TaxTMI 
TaxTMI 
2018 (7) TMI 340
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....mmitted the scheduled offences, generated proceeds of crime and deployed them in properties so as to give different colour to the ill-gotten money, I therefore order 1. confirmation of the PAO in question to the extent modified. 2. that this shall continue during the pendency of the proceedings relating to any schedule offence before a court, and 3. that shall become final after the guilt of the person is proved in the trial court and order of such court shall become final. As regards the property of Sh. Mundalur Govardhan at Sl. No.8 of the PAO, I am convinced that ends of justice will be met if that part and parcel of the above land (to the value of Rs. 26.50 lakhs) as per the fair market value that prevailed at that time of acquisition of the property is attached. As D3 was not aware of the source of proceeds of crime, his name shall be deleted from the list of Respondent s.' 3. The said order, therefore, has been challenged by the ED - appellant. As far as the Respondent No.5 (which is now State Bank of India) is concerned, the counsel appearing on behalf of the Bank states that the provisional attachment order as well as the impugned orde....
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....ble Madras High Court judgement in WP No. 4696/2012 and 12854/2011). It has also been observed that since the appeal filed against the aforesaid order is pending with the Division Bench, Chennai High Court and matter is sub-judice, it would be prudent to wait for the verdict. However, it is further stated in the order that 'All that I can state now is that in case the above stay order is vacated, the complainant can agitate before the Authority by filing fresh PAO and Complaint. I firmly believe that SBI will not alienate these properties in the meanwhile which will tantamount to frustration of proceedings of law under the PMLA'. 3. Aforesaid findings and observations are not legal and proper on the following grounds: a. The facts of the case as dealt in Indian Bank case are distinct and different from the facts of the present case. The Madras High Court in WP No.4696/2012 and 12854/2012 had set aside the provisional attachment order as being illegal on the ground that further proceedings pursuant to the issue of Provisional Attachment Order was taken while the Hon'ble court had granted an interim stay. Hence the Madras High Court Judgement does not have a bearing....
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....Bank of India who is Respondent No. 5. The facts as per the appellant are mentioned as under:- i) FIR No. RC 4EUR/2010 dated 11.08.2010 was registered by Central Bureau of Investigation, BS&FC Bangalore against (i) Shri O.N. Nagaraja, the then Branch Manager, Union Bank of India, Bellary Branch, (ii) Shri D.N. Prasad, the then Branch Manager, Union Bank of India, Bellary Branch, (iii) Shri N. Shrihari, Managing Director, M/s. Rytu Depot Cold Storage Pvt. Ltd. No. 12/1(III), Part Sreeramnagar, AndhraluBomanahalli Road, Dist. Bellary, Karnataka & Others; and that a charge sheet No. 07/2011 dated 26.08.2010 (in RC-4(E)/2010/CBI/BS&FC/BLR, CC No. 06/2011 ) has been filed in the Court of Hon‟ble Addl. Dist. & Sessions Court & Special Court for CBI cases, Dharwad for offences involving an amount of Rs. 516.25 lakhs under Section120-B read with 420, 467, 468 and 471 of IPC 1860 and Sections 13(2) read with 13(1)(d) of Prevention of Corruption Act 1988 on the basis of the investigations conducted on the complaint filed by the Assistant General Manager (Vig), Union Bank of India, Central Office, No. 239, Vidhan Bhavan Marg, Mumbai. Based on the said FIR and Charge Sheet, a ca....
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.... In this connection, Shri T. Srinivasulu (partner of M/s Haripriya Rice Industries and Proprietor of M/s Roopa Paddy Dryers Bellary) in his statement dated 15/05/2012 stated that the sale deeds for sale of M/s. Roopa Paddy Dryers to M/s. Sri Vijayadurga cold Storage, M/s Sri Vijayadurga Weigh Bridge and M/s Sri Vijayadurga dal Industry were got signed and registered. Although he denied in his statement to have received any payment against these deals but the sale deeds prove that the payment for the sale of said properties were received by him and therefore the said properties were registered in the name of purchasers as mentioned in the respective sale deeds. iv) During the course of investigation Shri N.Shrihari was further examined on 23/05/2012 by the Assistant Director Enforcement Bangalore and his statement was recorded in which he was asked to explain regarding the purchase of M/s Roopa Paddy Dryers; to which he explained that M/s Roopa Paddy Dryers was bought by them for an amount of Rs. 52,63,500/- (which is the full sale consideration) on execution of three sale deeds (one in the name of Shri Vijayadurga Weigh Bridge, Proprietor : Smt. N. Vijayalakshmi, second in....
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....s filed by CBI. 23.9.2010 Since the M/s Roopa paddy Dryers failed to repay the loan, the Respondent No.5 invoked the provision of SARFAESI and issued demand notice u/s 13 (2) of SARFAESI Act. (page 62 of counter affidavit) 21.12.2010 M/s Roopa paddy Dryers failed to comply with the demand notice, the Respondent No. 5 issued Possession notices issued in newspaper. (page 65 of counter affidavit). 4.3.2011 The Physical possession of the all the 3 properties were taken by Respondent No. 5. 20.6.2012 The Respondent No.5 informed Assistant Director about its rights and entitlement of all the properties as well as about the possession of the properties. 10.8.2012 Provisional Attachment (PAO) order was passed. 02.01.2013 The Adjudicating Authority confirmed the PAO with certain modification, but refrained from confirming the POA against the properties at Sr No. 1 to 3 which are in possession of the Respondent No. 5. 06.05.2013 The present appeal was filed by the Appellant. 9. From the material placed on record, it is clear tone that the disputed properties at Sr. No. 1 to 3 were mortgage to Respondent No. 5 i.e. State Bank of India by ....
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....e before this authority by filing fresh PAO ad Complaint. 15. In terms of the provisions of PMLA, the PAO passed by the Joint Director shall cease to have effect on earliest of the two events: (i) the expiry of 90 days (now the period is 180 days) from the date of order or (ii) on the date of order u/s 8(2) of the PMLA. The period of 90/180 days have expired and the Adjudicating Authority having not been confirmed the PAO, the same ceases to have any effect in law and therefore it is incorrect on the part of the Appellant to contend that the Adjudicating Authority has refrained from discharging his duty. Further as per the impugned order, liberty was given to the Appellant to file a fresh complaint in the event of the stay order passed by the Hon‟ble Single Bench of the High Court of Madras being vacated. Further, the finding in para 63 of the order can only be interpreted to the means that the Adjudicating Authority has not confirmed the PAO, with the result that the said PAO ceased to have any effect in law. 16. The main object of the PMLA is that the properties which have acquired the character of an untainted property in the hands of the accused which is purchased f....
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....re attached by the Appellant. In case of impugned order passed by Adjudicating Authority is set aside, the answering Respondent would suffer irreparable loss and injuries and the remedies provided under SARFAESI Act 2002 would render meaningless and the Respondent No. 5 would be deprived of remedy available to him in law. 20. The main issue involved in the present appeal are whether the properties mortgaged with the Respondent no. 5 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. 21. 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. 22. In all the aforesaid matters the aforesaid legal issues were involved and decided. The relevant portions of the orders passed in aforesaid appe....
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....f 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 Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions ....
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....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 .schemefor 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 in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 ....
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....SI 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 which security interest is created, shall have priority and shall be paid in priority over all other debts and Gov....
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....ld 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 Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secur....
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.... 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 adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimat....
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....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 complainant Bank of India was filed before us. As far as the schedule offence is concerned, we do not wish to make any comm....
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.... 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 being the Civil Procedure Code, and the second being the OTS Scheme of the Reserve Bank of India, which the petitio....
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.... 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 approach the Adjudicating Authority for release of attached property. The Scheme of Prevention of Money Launde....
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....ndering, 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/0777/2016decided 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 ....
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....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/0219/2017wherein 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 launder....
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....ly 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 or common intention, nor is any such case made out even on prima facie basis against any of them." 39. The second of the t....
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....ves two or more interconnected 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 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....
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....ve 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. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable....
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.... 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 money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, ....
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....ctment and the language used in them. The Prevention of Money Laundering Act has been enacted for forfeiture of crime involved in the money laundering which was considered necessary to deprive persons engaged in serious illegal activities and have thereby been increasing their resources for operating in clandestine manner. The PML Act was created to forfeit illegal properties and to prevent the money laundering activities which are threat to financial system of the country and its integrity and sovereignty. Further the question of prevalence of a subsequent legislation will only come into picture when there is a conflict between the two statutes. The Securitization Act has been enacted for the purpose of establishing a expeditious system for recovery of debts due to Banks and for matters connected therewith or incidental thereto. It only lays down a procedure for recovery of debts due to Banks. The Prevention of Money Laundering act vests the statutory authorities with a power to forfeit proceeds of crime involved in money laundering to the State. There is thus no apparent conflict between the two statues. The two statues operate in their exclusive fields. 26. The question is on....
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....the right to property under the Constitution of India. The property of the Respondent no. 5 Bank cannot be attached or confiscated if there is no illegality in the title of the Respondent no. 5 and there is no charge of money laundering against the Respondent no. 5. The mortgaged of property is the transfer under the Transfer of Property Act. 31. Even the appellant 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 no. 5 that the properties in dispute are mortgaged with Bank and it has to go to the Bank ultimately. I do not agree with the argument in this regard in view of amendments in the two statutes. Even otherwise the trial would take number of years. The public money cannot be stalled otherwise Banking system would collapse. 32. 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 mortgaged with the Respondent no. 5 Bank much prior to the date of alleged offence which shows that no 'proceeds of crim....
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....rtgagee of the properties in question which were purchased before sanctioning the loan. Thus, no case of money-laundering is made out against Respondent no. 5 Bank who has sanctioned the amount which is untainted and pure money. They have priority right to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. 39. The Adjudicating Authority has not appreciated the facts and law involved in the matter. 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. The contentions raised by the appellant's Advocate have no substance. The provisional attachment in the present matter is bad. 40. Recently there are amendments in the Prevention of Money Laundering Act, 2002 (15 of 2003) as amended by Finance Act, 2018 (13 of 2018) including in the proviso of Sub-section 8 of Section 8 of PMLA, 2002 by adding another proviso which is read as under:- 'Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasona....