TaxTMI 
TaxTMI 
2018 (7) TMI 444
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....levant for the purposes of consideration of the Defendant No. 6's objections to the provisional attachment: A. Vide sale deed dated 17.10.2002, the Defendant No.1 purchased the Secured Property for a total consideration of Rs. 19,75,000/- B. It is, therefore, pertinent to note that the Secured Property was acquired by the DefendantNo.1 much prior to commencement of the alleged conspiracy in the instant case and as such cannot in any manner be seen as a property involved in money laundering or presumed to be a product of 'proceeds of crime' allegedly generated in the instant case. C. The Defendant No.6 executed the Loan Agreement dated 28.12.2011 with the Defendant Nos. 1 to 3, along with Smt. Priti Grover, as co-borrowers. The Secured Property was mortgaged to the Defendant No. 6 by way of equitable mortgage by deposit of original deeds of the Secured Property with the Defendant No.6. D. However, the borrowers deliberately failed to make timely payments of the EMIs and did not comply with any of their obligations under the Loan Agreement. Therefore, the said debt was classified as a non-performing asset on 05.05.2015 and the Defendant No.6 initia....
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....g of a provisional attachment order No. 03/2017 dated 05.04.2017 by which following immovable properties of Defendants totally valued at Rs. 23,54,45,200/- was provisionally attached under Section 5(1) of PMLA. Sr. No. Details of Property Value (in Rs.) 01 B-42, Ashok Vihar, Phase-I, New Delhi Rs.17,11,42,000/- 02 Factory of M/s. SurgicoinMedequip Pvt Ltd. at 1703-04, HSIDC, Rai Sonepat, Haryana Rs.5,50,00,000/- 03. Apartment No.1, Block No.4, At Navsheel Apartments, situated at Plot No. 56, Cantt, Kanpur Rs. 93,00,000/- Total Rs. 23,54,42,000/- 4. The Learned Counsel for the appellant is only pressing the relief in the present appeal against the respondent no.1 who has passed the provisional attachment Order. The main contention of the appellant is that the provisional attachment order was passed contrary to law. The confirmation order/impugned Order was passed without application of mind. He also states that the appellant is not pressing any relief in this appeal against the respondent nos. 2 to 7 who are the formal parties, however, mortgaged properties have to be sold after the order passed by the Special Court. A....
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....pute that the Appellant executed the Loan Agreement no.401LAP00178292 dated 28.12.2011 with the Respondent No.2 to 4, along with Sh. Priti Grover, as co-borrowers. The Secured Property was mortgaged to the Appellant by way of equitable mortgage by deposit of original title deeds of the Secured Property. True copy of the Loan Agreement no.401LAP00178292 dated 28.12.2011 is filed along with the appeal as Annexure A-6. 12. The borrowers deliberately failed to make timely payments of the EMIs and did not comply with any of their obligations under the Loan Agreement. Therefore, the said debt was classified as a non-performing asset on 05.05.2015 and the Appellant initiated arbitral proceedings, which resulted in an award dated 10.03.2016, filed along with the appeal as Annexure A-7. 13. Thereafter, the Appellant also issued a notice dated 27.10.2016 under Section 13 (2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.True copy of the notice dated 27.10.2016 is filed along with the appeal as Annexure A-8. 14. As such, the only avenue left for appellant for recovering the loan advanced to the Respondent Nos.2 to 4 is the....
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....ount is a public money. 20. For an attachment to be sustainable under Section 5(1) of the Prevention of Money Laundering Act, 2002, the pre-conditions as laid under clauses (a) and (b) ought to be satisfied. The failure to fulfil any of the pre- conditions as given in the provision, would render the provisional attachment order unsustainable in law. In the present case, even assuming that the pre-condition under Section 5(1)(a) was satisfied by Respondent No.1, the requirement under Section 5(1)(b) has ex facie not been fulfilled with regard to the Secured Property, as is evident from a bare perusal of the provisional attachment order passed against the appellant. 21. In discussing the satisfaction of the pre-condition under S.5(1)(b) of PMLA, the provisional attachment order notes as under: "37. ....Thus, cumulatively the aforesaid two properties [including the Secured Property] have a market value of Rs. 22,61,42,000/- andthe same are liable for provisional attachment to protect against any further transfer or encumbrance upon the same." 22. Hence, the provisional attachment order goes against the express mandate of S. 5(1)(b) of PMLA in as much as the Responden....
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....lies on the following observations of the Hon'ble Delhi High Court in J. Sekar v. Union of India. "Reasons to believe cannot be a rubber stamping of the opinion already formed by someone else. The officer who is supposed to write down his reasons to believe has to independently apply his mind. Further, and more importantly, it cannot be a mechanical reproduction of the words in the statute. When an authority judicially reviewing such a decision peruses such reasons to believe, it must be apparent to the reviewing authority that the officer penning the reasons has applied his mind to the materials available on record and has, on that basis, arrived at his reasons to believe. The process of thinking of the officer must be discernible. The reasons have to be made explicit. It is only the reasons that can enable the reviewing authority to discern how the officer formed his reasons to believe. As explained in Oriental Insurance Company v. Commissioner of Income Tax [2015] 378 ITR 421 (Delhi). "the prime facie formation of belief should be rational, coherent and not ex facie incorrect and contrary to what is on record". A rubberstamp reason can never take the character of &bdquo....
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....the provisions of the Foreign ExchangeRegulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: "13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority." 9. It is clear that both these Acts are special Acts. This Court has laid down in nouncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: "Maharashtra Tubes Ltd. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal; AllahabadBankv.Canara Bank and Ram Narainv. Simla Banking & Industrial Co. Ltd. 10. We may notice that the Special Court had in another case dealtwithasimilar contention. In Bhoruka Steel Ltd. v. FairgrowthFinancialServices Ltd. it had been contended that recovery proceedings....
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....t monies which are siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Spe....
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....ter 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. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the legislature wanted to provide otherwise, they would have specifically so provided." 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 ....
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....s of debt securities or;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 35. Thus, it is very clear from above that the secured creditor, get a priority over the rights of Central or State Government or any other Local Authority. The amendment has been introduced to facilitate the rights of the secured 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. 36. The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case "The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors." that " "There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due....
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.... another Madras High Court judgment in the case of "Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement" has explained the grievances faced by the financial institutions while holding that "For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime. Today, if the Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also ....
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....k of India V/s. SatyawatiTondon 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. 55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection. 56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking action in furtherance of notice issued under S....
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....pra) held that during the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed which was rejected by the trial court but eventually was allowed by the High Court. The charges in the matter were framed under Section 120-B/420 IPC by the learned trial Judge against the private parties. As far as bank officials are concerned, charges were framed under different provisions of the Prevention of Corruption of Act, 1988. Being dissatisfied with the said order,, the CBI had preferred an appeal by obtaining special leave and in that context the court observed that the accused respondent had been charged under Section 120-B/420 IPC and the civil liability of the respondent to pay the amount had already been settled and further there was no grievance on the part of the bank. Taking note of the fact that offence under Section 420 of IPC is compoundable and Section 120-B is not compoundable, the Court eventually opined thus:....
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.... same has been filed also on additional grounds and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the mind of the Court in whose favour it would be decided." "71. In view of above mentioned reasons, this Court is inclined to quash the proceedings pending against the petitioners, arising out of R.C. No. 4A/94/SIU(X) dated 23rd May, 1994, titled "CBI vs. N. Bhojraj Shetty &Ors.', being C.C. No.65/11, pending in the Court of Spl. Judge (CBI), Tis Hazari Courts, Delhi." The said decision has been upheld by the Hon'ble Supreme Court. 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 of the properties wer....
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.... of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or anyof such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice ....
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....nt and has not received any proceeds of crime." It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party. 57. This is due to the reason that Section 8 allows ....
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....ntention to commit the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the course of committing that offence." Thus, an "attempt to indulge" would necessarily require not only a positive "intention" to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part of any of the petitioners. B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY: In JotiParshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows- "5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of "intention" or "knowledge" or "reason to believe". We are now concerned with the expressions "knowledge" and "reason to believe". "Knowledge" is an awareness on the part of the person concerned indicating....
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....to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without having any direct/ indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea or knowledge is missing. 60. Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director, Prevention o....
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....nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime. 22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not....
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....roperties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration and the money paid to the seller is also well explained. 22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order. 23. In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any knowledge that properties have been acquired directly or indirectly though scheduled offence could be subject matter of provisional attachment order. 24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds of crime. They have ....
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....ecently 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. 33. The Hon'ble Supreme Court in the aforesaid case KSL & Industries Ltd (supra) matter has held that the provisions of SICA, in particular section 22 shall prevail over the provisions for the recovery of debts in the RDDB Act because o....
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....acts 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 charge sheet filed against them. 38. It is an admitted fact that the properties herein are mortgaged with the Appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any "proceeds of crime". It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime. 39. It appears that the only thing was in his mind of Adjudicating Authority that section 71 of PMLA has an overriding effect. The provisions of PMLA shall have effect and prevail over provisions of any other Act or its provisions. To this we are not in agreement with the Adjudicating Authority because of the amendments of 2016 made in SARFAESI Act RDDB Act and discussion made in the preceding paras. 40. The Hon'ble Supreme Court 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 properti....
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....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 there was absence of such requirement. The said properties are already in the symbolic possession of the Appellant Bank under the SARFAESI Act. 46. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the Appellant Bank and there is no charge of money laundering against the Bank. The mortgage of property is the transfer under the Transfer of Property Act as there is no dispute as regards the origin of funds or the title of the properties. 47. As far as the Appellant Bank is concerned, the Bank has to recover its outstanding dues by taking over the possession of the mortgaged properties in case the concerned Respondents are not able to pay back the credit facilities availed by them 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 accou....