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TMI Blog2019 (4) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... nst more or less similar orders of the appellate tribunal (constituted under Section 25), such orders having been rendered on appeals of the respondents ("banks") vis-à-vis the orders of provisional attachment issued by the enforcement officers under Section 5, as confirmed by the adjudicating authority under Section 8, give rise, inter alia, to certain common questions of law of import concerning nature of property that may be attached under this special law as indeed the conflict arising from claim of bonafide acquisition of interest by third parties. Hence, they have been heard together and are being decided by this common judgment. THE ISSUES 2. The measure of attachment of property involved in "money laundering", it essentially representing "proceeds of crime" (as defined in law), is provided to ensure that the ultimate objective of "confiscation" of such ill-gotten property be not frustrated, the power and jurisdiction to order confiscation being vested in the Special Court. As would be seen at length in later part of this judgment, the provisions for attachment (followed by adjudication) leading to confiscation are sanctions in addition to the criminal sanction rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating authority, and the claim of the respondent bank ("Axis Bank") over the said Audi car on account of hypothecation in relation to the finance that had been provided by it for its acquisition by the said registered owner. 7. There is no dispute between the parties herein as to the facts that the registered owner of the Audi Car had availed of loan facility vide account no. AUR012601217345 from the above mentioned bank for purchasing the same in December, 2015, he having executed, inter alia, the Loan-cum-Hypothecation Agreement dated 13.09.2014 and irrevocable Power of Attorney dated 04.12.2014 in its favour and by virtue of such documents the vehicle is under hypothecation with the bank, the finance provided for its acquisition having remained unpaid. The bank, it appears, had taken certain steps, through its separate legal entity (Axis Asset Management Company Ltd.), to take over the control/possession of the said asset and recover its dues by its sale, the liability, as on 12.07.2017, being Rs. 12,08,949/-. 8. The Government of India had announced demonetization policy on 08.11.2016, in terms of which the then existing Indian currency notes of the denomination of Rs. 1,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes, were effected from close associates of Rajeev Singh Kushwaha. 11. Primarily on the basis of above-mentioned facts, and the material gathered during investigation into the police case, it involving scheduled offences, information was also conveyed to enforcement authorities, which resulted in ECIR no.11/2016 being registered on 30.11.2016 under PMLA. The investigation into the said case under PMLA has led to a complaint being presented, on 01.02.2017, under Section 45 upon which cognizance has been taken by the Special Court. 12. Simultaneously, on the basis of reasons to believe recorded in writing, provisional attachment order no.01/2017 was passed and properties of Rajeev Singh Kushwaha of the total value of Rs. 3.40 Crores were attached on 27.01.2017. These include the Audi car. The adjudicating authority, by its order dated 31.05.2017, confirmed the attachment order. Before confirmation, the adjudicating authority had issued a notice (under Section 8) to the bank to show cause as to why the properties, including the Audi Car, be not attached. The request of its asset management company for suspending the provisional attachment was, however, rejected. 13. The appellate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the borrowers and guarantors and the said properties were accordingly subjected to mortgage/hypothecation. The loan, was not repaid and the account was classified as "non-performing asset" (NPA) w.e.f. 30.04.2009. 17. The SBI, in exercise of its power under Section 13 (4) of SARFAESI Act, took over the hypothecated property/mortgage property (the immovable properties) vide notice dated 07.12.2008. The action was challenged by the second respondent before the Debt Recovery Appellate Tribunal (DRAT), constituted under Recovery of Debts Due to Banks And Financial Institutions Act, 1993 (for short, "RDDBFI Act" - since renamed as the Recovery of Debts and Bankruptcy Act, 1993 or "RDBA"), but without success. The SBI, thereafter, moved Debt Recovery Tribunal (DRT), by OA no. 151/2011, for issuance of recovery certificate by sale of the mortgaged properties and hypothecated securities. The request was granted by the DRT on 15.02.2013, the amount outstanding as on 07.09.2009 being Rs. 6.44 crore. 18. The inquiries statedly brought out that the performa invoices and receipts presented in support of the claim of purchase of diagnostic machinery were fabricated documents, no such m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it facility from IDBI in January, 2009 executing various security documents thereby creating equitable mortgage in respect of six properties, including the said two shops, depositing the title deeds with the bank. The cash credit facility initially sanctioned for Rs. 300 lakhs on 23.10.2009 was enhanced to Rs. 500 lakhs and further to Rs. 750 lakhs on 10.07.2010, both times, on request, the charge of equitable mortgage having been extended for enhanced facilities. 24. The borrower (Arun Suri) failed to maintain financial discipline and defaulted in deposit of sale proceeds through the cash credit account, it being declared NPA on 31.12.2012 by IDBI. The bank initiated action under Section 13 (2) of SARFAESI Act on 30.01.2013, a receiver having been appointed by the Chief Metropolitan Magistrate (CMM), by order dated 07.06.2017, to take possession of one of the mortgaged properties. The IDBI also moved DRT for recovery of its dues (by OA no. 582/2014), the amount outstanding at that stage being Rs. 11,19,81,600.44. 25. Meanwhile, certain serious irregularities involving foreign exchange transactions in the current accounts of various firms/companies of the borrowers, and those con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory Land & Building at A-43, Section-8, Noida, UP; Land & Building (Two storeyed) Industrial Shed and Machineries, situated at plot no. 350, Section 3, Phase-II, Industrial Growth Centre, Bawal, Haryana; Agricultural Land (7.35 acre), Khata no. 28, 55/109, Maujapur, Tehsil, Sikanderpur, Ballia, UP and Agricultural Land, Mauzapur, Gata No. 1009, Pargana Sikandarpur, Purbi, Tehsil, Sikandarpur, Dist. Ballia, UP, the total mortgage value whereof at the relevant point of time is stated to be Rs. 2129.74 lakhs. Shambhu Prasad Singh is described as owner of the first said property and coowner in the last two above-mentioned properties, DSIPL being indicated to be the owner of fourth said property, Shyam Singh Bhatter having title over the other two properties, in one as a coowner. 29. It is stated that, on 10.12.2009, DSIPL had approached the PNB to take over the then existing liabilities from Syndicate Bank. The PNB sanctioned credit facilities to the tune of Rs. 2010.50 lakhs on 18.02.2010 on the request of Shambhu Prasad Singh. The credit facility was enhanced from then Rs. 650 lakhs to 1800 lakhs, in the context of certain supply orders to the tune of Rs. 2170.90 lakhs statedly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds of crime, their acquisition being prior to the commission of offence of money-laundering. It was also noted that there was no nexus between those indulging in money laundering on one hand and the PNB (or its employees) on the other, its claim under the mortgage being a charge which merited priority. 35. The above order of the appellate tribunal was challenged by Union of India in this appeal and, by order dated 25.07.2018, it was directed that the first four above-mentioned properties shall not be alienated by the PNB. 36. In this case, there have been certain developments post the decision of the tribunal rendered on the appeal of PNB on 16.05.2018. The PNB proceeded to invoke the jurisdiction of the National Company Law Tribunal (NCLT), it being the adjudicating authority under the recently enacted Insolvency and Bankruptcy Code, 2016 ("Insolvency Code", for short), by filing a company petition, it being no. (IB)-718(PB)/2018, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against DSIPL. The NCLT, by its order dated 27.09.2018, admitted the said petition and appointed Mr. Nilesh Sharma as the Interim Resolution Professional ("IRP") of DSIPL for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 501/1 502/2m 503/1, 503/2 (part), 2162/1, 2162 (part), piproudh, NH7, Distt-Katni (MP). The first three properties are stated to be owned by SVIL, next four held in the name of Rajiv Jain, the one following owned by Sanjay Jain and the last two of SVIL Mines Ltd., a sister concern. 39. In the loan accounts, the aforesaid directors of SVIL had stood guarantee, a corporate guarantee to secure credit facility having also been executed by SVIL, it being claimed that the company in whose favour money was being borrowed was majorly engaged in the business of trading of agro-commodities and manufacturing and marketing of essence oils, perfumery compounds, flavours, fragrances and aromatic chemicals. The loans were taken and the mortgage contracts created during 2005 and 2007, the properties which were placed under mortgage having been acquired during 1994 to 2005. 40. All the loans became NPA after 2011. A forensic audit of the borrowers was carried out by the consortium (led by PNB) in the wake of resolution of December, 2013. The audit report brought out serious financial irregularities including mis-representation of value of stock in book debts. It is stated evidence was gathered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the enforcement authority having not been able to lay its hands on the property derived or obtained from money laundering has proceeded to reach out to other assets of the suspects that appear prima facie to have been acquired earlier from legitimate means because they are properties of the same value as would have been the value of the pecuniary advantage gained by money-laundering. 46. It is in the above context that the conflicts involving third party claims have arisen because the respondents (banks) claim to have acquired lawful interest (by mortgage or hypothecation) in the properties (which have been attached) in due course of their banking activities. It is not disputed that neither the concerned bank nor any of its agents or employees have had any connection whatsoever with any act of commission or omission relating to the money-laundering of which the borrowers are accused in these cases. It is also well conceded by the State (the appellant) that the banks in these matters may be entitled to and may have been pursuing lawful remedies where-under these very properties can be legitimately attached and sold, by public auction, to satisfy their respective claims, such sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 ("PMLA") though enacted and notified on 17th January, 2003, came into force w.e.f. 01.07.2005 and has been amended more than once, lastly by the Finance Act, 2018 and the Prevention of Corruption (Amendment) Act, 2018. It was brought on the statute book with the avowed objective "to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incident thereto", pursuant to the obligation in terms, inter alia, of Political Declaration and Global Programme of Action, annexed to the resolution S-17/2 as adopted by the General Assembly of the United Nations on 23.02.1990 and the Political Declaration adopted by the Special Session of the United Nations General Assembly on 8-10 of June, 1998, the global view, which India shares, being that "money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty". As is noted in the "statement of objects and reasons" for this law to be enacted, in the run up to the above-mentioned political declarations by the United Nations, the international community had taken certain initiatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being dependent upon agreements to such effect being entered into by India with other countries. Similarly, the law envisages certain obligations (4th chapter) on the part of banking companies, financial institutions and intermediaries to render assistance to the enforcement agency not only by maintaining records but also reporting, or giving access, to information about certain transactions for dealing with the scourge of money-laundering. The PMLA establishes an enforcement agency, collectively described as "Authorities" (8th Chapter) and criminal justice fora styled as "Special Courts" (7th chapter) conferring, by Section 44, upon the latter (i.e. the special courts), exclusive jurisdiction to try the offence (under Section 4) of "money-laundering" and any "scheduled offence" connected thereto, also making it the court of cognizance vis-à-vis the offence of money-laundering (under Section 3). 53. For comprehensive understanding of the law on money-laundering (under PMLA), it may also be noted here that the expression "proceeds of crime" constitutes the core of the offence of money-laundering, "the concealment, possession, acquisition or use" of "proceeds of crime" in a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w with the powers and jurisdiction to carry out the requisite probe leading to criminal action vis-à-vis the offence of money-laundering defined in Section 3 and also to initiate action in the nature of attachment leading to confiscation of "proceeds of crime" (Sections 50 and 51). Detailed provisions have been made (in 5th Chapter) to equip these functionaries with the requisite powers of survey (Section 16), search and seizure (Section 17), search of persons (Section 18), arrest (Section 19), retention of property (Section 20) and retention of records (Section 21). By virtue of Section 65, the provisions of Code of Criminal Procedure, 1973 (Cr.P.C.) also apply to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under PMLA, insofar as the same are "not inconsistent" with the provisions of PMLA (Section 75). Similar is the application of Cr.P.C. to the proceedings before special court by virtue of Section 46. 58. For dealing generally with the matters relating to attachment leading to confiscation of "proceeds of crime" (as defined by PMLA), the statute prescribes elaborately the procedure conferring powers on enforc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted; (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such order (this excluding the period for which the order may have been stayed by the court); and (vii) submission of a copy of provisional order of attachment by the empowered officer to the adjudicating authority, in a sealed envelope in the manner prescribed, such submission to include "material" in possession of the officer directing such provisional attachment. 62. The provisional order of attachment has the outside validity of maximum one hundred eighty days and the concerned authority must take the matter to the adjudicating authority for confirmation, such submission being in the form of "complaint" under Section 5 (5) within thirty days from the date of provisional attachment, and the complaint must necessarily set out the facts on the basis of which it is made. 63. The provisional attachment of the property by the enforcement officers is an executive action. The law mandatorily requires its scrutiny by independent entity called adjudicating authority which is vested with quasi judicial powers. As noted above, the complaint under Section 5(5) of PMLA by the enforcement officer comes before the adjudicating authority for "confirmation" of the attachment order. The proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall- (a) continue during investigation for a period not exceeding ninety days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60 by the Special Court; (4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the property attached under section 5 or frozen under sub-section (1A) of section 17, in such manner as may be prescribed: Provided that if it is not practicable to take possession of a property frozen under sub-section (1A) of section 17, the order of confiscation shall have the same effect as if the property had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h record or property and if seizure "not be practicable" to freeze the record or property. In terms of Section 17 (1) and 17 (1A) similar situation may arise in case of search of persons under Section 18 (1). All such seizures of record, or property, or directions for freezing of such record or property are also matters that require confirmation by the adjudicating authority. 65. Restricting this study of the law to the proceedings leading to confirmation of the attachment by the adjudicating authority with reference to Section 8 of PMLA, it may be noted that the prescribed procedure begins by issuance and service of notice within thirty days by the adjudicating authority on the person respecting whom there is reason to believe as to either (a) his complicity in the crime in the offence of money-laundering or (b) of he being in possession of proceeds of crime [Section 8 (1)]. 66. Pertinent to note here that in terms of the provisos to subSection (1) of Section 8, the right to be heard in opposition to the prayer for confirmation of attachment by the adjudicating authority is also given to such third parties as may be holding the property in question "on behalf of any other person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der third Chapter of PMLA. As is seen, upon perusal of Section 5 (4), mere order of provisional attachment does not prevent a person "entitled to claim" any interest in the property ("person interested") or to enjoyment of an immovable property (for example a lessee) from such enjoyment, the possibility of taking over the possession of such property or for it to be treated as "frozen" [Section 17 (1A)] arising only upon confirmation by the adjudicating authority under section 8 (4). In terms of such scheme, the attachment is an interim measure, eventual intendment being that in the event of it being "found" that the offence of money-laundering has been committed and that "such property" is involved or has been used for such offence to be committed, the same shall be ordered to be "confiscated to the Central Government" [Section 8 (5)]. 69. In contrast to the effect of the order of "attachment" which only entails "prohibition of transfer, conversion, dispossession or movement" of such property, "the confiscation" in terms of Section 8 (5) and (7) entails all the rights and title in such property vesting absolutely in the Central Government "free from all encumbrances". The further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s legitimate dues from the debtor "by a suit for damages" though treating as "void" the encumbrance or charge that may have been created by the person found guilty of money-laundering "with a view to defeat" the law in PMLA (provisos to Section 9). 73. The PMLA provides for presumptions to be raised about a property having the character of "proceeds of crime" being involved in money-laundering and also respecting the illicit nature of a transaction involving its acquisition on account of connection with other transaction(s) of suspect nature, the relevant clauses to such effect contained in Sections 23 and 24 to be discussed later. APPELLATE TRIBUNAL'S APPROACH 74. In the impugned decisions of the appellate tribunal, reference is made to the conclusions on question of law arrived at by the said forum in its earlier decision dated 14.07.2017 in the matter of State Bank of India vs. Director, Directorate of Enforcement, Kolkata (in appeal no.FPA-PMLA-1026/KOL/2015), the tribunal having chosen to quote verbatim the articulated views. The said observations reflect reliance, inter alia, on decisions of the Supreme Court in Solidaire India Ltd. Vs. Fairgrowth Financial Services Ltd. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks and financial institutions" ensuring that the defaulting borrowers were "not able to invoke the jurisdiction of the civil courts". This decision has no relevance to the issues that arise in the present matters. 77. In B Rama Raju (supra), the petitioner before the Andhra Pradesh High Court was accused of having indulged in certain acts of omission or commission constituting the offence of money laundering as defined in Section 3 of PMLA. His property had been provisionally attached by the enforcement officer in the course of investigation. He had challenged the vires of PMLA in so far as it would permit such attachment. While dealing with such prayer, the learned single Judge of the said High Court observed thus : "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 adjudication 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 (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the expression is generally understood as having implications associated with a crime.... The words "forfeiture" and "confiscation" have come to be used interchangeably. The General Clauses Act, 1897 does not employ the word "confiscation". On the other hand, it employs the word "forfeiture" in Section 6(d). Having regard to the long history of the usage of those two expressions, we are of the opinion that "forfeiture" is an expression which takes within its sweep "confiscation" also for the purpose of law [Salig Ram vs. Secy of State of India in Council, 1872 SCC Online PC 43]." (emphasis supplied) FORFEITURE (CONFISCATION) : NATURE OF SANCTION 81. Some argument was raised to urge that the process of attachment (for confiscation) under PMLA is in the nature of punishment for an offence and so cannot precede determination of guilt or adjudication of value of proceeds of crime by the court. It is essential to dispel this impression. 82. The Indian Penal Code, 1860 (IPC), by Section 53 (Fifthly), provides for "forfeiture of property" as one of the permissible "punishments". Though in IPC, as initially enforced, a number of offences attracted such punishment, prescription of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riminal court virtually becomes functus officio in the matter. In these provisions under the general law, however, the core issue that the court is to inquire into is the connection, if any, between the absconder and the property. The property of a third person cannot be attached under Section 83 to compel the appearance of an accused. 86. The Criminal Law Amendment Ordinance, 1944 ("the 1944 Ordinance") is one of the earliest legal measures put in position to take away the ill-gotten wealth, in case of public servants engaging in corrupt practices. The said law continues to operate till date, the jurisdiction to enforce it having been conferred on the Special Judge appointed under the Prevention of Corruption Act, 1988, inter alia, by Section 5(6), as reinforced by a new provision (Section 18A in Chapter IVA) on the subject of "attachment and forfeiture of property", added by the Prevention of Corruption (Amendment) Act, 2018. The Ordinance focuses on "money or other property" believed to have been "procured by means of "an offence under the said law, the persons "claiming an interest" in the subject property or any portion thereof having been given (by Section 4) the right to ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deprive such persons of their illegally acquired properties". The enactment thus focused on forfeiture of "illegally acquired property". It defines, by Section 2(2), the "person" to whom the law is to apply to include not only every person who has been held guilty and convicted for offences (involving specified amounts of money) under specified laws (i.e. Customs Act, 1962, Foreign Exchange Regulation Act, 1947, Foreign Exchange Regulation Act, 1973, Sea Customs Act, 1878) and those against whom order of detention is made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), also taking in its sweep others including "every person who is a relative (as specified by second explanation, of such convict)", "every associate (as specified by third explanation, of such convict or detenue)" and, what turned out to be the cause of conflict, "any holder (hereinafter in this clause referred to as the present holder) of any property which was at any time previously held by a person referred to in clause (a) or clause (b) unless the present holder or, as the case may be, any one who held such property after such person and before the present h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if tentatively, the value of proceeds of crime so that it is ensured that only proceeds or assets of the offender of money-laundering of equivalent value are subjected to restraint, the evaluation undoubtedly open to variation or modification in light of evidence gathered till the probe is concluded. 93. The provision for "provisional attachment" and its confirmation, pending trial before court (wherein the issue of confiscation would come up at the time of determination of guilt in criminal case), is similar to the one for "attachment before judgment" in civil law. The law conceives of possibility of disposal of ill-gotten assets to "frustrate" the objective. The argument to the contrary is thus repelled. Ultimately, the confiscation is left to the special court. But then, the order to such effect only follows the determination of the guilt in the criminal trial on the charge for offence of money-laundering. This view is in sync with the rulings in the cases of S.K. Ghosh (supra) and Biswanath Bhattacharya (supra) in context of Ordinance of 1944 and SAFEMA quoted above. FORFEITURE (CONFISCATION) : CERTAIN OTHER LAWS 94. As was brought out at the hearing, similar provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " for purposes of NDPS Act, the property must be one "derived or obtained" by income, earnings or assets attributable to NDPS offence or "traceable (wholly or partly)" to property of former nature or acquired by means of income or earnings or assets the source of which cannot be proved by the person convicted of (or arrested for) an offence under the law relating to narcotic drug and psychotropic substance (whether in India or outside) or one who is related to or associate of such person (subject to certain other requirements to be fulfilled). 97. The interpretation and application of the provisions relating to attachment and forfeiture of illegally acquired property under NDPS Act was subject matter of decision of the Supreme Court in Aslam Mohd. Merchant vs. Competent Authority, (2008) 14 SCC 186. While construing the said provisions, to hold that principles of natural justice must be complied with to order forfeiture, it being implicit that the statutory elements of "reason to believe" and "recording of reasons" must be premised on materials available and though upholding the clause (Section 68-J) placing the burden of proving that the property sought to be forfeited was "not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een held or acquired by him from the transferor (benamidar) "without his having knowledge of the benami transaction". The test, thus, is of the transaction being bonafide and for "adequate consideration". The taint of benami in such disputes would generally precede the acquisition by the bonafide holder. 100. In contrast to the above mentioned earlier legislations, the Fugitive Economic Offenders Act is of recent origin, it having come into force with effect from 21.04.2018. The objective of this legislation is "to provide for measures to deter economic offenders from evading the process of law in India", which is similar to one of existing general law of proclamation and attachment under Sections 82-83 Cr. PC, the idea being to compel appearance. As in PMLA, this law, however, also focuses on certain specified economic ("scheduled") offences (as included in the schedule), the value involved wherein exceeds the minimum threshold (Rs.100 Crore), the focus of attachment leading to confiscation, upon declaration of a person as "fugitive economic offender" being on the "proceeds of crime". The definition of the expression "proceeds of crime" under this law is similar to that of identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econstructed into three parts :- (i). property derived or obtained (directly or indirectly) as a result of criminal activity relating to scheduled offence; or (ii). the value of any such property as above; or (iii). if the property of the nature first above mentioned has been "taken or held" abroad, any other property "equivalent in value" whether held in India or abroad. 105. It is vivid that the legislature has made provision for "provisional attachment" bearing in mind the possibility of circumstances of urgency that might necessitate such power to be resorted to. A person engaged in criminal activity intending to convert the proceeds of crime into assets that can be projected as legitimate (or untainted) would generally be in a hurry to render the same unavailable. The entire contours of the crime may not be known when it comes to light and the enforcement authority embarks upon a probe. The crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the second and third categories may be referred to as "the alternative attachable property" or "deemed tainted property". 108. Generally, there would be no difficulty in proceeding with the attachment or confiscation of a tainted property respecting which there is material available to show that the same was derived or obtained as a result of criminal activity of specified nature, so long as such property is found held by the person who had indulged in such criminal activity, it amounting to money-laundering, as indeed those who may have aided or abetted such acts. Dispute, however, is likely to arise in relation to attachment or confiscation upon questions being raised at the instance of the person suspected of money-laundering (or his abettor) as to sufficiency of the material or reasons to believe for such action, as indeed of the fairness or propriety of the procedure followed. Dispute may also arise in such context if the property has been transferred to another person, after it had been acquired by the transaction relatable to money-laundering and before its attachment under PMLA. The third party may have a claim to agitate that it had been acquired by it bonafide and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to attachment (or confiscation) would generally concern the material on which reasons to believe about money-laundering and acquisition of proceeds of crime are founded or the value of the property which has been attached. Again, the possibility of conflict involving interest of a third party comes in for which the bonafides of the acts through which such third party may have acquired interest in the targeted property, as indeed of the lawfulness and adequacy of consideration for such acquisition, would need scrutiny. THE ARGUMENT OF PREVALENCE OF CERTAIN LAWS (RDBA, SARFAESI ACT & INSOLVENCY CODE) OVER PMLA 112. Chronologically speaking, RDBA (in its original form and moniker RDDBFI Act) was enacted in 1993, followed by SARFAESI Act coming on the statute book in 2002, the PMLA being enacted in 2002, commencing in 2005, the Insolvency Code being the latest legislation enforced in 2016. These laws, enacted for different objects and reasons, have come with provisions declaring each of them to have the "overriding effect". 113. The RDBA was enacted "for the establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions" and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and finance sector reforms" such institutions in India not having the "power to take possession of securities and sell them" unlike their counterparts in the international arena, this resulting in "slow pace of recovery of defaulting loans and mounting levels of non-performing assets". 118. While construing the scheme and provisions of SARFAESI Act, a division bench of this court (of which I was a member) in Urmila Kumari vs. Om Prakash Jangra and Ors., 2015 SCC OnLine Del 8283 had noted as under : "24. The expression "security interest" as defined in Section 2(1)(zf) SARFAESI Act means "right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31". Similarly, in terms of Section 2(1)(zc) SARFAESI Act, the expression "secured asset" means "the property on which security interest is created." For purposes of this special law, "banks" and "financial institutions", defined in Section 2(1)(c) and (m) respectively, qualify, as per Section 2(1)(zd), to be treated as "secured creditor". 26. Section 13 of the SARFAESI Act is conceived as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (earlier RDDBFI Act) have an overlap in the matter of judicial remedy. In Urmila Kumari (supra), it was further noted as under :- "39. The procedure prescribed by the law, and rules, for enforcement of security interest, as noted above, at the hands of the secured creditor (or its authorized officer) is subject to the remedy of appeal before the Debts Recovery Tribunal (DRT), constituted under RDDBFI Act, in terms of Section 17 SARFAESI Act. As noted earlier, mere non-acceptance of the objection or representation in response to the initial notice under Section 13(2) does not confer the right of challenge through appeal. The remedy of appeal becomes available as soon as effective action, including taking over of possession of the secured asset (and further process in the nature of sale, etc.) commences. The test to which the process undertaken by the secured creditor is subjected by DRT is indicated in Section 17(2) as under:- "17(2). The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f proceedings in the Debts Recovery Tribunals and Appellate Tribunals." 124. Similarly the prime objective sought to be served by the amendments to SARFAESI Act was set out in the statement of objects and reasons as under :- "2. The amendments in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are proposed to suit changing credit landscape and augment ease of doing business which, inter alia, include (i) registration of creation, modification and satisfaction of security interest by all secured creditors and provision for integration of registration systems under different laws relating to property rights with the Central Registry so as to create Central database of security interest on property rights; (ii) conferment of powers upon the Reserve Bank of India to regulate asset reconstruction companies in a changing business environment; (iii) exemption from stamp duty on assignment of loans by banks and financial institutions in favour of asset reconstruction companies; (iv) enabling non-institutional investors to invest in security receipts; (v) debenture trustees as secured creditors; (vi) specific timelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximisation of value of assets of such persons, to promote enterpreneurship, availability of credit and balance the interest of all the stake holders including alteration in the order of priority of payment of government dues" has also come with a declaration of its primacy through the following provision : "238. Provisions of this Code to override other laws - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 128. It is the view of the appellate tribunal that the insertion of Section 31-B to RDBA and Section 26-E to SARFAESI Act by the amendment of 2016 renders the said laws to have an overriding effect over PMLA. Though the issue raised by the Resolution Professional (RP) in the fourth captioned appeal with reference to the Insolvency Code was not urged before the appellate tribunal, similar argument is pressed to seek primacy for the Insolvency Code over PMLA on account of Section 238 of the former. 129. At the hearing, however, it was noted that some of the amendments made to the SARFEAESI Act by second chapter of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. 132. But, the position of law may be examined assuming also the situation to prevail when above noted amendment to SARFEAESI Act, come into force. In this context, the objects and reasons of the laws have to be the guiding factors. The law on the subject may be noted here. 133. The issue in Bhoruka Steel Ltd. (supra) before the Bombay High Court concerned conflicting claims under the then existing Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA" for short) and Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 ("the Special Courts Act of 1992", for short). The court held that if the language of the law is obscure and ambiguous, the object and purpose of a legislation assumes greater relevance and quoted the following views of the Supreme Court in Sarwan Singh vs. Kasturi Lal, (1977) 1 SCC 750 :- "When two or more laws operate in the same field and each contains a non-obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol cases of such conflict have to be decided in reference to the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act may be general and for certain other purposes it may be special and we cannot blur distinctions when dealing with finer points of law. In law, we have a cosmos of relativity, not absolutes - so too in life..." 136. The court also referred to the principle of contextual construction laid down in earlier ruling of RBI v. Peerless General Finance & Investment Co. Ltd., (1987) 1 SCC 424, holding thus :- "33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statutemaker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has come into force from 01.09.2016." 139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, SARFAESI Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is "due" to the claimant i.e. the banks or the financial institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process. 140. The purpose, purport and import of Section 31-B inserted in RDBA, and Section 26-E inserted in SARFAESI Act, has to be understood in above light. The marginal heads of both the provisions are identically worded - "Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue, in the context of Government is to be understood to be conveying taxation [Gopi Pershad vs. State of Punjab, AIR 1957 Punjab 45 (DB)]. This is how the expression is defined by Black's Law Dictionary, Eighth Edition as also by Cambridge English Dictionary (accessible online). The reliance by the respondents on the use of the expression "non-tax revenue" with reference to PMLA under major accounting head "0047 Other Fiscal Services" in the list of Heads of Accounts of Union and States issued by Controller General of Accounts, Department of Expenditure in the Ministry of Finance, Government of India under the Government of India (Allocation of Business) Rules, 1961 is misplaced. The use of the expression for accounting purposes - to take care of receipts flowing into the Consolidated Fund - cannot give to the value of proceeds of crime realised by sale of properties confiscated under PMLA the colour of taxation. 144. The respondents have referred to the following observations of the Supreme Court in order dated 10.08.2018 in Special Leave to Appeal (Civil) No.6483/2018, Principal Commissioner of Income Tax vs. Monnet Ispat and Energy Limited :- "Given Section 238 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with regard to assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" rendering the same "proceeds of crime", within the mischief of PMLA. The PMLA, declares, by virtue of Section 71, that it has over-riding effect over other existing laws, such provision containing non-obstante clause with regard to inconsistency apparently to be construed as referable to the dealings in "money-laundering" and "proceeds of crime" relating thereto. 149. An order of attachment under PMLA, if it meets with the statutory pre-requisites, is as lawful as an action initiated by a bank or financial institution, or a secured creditor, for recovery of dues legitimately claimed or for enforcement of secured interest in accordance with RDBA or SARFAESI Act. An order of attachment under PMLA is not rendered illegal only because a secured creditor has a prior secured interest (charge) in the subject property. Conversely, mere issuance of an order of attachment under PMLA cannot, by itself, render illegal the prior charge or encumbrance of a secured creditor, this subject to such claim of the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 or 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 participants 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 property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression "proceeds of crime". The Adjudicating Authority has power, why, even an obligation and a statutory duty under Section 8(2) to look into the evidence produced by the petitioner in the second writ petition and LIC Housing Finance Limited and to come to an independent conclusion as to whether the provisional order of attachment is to be confirmed or not. Therefore, I am of the view that the petitioners should submit themselves to the enquiry under Section 8(1)." 153. The ruling in V.M. Ganesan (supra), referred to above, is not of much help since the claim of third party (secured creditor) was yet to be inquired into or adjudicated upon. This court generally accepts the spirit behind the earlier quoted thoughts articulated by the tribunal, but finds it difficult to accept that a property may be allowed escape from civil sanction under PMLA only on the plea of the third party claiming to be at "no fault" or to have acted "without notice" of the criminal activity engaged in by the person from whom interest is acquired. As would be elaborated hereinafter, the burden to prove facts to rebut the statutory presumptions necessitates more than mere ignorance to be shown. 154. Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip has a right to get back the mortgaged property and the mortgage deed, in exercise of his right of ownership. The right of redemption is a statutory right under TPA which cannot be extinguished, this being subject to the right of the creditor to seek the remedy of fore-closure or sale under Section 67 or to exercise the power under Section 69 to sell the mortgaged property or appoint a receiver under Section 69A [Shivdev Singh and Anr. Vs. Sucha Singh and Anr. (2000) 4 SCC 326]. To put it simply, a mortgage is transfer of an interest in an immovable property for the purpose of securing repayment of a loan, the mortgagee's interest lasting "only as long as the mortgage has not been paid off" [All Indian Film Corporation Ltd. vs. Raja Gyan Nath, 2(1969) 3 SCC 79]. 158. A hypothecatee or a mortgagee, thus, has a limited interest in the property, the right restricted to have the debt realized by putting the hypothecated goods or mortgaged property to sale. There is no ownership, or right to possess, vesting in either. At the same time, it must be added that the charge or encumbrance of a third party in a property attached under PMLA can be treated as "void" if there is material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption, if drawn, may also be rebutted by evidence showing facts to the contrary. 161. The law conceives of possibility of third party interest in property of a person accused of money-laundering being created legitimately or, conversely, with ulterior motive "to frustrate" or "to defeat" the objective of law against money-laundering. In case of tainted asset - that is to say a property acquired or obtained as a result of criminal activity - the interest acquired by a third party from person accused of money-laundering, even if bona fide, for lawful and adequate consideration, cannot result in the same being released from attachment, or escaping confiscation, since the law intends it to "vest absolutely in the Central Government free from all encumbrances", the right of such third party being restricted to sue the wrong-doer for damages, the encumbrance, if created with the objective of defeating the law, being treated as void (Section 9). 162. But, in case an otherwise untainted asset (i.e. deemed tainted property) is targeted by the enforcement authority for attachment under the second or third part of the definition of "proceeds of crime", for the reason that such asset is eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA. 166. As already noted, the newly inserted provision contained in Sections 26-B to 26-E falling in Chapter (no. IV-A) on "registration by secured creditors and other creditors" of SARFEAESI Act are yet to be notified and brought into force. In the event of said statutory clauses coming into force, a creditor will not be entitled to exercise the right of enforceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce having "taken all reasonable precautions" at the time of acquisition of such interest or creation of such charge, the jurisdiction to entertain and inquire into such claim and grant relief of release after order of attachment has attainted finality, or of restoration after order of confiscation, vesting only in the special court under Section 8(7) & (8) PMLA. The due diligence is to be tested amongst others, on the touchstone of questions as to whether the party had indulged in transaction after due inquiry about untainted status of the asset or legitimacy of its acquisition. SUMMARISING THE CONCLUSIONS 171. It will be advantageous to summarise the conclusions reached by the above discussion, as under :- (i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering. (ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evalu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of a person other than the one accused of (or charged with) the offence of money-laundering, i.e. a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of money-laundering (or his abettor), or it was involved in a transaction which had interconnection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends. (x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as "void" unless material is available to show that it was created "to defeat" the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance. (xi). A party in order to be considered as a "bonafide third party claimant" for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party. (xvi). In the situations covered by the preceding two subparagraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the "excess" value of the property subjected to PMLA attachment. (xvii). If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court. DECISION ON THE APPEALS 172. In view of the above conclusions, the impugned decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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