TaxTMI 
TaxTMI 
2017 (9) TMI 54
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....basis of FIR bearing no. RC-219/2012/E/0013 dated 20.09.2012 registered by CBI against (a) M/s Grace Industries Ltd. ("GIL") , (b) Sh. Mukesh Gupta, (D-1 in the OC no. 537/16) the then Director of GIL, (c) Smt. Seema Gupta, (D-2 in the OC No. 537/16) the then Director of GIL, (d) unknown public servants and (e) unknown others for the commission of offences punishable under section 120 - B read with section 420 of IPC and section 13(2) read with section 13(1) (d) of the Prevention of Corruption Act, 1988. This aforesaid FIR was registered by the CBI on the basis of reference from Central Vigilance Commission for alleged corruption in the matter of allocation of coal blocks to the private companies during the period 2006-2009. 3. The allegations against the alleged persons therein was that the share capital was inflated by the GIL in a fraudulent manner using shell companies without any real influx of share capital. It is also revealed from the investigation carried out by the Enforcement Directorate that the GIL and its associates received a sum of Rs. 24,92,49,850/- on account of selling of coal blocks to M/s Sanvijay Rolling & Engineering Ltd. (SREL) , Nagpur which was illegally ....
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....(viii) The Centurion Bank of Punjab merged and amalgamated with HDFC Bank vide RBI‟s order dated 20.5.2008 w.e.f 23.05.2008. The aforesaid borrowers confirmed their liability to the appellants‟ Bank vide letter of confirmation dated 03.05.2010. (ix) The loan account became Non Performing Assets on 29.12.2010 and thereafter the present appellant initiated action under SARFAESI Act by issuing notice dated 27.02.2013 under section 13(2) of SARFAESI act for an outstanding amount of Rs. 5,55,27,481.83/- along with interest and thereafter action under section 13(4) under SARFAESI Act and symbolic possession of the scheduled property was taken on 20.2.2014. (x) It is further contended by the appellant that had moved before the District Magistrate under section 14 of the SARFAESI Act for taking physical possession of the schedule properties. The District Magistrate allowed the applicant‟ application registered bearing no. 26/2014. The applicants‟ application was allowed by the District Magistrate vide order 05.11.2015. (xi) It is further contended by the appellant that they have filed a recovery application before the Debt Recovery Tribunal, Nagpur being original....
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....ing effect of both the special Acts. 10. Admittedly, the property has been purchased in the year 2005, that is, prior to the alleged commission of scheduled offences i.e. section 420 of Indian Penal Code. It is also not disputed by the respondent that the defendant no. 1, 2 and 3 had availed loan from the Centurion bank of Punjab in 2007 which was subsequently taken over the by the HDFC Bank and the defendant no. 1 to 3 confirmed the loan taken from Centurion Bank of Punjab to continue the liability with the present appellant i.e. the defendant no. 4. There is also no refusal or dispute raised by the respondent with respect to the fact that the appellant had initiated again under SARFAESI Act, 2002, took symbolic position of the scheduled property, applied before the District Magistrate for taking the physical possession of the said scheduled property and also filed recovery of loan application before the Debt Recovery Tribunal (DRT) for recovery of the loan. 11. Both parties have made their submissions and referred the relevant documents available on record. We have heard them and gone through the papers. Recently, this Tribunal dealt with a group of 12 appeals involving various....
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....6. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: "13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority." 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: 'Maharashtra Tubes Ltd. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal; AllahabadBankv.Canara Bank and Ram Narain v. Simla Banking & Industrial Co. Ltd. 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this connection, the Special Court had....
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....ner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Acy 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such....
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....rs the later enactment with a non-obstante 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 in the later enactment that the provisions of the earlier enactment continue to apply. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the legislature wanted to provide otherwise, they would have specifically so provided." 32. Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. 33. The amended provisions give overriding effect over any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned. The amended provisions are repr....
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....hority. The amendment has been introduced to facilitate the rights of the secured creditors which are being hampered by way of attachments of properties, belonging to the financial institutions/secured creditors, done by/in favour of the government institutions. 36. The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case "The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors." that " "There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of ....
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....s able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime. Today, if the Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act." 39. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras "State Bank of India Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors.", while upholding....
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....anks and other financial institutions. 55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection. 56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy." In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of ove....
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.... ipc by the learned trial judge against the private parties. As far as bank officials are concerned, charges were framed under different provisions of the prevention of corruption of act, 1988. Being dissatisfied with the said order,, the cbi had preferred an appeal by obtaining special leave and in that context the court observed that the accused respondent had been charged under section 120-b/420 ipc and the civil liability of the respondent to pay the amount had already been settled and further there was no grievance on the part of the bank. Taking note of the fact that offence under section 420 of ipc is compoundable and section 120-b is not compoundable, the court eventually opined thus:- "11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been mutually settled between the parties and the accused had accepted the liability in this regard, the High Court had thought it fit to invoke its power under Section 482 Cr.P.C. We do not see how such exercise of power can be faulted or held to be erroneous. Section 482 of the Code inheres in the High Court the power to make such order as may be considered necessa....
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....t the petitioners, arising out of R.C. No. 4A/94/SIU(X) dated 23rd May, 1994, titled 'CBI vs. N. Bhojraj Shetty & Ors.', being C.C. No.65/11, pending in the Court of Spl. Judge (CBI), Tis Hazari Courts, Delhi." The said decision has been upheld by the Hon'ble Supreme Court. 46. In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;- 11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in ....
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....of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money- laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach" 56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing....
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....r not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party. 57. This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are involved in money laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money launderi....
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....LY ASSISTS OR KNOWINGLY IS A PARTY: In JotiParshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows- "5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of "intention" or "knowledge" or "reason to believe". We are now concerned with the expressions "knowledge" and "reason to believe". "Knowledge" is an awareness on the part of the person concerned indicating his state of mind. "Reason to believe" is another facet of the state of mind. "Reason to believe" is not the same thing as "suspicion" or "doubt" and mere seeing also cannot be equated to believing. "Reason to believe" is a higher level of state of mind. Likewise "knowledge" will be slightly on a higher plane than "reason to believe". A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same." The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowin....
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....thout 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. 60. Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director, Prevention of Money Laundering Act, Directorate of Enforcement (Respondent) MANU/TN/4087/2015 decided on 14.10.2015, relevant portion of which are reproduced below:- " 20. The said sections read as follows:-- "23. Presumption in inter-connected transactions Where money-laundering involves two or more inter- connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction. 24. Burden of proof In any proceeding relat....
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....tion. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor. 23. Considering the materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164 Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge. 24. Before the Adjudicating Authority it was admitted by complainan....
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....edge that properties have been acquired directly or indirectly through scheduled offence could be subject matter of provisional attachment order. 24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA." Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case. 25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note ....
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....ence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant bank it is public money. The appellant bank has the right to property under the Constitution of India. The property of the appellant bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgage of property is the transfer under the transfer of property act. 53. The objective of Prevention of Money Laundering Act, 2005 has a greater relation to crimes connected with reference to Illicit Traffic in Narcotic Drugs and Psychotropic Substances, drug crimes and other connected activities. None of the provisions are applicable in the facts of the present case. As far as the borrowers are concerned, we are not expressing any opinion with regard to matters pending before the Special Court in relation to schedule offences and the complaint under this Act. These matters are to be considered as per law. 54. There is no................................................................................................................PML Act in the year 2002.....
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.... AIR1997SC3011 lays down at para 40 that the International Conventions and Norms are to be read into them in the absence of enacted Domestic Law occupying the field when there is no inconsistency between them. 61. The Ld. Adjudicating Authority has failed to considered that the ED has attached all the properties without examining the case of the banks. The evidence on record suggested that all the properties were acquired by the accused much-much before the alleged date of crime. No money disbursed by the Union Bank of India from its Loan Account, has been invested in acquiring his property. Furthermore, the Appellants Banks had mortgaged charge over the property prior to the date of the crime. The Bank has already filed the Suit for recovery and has also had taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be unjustified. 62. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Sectio....
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....e the both banks are victims and even after trial, they are to receive-back the said properties being victim party in normal types of cases u/s 8(8) of the Act. However in the present cases, the banks are innocent parties. They are not involved in any criminal proceedings. If they are asked to await till the trial is over, the systems in these types of cases, the economy would collapse. In the case, of Union Bank of India, no sanction against the employee was granted who is also not involved in any criminal proceedings. 65. From the entire gamut of the matter we are of the view that there is no nexus whatsoever between the alleged crime and the two bank who are mortgagee of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against banks who have sanctioned the amount which is untainted and pure money. They have priority to the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicati....