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TMI Blog2019 (10) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... nks in respect of the assets attached. Hon ble Apex Court also held in the decision of ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA ORS. [ 2018 (10) TMI 312 - SUPREME COURT ] wherein Hon ble Apex Court held by virtue of Section 60(5) of IBC, the NCLT is having jurisdiction to entertain or dispose of any Application by or against Corporate Debtor. Hon ble Apex Court further held that NCLT alone has jurisdiction to decide the application or proceedings by or against Corporate Debtor. The Provisional Attachment Order is raised - application allowed. - IA NOS. 413 AND 287 OF 2019 in CP (IB) No. 219/7/HDB/2017 - - - Dated:- 11-7-2019 - SHRI RATAKONDA MURALI, MEMBER (JUDICIAL) For The Applicant : Shri Raghunandan Rao Senor Advocate along with Shri Shabbeer Ahmed and Ms. P. V. Arun Kumari Advocates And Shri A. Chandra Sheker, Advocate For The Enforcement : Ms G. Hema, Special Public Prosecutor COMMON ORDER 1. Claim: Under consideration are the Applications bearing IA Nos. 413 of 2019 filed by Financial Creditor/ARCIL and 298/2019 filed by Resolution Professional, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have effect only upon approval of Resolution Plan as per Section 31(3) of the IBC. This means that the moratorium shall continue till the Resolution Plan is either approved or rejected by this Tribunal, which is pending for approval. 5. It is the case of Applicant that the proceedings under PMLA are civil in nature as the same are meant for recovery of crime proceeds and as such, the moratorium declared by this Tribunal would be applicable to Impugned Proceedings initiated by Respondent No.1 against the properties of Corporate Debtor. Further the Applicant relied on the judgment of Hon ble Appellate Tribunal under PMLA, New Delhi in the case of Punjab National Bank v. Dy. Director, Directorate of Enforcement, Raipur FPA-PMLA-2633/RP/2018, decided on 02.01.2019 that: 64. This Tribunal is of the considered opinion that the proceeding u/s. 8 of PMLA, 2002 before the Adjudicating Authority is a civil proceeding and the Adjudicating Authority should have stayed the proceedings on passing of the moratorium order by the NCLT. The continuation of the proceedings from the date of commencement of the moratorium order is contrary to the intention of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterfere with the affairs of the properties of the Corporate Debtor during the subsistence of CIRP. The Applicant also relied on the judgment of Hon ble Supreme Court in the case of Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [2001] 30 SCL 59 wherein Apex Court held that if non-obstante clause is contained in two enactments, the non-obstante clause in the later enactment shall prevail over the non-obstante clause in the earlier enactment. It is needless to emphasize that the above referred amendments brought in SARFAESI Act, 2002 and RDDBFI Act, 1993 and also enactment of IBC are latter enactments than PMLA and hence they would prevail over the provisions of PMLA. (6) That the Impugned Order puts all the stakeholders in the CIRP of Corporate Debtor especially the financial creditors and successful Resolution Applicant to severe prejudice and financial distress. It was observed by the Hon ble Appellate Tribunal under PMLA, New Delhi in the case of Punjab National Bank s case (supra) that: 63. The Adjudicating Authority is bound by the law laid down by the higher courts. No authority has any justification to ignore the law laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EPL to Mahal Hotels and then to Corporate Debtor) could not be ascertained by the Authority as no satisfactory explanation of utilization of funds was rendered by any of the accused. Therefore, the Respondent No.1 has attached the Secured Assets considering them to be of equivalent value of proceeds of crime. (8) It is also the case of Applicant that the attached properties were acquired by Corporate Debtor way back in the year 2005 whereas alleged Scheduled Offences were committed by the concerned persons and derived crime proceeds as a result thereof during the period 2011-2013 as per the contents of the Impugned Order. The Applicant relied on the decision of the Hon ble Andhra Pradesh High Court in the case of B. Rama Raju v. Union of India Ors. (2011) 164 Comp Cases where in it is held that if the Adjudicating Authority is satisfied as to the bona fide acquisition of property, it should relieve such property from provisional attachment by declining to pass an Order of confirmation of the provisional attachment. The Applicant relied on the judgment of the Hon ble Appellate Tribunal under PMLA, New Delhi in the case of Punjab National Bank v. Jt. Director, Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been involved in the commission of Schedule Offences as per the relevant Final reports filed by CBI and derived the proceeds of crimes, attached the properties of Corporate Debtor that were acquired much prior to alleged commission of schedule offences and that this action of Respondent No.1 halted the entire CIRP process and brought the same to a stand-still. The efforts put by RP and CoC for almost a year in reviving the Corporate Debtor so as to achieve the objects of the Code (IBC) would go in vain in the event the Impugned Order is not set aside. IA 287/2019 The averments in IA 287/2019 in brief are: (11) That this Tribunal admitted the Petition filed under Section 7 of IBC against the Corporate Debtor on 12.03.2018 and appointed the Applicant as Interim Resolution Professional who was later confirmed as Resolution Professional. Moratorium in terms of Section 14 came into force w.e.f. 12.03.2018. The resolution plan was approved by the CoC with 89.15% voting share and the same is filed for approval of this Tribunal in terms of Section 30(6) of the Code. (12) Meanwhile the Enforcement Director, Respondent N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the PMLA Act which is enumerated in 2002 much prior to the enactment of IBC and that during CIRP, the Resolution Professional should decide how the properties and assets of the Corporate Debtor can be appropriated and as such the attachment under the PMLA Act is impermissible. (18) The Applicant avers the properties that were attached were purchased in the year 2005 which is very much prior to the loan taken by Corporate Debtor from M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial Corporation and Bhagyanagar Investment Trading Private Limited and that the properties sought to be attached by the Enforcement Directorate are secured assets which were mortgaged to State Bank of India on 31-10-2008 towards the loan disbursed by the State Bank of India from time to time in favour of the corporate debtor. The records reveal that originally the Canara Bank sanctioned credit limits by letter dated 28-12-2007 and State Bank of India also sanctioned commercial advances of credit facilities vide sanction letter dated 29-01-2008 by duly securing the immovable properties of the Corporate Debtor. The security over the assets were created on 10-1-2008 and 31-09-2008 respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect of IBC under Section 238 of the Code, this Tribunal to exercise the power and authority to declare that the attachment order under PMLA Act is a null and non est in law. The said position is reiterated in SREI Infrastructure Finance Ltd. v. Sterling International Enterprises Ltd. by NCLT, Mumbai in CP 402 of 2018 by order dated 12.02.2018. As such the Applicant prayed this Tribunal to set aside the impugned order of attachment of Enforcement Directorate and the attachment is liable to be raised/lifted. It was further held that in case the Corporate Debtor is under CIRP/Liquidation, Enforcement Directorate is entitled to make necessary claims before RP/Liquidator. (22) It is contended the attachment erodes the very title and value of the properties of the Corporate Debtor and that the Resolution Applicant would not be entitled to claim a higher right on the basis of approval of resolution plan by NCLT. Further, it is also stated that the Hon ble Appellate Tribunal under PMLA Act in the matter of Bank of India s case (supra), Mumbai held that the proceedings under PML Act are civil in nature and not criminal as such the provisions of IBC would prevail. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s jurisdiction under IBC, in view of the ruling by the Appellate Authority under PMLA in Bank of India s case (supra), that the proceedings before Adjudicating Authority under PMLA in respect of attached properties is a civil proceeding, the Adjudicating Authority under PMLA does not have jurisdiction to attach the properties of the Corporate Debtor undergoing Corporate Insolvency Resolution Process. (26) It is the case of Applicant that Viceroy Hotels Ltd. (VHL) started construction of J.W. Marriott Hotel Project, Chennai, in the year 2007. The project could not be completed due to shortage of funds and it approached Mahal Hotels Pvt. Ltd., for the sale of Chennai Hotel in the year 2011. Viceroy Hotels Ltd. entered into Business Transfer Agreement (BTA) with Mahal Hotels Ltd. on 02.04.2011. Enforcement Directorate (ED) attachment order extensively quotes the fact of entering into BTA and about the same being produced in NCLT, Hyderabad, by Mahal Hotels Pvt. Ltd., to establish their claims etc. Nowhere in the order of ED any doubt was expressed about the genuineness of the transaction. ED clearly mentions in its order that the project could not be completed and the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Mahal Hotels Ltd. VHL has nothing to do with M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial Corporation and Bhagyanagar Investment Trading Private Limited or their associated companies and their source of funding. The relation between VHL and Mahal Hotels Ltd. is, one that of Seller and Purchaser. There is nothing more about the transaction to show by any agency. ED in its entire order is stated to have never attributed any role to VHL in the various transactions of Mahal Hotels Ltd. (28) The details of 23 properties attached are mentioned at para 25 of the Application. It can be seen that all the properties are purchased in the year 2005 during which time the corporate debtor/VHL had no connection or relation whatsoever with M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial corporation and Bhagyanagar Investment Trading Private Limited and that Enforcement Directorate order to attach VHL properties is uncalled for and unwarranted. All the properties of VHL mentioned in the ED s Order in Schedule-I are the properties purchased by VHL in the year 2005 through registered Sale Deeds. All the properties mentioned in Schedule-I were mortgaged to SBI and Canara Bank i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the properties were purchased way back in the year 2005 and the alleged amounts received from M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial corporation and Bhagyanagar Investment Trading Private Limited and its sister concerns are in the year 2011-2013. That, the properties were acquired much before the alleged crime and that the properties attached are secured assets of the nationalized banks which were duly mortgaged in the years 2008 and 2009 towards disbursement of loans for the corporate debtor. Hence the properties can t be treated as properties falling under section 2(u) of the PML Act which deals with the properties purchased with proceeds of crime. The courtyard hotel was constructed and developed in the years 2007 and 2008 from the loans taken from the nationalized banks and not from any proceeds of crime. Further it is averred the banks have created charge over the property prior to the date of the alleged crime. The attachment of the properties mortgaged to the banks without any involvement of the CDR or the banks in the alleged fraud would be legally unjustified. It is also averred as the properties cannot be attached as per Section 5 of the PML Act because the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was used by M/s. Viceroy Hotels Ltd. The Board got dissolved pursuant to initiation of CIRP and the Ex-MD did not co-operate with the investigation. (4) Since Resolution Professional is managing the affairs of Corporate Debtor and running the business of Corporate Debtor as a going concern, a copy of the Provisional Attachment Order No. 04/2019 dated 26.03.2019 was furnished to Resolution Professional to bring to his notice that the properties of Corporate Debtor are involved in money laundering. (5) Respondent No.1 denies the contentions raised by Applicant that moratorium is imposed under Section 14 of the Code prohibiting any proceedings against the Corporate Debtor and the same is in force. Offence of money laundering was committed by Corporate Debtor along with its promoters and Directors much before the Application and attachment order was passed as per law under the provisions of Section 5(1) of PMLA, 2002 and that the act of Corporate Debtor in approaching this Tribunal after committing the offence of money laundering under Section 3 of PMLA, 2002 is clearly within the ambit of law provided under Section 5(1) of PMLA, 2002. Further Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of PMLA shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Like IBC, PMLA is an Act independent by itself and not an Act to consolidate or amend any existing laws in the country and thus, the provisions of PMLA, 2002 also have an over-riding effect over IBC, 2016. (10) Further under the provisions of PMLA, 2002, only the Special Court has power under Section 8(5) of PMLA, 2002 to either confiscate the attached property or under Section 8(6) of PMLA to release the attached property to the person entitled to receive it. (11) Respondent No.1 contended that it is neither a Financial Creditor nor a Corporate Debtor to be impleaded as a party in the present proceedings. It is only investigating the offence of money laundering under the provisions of PMLA, 2002 in order to identify the proceeds of crime involved in money laundering and also to identify the offenders of money laundering and also contended that the Corporate Debtor is indirectly being benefitted who committed the offence of money laundering and releasing the proceeds of crime to the benefit of the person accuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , directly or indirectly, by any person as a result of criminal activity relating to a Scheduled Offence or the value of any such property or where such property is taken or held outside the Country, then the property equivalent in value held within the country . (15) Thus, Respondent No.1 prayed that the Provisional Attachment Order in PAO No. 04/2019, dated 26.03.2019 passed by Directorate of Enforcement against the Defendants of OC No. 118/2019 pending adjudication before Hon ble Adjudicating Authority, PMLA, 2002 from alienating the proceeds of crime in the form of movable and immovable properties which are involved in the money laundering and the non-attachment would seriously affect and frustrate the proceedings under PMLA, 2002 and that the PAO is valid in law. 3. I have heard the Counsel for Applicant and also the Counsel for Enforcement Directorate. This Application is filed under Section 60(5) of IBC, 2016. The reliefs sought by Applicant are to set aside the impugned Provisional Attachment Order (PAO) No. 04/2019 in File No. ECIR/CEZO/05/2016, dated 26.03.2019 as it is illegal null and void. 4. The Learned Counsel for Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor. In this connection, Learned Counsel for Applicant relied on the decision of Hon ble Appellate Tribunal under PMLA, New Delhi in the case of Punjab National Bank (supra). The Learned Counsel for Applicant further contended that provisions of IBC and SARFAESI Act have over-riding effect over PMLA. In this connection, Learned Counsel relied on Section 26E of SARFAESI Act, 2002 and Section 31B of Recovery of debts due to Banks and Financial Institutions Act, 1993. The Counsel contended, when two statutes contain non-obstante clause, then the clause in the latter Act will prevail over the earlier Act. So, in this connection, Learned Counsel relied on the decision of Hon ble Apex Court in Solidaire India Ltd. s case (supra). In this connection Learned Counsel has also relied on the decision of Hon ble Delhi High Court in the matter of Dy Director, Directorate of Enforcement v. Axis Bank and also the decision of Appellate Tribunal under PLMA in the matter of Punjab National Bank (supra) dated 02.01.2019 cited supra. 6. The main contention of the Learned Counsel, the properties over which PAO was passed were acquired by the Corporate Debtor long prior to the all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e money was transferred to the Corporate Debtor during 2011-13 of around ₹ 134.65 crores. The BCEPL is owned by Sujana Group and that one Mr. Prabhakar Reddy of Viceroy Hotels Limited was also called for enquiry after registering of case etc. The contention of the Learned Counsel, the properties attached were originally in the name of Minerva Enterprises Private Limited and they were transferred in favour of Viceroy Hotels Limited/Corporate Debtor. The Counsel contended Section 2(1)(u) of PMLA defines proceeds of crime which is as follows :- Proceeds of Crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a Scheduled Offence or the value of any such property or where such property is taken or held outside the Country, then the property equivalent in value held within the country . Section 2(1)(5) defines property. The contention of the Learned Counsel, the Enforcement Directorate under the provisions of PMLA can attach property equivalent to the value derived through proceeds of crime. The Counsel contended it is the case of M/s. Mahal Hotels Private Limited that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Mr. Prabhakar Reddy of Corporate Debtor has not co-operated with the Enforcement Directorate authorities and the provisions of IBC has no overriding effect over the provisions of PMLA and it is only the Adjudicating Authority under PMLA which is vested with the powers either to confirm PAO or to raise it. Thus, the PAO is now pending adjudicating before Adjudicating Authority in OC No. 1118/2019 Therefore, it is prayed to dismiss the Application. 10. One more Application is filed by Resolution Professional. He is also seeking same relief to raise the PAO passed by the Respondent/Dy. Director (Enforcement Directorate). Same issue is also involved in the Application filed by Resolution Professional in IA 287/2019. The question is whether this Tribunal can give direction to the Dy. Director, Enforcement Directorate to raise the attachment of the assets of Corporate debtor which are admittedly mortgaged to Canara Bank and Andhra Bank. It is also the case of Resolution Professional that the properties attached belonged to the Corporate Debtor were not acquired with the proceeds of crime within the meaning of Section 2(1)(u) of PMLA. Since common points are involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a claim before the RP for ₹ 401 crores payable by Corporate Debtor to it and that the said claim is admitted by Resolution Professional. 13. On the other hand, the contention of the Learned Counsel for Dy. Director, Enforcement Directorate that the proceeds of crime means not only the properties acquired with the money involved in the laundering but also of any other properties belonging to the persons involved in the crime. Thus, Learned Counsel for Enforcement Directorate contended that any other properties held by the Corporate Debtor can be attached. In that connection Counsel for Enforcement Directorate relied on Section 2(u) of PMLA. 14. On the other hand, Counsel for Applicant/Financial Creditor contended that attachment is only with reference to the property acquired with the proceeds of crime and not any other property. It is therefore necessary to refer to Section 2(1)(u) which is as follows- Proceeds of Crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a Scheduled Offence or the value of any such property or where such property is taken o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then it is not correct on the part of the Dy. Director, Enforcement Directorate to attach the assets of the Corporate Debtor. The entire CIRP process become futile. In this connection Learned Counsel relied on the decision of Adjudicating Authority under PMLA in the matter of Punjab National Bank (supra). The relevant paragraph relied by the Applicant are produced supra. So the contention of the learned counsel, the Applicant being a secured creditor has priority over other dues. Apart from it, the Learned Counsel further contended the properties attached were not acquired by the proceeds of crime. Therefore the attachment is illegal and null and void. The Counsel contended there is absolutely no material from the side of Enforcement Directorate that the Corporate Debtor acquired the properties with the help of alleged money received through Mahal Hotel Private Limited. The contention of the Learned Counsel, it must be shown proceeds of crime means property acquired or obtained as a result of criminal activity relating to Scheduled Offence. The contention of the Learned Counsel that the properties were acquired long prior to commission of scheduled offence. So, there is no nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of 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 participant 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 or knowledge is missing . The undisputed fact the properties were acquired and were mortgaged to the bank much prior to the alleged date of offence. So it can be held that proceeds of crime are not involved in the att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Enforcement Directorate that properties equivalent to the value of money involved in the laundering can be attached. This is covered under Section 2(1)(u) of PMLA. The counsel contended, BCEPL has availed loans from the Banks and by fraudulent means diverted the money for unlawful gains. The Learned Counsel for Enforcement Directorate also relied on the decision of Hon ble Delhi High Court wherein decisions rendered by Appellate Tribunal were set aside. Thus, the contention of the Learned Counsel that it is clear case of money routed through Mahal Hotels Private Limited reached the Corporate Debtor which is involved in the crime and therefore, the properties equivalent to the value of money can be attached. Already I have discussed, relying on the decision of Hon ble High Court of Andhra Pradesh wherein it is clearly held that there must be evidence to show that property acquired with the proceeds of crime, otherwise attachment cannot be continued. No civil court will entertain the matters dealt by NCLT under Section 63 of IBC. The attachment is made when proceedings are pending before this Tribunal. The Resolution Plan is before the Tribunal for approval. Pending decision on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured 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 . 22. The Learned Counsel further contended that there is no charge of money laundering against the Financial Creditors. The mortgage of property is transfer under Transfer of Property Act. In the decision cited, the properties have been purchased by Guptas and they have been mortgaged with Punjab National Bank much prior to the alleged date of offence which shows that no fraud of crime is involved in acquiring of these properties and the same cannot be attached by Enforcement Directorate because the same would result in hampering the interest of the bank. Thus, Appellate Tribunal under PMLA in the case of Punjab National Bank (supra) held if properties were acquired prior to the offence then properties cannot be attached. I have already discussed the decision of Hon ble NCLT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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