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TMI Blog2019 (2) TMI 962X X X X Extracts X X X X X X X X Extracts X X X X ..... he guidelines value for the same was ₹ 387 Crores (and hence the loss) Held that:- No reasons to believe are produced before us in order to satisfy us that the property was attached under second proviso if the same is not attached immediately, the purpose would be frustrated any proceedings. It is also not stated either in PAO or in impugned order that the respondent no. 1 has made any efforts to trace out the other property of VGN and respondent no. 1 is unable to find out any other property of the Managing Director/ Director of the Company in view of impugned mortgaged property. The respondent no. 1 has failed to discuss the interest of the buyers who have stake in the attached property. The pre-requisite for ordering attachment is that the property to be attached should constitute the proceeds of crime. In the present case, the said project in question prima facie may not be termed as proceeds of crime since the same was acquired by utilizing the money advanced from the appellant and respondent no. 4. Unless the property comes within the definition of the expression „proceeds of crime’ under Section 2(1)(u) of PMLA, it could not have been attached under Section 5(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty shall be released. Till that time, VGN shall not dispose the said property directly or indirectly. Subject to above, the impugned property is released forthwith which was attached under the provisional attachment order i.e.admeasuring about 10.46 acres in Guindy Village, Chennai at VGN Fairmont, Thiru Vi Ka Industrial Estate, Guindy, Chennai-32and the impugned order of confirmation was passed. - FPA-PMLA-2534/CHN/2018, FPA-PMLA-2533/CHN/2018, FPA-PMLA-2498/CHN/2018 - - - Dated:- 14-2-2019 - Justice Manmohan Singh Chairman And Shri G.C. Mishra Member For the Appellants : Shri Manoranjan Sharma, Advocate, Mr. Sidhartha Aggarwal, Advocate, Mr. Nikhil Pillai, Advocate, Mr. Nikhil Rohtagi, Advocate, Mr. Shashank Khurana, Advocate For the Respondent : Mr. Mohd. Faraz, Advocate, Mr. Nikhil Pillai Advocate Mr. Krishna Datta Multani, Advocate, Mr. Manoranjan Sharma, Advocate, Mr. Siddharth Aggarwal, Advocate Mr. Nikhil Pillai, Advocate JUDGEMENT FPA-PMLA-2534/CHN/2018, FPA-PMLA-2533/CHN/2018 FPA-PMLA-2498/CHN/2018 1. By this order, we propose to decide the above-mentioned three appeals filed by the appellants under Section 26 of the Prevention of Mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged that the SBI sold the land measuring 10.46 acres of HTL Ltd on 15.03.2013 by way of private treaty to M/s VGN Developers P Ltd for an amount of ₹ 272 crores. Shri. Leon Terattil, then DGM and Shri Ramadoss, then Chief Manager of SBI and Shri. D.P Gupta CEO of M/s HTL Ltd who represented SBI working capital consortium meeting, in order to favor M/s VGN Developers P Ltd and its Managing Director had deliberately resorted to the method of private Treaty instead of public auction for disposal of the said property. It is further alleged that as per the State Revenue Records the guideline value of the property during 2013 was ₹ 387 crores and the property was bidded for ₹ 298 crores in the online auction held in 2007. The allegation is that the above-mentioned persons conspired among themselves and sold the land for a lesser value and thereby caused wrongful loss to Government of India. 5. On 06.01.2017, Directorate of Enforcement registered ECIR/CEZO/01/2017 against the persons mentioned in the preceding paragraph on the basis of FIR RC MAI 2016 A0050. 6. On 13.02.2018, in pursuance to the above said ECIR, the Respondent No.1 proceeded to pass a Provisional A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecover their dues. This valuable right will be lost by the order of the attachment and for long trial against the borrowers. They cannot wait for such long period of time till the time final determination of criminal cases pending against the VGN i.e. under the schedule offence and PML Act, 2002. Therefore, the Adjudicating Authority erred in ignoring the statutory right of both, who is none other than a victim for none of its faults. Both are admittedly not involved in any matter either schedule offence or under PML Act, 2002. They are not arrayed as accused in FIR nor they have been charge-sheeted. 14. As per them one M/s HTL (formerly, Hindustan Teleprinters Limited) had availed loans from a consortium of banks led by theState Bank of India.In order to clear the dues of M/s HTL, it appears that efforts weremade to sell the subject Property from March/April 2007onwards. However, as per details available on record, the sale could not go through,owing to the Government of Tamil Nadu objecting to the sale ofland to the bidder. After various rounds of litigation, andpursuant to an order of the Hon'ble Supreme Court in 2009, theconsortium of banks was permitted to take possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the subject Property. After evaluating the security provided by VGN and other parties on various properties including the Subject Property along with additional collaterals(such as, personal and corporate guarantees), the deal wasapproved by the Board of Directors of the lenders fordisbursement of the loan amounts in mid June 2013. 14.5 Pursuant thereto, IL FS was appointed as DebentureTrustee for the benefit of the Debenture Holders, i.e. the lenders, through a Debenture Trustee AppointmentAgreement dated 13.06.2013. Upon appointment, Respondent No.3 executed a debenture trust deed dated 14.06.2013 with VGN for the issuance of debentures aggregating to ₹ 280 crore, wherein it was agreed that to secure the debenture payments, VGN would create a first ranking exclusive mortgage and charge of the immovable property, which included the development rights over inter aim the subject Property. An escrow agreement 14.06.2013 was executed between VGN, Respondent No. 3 IL FS and HDFC Bank, whereby monies and other payments owed under the Debenture Trust Deed and the other transaction documents would be deposited in the escrow accounts assigned for each of the properties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and revised debenture facility of ₹ 400 crore. Subsequent thereto, a term sheet was issued by PHL to VGN for ₹ 400 crore debenture facility. 14.10 Towards the end of January 2015, IL FS was again appointed as Debenture Trustee and fresh documents for the ₹ 400 crore transaction were entered into. Thereafter, PHL subscribed to the debentures in the first week of February 2015. Subsequently, the earlier debenture issue of ₹ 280 crore was repaid and the new ₹ 400 crore debenture issue came to be the only debt in respect of the subject Property. Based on the diligence reports made available, advanced approval status of theprojects, better financial closure for the project with additionalproject funding, security provided by VGN over the projects, as well as securing guarantees from VGN, purchased the debentures aggregating to ₹ 150 crore from PHL (out of the total issuance of ₹ 400 crore) on a secondary basis in the last week of March 2015. Copies of the (a) Debenture Trust Deed dated 31.01.2015; (b) Escrow Agreement dated 17.02.2015; and (c) Deed of Hypothecation dated 31.01.2015 are filed and marked as Annexure - A5 (Colly). 15. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cover the gap of ₹ 115 crores. 15.3 There was no mention of about the lenders in relation to the Subject Transaction and even till date, no chargesheet has been filed, despite observations of the Hon'ble Supreme Court in SLP (Crl.) Diary No. 15196 of 2018 in its order dated 07.05.2018, directing the CBI to expedite its investigation. 15.4. A Petition being Criminal OP No. 21905 of 2017 to quash the CBI FIR had been filed by the Petitioner before the Hon‟ble High Court of Judicature at Madras. The same was rejected by the Hon‟ble High Court vide its order dated 05.12.2017, mainly on the ground that since the investigation is under way, it would be improper to quash the FIR at that stage. 16. It is stated by the respondent no. 1 that the lenders cannot absolve from their liability as they had conducted due diligence with the records of the subject property. The subject property has been mortgaged immediately in order to create an encumbrance with an intention to escape the clutches of law. 17. However, it is not denied by the respondent no. 1 that beinga party lent financial support to VGN Property Developers P Ltd. for ₹ 140 Crore each to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t i.e. Financial Institutions if they have a right in the provisionally attached property, may claim the same from the Special Court in accordance with Section 8(8) of the Prevention of Money Laundering Act, 2002. It is also submitted that the complainant/ respondent no. 1 has also recorded some statements of one Shri Ganeshraj and N. Ramadoss after the confirmation of PAO which clearly reveal the conspiracy between VGN and SBI officials. It is also submitted that in the entire transaction, the interest of SIDCO was ignored which should have been protected before the entire transaction was finalized. 23. It is submitted on behalf of ED that the case was registered by CBI disclosed commission of criminal offences by above mentioned persons and other unknown public servants or private persons punishable under Section 120-B, 420 IPC and Section 13(2) r/w 13(1) (d) of PC Act, 1988 and hence the Central Bureau of Investigation, Anti-Corruption Branch, Chennai has taken up for investigation vide FIR RC MA1 2016 A0050 dated 28.12.2016. The immovable property derived as a consequence of the aforesaid criminal activities itself is proceeds of crime as defined under Section 2(1) (u) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ningduring investigation that the lenders had a first charge on the subject Property, ED/Respondent No. 1 never called upon the lenders to participate during the course of its investigation, nostatement of any person connected with the lenders wasrecorded under Section 50(2) and Section 50(3) of the PMLA, and noneof the documents in relation to financing of the Subject Propertywere called upon by the Respondent no. 1. 28. As per the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, being the Secured Creditor has a priority over the rights of the Central or Sate Government or any other Local Authority. It is the settled legal position that the above amendment has been introduced to facilitate the rights of the Secured Creditors which are being hampered by way of attachment of properties, belonging to the Financial Institutions/ Secured Creditors, done by/in favor of the Government Institutions. 29. The Full Bench of the Hon‟ble High Court of Judicature at Madras in The Assistant Commissioner (CT) Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank OrsMANU/TN/3743/2016 while acknowledging the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 31. This Appellate Tribunal by judgment dated 2August, 2018 in Standard Chartered Bank Vs. The Deputy Director, Directorate of Enforcement, Mumbai (FPA-PMLA-1604/MUM/2017) held that the provisions of the amended SARFAESI Act prevails over the provisions of the PML Act because the Amended SARFAESI Act is the subsequent legislation to the PML Act. Section 26 E of the SARFAESI (Amendment) Act, 2002 is relevant which is extracted hereunder; 26 E. 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 localauthority. 32. The right of the lenders over the said land is not contrary to proviso to Section 5 of the PML Act, 2002, because the encumbrance over the said property in favor of the Appellant was not created to defeat the purpose of PMLA. In the present case, there is no allegation to this effect. By virtue of the proviso the said land being charged in favour of the lenders and they have the primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been passed. 54. The Adjudicating Authority has not examined the law on mortgage and securities. The Appellant Bank is liable to recover huge amounts in the above loan accounts and the appellant bank being the mortgagee/ transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the Appellant Bank much before the alleged criminal action. The alleged proceeds of crime has not been used for acquiring the mortgage properties. 57. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness 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 as there is no dispute as regards the origin of funds or the title of the properties. The bank had to recover its out-standing dues by taking over the possession of the mortgaged properties in case the borrowers are not able to pay back the amount. 58. The Respondent No.1 has no lien over the said properties as the Appellant Bank is now the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd all subsequent proceedings, is that loss has been caused to the Government by selling of the said property at ₹ 272 Crore whereas the Guideline value is ₹ 387 Crore. Buying a property at less than the guideline value is not a crime and therefore does not constitute proceeds of crime. 38. It is settled law that the guideline value of a property is issued under the relevant Stamp Act and is only for the purpose of ensuring that even if the actual consideration paid by a buyer for conveyance of an interest in immovable property is less than the guideline value (also called Circle Rate), the stamp duty on the transaction is paid as per the Circle Rate. 39. It is also well settled as held by the Hon‟ble Supreme Court in R. Sai Bharathi v alalitha (2004) 2 SCC (9) Para 22 to 24 as well as in Ramesh Chand Bansal v District Magistrate, Ghaziabad (1999) 5 SCC 62that guideline value/circle rate notified by the State Government is only a guide to help the registering officer to have the requisite reason to believe that the property is under-valued, has to register it and then refer the matter to the Collector to determine its market value. 40. As per prac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money must be projected as untainted. In other words, there must be conversion/projection of ill-gotten money into money from legitimate sources. For this it is obvious that there must be some connection between the tainted money and the untainted money. 45. In the present case, the gain to the Appellant is presumably alleged to be ₹ 115 Crore (which in any case is only notional gain), being the difference between the guideline value and the sale price of the said land to the Appellant. A fortiori, this would mean money illegally saved (and therefore earned) by the Appellant which it would have normally paid. This saved amount, then, would be the proceeds of crime . It is not understood as to how the ED has treated the said property as the proceeds of crime or how the same has been allegedly projected as untainted. 46. No doubt, for the sake of argument, if the property was purchased at lesser value with the connivance of bank officer, at the best the complaint filed by the CBI would be decided as per its own merit. However, as far as amount spent on sale of plot was untainted amount which was paid by lenders against the security. 47. There is no denial that after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts herein. The said property was purchased at ₹ 272 Crores out of the availed sum of ₹ 280 Crores by providing the company‟s other assets as collateral Security. 53. In the present case, the reserve price of the said property was fixed as ₹ 250 Crores by a properly constituted Stressed Asset Management Credit committee of the SBI in accordance with its guidelines and circulars as assessed by the approved valuers of the SBI . The same is a standard procedure and is followed in every case in which a stressed asset has to be sold. The same is evident from the statement of Shri N. Ramadass, Chief Manager, SAM Branch, Coimbatore, SBI. One is also failed to understand that after expiry of 3 years, the issue was raised. 54. After the conversion of the said property to residential use (which was done because of lack of interest in auctions), RMZ (which had earlier made a bid of 298 Crores) was contacted and it refused to participate in further auctions saying they are interested in commercial, not residential land. This was the reason that there was no going back to RMZ‟s earlier offer of ₹ 298 Crores 55. The Adjudicating Authority has not comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auction or inviting tenders from the public. The stand of lenders has not been discussed either in PAO or in the impugned order. 59. It is alleged on behalf of VGN that as of now, the construction has come to a crawl resulting in huge inconvenience to the Appellant as well as the home buyers. As pointed out in various application filed by the Appellant before this Tribunal, the home buyers are understandably agitated and have been turning up at the construction site and at the registered office of the Appellant shouting slogans, demanding action. 60. It is argued by Mr. Rohtagi that theVGN apparently unable to register sale deeds, constructions agreements after collecting money from innocent middle class home buyers who have invested their hard earned money. Therefore, the fund flow has stopped completely and the Appellant is unable to service its own interest and principal payments to its lenders.The Appellant has entered into registered construction agreements with the customers and have legal obligations to deliver the project by September 2019 as per the Real Estate (Regulation and Development) Act, 2016 ( RERA‟ ) which now looks difficult as a result of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso of Section 5(1) the Act while passing the provisional attachment order. 67. The provisional attachment order was passed without filing the report under Section 173 of the Cr. P.C. against the appellant. The respondent no. 1/ ED has attached the property by invoking the 2proviso of Section 5(1) of the Act where wide power is given to attach the property on the basis of material without filing the charge sheet or report under section 173 of Cr. PC / or a complaint. 68. In order to appreciate the same, Section 5(1) reads as under:- 5. Attachment of property involved in moneylaundering (1) Where the Director or any other officer not below the rank of Deputy Director authorized by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession that (a) any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be considered, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful look at the definition of the expression proceeds of crime would show that to come within the definition of the said expression, the following pre-requisites are to be satisfied: a. that the same should be any property or the value of any such property; b. that it should have been derived or obtained directly or indirectly; c. that it should have been obtained or delivered by any person as a result of criminal activity relating to a Scheduled Offence. 71. The lenders are admittedly not covered in any of the above propositions as they have stake in the said land since they had jointly lent more than 90% towards the consideration for the said land along with the money lent for construction purposes in the said property. 72. Sections 8(2) and 8(3) of the PMLA enjoin the Adjudicating Authority must to record a finding as to the involvement of properties in question in money laundering. 73 The mandate of Section 8(2) cast a stringent duty upon the Respondent no. 1 which is as under: taking into account all the 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 under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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