TaxTMI 
TaxTMI 
2017 (9) TMI 1006
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....Authority for confirmation of Provisional Attachment Order (PAO) 04/2015 dt. 17.12.2015. (b) The respondent attached various movable/immovable properties including the immovable properties (schedule 'A' to 'C') mortgaged with the present appellants respectively in the present appeals. We are concerned with the legality of attachment of schedule 'A' to 'C' properties qua the appellants only. (c) The basis of registration of ECIR dt. 25.03.2013 by the respondent is the registration of FIR no. 45/2013 at Fatehgarh Saheb Police Station under sections 21/61/85 of NDPS Act, 1985, Sections 420,467,468,471 IPC,1860 and Sections 25/54/59 of Arms Act, 1959. (d) The Schedule 'A' to 'C' properties are attached by the respondent and the attachment is confirmed by the Adjudicating Authority on the ground that the same were acquired out of proceeds of crime illegally earned from drug smuggling and money laundering. (e) The present appellants were not arrayed as defendants in the original complaint (OC). But during the pendency of the adjudication proceedings the present appellants joined as interveners/objectord either suo-moto or on receiving notice from the Adjudicating Authority. ....
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....ed to appoint a court receiver to take possession of the scheduled 'A' property and handover the possession to the authorized officer of the Bank. e. That Bank was about to take possession of the secured assets in accordance with provision of SARFAESI Act, 2002 but in the mean time the Respondent was pleased to pass a provisional attachment order no. 4/2015 dated 17.12.2015 while exercising powers under sub section 1 of section 5 of the PMLA-2002 provisionally attaching various properties including the mortgage scheduled 'A' property of the bank f. That the provisional attachment of the aforesaid mortgaged property is illegal and cannot sustain in view of various grounds and reasons mentioned above. This appellant Bank has prayed the Adjudicating Authority not to confirm the PAO and to release the schedule 'A' property. 2(B). ICICI Bank Limited : ICICI Bank has been served with show cause notice and filed their reply/objection wherein it is, inter-alia, contended the following before the Adjudicating Authority. The relevant contentions of this appellant were as bellow:- a. That the present reply/submissions/objections is being filed by ICICI Bank Limited for releasin....
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....er Singh Nirwal is a public money cannot from any point of imagination be treated as proceed of crime and the legal right of the bank cannot be defeated by confirming the PAO in regard to the aforesaid mortgage scheduled 'B' property which is the only security towards the said loan. This appellant has also prayed for non-confirmation of PAO and release of scheduled 'B' property. 2(C). State Bank of Patiala (SBP): It is contended by the SBP that they have received notice in CC542/2016 dated 22/01/2016 and in that regard they had informed the Adjudicating Authority that the land belonging to M/s Med Care Remedies and the same land i.e. scheduled 'C' property is mortgaged with them covering the case credit limit of Rs. 40 lakh. The account was sanctioned in 2008, CC limit 30 lakh and term loans of 90 lakh (Adjusted). Cash credit limit was later on enhanced to 40 lacs. This account has turned Non Performing Assets and have issued notice to the company under section 13(2) and 13(4) under the SARFASI Act 2002 dated 15/05/2015 and 26/11/2015 respectively, enforcing the security mortgaged to them. It was submitted requested by the SBP not to attached the above said property so tha....
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.... (4) of the SARFAESI Act, 2002 of safe of secured asset shall prevail notwithstanding the provisions of PMLA-2002. 6. The main legal grounds taken in the aforesaid appeals are regarding the overriding effect of SARFAESI Act, 2002 viz. a viz. the provisions of PMLA-2002 in the given fact and the circumstances of the case. 7. The learned counsel for both sides made their submission and also referred the relevant documents, provisions of law and judgments of Hon'ble Supreme Court and High Court. 8. It is an admitted fact that the appellant banks advanced loan against the security of the scheduled 'A', 'B' and 'C' properties and certain re-payments were also made into the loan accounts. Subsequently, these loan account became Non Performing Assets and the banks took the re-course to the SARFAESI Act, 2002 for the possession of the scheduled 'A', 'B' & 'C' properties. 9. During the course of the hearing of the appeals, our attention was drawn to the judgment of Hon'ble Supreme Court in the case titled as "Madras Petro Chem. Ltd. & Ors v/s BIFR & Ors." and also referred to the full bench Judgment of the Hon'ble Madras High Court in the case of " The Assistant Commissioner (CT....
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....fter discussion in para 7-11 it was held that later enactment would prevail with a non-obstante clause. Paras 7-11 reads as under:- "7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows: "32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act." 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: "....
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....ded that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, rec....
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.... of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act." 31. The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd. The judgment rendered on 09.02.2016 reported in 1997 (89) company cases 547 (BOM) para 15 of the said judgment read as under: 15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-obstante clause it means that the Legislature wanted that....
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....s due to the Central Government, State Government or local authority. Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 34. In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 after the words "the date of the application", "and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 35. Thus, it is very clear from above that the secured creditor, get a priority over the rights of Central or State Government or any other Local Authority. The amendment has been introduced to facilitate the rights of....
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.... that Code." "3 There is, thus, no doubt that the rights of a secured creditor to realize 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" "4 The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending." "5 The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property." 38. In another Madras High Court judgment in the case of "Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement" has explained the grievances faced by the financial institutions while holding that- "For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority t....
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....noticee in response to a notice issue under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2) process..." 41. The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of India V/s. Satyawati Tondon and Ors. In paras no. 6, 55 & 56 has held as under:- 6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of the civil courts for frustrating the proceedings initiated by the banks and other financial instituti....
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....isional attachment was made, the proceedings of recovery of amount were pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED. 44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr. P.C. at the joint request of the parties. 45. Three judge bench in narendra lal jain & ors., (supra) held that during the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed which was rejected by the trial court but eventually was allowed by the high court. The charges in the matter were framed under section 120-b/420 ipc by the learne....
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....ance. The complainant bank in choosing to enter into such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues." "70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues. The present petition is maintainable as the same has been filed also on additional grounds and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the mind of the Court in whose favour it would be decided." "71. In view of above mentioned reasons, this Court is inclined to quash the proceedings pending against the pe....
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....oviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not. "8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a ....
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.... the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of money-laundering, he can show before the court that he is innocent and has not received any proceeds of crime." It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money....
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.... as untainted property;" 38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients- "A. RE: DIRECT OR INDIRECT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that- "13. Well then, what is an "attempt"? ...In sum, a person commits the offence of "attempt to commit a particular offence" when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the course of committing that offence." Thus, an "attempt to indulge" would necessarily require not only a positive "intention" to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part....
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....ed offence, would be utmost necessary, which however is lacking in the instant case." 59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any 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 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 c....
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.... produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime. 22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that t....
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....Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration and the money paid to the seller is also well explained. 22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order. 23. In the instant case the only point to be decided is whe....
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....e before the Adjudicating Authority. Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank." 49. From the scheme of the Prevention of Money Laundering Act, 2002 and its object, it is clear that the intention of the legislation was not to apply the Act to the transaction subject matter of the present case. 50. The ED.....................................................................................................................................from Union Bank of India. 51. The mortgaged properties.........................................................................................................................criminal action. 52. The appellant banks is the rightful claimants of the said properties which are already in the possession of the appellant bank under the SARFAESI Act. The Hon'ble Supreme Court of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earn....
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....sons to believe that the abovementioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/five properties; still the Ld. Adjudicating Authority confirmed the provisional attachment order of the Respondent No. 1 and thus causing huge loss to the Appellant/SBI. 59. The Adjudicating Authority did not understand that the alleged illegal money received by the Respondents from the Union Bank of India cannot overshadow the huge amount of credit facilities which were taken by the Respondents from the appellant bank in lieu of the properties kept as security with the Appellant Bank. Thus, making the Appellant Bank the rightful owner of the said properties which are already in the possession of the Appellant Bank under the SARFAESI Act. The origin of the funds is not illegal or unlawful in any manner. The funds were only deposited in the accounts with the Appellant Bank against the drawings already availed or availed subsequently. 60. We also find that the Adjudicating Authority............... .......................................................... proceeds of crime. The meaning of money laundering as mentioned in the objects....
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....where they belong, the state. In the present case as the money belongs to the Appellant Bank it is liable to be recovered by the Appellants Banks. 63. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness 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 as there is no dispute as regards the origin of funds or the title of the properties. As far as the bank is concerned, the bank had to recover its outstanding dues by taking over the possession of the mortgaged properties in case the Respondents are not able to pay back the credit facilities availed by the Respondents and by way of the SARFAESI provisions these properties are being taken in possession by the appellant bank so that recovery can be made from the accounts which have become NPA. 64. The respondent has no lien over the said properties as the Appellants banks are now the Legal transferee of said properties. Even in the criminal jurisprudence the stolen property when it is in the hands of unauthorized person that person cannot claim title....
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.... first change. 16. In these appeals, the appellant have raised the question of overriding effect of SARFAESI Act, 2002 over the PMLA-2002. The Adjudicating Authority has not discussed anything about the same. 17. The Parliament has amended the SARFAESI Act, 2002 by inserting the section 31 B in the said Act w.e.f. 01.09.2016. The effect of the said amendment as already been discussed in our judgment dated 14th July, 2017 (Supra). 18. The facts and the legal issues involve in the present appeals are identical to the facts and the legal issues involved in the groups of matter which has been decided by this tribunal on 14.07.2017 (Supra). 19. Keeping in view, the facts and circumstances of the present appeals and the judgments cited herein above in the group of matters of State Bank of India and 11 others Banks (Supra), we are of the considered view that the Impugned Order dated 16.06.2016 and the Provisional Attachment Order dated 17.12.2015 are not legally correct and liable to be set aside. 20. In the light of above, the schedule 'A', 'B' and 'C' properties are released from the attachment and the appellant Banks may take the possession of these properties mortgaged ....