal action. 52. The appellant banks is the rightful claimants of the said properties which are already in the possession of the appellant bank under the SARFAESI Act. The Hon ble Supreme Court of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant bank it is public money. The appellant bank has the right to property under the Constitution of India. The property of the appellant bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgage of property is the transfer under the transfer of property act. 53. The objective of Prevention of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrow any borrower fails to repay the 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. As a matter of fact, the borrowers may not be interested in repaying the loan, since they are not going to enjoy the property. Therefore, ultimately, the action of the ED/Respondent No. 1 would make the Appellant, a much greater victim than even the accused/Respondents. Though in the present case, the borrowers have a settled their disputes with the Union Bank of India. Terms of settlement have already been recorded by the Court. Those terms are binding upon the parties. On behalf of borrowers, the statement has been made that they are also ready to resolve their disputes with the State Bank of India on reasonable terms. As and when these properties are sold, the banks would be able to receive the public money. The banks 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 has proceeded with the matter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the banks. The evidence on record suggested that all the properties were acquired by the accused much-much before the alleged date of crime. No money disbursed by the Union Bank of India from its Loan Account, has been invested in acquiring his property. Furthermore, the Appellants Banks had mortgaged charge over the property prior to the date of the crime. The Bank has already filed the Suit for recovery and has also had taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be unjustified. 62. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case it is clear by the order of the Adjudicating Authority that the funds were transferred for the satisfaction of the bigger credit facilities taken by the respondents fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial is over, the systems in these types of cases, the economy would collapse. In the case, of Union Bank of India, no sanction against the employee was granted who is also not involved in any criminal proceedings. 65. From the entire gamut of the matter we are of the view that 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 banks who have sanctioned the amount which is untainted and pure money. They have priority to the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. All the contentions raised by Mr. Matta has no substance. The provisional attachment in the present matter is bad and against the law. In the circumstances available in the present case, the allegation of money laundering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Act 10.12.2015 BOI took possession of hotel property under Section 13(4) of the SARFAESI Act for itself and as lender of the consortium of banks 29.06.2017 Provisional Attachment Order (PAO) in respect of 50% of Hotel Property is issued by ED based on the contention that 50% shareholder of Mohan India Pvt. Ltd. i.e. Mr. Jag Mohan Garg through his family, friends, and relatives holds 50% shares in Appellant as well. 03.07.2017 Admission of Application filed by BOI under Section 7 of the Insolvency Bankruptcy Code, 2016 (IBC) against the Appellant, appointment of Mr. Anil Kohli as the Interim Resolution Professional (IRP) for the Appellant and passing of moratorium order under Section 14, IBC 14.08.2017 Complaint under Section 5(5) of PML Act filed by ED before the Adjudicating Authority for confirmation of PAO. Notice issued inter alia to the Appellant for 16.09.2017 16.09.2017 The Appellant through IRP filed an Application challenging the maintainability of the Complaint and permissibility t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enacted for forfeiture of crime involved in the money laundering which was considered necessary to deprive persons engaged in serious illegal activities and have thereby been increasing their resources for operating in clandestine manner. the 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 concur with the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were credited to the above current accounts, were withdrawn from bank for personal gain of ShriGopinath Das and companies owned and managed by him. Out of these funds, Sh. GopinathDas has acquired several immovable properties as detailed in the impugned order and mortgaged them with Syndicate Bank, Salt Lake Branch, Kolkata, the present appellant for availing credit facilities to the extent of ₹ 10 crores and got ₹ 4.5 crores fraudulently released from the appellant against fake and forged documents. As the amount of loan given by the appellant was not repaid the account became Non Performing Asset (NPA) and the appellant proceeded u/s 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short Securitisation Act) for recovery of its dues and claimed to have taken possession of the properties on 30.11.2006. 27. Neither of the judgments relied on by the Respondent no. 1 and the contents of reply is of any help to their case in the given facts and circumstances of the case. The facts in the referred cases are not similar. In the present case, it is admitted by the respondent that the bank is not involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of the Bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent 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 Bank ultimately. 32. The only submission of the respondent that u/s 8(8) of PMLA, the possession be given to Bank after the trail and final outcome of criminal matters against the barrowers. We do not agree with the argument in this regard in view of amendment in the two statutes. Even otherwise the trail would take number of years. The public money cannot be stalled otherwise Banking system would be collapsed. The said provision has also amended under PMLA the attachment can be lifted in the case of victim party who suffers a loss because of non-returned of debts by the borrowers. 33. That the definition of proceeds of crime as per Section 2(u) of the PML Act comprises of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v Awasthi, Advocate has no substance. The provisional attachment in the present matter is bad and against the law. 39. In the circumstances available in the present case, the allegation of money laundering, so far as present appellant Bank properties involved in this appeal are not acquired from the proceeds of crime. 40. The arguments addressed by the respondent no. 1 is no force and is not tenable because of the reasons that this Tribunal is only concerned in the present appeal as to whether the Provisional Attachment Order and confirmation order. With regard to the order passed by the NCLT this Tribunal does not want to express any opinion on merit. 41. Subject property was purchased by the Appellant on 26.11.2009 and lying mortgaged with the banks since 07.12.2009 so by no stretch of imagination can be termed as proceeds of crime . 42. Hotel property was in possession of BOI under the provisions of Section 13(4) of the SARFAESI Act since 10.12.2015 and thus well prior to passing of provisional attachment order under PML Act. 43. The proceedings under PML Act before the Adjudicating Authority are civil in nature and not criminal. The provisions of Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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