TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 329
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....roperties of M/s. PRP Granites which had been mortgaged with the Appellant Bank. 3. The facts leading to the present appeal are briefly stated as under:- a) The respondent no.2 firm is a 100% Export oriented unit recognized by the Madras Export Processing Zone (MEPZ) for the purposes of exporting granite; and had set up a Factory for cutting and polishing of granite blocks at Therkutheru Village, Melur Taluk, Madurai District. b) The respondent no.2 opened a Current Account with the appellant Bank on 27.12.2008. The respondent no.2 represented by its Partner Mr. Palanichamy approached the Appellant Bank for availing credit facilities and as such considering the request of the respondent no.2, the answering Bank vide its sanction ticket dated 30.03.2009 sanctioned a sum of Rs. 50.00 crores towards Export Packing Credit. c) Thereafter, at the request of the respondent no.2, the Appellant Bank sanctioned the enhancement of the existing credit facilities and took over the credit facilities of the respondent no.2 from State Bank of India and vide sanction ticket dated 01.12.2009 sanctioned the following credit facilities:- S. No. Type of facility Limit Sanctioned (Rs. In C....
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....o mention that for all the credit facilities, necessary loan documents were executed and mortgage were created in favour of the Appellant Bank on various properties by Deposit of Title Deeds and the respondent no.2 also executed a letter confirming the creation of mortgage on 16.11.2010 and Registered Memorandum of Deposit of Title Deeds executed on 07.01.2011 bearing Doc.Nos.94/2011 and 95/2011. Apart from the respondent no.2, one Mr. Deivendran had given personal guarantee and mortgaged his immovable properties. g) Since the account of the respondent no.2 became NPA, the Appellant Bank had initiated recovery proceedings under the SARFAESI Act and issued Demand Notice under Section 13(2) of the Act, including the hypothecated goods. The Appellant Bank took possession of the charged immovable properties under Section 13(4) of the Act and thereafter, the same was also put on auction and the sale notice was issued on 06.01.2014. The action of the Bank was challenged by the respondent no.2 in S.A. No.39 of 2014 filed before DRT, Madurai. h) One Time Settlement was also proposed by the respondent no.2 but the respondent no.2 did not remit the OTS amount as per the terms and conditi....
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.... only concerned as to whether provisional attachment was sustainable as per law or not and thereafter confirmation of the same by passing the impugned order. The following is the case of the appellant in the present appeal: a) That the impugned order is bad in law for want of cogent and plausible reasoning. The contentions advanced before the Adjudicating Authority have not been dealt with. While passing the impugned order, the Adjudicating Authority erred in appreciating that the Appellant Bank, as secured creditor, has paramount first charge over the assets hypothecated/mortgaged to the Bank. It is submitted that the granite blocks and finished products lying in the premises of the borrower are absolutely and exclusively hypothecated/charged with the Bank and the Bank as secured creditor, has first preference to bring the said granite blocks and finished products, etc. for sale to recover their outstanding dues. b) That the Adjudicating Authority, while passing the impugned order failed to appreciate that the Appellant Bank enters into loaning transactions in its ordinary course of business and has no role in the alleged irregularities/proceeds of crime generated by the resp....
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....into purchase of these properties so as to attract the provisions of PMLA. f) That the provisions of PMLA,2002 have to be read in harmony with the spirit of the Recovery of Debts and Bankruptcy Act 1993 and the SARFAESI Act, 2002. The provisions of PMLA, 2002 cannot be interpreted in a manner so as to take away the statutory rights of the secured creditor from realizing its outstanding dues. g) The Adjudicating Authority, ought to have appreciated that since the appellant bank is the Govt. of India Undertaking dealing with the public money and it is enforcing the recovery under the SARFAESI and RDBF Acts and issuance of notice by the Bank u/S. 13(2) of the SARFAESI Act amounts to attachment, any subsequent attachment could be made by the Ld. Adjudicating Authority only against the properties not mortgaged / hypothecated to the appellant bank, otherwise, it would defeat the very purpose of the special enactments. h) The Adjudicating Authority, while passing the impugned order failed to appreciate that as per Section 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and Section 35 of the SARFAESI Act, 2002, the said special enactments are having over....
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....cial Magistrate Courts, Melur and Usilampatti for the FIRs registered against the 6th respondent and its partners. 13.2 On the basis of the aforesaid information /copies of documents available with this Directorate, certain offences alleged in the aforesaid three FIRs were covered under the list of scheduled offences of Section 2(1) (x) and Section 2(1)(y) of the Prevention of Money Laundering Act, 2002 ( herein after referred to as "PMLA") and prima-facie, the persons accused in the said FIRs appeared to have committed an offence of money laundering under Section 3 of PMLA, an Enforcement Case Information Report (ECIR) No. CEZO/15/2013 was registered on 13.12.2013 to investigate the laundering of the crime proceeds under PMLA. 13.3 In the meantime, Shri K. R. Ramasamy @ Traffic Ramasamy filed Writ Petition No. 16841 of 2014 before the Hon'ble High Court of Madras praying to issue a WRIT OF MANDAMUS directing the officials of the Enforcement Directorate, Chennai to conduct investigation under PMLA and pass appropriate orders for taking action against the illegal mines functioning in the State under PMLA. In view of the monitoring of the investigation conducted into illegal mining....
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....he respective bank accounts and the ledger book for having made cash payments and cheque payments for the period from 2007-08 to 2010-11 towards the purchase of immovable properties in the name of M/s PRP Exports and others. 13.5 State Bank of India, Commercial Branch, Madurai, vide their letter dated 13.05.2016, informed that the credit facilities enjoyed by M/s PRP Exports and M/s PRP Granites were taken over by Indian Bank, Madurai Main Branch on 31.12.2009 and that the current account No. 10420662452 of M/s PRP Exports holds fixed deposits for Rs. 32,57,275/- (Rupees Thirty Two lakhs fifty seven thousand and two hundred and seventy five only). 13.6 M/s Indian Bank, Madurai Main Branch, Madurai, vide their letter dated 17.05.2016, have, inter alia, stated that they have granted credit facilities to M/s PRP Exports and have obtained certain collateral securities in the form of landed properties. It is claimed that PRP Exports is having an exposure of Rs. 160 Crore and have submitted the details of the immovable properties mortgaged. 13.7 M/s HDFC Bank, Aminjikarai, Chennai, vide their letter dated 18.05.2016 have, inter alia, stated that based on the application received from ....
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.... surrounding areas and committed the offences covered under Section 120B, 147, 430, 434, 447 of IPC, 1860 read with Section 3(i) (ii) of Tamil Nadu Public Property (Prevention of Damage and Loss) Act, 1992. (TNPPDL Act) The Assistant Engineers, PWE/WRD, Periyar Main Canal and Assistant Executive Engineer, PWE/WRD, Periyar Main Canal Sub Division No-2 quantified the cost of the damage caused to the public property by M/s PRP Exports and Others to the tune of Rs. 1520.05 Lakhs. 13.10 Revenue and Mines Officials have conducted joint field inspection of the area covered under the quarry lease granted to M/s PRP Exports, M/s PRP Granites and their partners. Based on the observation of the physical orientation of the quarry, they came to a convincing conclusion that the quarry pits in the leasehold areas and non-leasehold area were merged together and formed as a single basin. As the granite quarrying operation was mechanized one, it was impossible to do the quarrying operation in the adjoining non-lease areas without the knowledge /without the active support of the lessee. Therefore, it has been certified that the lessee viz., M/s PRP Exports and their partners alone were having access....
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.... into the complaints relating to the FIRs registered against M/s PRP Exports, M/s PRP Granites and their partners. On completions of investigation against the FIRs, separate charged sheet / final report under Sec. 173(2) of Cr P C, 1973 has been filed before the Hon'ble Judicial Magistrate Court at Melur and Usilampatti, Tamil Nadu against the 6th respondent and others for offence of conspiracy to illegally quarry granite stones from the non-lease hold Government poramboke lands adjoining the lease hold land, without the permission of the Tamil Nadu Geology & Mines Department, by removing the boundary stones erected by the Revenue Department, used poclain excavator machines to clean the land surface to identify the granite stones, used drilling machines to make holes to insert explosive materials to break the granite stones for easy removal of the same, used crane to load it in trailers for further processing, used forged and fabricated documents to cheat the statutory authorities posing the materials as such of lawful quarrying from lease hold lands and thereby committed offences liable for punishment under Section 120 B,447,379, 420,434,465,467,468, 471,304(ii) r/w 511,109,114 IP....
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....y managed bank accounts of M/s PRP Exports and M/s PRP Granites held with different banks. Thus the above funds derived as a consequence of the aforesaid criminal activities are "proceeds of crime" as defined under Section 2(1)(u) of PMLA. The aforesaid ploy orchestrated by the Partners of M/s PRP Exports and PRP Granites assume the characteristic of placement and layering of the "proceeds of crime" which then apparently reserved for their ultimate integration, which are altogether nothing but the ingredients of money laundering. 13.15 Accordingly, Shri P Palanisamy and other Partners in their endeavour to disguise the "proceeds of crime" from its actual source and to project the same as untainted, have indulged in devious process and transmitted a part of the aforesaid proceeds of crime to acquire 105 immovable properties on payment of Cheque directly in the name of the executors for Rs. 48,62,43,461/- and to acquire 1359 immovable properties on payment of cash as accounted in the ledger account cash books at different places for Rs. 11,42,55,968/- during the period from 2006-07 to 2012-13. Thus it is evident from book of accounts of M/s PRP Exports that proceeds of crime to an e....
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....ealed, transferred or dealt with any manner that would frustrate the proceedings relating to confiscation of such proceeds of crime, the Deputy Director, Enforcement Directorate, Chennai under the powers vested under the provisions of Section 5(1) of the PMLA issued the Provisional Attachment Order in PAO.No. 22/2016 dated 09.12.2016 and the same was forwarded to the Adjudicating Authority, PMLA, New Delhi under Section 5(2) of PMLA and subsequently complaint was filed on 05.01.2017 before the Hon'ble Adjudicating Authority (PMLA), New Delhi, under sub-section (5) of section 5 of the PMLA. The Hon'ble Adjudicating Authority (PMLA), New Delhi issued show cause notice under Section 8(1) of PMLA to the Appellant herein viz., Indian bank to defend the attachment proceedings, if aggrieved. The Appellant claimed that they hold exclusive charge over the hypothecated goods and mortgaged immovable properties against the credit facilities extended to PRP Exports and Others. That the account became NPA and the Appellate bank had initiated recovery proceedings under SARFAESI Act. The Hon'ble Adjudicating Authority (PMLA), New Delhi vide Order in OC No. 671/2017 dated 26.04.2017 confirmed the P....
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.... oriented unit recognized by the Madras Export Processing Zone (MEPZ) for the purposes of exporting granite; and had set up a Factory for cutting and polishing of granite blocks at Therkutheru Village, Melur Taluk, Madurai District. The respondent no.2 opened a Current Account with the appellant Bank on 27.12.2008. The respondent no.2 represented by its Partner Mr. Palanichamy approached the Appellant Bank for availing credit facilities and as such considering the request of the respondent no.2, the answering Bank vide its sanction ticket dated 30.03.2009 sanctioned a sum of Rs. 50.00 crores towards Export Packing Credit. 19. Thereafter, at the request of the respondent no.2, the Appellant Bank sanctioned the enhancement of the existing credit facilities and took over the credit facilities of the respondent no.2 from State Bank of India and vide sanction ticket dated 01.12.2009 sanctioned the following credit facilities:- S.No. Type of facility Limit Sanctioned (Rs. In Crores) 1. Export Packing Credit PCFC (Take Over) 68.00 2. FBP/FBN (Take Over) 68.00 3. Import LC &nb....
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....respondent no.2 also executed a letter confirming the creation of mortgage on 16.11.2010 and Registered Memorandum of Deposit of Title Deeds executed on 07.01.2011 bearing Doc.Nos.94/2011 and 95/2011. Apart from the respondent no.2, one Mr. Deivendran had given personal guarantee and mortgaged his immovable properties. 23. Since the account of the respondent no.2 became NPA, the Appellant Bank had initiated recovery proceedings under the SARFAESI Act and issued Demand Notice under Section 13(2) of the Act in September, 2013. The Appellant Bank took possession of the charged immovable properties including the Hypothecated goods under Section 13(4) of the Act and thereafter, the same was also put on auction and the sale notice was issued on 06.01.2014. The action of the Bank was challenged by the respondent no.2 in S.A. No.39 of 2014 filed before DRT, Madurai. 24. One Time Settlement was also proposed by the respondent no.2 but the respondent no.2 did not remit the OTS amount as per the terms and conditions. Since the OTS conditions were not fulfilled by the respondent no.2, the Appellant Bank cancelled the OTS. The Appellant Bank also filed an Original Application in O.A. No.456 o....
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....en 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 reproduced as under: (i) Section 26e of the SARFAESI Act, 2002: 26E. Priority to secured creditors Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or 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. (ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993: 31B. Priority to secured cred....
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.... 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 the Court where the settlement was recorded. 47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and the....
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....properties as they have lent its valuable money to the borrowers. The property is mortgaged to the Appellant Bank. If tomorrow any 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. As a matter of fact, the borrowers may not be interested in repaying the loan, since they are not going to enjoy the property. Therefore, ultimately, the action of the ED/Respondent No. 1 would make the Appellant, a much greater victim than even the accused/Respondents. Though in the present case, the borrowers have a settled their disputes with the Union Bank of India. Terms of settlement have already been recorded by the Court. Those terms are binding upon the parties. On behalf of borrowers, the statement has been made that they are also ready to resolve their disputes with the State Bank of India on reasonable terms. As and when these properties are sold, the banks would be able to receive the public money. The banks in the present case are just victim and not accused. If the attachment would continue against the mortgage property of the ban....
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....icating 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 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 it is clear by the order of the Adjudicating Authority that t....
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....hey 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 Adjudicating Authority to take a prima facie view on available material and facts produced. All the contentions raised by Mr. Matta has no substance. The provisional attachment in the present matter is bad and against the law. In t....
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....e irreparable hardship, financial strain and loss of public money. 33. The Adjudicating Authority, while passing the impugned order failed to note that the Appellant Bank accepted mortgage over the lands which are not quarry sites and the basis of attachment and show cause notice is on the assumption that the lands offered as mortgage are quarry sites. This assumption is erroneous and as such the impugned order confirming the Provisional Attachment cannot sustain in law. 34. The Adjudicating Authority has passed the impugned order failing to appreciate that the mortgaged properties were charged much before the disputed claim period and therefore, it is inconceivable that ill-gotten fruits have gone into purchase of these properties so as to attract the provisions of PMLA. Even otherwise it must be appreciated that the bank while accepting mortgage could not have ascertained or foreseen the future disputes and allegations against the source of funds of the borrower/guarantor. 35. The Adjudicating Authority, while passing the impugned order did not understand that the provisions of PMLA, 2002 have to be read in harmony with the spirit of the Recovery of Debts and Bankruptcy Act 19....