2017 (8) TMI 1193 - AT - Money Laundering

Appellate Tribunal sets aside attachment order, underscores need for court permission, upholds property rights

Tata Capital Financial Services Ltd. Versus The Joint Director, Directorate of Enforcement, Hyderabad

The Appellate Tribunal allowed the appeal, setting aside the provisional attachment order and emphasizing the need for the Enforcement Directorate to seek ... Attachment orders - properties in question under the PMLA - possibility of revising, reversing or setting aside the said confirmatory order of attachment passed by Respondent No.2. - Held that:- In the facts of the present case Respondent No. 2 was duty bound to take cognizance of the proceedings pending before the Hon’ble Bombay High Court which was disclosed and the orders passed therein before the impugned order dated 25th March 2015 was passed by the Jt. Director, Enforcement Directorate, Hyderabad Zonal Office resulting in Final Attachment of the property which property was Custodia Legis in light of the orders passed by the Hon’ble Bombay High Court. As Respondent No. l had been made party to the Section 9 proceedings before the Hon’ble Bombay High Court and the same is sub judice, the Order passed by Respondent No.2 confirming the attachment is not sustainable. The impugned order passed by the Respondent No.2 is bad in law, contrary to the provisions of the Act and without appreciating the material on record and thus the same is liable be set aside. The appeal is accordingly allowed. The application filed by the appellant in view of order dated 12th January, 2016 is allowed. Even the provisional attachment order is also set aside. In case, the respondent no. 1 & 2 still wish to attach the properties in question under the PMLA as canvassed by them before us, they are at liberty to approach the Bombay High Court to seek liberty, where the properties are in the possession of the Court Receiver. However such application, if filed, will have to be decided on merit. Issues Involved:1. Credit Facility and Loan Agreements2. Equitable Mortgage and Charge on Property3. Provisional Attachment by Enforcement Directorate4. Adjudicating Authority’s Order5. Custodia Legis and Court Receiver’s Possession6. Appellate Tribunal’s Observations and OrderIssue-wise Detailed Analysis:1. Credit Facility and Loan Agreements:The appellant, M/s Tata Capital Financial Services Ltd., provided a credit facility to M/s Indu Projects Limited ('Borrower') through First Term Loan Agreement dated 10th July 2009 and Second Term Loan Agreement dated 30th March 2010. These agreements were rescheduled on 31st December 2012, aggregating to Rs. 35 Crores. The Borrower agreed to the terms and executed various documents to secure the credit facilities.2. Equitable Mortgage and Charge on Property:To secure the credit facilities, an equitable mortgage was created by depositing title deeds of an immovable property located at Chilamathur Village & Mandal, Anantpur District, owned by M/s Lepakshi Knowledge Hub Private Limited ('Mortgagor'). APIIC issued a NOC on 5th September 2009, allowing the Mortgagor to deposit title deeds to secure the loan. The Mortgagor and Mr. Syam Prasad Reddy executed guarantees for the repayment of the loan, but they failed to repay the amount.3. Provisional Attachment by Enforcement Directorate:The appellant initiated proceedings before the High Court at Bombay under Section 9 of the Arbitration and Conciliation Act, 1996, resulting in the appointment of the Court Receiver, High Court Bombay, to take formal possession of the mortgaged property. Subsequently, on 25th March 2015, the Enforcement Directorate provisionally attached the property under Section 5(1) of the PMLA, which included the mortgaged property.4. Adjudicating Authority’s Order:The appellant filed a representation under Section 8 of the PMLA, but the Adjudicating Authority converted the provisional attachment into a final attachment on 24th July 2015 without considering the appellant's representation. The Adjudicating Authority concluded that the property, being proceeds of crime, was liable to be attached under Section 71 of the PMLA, which has overriding effect.5. Custodia Legis and Court Receiver’s Possession:The Court Receiver, High Court Bombay, had taken formal possession of the property on 6th February 2015, before the provisional attachment order was passed. The appellant argued that the property was in Custodia Legis, and no attachment could be levied without the Court's permission. The Adjudicating Authority failed to consider the Court Receiver's possession and the orders of the High Court.6. Appellate Tribunal’s Observations and Order:The Appellate Tribunal observed that the Adjudicating Authority and the Enforcement Directorate were aware of the Court Receiver's possession but still confirmed the attachment. The Tribunal held that the property in Custodia Legis could not be attached without the Court's permission, citing the Supreme Court's judgment in Kanhaiyalal v. Dr. D.R. Banaji. The Tribunal set aside the provisional attachment order and allowed the appellant's application. The Tribunal also stated that if the Enforcement Directorate wished to attach the property, they must seek permission from the Bombay High Court.Conclusion:The Appellate Tribunal allowed the appeal, set aside the provisional attachment order, and emphasized the need for the Enforcement Directorate to seek the Court's permission to attach properties in Custodia Legis. The Tribunal upheld the principle that properties in the possession of a Court Receiver cannot be attached without the Court's leave, ensuring respect for judicial orders and proper legal procedures.