TaxTMI 
TaxTMI 
2018 (4) TMI 1411
X X X X Extracts X X X X
X X X X Extracts X X X X
.... totally ignored. It is the duty of the Adjudicating Authority to follow the judgments of the higher courts and to give due respect. But in the impugned order, no reasons are given the Adjudicating Authority for ignoring the same. 4. Very casual approach was adopted in passing the impugned order which is passed mechanical manner. The Adjudicating Authority has also not considered the reply filed by the bank wherein it was specifically stated that under many reasons the provisional order of mortgaged properties could not have been passed. If the Authority would start ignoring the judgements of the Higher Courts and the real facts of the matter, the system would be suffered. 5. At the admission stage itself, both the parties have made their submission in main appeal itself. I shall now deal with the facts and legal issues involved in the present appeal. Counsel for the appellant is only pressing the relief against the respondent no. 1. 6. The present Appeal has been filed by State Bank of India against the orders of the Adjudicating Authority wherein the properties purchased years prior to the alleged date of generation of Proceeds of Crime & mortgaged with SBI by the borrow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Fts., chargeable parking area 964/2 Sq. Fts. Terrace 822/2 Sq. Fts. And Built up area 3219 Sq. Fts.) 4. 02.07.2010 Office Unit No. 407 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 5. 02.07.2010 Office Unit No. 408 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 6. 02.07.2010 Office Unit No. 409 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 7. 02.07.2010 Office Unit No. 410 on the 4th Floor of 'A' wing in the building named "Kukreja Centre" constructed on Plot No. 13, Sector-11, CBD Belapur, Navi Mumbai 230 Sq. Fts. build up area 11. No relief was sought against other respondents in the appeal as according to the appellant, the other respondent are proforma parties. The relief pressed in the present appeal is set-aside the impugned order by which the provisional order ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sanction credit facilities aggregating to Rs. 651.17 Crores in the form of 2804 vehicle loans sanctioned to individual drivers and employees of the Respondent No. 3 Company alongwith a Term loan of Rs. 160.00 Crores and Cash Credit Limit of Rs. 35.00 Crores in September 2012 to the Respondent No. 3 Company. The Appellant Bank has nothing to do and has no connection with the alleged crime committed by the Respondent No. 3 and other persons. 17. It is undisputed fact that the Appellant Bank is not holding any funds of the accused/ Respondents, on the other hand, the Appellant Bank itself has to recover more than Rs. 270 Crores from the Respondents No. 2, 3 & ors. 18. The mortgaged property with Appellant Bank is much before the crime date. The allegation of the respondent no. 1 that these properties out have been purchased from the proceeds of crime is incorrect as on the face of record. 19. Property at Sl.No. A of the Schedule of Properties of the PAO admittedly was acquired on 24.11.2008 and the propertyat Sl. No. C (listed as 3) of the Schedule of Properties (page Nos. 22) of the PAO admittedly was acquired on 07.04.2010 and the propertyat Sl. No. C (listed as 4) of the S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itors 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 rates due to the Central Government, State Government or local authority.; b. 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 90 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. 25. The amendment prima facie gives the Secured Creditor, i.e. the Appellant/State Bank of India, a priority over the rights of Central or State Government or any other Local Authority. 26. The amendment has been introduced to facilitate the rights of the Secured Creditors which are being hampered by way of attachments of properties, belon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....over the property, is 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." 30. The provisions of the amended SARFAESI Act prevails over the provision of the PML Act because the Amended SARFAESI Act is the subsequent legislation to the PML Act as held by the Hon‟ble ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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." 33. Counsel for the respondent no.-1 argues that what will happen to the criminal complaint pending before the special court if the borrower will settle the matter with the bank. I fail to understand the said argument firstly. No criminal matter is pending against the bank. On the complaint of the banks, the FIR was registered. The main concerned of mortgagee was that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 necessary to, inter alia, prevent the abuse of the process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard to the contours of the power available under Section 482 CR.P.C.it must be remembered that continuance of a criminal proceeding which is likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power under Section 482 Cr. P.C. In Sanjay Bhandari V/s. CBI, Crl. M.C. M.C. 5798/2014, Delhi High 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 be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....complaint under the schedule offence and PMLA is pending against the bank. 37. It is not denied by the respondent that the conduct of the bank was always bona-fide all the time. The bank is an innocent party who is legally entitled to inform the Adjudicating Authority about its innocence but the contention was rejected as appeared from the impugned order. 38. This Tribunal in the case of IPRS in appeal no. FPA-PMLA- 1302/MUM/2016 decided on 22.06.2017 had dealt 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents) MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so that the aspect of implicating any innocent person can be ruled out. Relevant para 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not involved in money laundering. 58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld 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 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence. C. Actually involved: Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition or use. There is absolutely 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 obta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 relating to proceeds of crime under this Act, (a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in moneylaundering; 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ttach 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 complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....late 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 that in Mr. Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nk it is public money. The appellant bank has the right to properties 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. 43. 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. 44. There is no money laundering in the present case as far as the bank is concerned. Due to the attachment proceedings by the ED the Appellant bank is not able to recover the public money by way of selling the properties. The proceedings for recovery are pending. 45. The ED....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d personal notions and presumption. If it would continue. The only God can help the future of banks. 50. The present order has been deliberately while confirming the PAO despite of having the knowledge of earlier judgments passed by this Tribunal referring the various judgments of the Supreme Court and full bench of Madras High Court and other High Courts. 51. The Ld. Adjudicating Authority has failed to understand that Appellant Bank has heavy stakes in the properties as they have lent its valuable money to the borrowers. The property is mortgaged to the Appellant Bank. If borrower fails to repay the loan, the Bank has a legal right to bring the properties to sale and recover its dues. Valuable right will be lost for the Appellant, by order of attachment and eventual confiscation. 52. The bank in the present case are just victim and not accused. If the attachment would continue against the mortgage property of the banks in this matter, the economy of the country would suffer. The banks in the present case have proceeded with the matter in good faith and are not involved in the offence of money laundering. 53. In the present case, even though the Ld. Adjudicating Author....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quired properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, the state is deprived of legitimate revenue to that extent hence 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 liable to be recovered by the Appellants Banks. 57. 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. The bank had to recover its outstanding dues by taking over the possession of the mortgaged properties in case the borrowers are not able to pay back the amount. 58. The Respondent No.-1 has no lien over the said properties as the Appellant bank is now the Legal transferee of said properties. The said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners because the bank is victim a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aint to the authorities. The trial in the prosecution complaint would take number of years. The victim cannot wait for such a long period of time, although after trial and final determination, the victim is entitled to recover the amount by selling immovable properties u/s 8(8) of the Act. 63. Non performing assets (NPA), choking the banking system who is already struggling for same time and banks condition are being deteriorated day by day. Lac of crores of rupees worth loans are classified as non-performing loans in India. The crises of banks in India is become worse. As a matter of fact, hundred of borrowers who have taken the loans against the securities and mortgaged properties, they are not returning the legal debts. They are simply adopting all sort of tactics by raising defense that their properties are attached by ED. Even they have stopped paying the installments due by raising the plea that why should pay debts once the attachment orders are passed. By way attachment, their properties are also safe so as the due amount. In fact they are happy if the attachment would continue against the mortgaged properties despite of passing the decrees by the DRT in favour of ban....