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TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 329
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....ound that the attachment order included many properties 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 f....
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....om the hypothecation of Plant and Machinery, Finished and Semi Finished goods and Raw-Materials, the respondent no.2 Firm mortgaged the immovable properties by way of Equitable Mortgage by Deposit of Title Deeds on 31.03.2009 and executed a Registered Mortgage Deeds on 02.07.2009 bearing Doc. Nos.3351/2009 & 3352/2009. This mortgage is relating to 91.50 Acres of land in Thindiyur Village. It is relevant to 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 t....
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.... to the utmost detriment of the Appellant Bank herein which is a Nationalized Bank. It must be stated that no plausible reason or justification has been accorded in the impugned order while rejecting the contentions of the Appellant Bank herein. The impugned order was received by the Appellant Bank on 02.05.2017 and hence this appeal is being preferred within the period of prescribed limitation. 9. In the present appeal, we are 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 ....
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....nt 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. e) The mortgaged properties were purchased 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. 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 subseq....
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....tc. In the course of investigation, the police authorities have taken the expert assistance of the Revenue Department Officials, Mines & Minerals Department Officials, Public Works Department, Water Resource Department, etc., to ascertain the damage caused by way of illegal mining activities and the estimated loss to Government to restore the damages. The Law Enforcing Agency upon completion of the investigation filed the final reports under section 173(2) of Cr.P.C, 1973 before the Hon'ble Judicial 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 laun....
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..... The total foreign exchange earnings of the firms during the period from 2003-04 to 2010-11 was equivalent to Rs. 2053.92 Crore. M/s PRP Exports vide their letter dated 23.07.2014, stated that the purchase of all movable and immovable assets, granite mineral deposits including land were duly accounted for in their books of accounts and all these assets have been acquired out of lawfully earned income. M/s PRP Exports vide their letter dated 25.08.2014, submitted the copies of the bank statements of the 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 Ma....
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....e FIRs. It is reported that M/s PRP Exports and Group companies/persons have jointly and independently entered into a conspiracy and trespassed into the adjoining Periyar main canal, damaged the boundaries of the canal, discarded the granite waste around the boundaries of the canal, thereby interrupted the flow of water in the canal causing hardship to the survival of cattle in the surroundings and altered the ground water level in the area affecting farming in the area and affecting the human habitation of the 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 observa....
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..../s PRP Exports have cleared the illegally quarried granite using the excess transport permit obtained. The total quantity of illegal quarrying of Granite Slabs/blocks by M/s PRP Exports, M/s PRP Granites and their partners has been quantified as 873743.494 (M³) valued at Rs. 2830.98 Crore, by the Department of Geology and Mines. 13.12 Law Enforcing Agency on the basis of the Evaluation Reports submitted by the Deputy Director, (Geology and Mining), O/o the Commissioner of G&M, Chennai, conducted investigation 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 mach....
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....e licence and thereby resulting in additional accruals. 13.14 In order to facilitate placement and layering of the funds derived out of the aforesaid criminal activities, the income generated out of illegal quarrying by M/s PRP Exports and M/s PRP Granites, initially brought into the books of account and were instantly withdrawn in cash, in huge tranches and moved into the Cash Ledger books of the company maintained in different places. Such rampant high value cash withdrawals by self-cheques were effected from closely 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 a....
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....ffences have been projected "as untainted" by the way of transforming them into the form of immovable properties, movable properties and investment in business and showing it as legally acquired, as such they are involved in the act of money laundering defined under Sec. 3 of PMLA and punishable under Sec.4 of PMLA. 13.16 In view of the above, as there was sufficient reasons to believe that M/s PRP Exports and others purchased the subject immovable properties out of the proceeds of crime and the same are likely to be concealed, 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 no....
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....6. We do not agree with the argument of the respondent no. 1 as trial against the borrowers may take couple of decades and we do not want that the banks and public should suffer for years. 17. Amendments in this regards have already carried out. The argument of the respondent no. 1 is without any logic. WRITTEN SYNOPSIS ON BEHALF OF THE APPELLANT During the course of appeal, the appellant has filed the Written Synopsis on 20.02.2018 which is as under: 18. In the present case admittedly 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. 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 ....
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....finished goods, semi-finished goods and stocks are hypothecated to the appellant Bank and the appellant Bank is having exclusive charge over the hypothecated goods. Apart from the hypothecation of Plant and Machinery, Finished and Semi Finished goods and Raw-Materials, the respondent no.2 Firm mortgaged the immovable properties by way of Equitable Mortgage by Deposit of Title Deeds on 31.03.2009 and executed a Registered Mortgage Deeds on 02.07.2009 bearing Doc. Nos.3351/2009 & 3352/2009. This mortgage is relating to 91.50 Acres of land in Thindiyur Village. It is relevant to 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. 23. Since the account of the respondent no.2 became NPA, the Appellant Bank had initiated recove....
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....er was received by the Appellant Bank on 02.05.2017 and hence this appeal is being preferred within the period of prescribed limitation. 28. The issues involved in the present appeal are squarely covered by judgment dated 14.07.2017, passed by this Hon'ble Tribunal in "State Bank of India v. The Joint Director, Directorate of enforcement". The relevant paragraphs of the aforesaid judgment are reproduced hereinafter for ready reference: "32. Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. 33. The amended provisions give overriding effect over any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned. The amended provisions are reproduced as under: (i) Section 26e of the SARFAESI Act, 2002: 26E. Priority to secured....
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....cured creditors which are being hampered by way of attachments of properties, belonging to the financial institutions/secured creditors, done by/in favour of the government institutions. xxxxxxxxx 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 institutions. xxxxxxxxx 46. In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged ....
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....ttached 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. xxxxxxxxx 56. That the definition of proceeds of crime as per section 2(u) of the pml act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, all the properties have been purchased by the Respondents and have been mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in the obtention of these properties and hence the same cannot be attached by the ED because the same would result in hampering the interest of the Appellant Bank. 57. The Ld. Adjudicating Authority has failed to understand that Appellant Banks have heavy stakes in the 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 ....
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....bove loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the Appellant Bank much before the alleged criminal action. The alleged proceeds of crime has not been used for acquiring the mortgage properties. It is even not the allegation of respondent no. 1 that the accused has acquired the mortgage properties with the proceeds of crime. The meaning of money laundering as mentioned in the objects of the Act will have to be read as part of the statute because as per Supreme Court of India in Vishaka and others Vs. State of Rajasthan reported in AIR1997SC3011 lays down at para 40 that the International Conventions and Norms are to be read into them in the absence of enacted Domestic Law occupying the field when there is no inconsistency between them. 61. The Ld. Adjudicating Authority has failed to considered that the ED has attached all the properties without examining the case of the banks. The evidence on record suggested that all the properties were acquired by the accused much-much before the alleg....
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.... 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 to the property. 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 both banks are victims and even after trial, they are to receive-back the said properties being victim party in normal types of cases u/s 8(8) of the Act. However in the present cases, the banks are innocent parties. They are not involved in any criminal proceedings. If they are asked to await till the trial is over, the systems in these types of cases, the economy would collapse. In the case, of Union Bank of India, no sancti....
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....te that the Appellant Bank enters into loaning transactions in its ordinary course of Banking business and has no role in the alleged irregularities/ proceeds of crime generated by the respondent no.2/its partners. It is to be stated that the Appellant has advanced credit facilities to the respondent no.2 on the basis of the Mortgage/Hypothecation and thus, such secured/ charged assets cannot be brought within the purview of PMLA, 2002. If this is allowed to happen, it shall have very wide ramifications and could have adverse implications. The respondent no.1 cannot have any prior claim over the secured assets mortgaged/hypothecated to the Appellant Bank. 32. The Adjudicating Authority, while passing the impugned order failed to note that the Respondent no.2 owes to the Appellant Bank about Rs. 196.00 Crores (as on 31.12.2016) and the properties offered as securities need to be sold to recover the dues. If the Appellant bank is prevented from proceeding with the recovery process, it will ensue 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 mortgag....
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.... the existing facilities vide sanction ticket dated 24.08.2011 and sanctioned the following credit facilities:- S.No. Type of facility Limit Sanctioned (Rs. In Crores) 1. Export Packing Credit 93.00 2. PCFC (Sub limit of EPC) (50.00) 3. FBP/FBN (DA 180 days) 93.00 4. Import/Inland LC (DA 180 days) & Buyers Credit Import LC (Capital Goods) as Sub limit 50.00 (5.00) 5. Bank Guarantee 5.00 6. Forward Contract 288.12 39. The Borrower i.e. M/s. PRP Granites was repaying the loan amount to the Appellant Bank till 31.03.2013 whereafter in pursuance of frozen orders of the Deputy Superintendent of Police, Prohibition Enforcement Wing doing vide letter dated 31.08.2012, the loan account became NPA and the total outstanding demand was quantified Rs. 135.08 Crores on the date of NPA. 40. 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....