TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 445
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.... law by DBS Bank who is also one of the PNB consortium. The case of all the banks is identical. I propose to decide the above-mentioned appeals. 3. The Appellants in appeal no. 1616/2017 is the lead bank of a consortium of banks comprising of Appellant Nos. 2-21 who granted credit facilities to the Respondent No. 4 i.e. Surya Vinayak Industries Limited.Appellant Nos. 22-25 are banks which are members of a consortium which has granted credit facilities to SVIL Mines, a group company of Respondent No. 4. 4. The Respondent No. 2 & 3, namely Mr. Rajiv Jain and Mr. Sanjay Jain are the Directors of the Respondent No. 4 Company and also stood as guarantors for the repayment of the loan amounts sanctioned and disbursed by consortium members including the Appellant Bank to the Respondent No. 4 Company, by way of personal guarantees. Respondent No. 5 is a group company of Respondent No. 4, which also executed a corporate guarantee to secure the credit facilities. The Respondent No. 4 Company was majorly engaged in the business of trading of Agro-Commodities and Manufacturing and marketing of essence Oils, Perfumery Compounds, Flavors, Fragrances and Aromatic Chemicals. 5. The aforesaid fi....
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....dent No.4 Company and its officials including Respondent Nos. 2 & 3. 10. The Appellant banks in order to recover the loan amounts proceeded under the SARFAESI Act, 2002 to recover their loans and took symbolic possession of all secured assets which were mortgaged with them and also proceeded to file an Original Application before the Debts Recovery Tribunal, Delhi seeking recovery of a sum of Rs. 2071 Crores from the Respondents 2-4. The DRT vide its order dated 20.01.2014 granted an injunction order restraining the Respondents No. 2 to 4 from alienating or creating any encumbrance whatsoever in respect of properties that were mortgaged with the consortium for the purpose of securing the credit facilities. 11. That in parallel proceedings before the High Court of Delhi moved by certain secured creditors, the High Court appointed a provisional liquidator who took possession of certain properties of the Respondent No. 4 Company. 12. The Enforcement Directorate, Delhi Zonal Office is pursuant to the recording of the ECIR No. DLZO 101/2015/AD (VM) dated 12.02.2015 which came to be filed on the basis of Assistant General Manager, Punjab National Bank filing written complaint dated 09....
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....s Limited (Respondent No. 4) 11.04.1997 24.06.2008 4 Land and building at D-259, Ground Floor, Ashok Vihar - 1, Delhi - 10 052 measuring 167.22 sq. mts Rajiv Jain (Respondent No. 3) 6.10.1999 & 1.3.2005 27.12.2005 5 Land and building on plot of land bearing Khewat No. 90 at Village Naya Bans, Sampla District, Rohtak, Haryana measuring 3025 sq. Yards. Rajiv Jain (Respondent No. 3) 9.7.1999 27.05.2005 6 Land bearing Khewat No. 134 (4446.75 sq. Yds.) and 145 (6897 sq. yds.) at Village Naya Bans Sampla, District Rohtak, Haryana measuring 11343.75 sq. yds. Rajiv Jain (Respondent No. 3) 11.08.2000 21.06.2000 27.05.2005 7 Land measuring 18422.25 sq. yards at Village Naya Bans, Sampla, District Rohtak, Haryana. Rajiv Jain (Respondent No. 3) 11.10.1998 4.10.1999 21.10.1999 27.05.2005 8 Land measuring 32065 sq. Yds. At Village Naya Bans, Sampla, District Rohtak, Haryana. Sanjay Jain (Respondent No. 2) 26.10.1994 29.10.1994 2.11.1994 27 5 2005 15. The appellants in reply to the Notice under Section8(1) has disclosed all the details before the Adjudicating Authority, who confirmed the provisional attachment order by passing the impugned Order, which is chall....
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....riminal activity relating to a scheduled offence or the value of any such property;" Upon reading the conditions provided under Section 5(1) of the Act with the definition of "proceeds of crime‟ provided under Section 2(1)(u) of the Act it is clear that the primary requirement for the purpose of issuing an order of attachment under Section 5 of the Act is that the person ought to be in possession of any "proceeds of crime‟ i.e. any property "derived‟ or "obtained‟ directly or indirectly as a result of criminal activity of a scheduled offence or the value of such property. 20. In the present case, it is submitted on behalf of the banks that the Respondents No. 2 to 4 induced the banks to enhance the limits of loans granted on the basis of fraudulent representations of their books of account and stock. The enhanced limits were inter-alia secured by way of mortgage of the Attached Properties. Thus, the commission of the scheduled offence in terms of Section 420 of the IPC commenced when the limits for loan were enhanced in 2012 and thereafter disbursed by the consortium of banks on the basis of fraudulent representations by the company and its directors. Ther....
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....ssue 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. 25. In all the aforesaid matters the aforesaid legal issues were involved and decided. The relevant portions of the orders passed in aforesaid appeals are re- produced below:- "FPA-PMLA-1026/KOL/2015 7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows: "32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inco....
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....tment 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 of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under....
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....s 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 1985 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act.....
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.... 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 BankruptcyAct, 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 Government dues including revenues, taxes, cesses and other 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 (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." 34. In Section 2 o....
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....aw 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 secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." "3 There is, thus, no doubt that the rights of a secured creditor to realize 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" "4 The la....
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....002 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, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally a....
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....corded 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 comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High Court u/s 482 Cr. P.C. could be filed. 43. It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED. 44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the....
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.... 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 petitioners have extensively referred to in the original petition. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. The complainant bank in choosing to enter into such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues." "70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 y....
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....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 Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not." "8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of cri....
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....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 the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being pro....
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.... 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 laundering, only if both of the two prerequisites are satisfied i.e.- "(i) Firstly, if he- (a) directly or indirectly 'attempts' to indulge, (b) 'knowingly' either assists or is a party, or (c) is 'actually involved' in such activity; and (ii) Secondly, if he also projects or claims it as untainted property;" 38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients- "A. RE: DIRECT OR INDIRECT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that- "13. Well then, what is an "attempt"? ...In sum, a person commits the offence of "attempt to commit a particular offence" when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the in....
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....ences' 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 two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, would be utmost necessary, which however is lacking in the instant case." 59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is....
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....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 Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by resp....
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....rinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties 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 conside....
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.... No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank." 26. In the present case, the SARFAESI Act, 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 Enfo....
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....s. The two statues operate in their exclusive fields. The question is only who will have his first claim on any property where the claim of the State concurs with the claim of any other person. In the light of above a harmonious construction has to be arrived that keeping in view the facts of the case vis. a vis the statutes involved. In the present case the aforesaid principle suggest that the amendments carried out in SARFAESI Act and RDDB Act in 2016 will prevail over PML Act, 2002 because the properties involved in the present appeal were untainted when the same were acquired. Even when the properties were mortgaged with the Appellant Bank the same were not tainted. The allegation of commission money laundering is after the mortgage of the said properties with the Appellant Bank. After the 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 charge sheet filed against them. 29. It is an admitted fact that ....
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....iring of these properties and hence the same cannot be attached. 32. The Adjudicating Authority has failed to consider that the ED has attached the properties without examining the case of the bank. The evidence on record suggests that the properties were acquired by the borrower/guarantors much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The Bank has already filed the suit for recovery and has also taken the action under SARFAESI Act. The Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud, would be legally unjustified. 33. The properties attached cannot be attached under Section 5 of the PML 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 th....
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....at the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as ma be prescribed." 38. It in the present ten appeals i.e. (serial no. 1 to 10). It is admitted position that the loan was given by the banks in good faith who has suffered a loss because of non-return of money by the borrowers i.e. serial no. 11 (as a appellant). The borrower is also arrayed as one of the respondent in the appeal filed by the banks. It is evident from the said proviso that incase the claimant would be able to satisfy the Special Court that it has acted in good faith and suffered the loss despite of having taken all the reasonable precautions and is also not involved in the offence of money laundering then the Special Court is empowered to restored such property during the trial of the case. In the facts of the present case, the mortgaged properties are not purchased from the proceed of crime. Those were purchased prior to FIR against borrower/accused and even prior to execution of mortgaged deed agreement. The question of proceed of crime qua those properties does not arise. 39. Even the s....