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TMI Blog2019 (3) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... and untenable and could not have been passed more particularly in view of the fact that the complainant was aware of the fact that there is an exclusive and paramount claim of the Appellant Bank, therefore, The Adjudicating Authority had no justification/jurisdiction for confirming attachment of the aforesaid hypothecated/Equitably Mortgaged Moveable and immovable properties. As in Indian Bank Vs. Government of India [2012 (7) TMI 1085 - MADRAS HIGH COURT] held that the PMLA does not provide for redressing grievances of victims of fraud such that the Enforcement Directorate cannot take away the right of Banks as security holder by provisionally attaching such property and seeking confirmation thereof. Accordingly, in the present case, the Appellant is the victim of the fraud played upon it by Mr. Mehul Choksi and the Gitanjali group of companies. Accordingly, the Adjudicating Authority erred in confirming the attachment of properties already mortgaged to the Appellant. The Adjudicating Authority has failed to understand that the NCLT Mumbai vide order dated 08.10.2018 has declared moratorium under Section 14 of the IBC, 2016, inter alia, the said section 14 of the IBC, 2016 prohib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, Ms. Trisha Mittal, Advocate For the Respondent : Mohd. Faraz, Advocate JUDGEMENT FPA-PMLA-2595/MUM/2018 1. The above-named Appellant has filed the present Appeal under Section 26 of the Prevention of Money-Laundering Act, 2002, (hereinafter referred to as the "Act") against Order dated 16.08.2018 passed by the Adjudicating Authority in O.C. No. 912/18 titled "Enforcement Directorate V/s Mehul Choksi & Ors" (hereinafter referred to as the "Impugned Order"). 2. By the impugned order, the Adjudicating Authority has confirmed the Provisional Attachment Order No. 03/2018 dated 28.02.2018, against inter-alia the Appellant, the lead bank of the Gitanjali Gems Limited consortium lenders ("Lead Bank"), in relation to the following Properties: Property No. 8 - Flat No. 102, Kheni Tower, CTS NO. 4919 to 4944, Santacruz East, Mumbai. Property No. 17 - 801 Prasad Chambers, Opera House, Mumbai. Property No. 18 - 802 Prasad Chambers, Opera House, Mumbai. Property No. 19 - Office No. 6, B Wing, 1 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai. Property No. 20 - Office No. 3, B Wing, 3 Floor, Laxmi Towers, Plot No. C- 25, G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and bilateral ECB Facility Agreement, annexed along with the Appeal. (Annexure Nos. A3(Colly) WC Agreement dated 26.12.2017, A4(Colly) WC Agreement dated 29.06.2011 and A5(Colly) ECB Facility Agreement @191, 288 and 401 have been filed respectively.) 4.3. In order to secure such credit facilities and avail enhanced limits thereon, guarantees both personal and corporate and Mortgage Deeds were executed in favour of the Appellant and the other Consortium Lenders. Such documents executed are binding and shall continue to remain in force till such time as amounts are repaid by GGL, GECL and NBL to the Consortium Lenders. 4.4. Upon failure of GGL and GECL to repay the amounts advanced under the GECL WC Facility, GGL WC and ECB Facility, the Appellant initiated all its rightful legal remedies to recover such amounts by issuing Recall Notices, Demand Notices and Notices U/s 13(2) of the Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act ("SARFAESI") to the borrowers and corporate and personal guarantors, as mentioned in Paragraph Nos. 4.9 and 4.12 of the Appeal. The Appellant mentioned a description of the Securities, which included the Proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial in possession, that any person is in possession of any proceeds of crime; and Secondly, that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relations to confiscation of such proceeds of crime. 6. The admitted case of the Respondent, is that the alleged proceeds of crime generated are a sum of ₹ 6138.73 crore which the entities of the Gitanjali Group including GGL and GECL, have siphoned from Punjab National Bank, Brady House Branch, Mumbai and allegedly layered overseas for making payments to overseas suppliers and for settling existing Buyer's Credit liabilities with the overseas branches of Indian banks. 7. Upon the conclusion of investigation, the Respondent arrived at the finding that since "the proceeds of crime have been siphoned off out of the country, the same is not available for attachment in the Country….Thereafter, the said funds were routed and diverted to various overseas companies out of country with the intention to launder the proceeds of crime….Therefore, the said three accused entities have acquired the proceeds of crime and layered the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act". 13. In view of 2nd proviso of Section 5(1) no doubt the ED is empowered to attach the property in the absence of a complaint or a chargesheet immediately if "non-attachment of the property is likely to frustrate any proceedings under this Act", which condition is sine-qua-non to the provisional attachment of properties by the Respondent. The Adjudicating Authority is recorded at page 39 of the Impugned Order, which reads as under: "..The Deputy Director observed that Shri Mehul Choksi is not co-operating with the investigation at all as he has not attended office of Enforcement Directorate despite of three summons having been issued to him under the provisions of the PMLA. The Deputy Director therefore, believed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Properties being sold or alienated or dealt with in any manner whatsoever which would frustrate any proceedings under this Chapter. Therefore the ingredients as prescribed under S. 5(1)(b) as well as the 2nd Proviso of S. 5(1) of the Act are not satisfied. 16. The Constitutional bench of the Hon'ble Supreme Court in the case of "Barium Chemicals Ltd. & Ors V/s The Company Law Board &Ors." (AIR 1967 SC 295) held that when a statute postulates the exercise of discretion by an authority contingent to the existence of certain circumstances envisaged therein, the formation of such opinion by the authority has to be compulsorily based on the actual existence of the stipulated circumstances as envisaged in the statute. Therefore, in the absence of circumstances as envisaged under Section 5(1)(b) as well as the 2nd Proviso of Section 5(1) of the Act, Provisional Attachment Order and confirmation thereof in the Impugned Order is passed against the law. As far as exercise of jurisdiction under the second proviso, no doubt, it empowers the respondent to attach the properties if all requirements prescribed are satisfied. Similarly, if the said proviso, the respondent were entitled to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E 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 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." 23. The amended provisions of Section31B of the Recovery of Debts due to Banks and Financial' Institutions Act, 1993 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:- "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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ante clause. If the legislature. still confers the later enactment with a nonobstante 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 inthe later enactment that the provisions of the earlier enactment continue to apply." 29. The afore-stated principle laid down by the Hon'ble Supreme Court has been followed by the Full Bench of the Hon'ble Madras High Court in a recent decision dated 10.11.2016 in W.P. Nos. 2675 (authored by Hon'ble Mr. Justice S.K. Koul, who is now the Hon'ble Judge of Supreme Court). The Assistant Commissioner (Commercial Taxes) Vs. Indian Overseas Bank], in which the Hon'ble High Court upheld the provisions of the amended Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993. The following is the relevant portion of the said decision:- "3. There is, thus, no doubt that the right* of a secured creditor to realize secured debts due and payable by sale of assests over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellate Tribunal cited by D-17 and D-18. 32. The Adjudicating Authority has erred in its finding that the pleas of the Appellant of being the secured creditor and having a superior claim over the Properties cannot be tackled at the stage of confirmation of the PAO and that the rights of the Appellate will be dealt with by the Special Court at the stage of Section 8(8) of the Act. The said view is contrary to the decisions of this Tribunal who have rendered the many judgements on the basis of law laid down by the Supreme Court and High Court. Further, it would amount to an exercise in futility and wasteful litigation if the Appellant is required to be a mute spectator to the confirmation of attachment of mortgaged properties at this stage and await the conclusion of trial u/s 3, 4 of the Act to agitate and pursue its rightful legal claim over such mortgaged properties. 33. The Mortgage Deed being a registered document ought to give precedence to the claim of the Appellant. Further, the Appellant Bank is a victim of the fraud perpetuated by Mr Mehul Choksi and the Gitanjali group companies including GGL and GECL, which is further aggravated by the effect of the Impugned Order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the respondent that the attached properties were purchased after the loan was obtained. The mortgage of the properties were done as bona fide purposes. None of the bank is involved in the scheduled offence. 47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bona fide. Both banks are innocent parties. 58. Thus in the present 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 5 of the Act and there was no material on the basis of which the hypothecated/Equitably Mortgaged asset could be provisionally attached. 40. The Adjudicating Authority failed to appreciate that the provisions of the Prevention of The Money Laundering Act, 2002 do not override the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as also those of Recovery of Debts and Bankruptcy Act, 1993, wherein, Under the aforesaid two special enactments, a bank or financial institution is entitled to recover its dues by non-adjudicatory and adjudicatory mechanism respectively. 41. In the present case, it is admitted by the respondent no. 1 that the Adjudicating Authority by itself has not disputed the fact that the Consortium Finance sanctioned by the Appellant herein is untainted and pure money and in an utter disregard to the settled position of law went ahead with the confirmation of the PAO in the impugned order. 42. The Adjudicating Authority did not appreciate that the provisions of The Prevention of Money-Laundering Act, 2002 do not constitute any overriding statutory charge so as to defeat and make sub servient th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 31B and 26E of The Recovery of Debts and Bankruptcy Act, 1993 and The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the secured creditor has priority to the secured asset to satisfy its respective dues which shall prevail over and supersede the other debts i.e. government dues, revenues, taxes, cesses and rates due to the Central Government, State Government and local authorities. 47. The Adjudicating Authority in the Impugned Order opined that neither Section 26(E) SARFAESI nor Section 31(B) RDDBFI can be construed to exempt the "proceeds of crime" within the meaning assigned to it under PMLA. It further went ahead to hold that the Appellant had statutory recourse in terms of sub clause 8 of section 8 of the Act which takes care of the interest of a claimant with a legitimate interest in the property. 48. The legislative intent for relief at this stage can be borne out from the fact that under the proviso to sub clause 1 and 2 of section 8 of the Act, prior to the confirmation of the PAO, the Adjudicating Authority is required to adjudicate over the claim of an innocent party who seeks claim over the attached propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Indian Bank Vs. Government of India reported in (2012) 4 CTC 225 held that the PMLA does not provide for redressing grievances of victims of fraud such that the Enforcement Directorate cannot take away the right of Banks as security holder by provisionally attaching such property and seeking confirmation thereof. Accordingly, in the present case, the Appellant is the victim of the fraud played upon it by Mr. Mehul Choksi and the Gitanjali group of companies. Accordingly, the Adjudicating Authority erred in confirming the attachment of properties already mortgaged to the Appellant. 55. The Adjudicating Authority has failed to understand that the NCLT Mumbai vide order dated 08.10.2018 has declared moratorium under Section 14 of the IBC, 2016, inter alia, the said section 14 of the IBC, 2016 prohibits the continuation of pending suits or proceedings against the corporate debtor (i.e. Respondent No.2 herein). Therefore, the Adjudicating Authority could not have confirmed the PAO bearing No. 03/2018 dated 28.03.2018 passed by the Respondent No.1. 56. The said process is promoted by the Government of India. Apex Court has also held in favour of the bank and the main provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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