TaxTMI 
TaxTMI 
2018 (2) TMI 413
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.... proper in the facts and circumstances of the case in favour of the appellant and against the contesting respondents. FACTS IN BRIEF 2. The Punjab National Bank (PNB) was arrayed as defendant No. 5 in the OC No. 537/2016. It appears that the bank has been arrayed as a defendant because two properties mentioned below, secured against loan, have been attached by the Enforcement Directorate vide PAO No. 03/2015 dated 08.12.2015 in OC No. 537/2016. The details of properties attached and involved in the present appeal are as follows: i. Undivided 24.27% share and interest in Nazul plot No. A-6 (New. 7) of mouza-Lendra together with RCC super structure comprising Unit No. 1 covering super built up area about 261.92 sq. mts. On the ground floor and; ii. Undivided 21.31% share and interest in Nazul plot no. A-6 (New. 7) of mouza-Lendra together with RCC super structure comprising Unit No. 2 covering super built of about 230.21 sq. mts. On the first floor on the building known as "Devashraya Apartments" bearing corporation House No. 28, Nazul Sheet No. 18-C situated at 2nd Lane, Balraj Marg, Dhantoli, Nagpur within the limits of Nagpur Municipal Corporation, ward No.....
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....er the Provisions of Prevention of Money Laundering Act, 2002. 4.3 The CBI filed Charge sheet bearing No. 14/2014 dated 28.10.2014 before the Court of Special Judge (CBI, Patiala House Court, New Delhi) against M/s. GIL Nagpur, Shri Mukesh Gupta, then Director of M/s. GIL for commission of offence punishable under Section 420 of IPC, 1860. In the said charge sheet it is, inter alia, alleged that M/s. GIL misrepresented the facts in the application for and also misrepresented the facts in the present status of end use plant for which were submitted under the signature of Shri Mukesh Gupta. 4.4 It is revealed that Enforcement Directorate investigated the matter under the PMLA, 2002. During the course of investigation a letter dated 25.08.2014, was issued to Punjab National Bank, Sitabuldi Branch, for seeking the details of A/c statement of M/s. Grace Industries Ltd., Shri Mukesh Gupta & Smt. Seema Gupta, copy of KYS Norms, certified copies of the documents to obtained Loan, collateral securities provided at the time of loan and other details. The Bank vide letter dated 10.09.2014 provided the copy of sale deed bearing No. 4860/1996, copy of registered mortgage deed bearing No. ....
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....ame highly irregular in payments. The said loan account became grossly irregular and Shri Mukesh Gupta did not regularize the account in spite of various opportunities given to him. 8. The said loan account of Shri Mukesh Gupta was declared Non Performing Asset (NPA) as per norms of RBI therefore, the bank proceeded under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002 and has issued the notice under Section 13(2) on 09.12.2013. that even then defendants failed to respond the said demand notice and failed to pay the outstanding dues of the appellant Bank. Consequently being compelled the appellant Bank issued notice u/s 13(4) of the SARFESAI Act and have taken the possession of the mortgaged properties vide notice dated 18.03.2014. 9. It is the case of the Bank that the realization of dues under the aforesaid SARFAESI Act, 2002 has been stayed by the Debts Recovery Tribunal (DRT)-I, Mumbai by granting status quo subject to deposit of Rs. 50 lakhs. 10. According to the bank, the recovery proceedings was filed before the DRT for recovery of Rs. 4,62,96,909.97/- which is pending before DRT, Nagpur vide OA No.....
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.... 2002, the provisions of The Prevention of Money Laundering Act, 2002 would not be applicable to the detriment of such secured creditors. It is also useful to refer to sub-Section 20(A)(B) of Section 19 of Recovery of Debts & Bankruptcy Act, 1993 which ordains that notwithstanding anything to the contrary contained in any law for the time being in force, the proceeds from sale of secured assets shall be appropriated first towards the recovery of costs and thereafter towards the debts owed to the banks or financial institutions. Further, Section 31B of the aforesaid Act postulates that notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created shall have priority and shall be paid in priority over all other debts and Government due to the Central Government, State Government or Local Authority. The aforesaid provisions which have been newly inducted in the Act would certainly override the provisions of the Prevention of Money Laundering Act, 2002 in case of inconsistency and repugnancy between the provisions thereof. 13. ....
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....secure the sanction of the loan and its mis- utilization. 18. The Adjudicating Authority while passing the order has dealt with the contention of the PNB in following manner. The relevant portion of the impugned order is produced below: "13. It is the case of D-4 and D-5 that the assets mortgaged to them are "secured assets". The necessary proceedings for recovery of Rs. 7,33,52,678.33/- have been initiated by D-4 before DRT, Nagpur, which is pending. Similarly, D-5 has contended that they have initiated necessary proceedings under SARFAESI Act for recovery of Rs. 4,62,96,909.97/-, which is pending before DRT. It need to be borne in mind that Section 71 of PMLA has an overriding effect. Consequently, the provisions of PMLA shall have effect and prevail over provisions of any other Act or its provisions. Looking at the scheme of the Act and the provisions made there under, it cannot be held otherwise but, that once the assets attached are found to be proceeds of crime and found to be involved in Money-Laundering, such assets attached cannot be permitted to be returned, utilized or adjusted in any manner, save and except in the manner in which the provisions of the PMLA, ....
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....ns of the common order in State Bank of India matter (supra) are reproduced below: "30. We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. & Ors. Wherein after 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....
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....revail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended 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....
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....s to do so it makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 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, re....
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.... (ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 : 31B. Priority to secured creditors - Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and other rates 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 ....
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....nd shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates 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, 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." "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 ....
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....of bonafide acquisition of property in para 103. The same read as under:- "103. 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 adjudicating 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 (including the Reply furnished by a 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..." ....
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....ecorded. Counsel for the borrowers has also informed us that his client also intent to pay the remaining out-standing amount to the State Bank of India in order to clear their liabilities once the attached properties are sold and even otherwise. Copy of the settlement of the borrowers and the complainant Bank of India was filed before us. As far as the schedule offence is concerned, we do not wish to make any comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High Court u/s 482 Cr. P.C. could be filed. 43. It is not denied on behalf of department that these provisional 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 cr....
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....igh Court, dated 29.06.2015 "69..... By consent the parties have settled all disputes in the recovery suit, the consent decree of DRT stood to be disposed off as duly satisfied. There is hence no force in the submission of respondents that the complainant bank has not exonerated the petitioners, first being the Civil Procedure Code, and the second being the OTS Scheme of the Reserve Bank of India, which the petitioners have extensively referred to in the original petition. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. 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 ha....
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....ealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of the same in para no. 55 to 60 the same read as under:- "55. Whether innocent party whose properties i.e. movable or immovable are attached can approach the Adjudicating Authority for release of attached property. The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso 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 i....
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.... 26 of judgment is reproduced below:- "26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laundering Act was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that 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 ....
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....Single Judge has observed as under:- "37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive 'and', makes it luminous that any persons concerned in any process or activity connected with such "proceeds of crime" relating to a "scheduled offence" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two prerequisites are satisfied i.e.- "(i) Firstly, if he- (a) directly or indirectly 'attempts' to indulge, (b) „knowingly‟ either assists or is a party, or (c) is „actually involved‟ in such activity; and (ii) Secondly, if he also projects or claims it 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 pers....
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....solutely no material or circumstantial evidence whatsoever, oral or documentary, to substantiate any such allegation qua the petitioners, D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or indirect involvement, abetment, conspiracy or common intention, nor is any such case made out even on prima facie basis against any of them." 39. The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled 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....
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....oceeds of crime are involved in money- laundering; and (b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering. 21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not 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 ....
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....ave financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation. "21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by 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 we....
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....ty and person accused of having committed an offence. All the persons involved in that case were close relatives. 26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same 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." 21. From the scheme ....
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....e Ld. Adjudicating Authority has stated that "the PAO and the O.C. enumerates the 14 properties (which include the mortgaged properties involve in this appeal) standing in the name of Shri Mukesh Gupta & Smt. Seema Gupta either singly or jointly and in the name of Gupta International Industries, Nagpur. The details concerning the said properties as to its acquisition, its registration, consideration and details of transfer in their favour are well enumerated in para 22 to 35 of P.A.O.." However, on going through the said PAO it is seen that the mortgaged properties i.e. at Sr. no. 7 & 8 were purchased vide sale deed on 08.05.1996 for ten lakhs each in the year 1996. We have gone through entire PAO but we could not find any substantial material in the said PAO evidencing that the properties involved herein are acquired out of proceeds of crime. Therefore we are not in an agreement with Ld. Adjudicating Authority that the mortgaged properties are acquired out of proceeds of crime or that it could be attached as a value of proceeds of crime particularly when the properties are mortgaged with the Bank. 26. That the definition of "proceeds of crime" as per Section 2(u) of the PML Act....
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....acquired by the borrowers much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The Bank has already filed the suit for recovery and has also 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. 30. 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 Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case there was absent of such requirement. The said properties are already in the possession of the Appellant Bank under the SARFAESI Act. 31. The Hon'ble Supreme Court of India in the case of Attorney- General of India and others reported in AIR 1994 SC 2179 while dealing ....