TaxTMI 
TaxTMI 
2018 (8) TMI 426
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Joint Director Directorate of Enforcement, Mumbai (PNB is R.-2 & SCB is R.-3) (iii) Appeal No. 1760 of 2017 M/s. Kohinoor Diamonds Pvt. Ltd. v. The Joint Director Directorate of Enforcement, Mumbai (PNB is R.-2 & SCB is R.-3) (iv) Appeal No. 1761 of 2017 M/s. Bombay Diamond Company. Pvt. Ltd. v. The Joint Director Directorate of Enforcement, Mumbai (PNB is R.-2 & SCB is R.-3) 2. Admitted position is the following properties belonging to M/s. Winsome Diamonds & Jewellery Ltd., M/s. Kohinoor Diamonds Pvt. Ltd. and M/s. Bombay Diamonds Company Pvt. Ltd., along with a company named Forever Diamond Pvt. Ltd. were mortgaged to the Consortium of banks led by Standard Chartered Bank. 3. The detailed list of various properties along with their estimated value is as follows: - Sr. No. Details of Property Present Owner Area Market Value of the Property (Amount in Rs.) (a) (b) (c) (d) (e) 1. Land, building, plant and machinery situated at Plot No. 143-D, Bommasandra KIADB Industrial Area, Hosur, Hebbagodi, PO Anekal Taluka, Bangalore, Karnataka, 560099 Su-Raj Diamonds (India) Ltd. [now M/s. Winsome Diamonds an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alt Lake, Kolkata- 700 091 Su-Raj Diamonds and Jewellery Ltd. [Winsome] 3498.30 Sq. Ft. (Leased Property) 1,88,91,000/- 7. Unit Nos. 801 to 824, 906, 907, 908 and 910, Eight and Ninth Floor, Service Indl. Estate (Plaza Panchsheel), Survey No. 1551 and 1572, 55, Gamdevi Road, Mumbai - 400 007 Su-Raj Diamonds and Jewellery Ltd., Su-Raj Diamonds Consultancies Ltd., Su-Raj Diamonds and Jewellery Ltd., (Corporate Guarantee extended by the directors of the company to the banks) Total 28 units as detailed in Column (b) 46,57,60,000/- 8 Land and Building situated at Plot No. A-42, Marudhara Industrial Area, Basni Jodhpur, Rajasthan. Forever Diamonds Pvt. Ltd. Plot admeasuring 10791.81 Sq. Mtrs. and constructed area of Approx. 24500 Sq. ft. and shed of Approx. 17390 Sq. ft. 34,33,64,000/- 9 Land and Building situated at Survey No. 130/1 and 184, Paikee, Village Aasura, Taluka DharampurVandsa Road, District-Valsad, Gujarat Bombay Diamond Co. (Ind.) P. Ltd. (Corporate Guarantee extended by the directors of the company to the banks Plot admeasuring 13809.12 Sq. Mtrs. and Builtup Area of 23946 Sq. ft. (14074 Sq.ft.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Charted Bank filed an Original Application before the Ahmedabad DRT on 1stJune, 2014, being O.A. No. 304 of 2014. Thereafter, under section 13(2) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest, Act 2002, notice was issued on 21st October, 2014 and possession of the charged assets was taken under section 13(4) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest, Act 2002, on the following dates: - Location of Property Date of Notice u/s. 13(2) Date of Notice u/s. 13(4) Mumbai 21.10.2014 11/02/2015 Surat 18/03/2015 Valsad 23/07/2015 Jodhpur 27/07/2015 Goa 03/08/2015 Bangalore 09/09/2015 Kolkata Only P & Min SEZ unit 22/03/2016 9. The DRT at Ahmedabad, by its order dated 20th May, 2016 allowed the recoveries for the Consortium of Fourteen banks, as follows: - "The Defendant no. 1 shall pay an amount of Rs. 4,061,589,537.00 to applicant no. 1, an amount of Rs. 714,743,985.00 to applicant no. 2, an amount of Rs. 1,636,021,974.00 to applicant no. 3, an amount of Rs. 6,722,236,193.00 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hyderabad 130.00 7 Punjab National Bank 534.00 8 Vijaya Bank 116.00 9 Central Bank of India 350.00 10 Union Bank of India 150.00 11 Axis Bank Ltd. 46.50 12 State Bank of Mauritius Ltd. 30.00 Barclays Bank PLC 27.00 13 IDBI Bank Ltd 50.00 Total 2325.00 Additional 465.00 Total 2790.00 14. The limits were revised in the year 2010 as follows: - Rupees in Crore Old Limits (2009) New Limits (2010) Applicant No. Banks Total Total 1 Standard Chartered Bank 189.00 264.00 2 Export import Bank of India 70.00 85.00 3 Oriental Bank of Commerce 100.00 120.00 4 Canara Bank 350.50 430.00 5 Bank of Maharashtra 182.00 221.00 6 State Bank of Hyderabad 130.00 130.00 7 Punjab National Bank 534.00 655.00 8 Vijaya Bank 116.00 123.50 9 Central Bank of India 350.00 435.00 10 Union Bank of India 150.00 185.00 11 Axis Bank Ltd. 46.50 11.50 12 State Bank of Mauritius Ltd. 30.00 35.00 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Applicant No.3 Rupees in Crore Oriental Bank of Commerce Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 150,30,38,915.31 --- 150,30,38,915.31 Unapplied Interest 26,15,13,611.00 ---- 26,15,13,611.00 Penal Interest --- --- --- Total 176,45,52,527.51 176,45,52,527.51 Applicant No.4 Rupees in Crore Canara Bank Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 93,89,23,379 530,27,42,691 624,16,66,070 Unapplied Interest 11,91,92,702.80 101,51,59,161.78 113,43,51,864.58 Penal Interest 49,06,430.19 11,31,09,655.91 11,80,16,086.10 Total 106,30,22,511.99 643,10,11,508.69 749,40,34,020.68 Applicant No.5 Rupees in Crore Bank of Maharashtra Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 276,85,82,529 --------------- 276,85,82,529 Unapplied Interest 44,20,44,093 --------------....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1103.31 --------- 532821103.31 Penal Interest --------- --------- Total 3174361798.54 --------- 317,43,61,798.54 Applicant No.11 Rupees in Crore Axis Bank Ltd. Details of Facilities Total Fund Based Non Fund Based Ledger Balance 52,22,92,351 --------- 52,22,92,351 Penal Interest without compounding 57,69,776 --------- 57,69,776 Unapplied interest --------- --------- Total 52,80,62,127 --------- 52,80,62,127 Applicant No.12 Rupees in Crore State Bank of Mauritius Ltd. Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 46,29,17,557.28 --------- 46,29,17,557.28 Unapplied Interest 6,17,92,927.70 --------- 6,17,92,927.70 Penal Interest ------------------ --------- ---------- Total 52,47,10,484.98 --------- 52,47,10,484.98 Applicant No.13 Rupees in Crore &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion are acquired from the money laundering activity or are the proceeds of crime. 22. As per record, no allegation has been made against Standard Chartered Bank or Punjab National Bank or any of the Consortium bank that anyone or more bank helped/assisted either of the three companies i.e. M/s. Winsome Diamonds & Jewellery Ltd., M/s. Kohinoor Diamonds Pvt. Ltd. and M/s. Bombay Diamonds Company Ind. Pvt. Ltd. or Mr. Jatin Mehta in the Money Laundering activity carried out by them. 23. As per settled law and facts in the matter, all the properties described in the table above have been attached by DRT, Ahmedabad and are also covered under notice issued under SARFAESI Act, 2002. 24. The Enforcement Directorate, Mumbai has attached the properties belonging to M/s. Winsome Diamonds & Jewellery Ltd., M/s. Kohinoor Diamonds Pvt. Ltd. and M/s. Bombay Diamonds Company Ind. Pvt. Ltd., which are all mortgaged with the consortium of Banks on loan account of M/s. Winsome Diamonds & Jewellery Ltd. 25. The Appellant bank craves leave to refer to and rely upon the Order passed by this Tribunal on 14thJuly, 2017 in the matter of State Bank of India v/s. The Joint Director Directorate o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Appellant Bank is not holding any funds of the accused/ Respondents, on the other hand, the Appellant Bank itself has to recover more than Rs. 464,54,70,592.63 (Rupees Four Hundred and Sixty Four Crore Fifty Four Lakhs Seventy Thousand Five Hundred Ninety Two and Paise Sixty Three Only) from the Respondent Nos. 3, 5 & 6. 34. The mortgaged property with Appellant Bank is of much prior to the date of crime. The allegation of the respondent no. 1 that these properties may have been purchased from the proceeds of crime is incorrect, on the face of record itself. 35. The proceeds of crime are defined in Section 2(1) (u) of the Prevention of Money Laundering Act, 2002 which reads as under:- "Proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property." 36. The mortgaged properties are not derived or obtained, directly or indirectly from the criminal activity or the proceeds of crime. The scope of the Act and the provisions of PML Act is to punish the accused person involved in money laundering, but not to punish an innocent person, who is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bts 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." 41. 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. MANU/TN/3619/2016", while upholding the Amendment Act, 2016 inserting Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and 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 realize the Secured Debts, would have priority over all de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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." 46. Proviso to Section 9 of The Prev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 subsection (5) of section 5, or applications made under subsection (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 crime, he may serve a notice of not less than thirty days on such person cal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;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 prosecuted for the offence of money laundering, he can....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ime' 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, (1980) 3 SCC 57, the Hon'ble Supreme Court observed thatFPA- PMLA-1604, 1711, 1760 & 1761/MUM/2017 "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 parti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 two pre-requisites 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 involv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esume that such proceeds of crime are involved in moneylaundering. 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 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 no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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, 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." 50. The banks while rendering the facilities were bonafide parties. It is not the case of the respondent that the attached properties were purchased afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat 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. In the present case as the money belongs to the Appellant bank it is public money. It is submitted that the appellant bank has the right to properties under the Constitution of India. It is submitted that 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 mortgage of property is the transfer under the Transfer of Property Act. 56. There is no money laundering in the present case in the mortgaged properties as far as the claim of the Appellant is concerned. Due to the attachment proceedings by the Enforcement Directorate the Appellant bank is not able to recover the public money by way of selling the properties. The proceedings for recovery are pending. 57. The Enforcement Directorate in its provisional order as well as in the complaint filed before the Ld. Adjudicating Authority has admitted and acknowledged that the Properties which are mortgaged with the Banks....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear that all the properties were acquired by the accused much before the alleged date of crime. It is submitted that the Bank has already filed the Suit for recovery and has also had 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 unjustified. 63. 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. The said properties are already in the possession of the appellant bank under the SARFAESI Act. The Hon‟ble Supreme Court of India in the case of Attorney-General of India and others reported in 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 has held that the illegally acquired properties are earne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laint there proceedings would not have been initiated. The security of the Bank, is treated as proceeds of crime and is confiscated under the Act, in future, no Bank in such circumstances would make a complaint to the authorities. The trial in the prosecution of complaint would take number of years. The Bank being a Secured Creditor is entitled to recover the dues. 69. In the case of Indian Bank Vs. Government of India and M/s. PalpapIchinichi Software International Ltd., decided by Madras High Court on 11.07.2012, wherein it was held in similar circumsta nces that Sections 5 and 8 of the Act cannot be used by the authorities to inflict injury of the victim i.e. the Bank. As far as actual amount due from the borrowers are concerned, the out-standing amount would be decided by the appropriate authority. 70. The banks being appellant in appeal no. 1604/2017 pressed the relief to set aside the impugned order to the extent it attaches charged/mortgaged properties, charged/mortgaged to consortium of banks as borrowers have been availing various financial facilities. 71. The intention of the Act could not have been to block the loan amount against the mortgaged properties being ....