TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 426
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....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 and Jewellery Ltd.] 8826 Sq. Mtrs. to constructed area of Approx. 95003.06 Sq. ft. 22,91,82,462/- ....
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.... 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. + 9872 Sq.ft.) 3,60,00,000/- 10 Only Plant and Machinery installed in the premises No. 17, SDF Bldg., 4th Floor, Cochin SEZ, Kakkanad, Kochin - 682 037 Winsome Diamond and Jewellery Lt....
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....nstruction 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 to applicant no. 5, an amount of Rs. 1,277,706,509.00 to applicant no. 6, an amount of Rs. 10,521,187,766.00 to applicant no.7, an amount of Rs. 1,448,174,130.00 to applicant no. 8, an amount of Rs. 7,465,886,346.00 to applicant no. 9, an amount of Rs. 2,803,341,974.00 to applicant no. 10, an amount of Rs. 474,953,920.00 to applicant no. 11, an amount of Rs. 463,330,128.00 to applicant no. 12, an amount of Rs. 1,147,875,362.00 to appl....
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....licant 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 Barclays Bank PLC 27.00 ---- 13 IDBI Bank Ltd 50.00 70.00 14 BANK of India ---- 50.00 Total 2325.00 2850.00 Additional 465.00 570.00 15. At request, again facilities were revised/enhanced in November, 2011 as follows: - Rupees in Crore Old Limits (2009) New Limits (2010) Applicant No. Banks Total Total 1 Standard Chartered Bank 264.00 414.00 2 Export import Bank Of India 85.00 110.00 3 Oriental Bank of Commerce 120.00 162.00 4 Canara Bank 430.00 575.00 5 Bank of Maharashtra 221.00 300.00 6 State Bank of Hyderabad 130.00 138.00 7 Punjab N....
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....529 Unapplied Interest 44,20,44,093 --------------- 44,20,44,093 Penal Interest 2,33,68,927 --------------- 2,33,68,927 Total 3,23,39,95,549 --------------- 3,23,39,95,549 Applicant No.6 Rupees in Crore State Bank of Hyderabad Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 121,24,93,461.00 121,24,93,461.00 Unapplied Interest 18,89,00,978.00 18,89,00,978.00 Penal Interest --------------- --------------- Total 140,13,94,439.00 140,13,94,439.00 Applicant No.7 Rupees in Crore Punjab National Bank Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 900,55,07,342.00 ---- 900,55,07,342.00 Unapplied Interest 145,15,98,822.98 --------------- 145,15,98,822.98 Penal Interest 17,33,25,232.60 --------------- 17,33,25,232.60 Total 10,63,04,31,397.58 --------------- 10,63,04,31,397.58 Applicant No.8 Rupees in Crore Vijaya Bank Details of Facilities Total Fund Based Non-Fund Based Ledge....
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....of India Details of Facilities Total Fund Based Non-Fund Based Ledger Balance 82,54,45,774,40 --------- 82,54,45,774,40 Unapplied Interest 16,75,46,902.82 --------- 16,75,46,902.82 Penal Interest 1,73,62,833.03 --------- 1,73,62,833.03 Total 101,03,55,510.25 101,03,55,510.25 17. Admittedly on the basis of the said claim of each bank as mentioned above in the O.A. the DRT, Ahmedabad issued a final Recovery Certificate for Rs. 4687,04,04,315.29 (Rupees Four Thousand Six Hundred Eighty Seven Crore Four Lakh Four Thousand Three Hundred Fifteen and Paisa Twenty Nine only) as stated earlier. 18. Simultaneously, along with filing of O.A., Punjab National Bank (PNB) being Respondent No. 11 and Standard Chartered Bank the Appellant herein filed a complaint with the CBI/Enforcement Directorate, Mumbai. And based on this complaint Enforcement Directorate, Mumbai initiated the present action. This is independent from the Complaints made by other consortium members if any. 19. It is admitted position that the Basni Jodhpur Lake, Rajasthan property acquired on 31st May, 1990. Valsad, Gujarat property acquired on 27th October, 1988 & 2....
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....rowers as per their own prayer is simply to defeat the claim of the Appellant consortium. 28. The prayer is reproduced herein b. The impugned Order of the Adjudicating Authority wrongly confirming the provisional attachment order of the properties of the Appellant of the said order may kindly be ordered to be released from the provisional attachment and restored to the Appellant.(Underline and bold supplied for emphasis). 29. The Account of M/s. Winsome Diamonds & Jewellery Ltd., the consortium led by Appellant bank was declared as Non Preforming Assets on 31st December, 2013. As stated earlier, in view of this Consortium led by Appellant bank has filed an Original Application for Recovery of 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). 30. Pursuant thereto final order was awarded in Original Application on 09thDecember, 2016. In the recovery Proceedings initiated, the Recovery Officer has sold certain properties, but because of the action before the NCLT, Ahmedabad by a third party, as well as the action under PMLA Act,2002 by Respondent No. 1; Enforcement Directorate, Mum....
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....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.; b. in Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 after the words "the date of the application", "and includes any liability towards Debt Securities which remains unpaid in full or part after notice of 90 days served upon the Borrower by the Debenture Trustee or any other authority in whose favour security interest is created for the benefit of holders of Debt Securities or;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 38. The amendment prima facie gives the Secured Creditor, i.e. the Appellant, a priority over the rights of Central or State Government or any other Local Authority. 39. 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 inst....
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.... 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 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." 43. The provisions of the amended SARFAESI Act prevails over the provision of the PML Act because the Amended SARFAESI Act is the subsequent legislation to the PML Act as held by the Hon‟ble Supreme Court in the case of Solidaire India Ltd. Vs Fairgrowth Financial Services Ltd. &Ors., (2001) 3 SCC 71. 44. There....
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....er Chapter V, is of the opinion that any encumbrance on the property or lease-hold interest has been created with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrances or lease-hold interest to be void and thereupon the aforesaid property shall vest in the Central Government free from such encumbrances or leasehold interest: Provided further that nothing in this section shall operate to discharge any person from any liability in respect of such encumbrances which may be enforced against such person by a suit for damages. (Underline and bold supplied for emphasis) 47. The encumbrances of properties are in favor of Banks has not been created with a view to defeat the provision of the Act. It is submitted that there is no allegation to this effect therefore by virtue of the proviso the properties being charged in favor of the Appellant led consortium, should be permitted to be sold and Sale proceeds be permitted to be adjusted against the bonafide dues of the consortium led by the bank. 48. The Section 26E of the SARFAESI (Amendment) Act, 2002 is reproduced herein below for ready reference:- 26E. Notwithstanding anything contained in any ....
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.... 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 (Appellan....
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....ither 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 laundering, t....
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....3 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, involv....
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....lings 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 wi....
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....se 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 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 ve....
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....duled 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 the ne....
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....quired the properties much before the borrowers availed the loan from the appellant bank and therefore no proceeds of crime were invested in these properties. The copies of the title deed of the properties would show that the same were acquired prior to dates of alleged fraud crime, if any, committed even as per the case of the Respondent No. 1. 54. The mortgaged properties are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to the events of funds diversion and fraud committed by the borrowers. The appellant Bank is entitled to recover amounts in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the appellant bank much before the alleged criminal action. 55. The appellant bank is the rightful claimant of the said properties, which are already in the possession of the DRT and appellant bank under the SARFAESI Act. The Hon‟ble Supreme Court of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) wh....
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....eeded with the matter in good faith and are not involved in the offence of money laundering. 60. The Adjudicating Authority had all the reasons to believe despite of aware that abovementioned were mortgaged to the Appellant Bank and that the Appellant/consortium had prior charge over the subject matter/properties; inspite of this the Ld. Adjudicating Authority confirmed the provisional attachment order issued by the Respondent No. 1 and it has caused huge loss to the Appellant/ consortium. It is submitted that both Enforcement Directorate and Adjudicating Authority have failed to apply the law on the subject. 61. The Adjudicating Authority in the impugned order has not examined the law on mortgage and securities. The Appellant Bank is entitled to recover huge amounts in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the Appellant Bank much before the alleged criminal action. The alleged proceeds of crime has not been used for acquiring the mortgaged properties. 62. The Adjudicating Authority has f....
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....case the borrowers are not able to pay back the amount. 65. The Respondent No.1 cannot have any lien over the said properties as the Appellant bank is now the Legal transferee of said properties. The Respondent No. 1 cannot retain the property over which they have no legal title and the property is to be be returned to the personslawfullyentitled as the bank is the victim and even after trial, bank needs to receive back the said properties being a victim party u/s 8(8) of the Act. 66. There is no nexus whatsoever between the alleged crime and the fourteen banks who are mortgagee of all the properties which were purchased before sanctioning of the loan. Thus, no case of money-laundering is made out against banks who have sanctioned the amount which is untainted and pure money. The bank has priority on assets of the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. 67. The Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 & 9 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts....
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.... would be against the interest of nation as a whole ad would also be against the public policy. 74. As a matter of fact, hundreds of borrowers have taken the loans against the securities and mortgaged properties and are not returning the legal debts. They are simply adopting all sort of tactics by raising defense that their properties are attached by ED. Even they have stopped paying the installments due by raising the plea that why should pay debts once the attachment orders are passed. By way attachment, their properties are also safe so as the due amount. In fact, they are happy if the attachment would continue against the mortgaged properties despite of passing the decrees by the DRT in favor of banks and against borrowers. By this mean, the attachment-orders amounting to interference with the judicial system as the Adjudicating authority in many cases has ignored judgments of the Supreme Court, Full bench of Madras High Court and many High Courts and even of this tribunal. 75. It has come on record that the main mastermind is Shri Jatin R. Mehta who is the promoter and guarantor of M/s. Winsome Diamonds & Jewellery Ltd. 76. At present, total outstanding as per Recovery Cert....