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TMI Blog2019 (1) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... n derived or obtained, directly or indirectly as a result of a criminal activity relating to a scheduled offence. The complainant has failed to prove/establish that the immoveable property that has been lawfully Mortgaged with the Appellant Bank has EITHER been derived or obtained, directly or indirectly as a result of a criminal activity relating to a scheduled offence. The only reason given by the Respondent No.1 in the present OC 974/2018 is that proceeds of crime amounting to ₹ 827.98 Cr. received by the Respondent No.2 Company through circular rotation (As alleged by the Respondent No.1) was either used for repayment of loans or for repayment of its term loans as Advanced by the Appellant Bank, therefore, the entire Plant and Machinery of M/s Nakoda Ltd and its factory building are “Proceeds of Crime‖ and the Factory land of M/s Nakoda is also liable for attachment under PMLA as “Value of Such property." It is admitted position that the said movebale/immoveable property is not a property that has been derived or acquired, directly or indirectly through the “Proceeds of crime”. Thus, the said mortgaged property in which the bank is the secured creditor is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Appellant Bank. 5. On 09.01.2014 the Respondent No.2 Company executed a Hypothecation Agreement in favour of the Consortium led by the Appellant Bank, wherein, the Moveable properties (Including the Plant and Machinery) of the Respondent No.2 Company stood hypothecated in favour of the Consortium led by the Appellant Bank. 6. On 31.05.2014 the Account of the Respondent No.2 was declared as NPA by the Appellant Bank as per the guidelines issued by the RBI 7. On 26.06.2015 the Appellant Bank filed O.A. bearing No. 417/2015 before the DRT Ahmadabad for the Recovery of a sum of ₹ 1937,61,10,029/- as on 31.05.2015. 8. On 21.08.2015, the Consortium Banks (13 in number) through the Appellant Bank have already taken possession of the properties in issue by a Possession Notice dated 21.08.2015 under the provisions of SARFAESI Act, 2002. 9. That on 16.08.2017 the Respondent No.1 registered the ECIR bearing No. ECIR/STSZO/04/2017 against the Respondent No.2 and others. 10. That on 13.04.2018 the Respondent No.1, based on the ECIR registered on 16.08.2017 against the Respondent No. 2 and others had passed the Provisional Attachment order (PAO) bearing No. 01/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for housing of the said plant and machinery (sought to be provisionally attached by the Enforcement Directorate) the same were secured property against out of the loan sanctioned by the Consortium Bank, which is evident from para 35 of the P.A.O. dated 13.04.2018. 20. The Respondent Deputy Director is relying upon the non-obstante clause in Section 71 of PMLA to claim priority over their debts due to the Appellant Bank. Section 71 of PMLA reads as under:- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. 21. There is no denial on behalf of respondent that appellant is a Secured Creditor and is entitled to priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or Local Authority. 22. The amended provisions of Section 26E of the SAR-FAESI Act, 2002 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:- 26E. Priority to secured creditors. - Notwithstanding anything contained in any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of decisions echoed earlier, which are reported in FPA- PMLA-2707/SURAT/2018 Page 7 of 17 (i) AIR 1956 SC 614 - Ramnarayan vs. Simla Banking and Industrial Company Ltd. (ii) (1977) I SCC 750 - Sarvan Singh vs Kasturi Lal (iii) (1993) 2 SCC 144 = Maharashtra Tubes Ltd. vs State Industrial Investment Corporation of Maharashtra Ltd. (iv) (2000) SCC 406 - Allahabad Bank vs. Canara Bank 28. The Hon'ble Supreme Court in the said case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. has approved the decision of the Special Court rendered by the Hon'ble Mr. Justice Variava, as he was then of the Bombay High Court reported in (1997) 89 Comp cases 547 clarifying that the non-obstante clause in the later enactment will prevail over the non-obstante clause in the earlier enactment. 29. The following is the relevant portion of the decision of the Special Court, as appearing at Para 10 of the said Supreme Court Judgment:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government, State Government or local authority. Hence, the Respondent - Deputy Director has no power to attach the property of the mortgagors. 33. The Hon'ble Andhra Pradesh High Court in the case of B. Rama Raju vs. Union of India Ors. reported in (2011) 164 Comp Cases 149 in which the Hon'ble High Court has held that if the Adjudicating Authority is satisfied as to the bona fide acquisition of property, it should relieve such property from provisional attachment by declining to pass an Order of confirmation of the provisional attachment. 34. The following isthe relevant portion of the Para 103 of the said decision passed by theHon'ble Andhra Pradesh High Court :- 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 market value paid thereof the adjudicating authority must carefully consider the material and evidence on record (including the Reply fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case even though the Ld. Adjudicating Authority had all the reasons to believe that the above mentioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter - 5 properties ;still the Ld. Adjudicating Authority confirmed the provisional attachment order of the respondent no. 1 and thus causing huge loss to the appellant SBI. 60. We also find that the Adjudicating Authority has not examined the law on mortgages and securities. 63. The property of the Appellant bank cannot be attached and confiscated when there is no illegality or unlawfulness in the title of the appellant. 64. The respondent has no lien over the said properties as the appellant banks are now the legal transferees of the said properties. 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 banks who are mortgagees 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 as secured creditors to recover the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law that the assets which are secured assets‖ under the provisions of SARFAESI Act, 2002 and the provisions contained in RDDBFI Act, 1993, the Banks/ Secured Creditors have a first charge over such properties. This Hon ble Appellate Tribunal has already taken this view in the judgment and order dated 14.07.2017 in the case of State Bank of India vs. Joint Director, Directorate of Enforcement Kolkata , judgment and order dated 25.01.2018 in the case FPA PMLA 1373/GOA/2016 titled as Punjab National Bank vs.Joint Director, Directorate of Enforcement Goa , judgment and order dated 02.08.2018 in the case FPA PMLA 1604/MUM/2017 titled as Standard Charter Bank vs.The Deputy Director, Directorate of Enforcement Mumbai . 42. Therefore, the repayment of loan from the (alleged) proceeds of crime cannot make the property created out of the untainted money liable for attachment under the provisions of PMLA Act, 2002. There is no force in the submission of counsel for the respondent no. 1 that the bank may be asked to approach the Special Court for the relief as sought in the present appeal. The said submission is wholly misconceived as only this Tribunal has exclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating Authority did not understand that the afore mentioned moveable/Immoveable property cannot be said to have been acquired out of proceeds of crime as defined in section 2 (1) (u) of the Prevention of Money Laundering Act (PMLA), 2002 and therefore, the same (cannot be Attached under Section 5 of the PMLA by the Enforcement Directorate vide PAO No 01/2018 dated 13.04.2018. 48. The Adjudicating Authority has failed to understand that no case of money laundering is made out against the Appellant Bank who is an innocent party, who sanctioned Consortium Finance of ₹ 2082.53 Cr. (which is untainted and pure money) to the Respondent No.2 Company against the Hypothecation/Mortgage of the Movebale/Immoveable property in issue 49. By virtue of Section 4A Recovery of Debts due to Banks Financial Institution Act, 1993 as amended by Enforcement of Security Interest Recovery of Debts Laws Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016) dated 16.08.2016 the property becomes custodia legis on the institution of Original Application for recovery under the Act and summons upon the defendants. 50. The Adjudicating Authority did not consider that the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under PMLA as Value of Such property. It is admitted position that the said movebale/immoveable property is not a property that has been derived or acquired, directly or indirectly through the Proceeds of crime . Thus, the said mortgaged property in which the bank is the secured creditor is not liable to be attached in lieu of even value therefore. Therefore, the OC 974/2018 is not maintainable as the Respondent No.1 had no jurisdiction to attach the aforementioned immoveable property under the provisions of the PMLA and that the PAO bearing No. 01/2018 is quashed against the appellant. 53. The Adjudicating Authority did not consider that the provisions of The Prevention of Money-Laundering Act, 2002 cannot be construed and implemented to the detriment of third parties having no connection with and involvement in the scheduled offences which fall within the domain of the Act. The provisions of the Act can only entail penal consequences on those who are guilty of committing of scheduled offences. The rights of a third party having no involvement in the scheduled offences cannot be jeopardized and decimated by the operation of Act as the same would be violative of ..... 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