TaxTMI 
TaxTMI 
2018 (7) TMI 444
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant 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 initiated arbitral proceedings, which resulted in an award dated 10.03.2016. E. Theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndants 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. As far as the present appeal is concerned, his submission is that both orders are not sustainable in law and facts. 5. The present case c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-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 Secured Property. 15. Despite of having full knowledge, the Respondent No.1, without any application of mind and in contravention of the provisions of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lauses (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 Respondent No.1 has failed to even record his satisfaction that the Secured Property attached as „proceeds of crime' in the present case is likely to be concealed, transferred or deal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 „reasons to believe', as explained by the Supreme Court in Union of India v. Mohan Lal Kapoor (1973) 2 SCC 836. In Dilip N. Shroff v. CIT (2007) 6 SCC 329, the Supreme Court decried the practice of issuing notices in a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffect.-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 under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsent 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 (Special Provisions) Acy 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that publ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned. The amended provisions are reproduced as under: (i) Section 26E of the SARFAESI Act, 2002 : "26E. Priority to secured creditors - Notwithstanding anything conta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has 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 H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnot 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 have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act." 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ouncement 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 Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made 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 subsequ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d, 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:- "11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been mutually settled between the parties 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded. 47. In view of the entire gamut of the dispute, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, 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 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 the Adjudicating Authority to only retain the properties which are involved in money laundering which means as to whether properties attached are involved in money laundering 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 laund....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 his state of mind. "Reason to believe" is another facet of the state of mind. "Reason to believe" is not the same thing as "suspicion" or "doubt" and mere seeing 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 of Money Laundering Act, Directorate of Enforcement (Respondent)MANU/TN/4087/2015 decided on 14.10.2015, relevant portion of which are reproduced below:- " 20. The said sections read as follows:-- "23. Presumption in inter-connected transactions Where money-laundering involves 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 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents. 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 allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor. 23. Considering the materials on record and judgments 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 of the fact that the non-obstante provision of RDDB Act has specifically excluded SICA from its application. 34. The conflict of non-obstante clause arising in respect of two or more enactments then the same have to be resolved by taking into consideration of policy underlying the enactment 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. 35. The Securitization Act has been enacted f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 41. 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. I do not agree with the argument in this regard in view of amendments in the two statutes. Even otherwise the tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 accounts which have become NPA. 48. From the discussion made above, I am of the view that there is no nexus whatsoever between the alleged crime and the Appellant Bank who is the mortgagee of the properties in question which were purchased before sanctioning the loan. Thus, no case of money-laundering is made out against Appellant 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. 49. 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 Respondent's Advocate have no substance. The provisional attachment in the present matter is bad in law hence liable to be set aside. 50. Recently there are amendments in the Prevention of Money Laund....