TaxTMI 
TaxTMI 
2018 (5) TMI 1242
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....tice F. NO. ECIR/08/DZ/2015/2224 dated 18.08.2017 issued by the Respondent; d. Quash and set aside any steps taken by Respondent in furtherance of the execution of the impugned order dated 04.08.2017 or Notice dated 18.08.2017; e. Pass any other order as this Hon"ble Appellate Tribunal may deem fit and proper in the interest of justice. On the facts and grounds mentioned in the appeal memo. BRIEF FACTS OF THE CASE 2. It is revealed from the material available on the record that the appellant herein filed a written complaint dt. 17.11.2014 before the CBI, (BS & FC), New Delhi against M/s Dynamic Shells (India) Pvt. Ltd. (DSIPL), defendant no. 1 (D-1) in the O.C. and others namely Shyam Sunder Bhatter (D-5), Ms. Nirmala Bhatter (D-3), Shambhu Prasad Singh (D-2) & Ms. Jaspreet Kaur mainly alleging therein regarding commission of fraud on the appellant Bank in getting the loan enhanced and sanctioned by providing and producing false and forged documents. 3. In pursuance to the aforesaid complaint the CBI registered a case bearing no. RCBD/2014/E/0003 u/s 120B r/w 420,468 & 471 of I.P.C and section 13(2) r/w 13(1)(d) of P.C. Act,1988. 4. It is further re....
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....ies mentioned below for creation of mortgage. The details of the properties are as under- Sr. no. Address Owned by Status Market Value in (Lakhs) 1. Residential H.NO. C- 3/275, Vipul Khand, Gomti Nagar, Lucknow (UP), Area (250 Sq. Mts.) Sh. S.P. Singh Mortgaged with PNB 162.32 2. Commerical Shop No. SS- 14, Culmohar Complex, Section 15, Noida (UP) area 80 Sq. ft. Sh. S.S. Bhatter Mortgaged with PNB 38.4 3. Factory Land & Building at A-43, Section- 8, Noida, U.P. area 800 Sq. mtr. M/s Rockside Impex Pvt. Ltd., through its directors Sh. S.S. Bhatter and Sh. Manoj Kumar Mortgaged wih PNB 462.42 4. Lnad & Building (Twostoreyed), Industrial Shed and Machineries, situated at Plot no. 350, Section 3 Phase-II, Industrial Growth Centre, Bawal, Haryana M/s Bynamic Shells India Pvt. Ltd. mortgaged with PNB 1279.4 5. Agricultural Land (7.35 acre), Khata No.-28, 55/109, MaujaPur and Paharajpur, Thesil, Sikanderpur Balia, U.P. Sh. S.P. Singh and Sh. J.P.N. Singh Negative lien with PNB 100.45 6. An Agricultural land, Mauzapur, Gata No. 1009, Pargana Sikandarpur Purbi, Tehsil, Sikandarpur, Dist. Ballia,....
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....g notice u/s 13(2) and taking symbolic possession of the mortgaged properties listed above and also move the DRT by filing Original Application bearing no.84/2013 for recovery of debts. The said proceedings is stated to be pending before the DRT. 15. Both the parties have made their submissions. We have heard them with regards to the aforesaid properties involved in the present appeal and considered the material available on record. 16. The most important issues involved in the present appeal are whether the properties mortgaged with the Appellant Bank are "proceeds of crime" as defined u/s 2(1)(u) of PMLA. Secondly, whether the PMLA has priority over SARFEASI and RDDB & FI Act. The three member Bench of this Tribunal, to which we were part of the said Bench, decided the appeals on 14.07.2017 in the group of matters i.e. State Bank of India vs. Joint Director, Directorate of Enforcement, Kolkata in appeal no. FPA-PMLA- 1026/KOL/2015 followed by several other decision in different matters including recently decided in the matter of IDBI Bank Ltd. Vs. Deputy Director, Directorate of Enforcement, Delhi in FPA-PMLA-2147/DLI/2018 on 10.05.2018. In all the aforesaid matters the afo....
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....he Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of the said decision is as follows: "Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13. that its provisions are to prevail 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....
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....ch an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned." 11. We are in agreement with the aforesaid decision of the case, more so when we find that whenever the legislature wishes 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 i....
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....tors 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 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 w....
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....come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending." 37. The Assistant Commissioner (CT) Vs. The Indian Overseas Bank, Madras High Court, WP No. 2675 of 2011 (Full Bench) "2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principle Act, Which reads as under:- "31B. 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 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 Insolv....
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....39. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras "State Bank of India Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors.", while upholding the Amendment Act, 2016 to Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same court in The Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) lifted the attachment entry and held that- "In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realise the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold good qua 2002 Act as well." 40. B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect 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 adjudicati....
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....de easy." In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter. 42. It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant - i.e. Union of India in order to pay the remaining out- standing amount. The undertaking in this regard is recorded in Court. It is written agreement and the statement of the parties were recorded. 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 compl....
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....rties 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, fi....
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....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 they rightly did so but their contention was rejected as appeared from the impugned order. 48. 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....
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.... such person shall also be given an opportunity of being heard to prove that the property is not involved in money- laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach" 56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by 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 prop....
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....ering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is 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" ....
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....ng also cannot be equated to believing. "Reason to believe" is a higher level of state of mind. Likewise "knowledge" will be slightly on a higher plane than "reason to believe". A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same." The same test therefore applies in the instant case where there is absolutely no material 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 ....
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.... " 20. The said sections read as follows:-- "23. Presumption in inter-connected transactions Where money-laundering involves two or more inter- connected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating 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 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 produci....
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....gments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164 Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach 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. Srini....
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....roperties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA." Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case. 25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate 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 mon....
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....inancial loss. The money that has been advanced to the borrower is public money. 21. The amendment in SARFAESI and RDDB Act has been brought in the year 2016 i.e. before the passing of the impugned order. But nothing has been discussed nor considered in the impugned order regarding the prevailing of SARFAESI and RDDB Act over PMLA or vice versa in the light of aforesaid amendments of 2016. 22. On perusal of Impugned order we could not find any material that the aforesaid six properties of this appeal have been acquired out of "proceeds of crime". In this regard it is important to note and quote the relevant portion of the impugned order which reads as under: "76. I have gone through the O.C. along with relied upon documents, PAO, statements recorded under section 50 of the PMLA, investigation conducted, submissions of Complainant & defendants and hold that prima facie case for confirmation of PAO is made out as apparently properties are invalid in money laundering and defendants are in possession of proceeds of crime which include not only the proceeds of crime but also value thereof. PAO is accordingly confirmed considering over all facts. 77. Provisional A....
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.... RDDB Act and PMLA are special Acts. The SARFAESI Act and RDDB Act are enacted earlier to PMLA. The RDDB Act and PMLA have non-obstante clause. Recently in 2016 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. The Parliament in its wisdom has not excluded the application of the amended provisions to the proceedings under PMLA. In other words, had the Parliament intended to exclude the application of non-obstante clause of SARFAESI Act and RDDB Act to PMLA then it would have done so expressly as has been specifically prescribed in the amended provisions. It may also be noted here that the judgment of Hon'ble Supreme Court in the matter of KSL & Industries Ltd (supra) has been delivered in the year 2014 whereas the amendment in aforesaid two Acts have been brought in the year 2016. 25. One more important thing to be noted that Hon'ble Supreme Court in the aforesaid ca....
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....e mortgage of the aforesaid properties a legal right has been accrued in favour of the Appellant Bank over the said properties which cannot be taken away in the given facts and circumstance of the case. As far as borrowers are concerned (who are the accused parties) even we stress that as per law, they must face the trial in the chargesheet filed against them. 27. We have considered the judgment or order passed by this Tribunal in the matter of Chief Manager, Syndicate Bank Vs. Dy. Director, PMLA in Appeal no. FPA-PMLA-A-34/CAL/2009 from which it appears that the facts of that appeal are quite different from the facts of the present appeal. In the said appeal proceeds of crime were used to acquire properties and those acquired properties were mortgaged with the Bank. Para 2 of the said order of this Tribunal which reflects the brief facts of the case is reproduced below to clear the cloud:- "2. Brief facts: M/s Hindustan International, Kolkata proprietor Sh. Gopinath Das operated and maintained current a/c 01000051007 and 03921011000797 with State Bank of India, Overseas Branch, Kolkata (in short SBI) and Oriental Bank of Commerce, Stand Road Branch, Kolkata (in short O....
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....rt of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant Bank which is public money. The Appellant Bank has the right to property 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 mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent is not denying the fact that the Bank is a victim party who is also innocent and is entitled to recover the loan amount. It is also not disputed by the respondent that the properties in dispute are mortgaged with Bank and it has to go to the Bank ultimately. We do not agree with the argument in this regard in ....