TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 97
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....ain Road,BettiveeramPalayam Village, Tirupur, Andhra Pradesh, owned by Mr. ManishBabel, the Director of M/s Polestar Traders Pvt. Ltd. 3. The brief facts as per the pleadings of the appellant mentioned in para -2.1 to 2.18 are reproduced hereunder:- 2.1 IndusInd Bank, Mumbai filed a Complaint with D.B. Marg PoliceStation, Mumbai against M/s Yogeshwar Diamonds Pvt. Ltd., M/s.Shree Charbhuja Diamonds Pvt.Ltd. and their Directors viz. Shri AnilKumar MulchandToshniwal, Shri Sunil Kumar Chokhara and ShriAnil Chokhara. 2.2 That it was alleged in the complaint that the bank account holders ofIndusInd Bank viz. M/s. Yogeshwar Diamonds Pvt. Ltd., M/s. ShreeCharbhuja Diamonds Pvt. Ltd., M/s. Kanika Gems Pvt. Ltd. and theirdirectors viz. Shri Anil Kumar MulchandToshniwal, Shri Sunil KumarChokhara and Shri Anil Chokhara had illegally remitted IndianCurrency to the tune of Rs. 3,04,35,77,609/- (US$ 4,90,11,147.07) toabroad by submitting forged Bills of Entry to the IndusInd BankLtd. branches of Opera House & Fort in the form of importremittances. 2.3 That pursuant to which D.B. Marg Police Station, Mumbai registeredan thereto an FIR No.365/2015, P.S. Crime Branch, under Sections420, 465,....
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....13 issued by the Appellant Bank to M/s. PolestarTraders Pvt. Ltd is enclosed as Annexure-. 2.10 That vide the Provisional Attachment Order No. 07/2017 dated16.06.2017 in ECIR/05/MBZO/2016 under Section 5(1) of Preventionof Money Laundering Act, 2002 was passed by the Deputy Director,Enforcement Directorate, New Delhi, inter alia, attaching the abovementioned property purchased by Contesting Respondent No. 2 alongwith other properties of the accused. 2.11 That the Appellant Bank herein was made a party in ProvisionalAttachment Order No. 07/2017 dated 16.06.2017. It is pertinent tomention that the Appellant Bank was neither named in FIR asaccused neither even charge sheeted nor any officials of the bank areinvolved either the scheduled offence or offence committed under theprovision of Prevention Money Laundering Act. Therefore, the onlyreason Appellant Bank was arrayed as Defendant No. 12 in PAO No.07/2017 dated 16.06.2017 is because the scheduled property inquestion in the present appeal was secured against loan with theAppellant Bank. 2.12 That after passing PAO No. 07/2017, the Deputy Director filed acomplaint dated 13.07.2017 under the provision of Section 5(5) ofPMLA Act ....
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....legedoffence of money laundering the money trail has not been tracedand found/retrieved. It is with this reason the EnforcementDirectorate has attached the only asset that was available in thename of Contesting Respondent No. 2. It was humbly submitted thatthe Adjudicating Authority was wrong in attaching the propertywithout ascertaining the fact whether the attached property waspurchased out of the proceeds of crime. 2.17 That the Appellant Bank vide letter dated 19.08.2017 informedDeputy Director, Enforcement Directorate that the scheduled propertywas already mortgaged with PNB for the account of M/s. PolestarTraders(P) Ltd. It was that the account has turned NPA on31.03.2017 and an application bearing no. 32/SA/2017 underSection14 of the Act for seeking physical possession of the scheduledproperty has been filed before the DM, Tirpur by the Appellant Bank. 2.18. That the Adjudicating Authority based on the above stated reasonconfirmed the provisional attachment order in PAO No.07/2017passed under Section 5(1) of the PMLA Act,2002 and the order ofconfiscation passed under Section 5(5) or Section 8(7) passed by thespecial court vide order dated 14.12.2017. 4. The Respondent N....
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....ies based inHong Kong. Thus Manish Babel has played a vary prominent andsignificant role in the commission of the criminal activities relating tothe scheduled offences. He has handled the laundered proceeds of crimeto the huge extent of Rs. 212987051. As against the said activities it isnoticed that Manish Babel (D-12) has purchased one plot of land atTripur, Andhra Pradesh in the year 2013 for a total consideration of Rs. 4.50 crores. D-12 has taken a stand that he came to Mumbai in the year 1998 andtill 2011 he did petty services in various firms and thereafter he starteddoing business of brokerage like cheque, RTGS and discounting. Heopened a company named M/s Polestar traders Pvt Ltd in 2013, tradingin metals. He stated of knowing the said Harakchand shah, as he wasalso in the business of cheque/ RTGS and discounting and as they wereboth operating from Opera House. The property attached stands in thename of M/s Pole Star Traders Pvt Ltd. It is his contention that thedepartment has suppressed the fact that activities carried out by himregarding dealing with the proceeds of crime was on commission basisand that D-12 was paid total commission of Rs. 10000 for transfer ofevery US....
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....e remitted bythe accused companies M/s Kanika gems, Yogeshwar diamonds and M/scharbhuja diamonds. The said companies are the accused companies inrelation to the scheduled offences. The funds of Rs. 212987051 remittedto M/s Top Nice International Trading limited is beyond doubt theproceeds of crime. D-12, Manish Babel has thus admittedly dealt withsuch huge proceeds of crime and was admittedly instrumental intransferring the proceeds of crime so received by M/s Top NiceInternational Trading Limited to several local companies in hongkong. Itis thus an admitted position that D-12 has dealt with the proceeds ofcrime to the extent of Rs. 212987051 and has played significant part inlaundering of the said proceeds of crime further. The D-12 is thus aparticipant in relation to the criminal activities relating to the scheduledoffence, as well a participant in the offence of money laundering. Havingdealt with proceeds of crime to the extent of Rs. 212987051, which areyet not traced and found/ retrieve, the liability of J)-12 to the extent as arecipient of proceeds of crime subsists. As against the said proceeds ofcrime the ED could so far lay hands on the only asset in the hand of D-12to the....
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.... 48. This Tribunal in the case of IPRS in appeal no. FPA-PMLA-1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issueas to whether the innocent party whose immovable properties are attachedby the ED can approach the Adjudicating Authority for release of the samein para no. 55 to 60 the same read as under:- "55. Whether innocent party whose properties i.e. movable orimmovable are attached can approach the Adjudicating Authorityfor release of attached property. The Scheme of Prevention of Money Laundering Act clearly providesthe mechanism whereby the innocent parties can approach theAdjudicating Authority for the purposes of release of propertieswhich have been attached in terms of the provisions of Section 5 ofthe Act. This can be seen by reading Section 8(1) and the proviso toSection 8(2) of the Act whereby Adjudicating Authority has to rulewhether all or any of the properties referred to in the notice areinvolved in money laundering or not. "8. Adjudication.- (1) On receipt of a complaint under sub-section (5)of section 5, or applicationsmade under sub-section (4) of section 17 or under subsection (10) ofsection 18, if the Adjudicating Authority has reason to be....
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....elevant para 26 of judgmentis reproduced below :- "26. Thus, upon consideration of the law laid down by the Hon'bleKarnataka High Court, it is clear that the amendment incorporatedin the Money Laundering Act was not held unconstitutional andultra virus, but it was observed by the Karnataka High Court thatthe property of a person can be attached without there being anyprosecution for the offence of Money Laundering, but so far as theprosecution of a person for the offence of money laundering isconcerned, the proceedings under section 3 of the PML Act can beinitiated only in case the person is held guilty of receiving proceedsof crime as a result of commission of scheduled offence. TheKarnataka High Court has also held that the complainant in such acase is not required to wait for the result of trial being held for thescheduled offence. A complaint can still be filed against suchperson, but if ultimately the person is acquitted of the charge for thescheduled offence, his prosecution under section 3 of the Act for theoffence of Money-Laundering would also come to an end. It has alsobeen kept open by the Karnataka High Court that a person againstwhom complaint under section 3 of ....
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....f this definition of 'proceeds of crime' andthe penal provision under Section 3 of PMLA, which usesconjunctive 'and', makes it luminous that any persons concerned inany 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 involved9 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 PMLAshall 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 Honble Supreme Court observed that- "13. Well then, what is an "attempt"? ...In sum, a person commitsthe offence of "attempt to commit a particular offence" when (i) heintends to commit that particular offence and (ii) he, having madepreparations and wi....
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....shable under Indian Penal Code for director indirect involvement, abetment, conspiracy or common intention,nor is any such case made out even on prima facie basis againstany of them." 39. The second of the two pre-requisite to attract Section 3 of PMLAwould be satisfied only if the person also projects or claimsproceeds of crime as untainted property. For making such claim orto project 'proceeds of crime' as untainted, the knowledge of taintednature i.e. the property being 'proceeds of crime' derived orobtained, directly or indirectly, as a result of criminal activityrelating to a scheduled offence, would be utmost necessary, whichhowever is lacking in the instant case." 59. These are four ingredients which are determinative factorson the basis of which it can be said that whether any person or anyproperty is involved in money laundering or not. If there is no direct/ indirect involvement of any person or property with the proceedsof the crime nor there is any aspect of knowledge in any personwith respect to involvement or assistance nor the said person isparty to the said transaction, then it cannot be said that the saidperson is connected with any activity or ....
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....rom and out of thesaid amount, the property in question was purchased by him in thenames of his Benamies. One Ayyappan was appointed as theirPower Agent. One Gunaseelan purchased the property through thePower Agent Ayyappan. The said Gunaseelan was examined andhis statement was recorded Under Section 50 of the Act. He hadstated that he purchased the property for cultivation. He developedthe property but geologist gave opinion that property will not yieldproper income. In the circumstances, he sold the property toappellants. The respondent has not produced any document ormaterial to disprove the statement of Gunaseelan. There is nothingon record to show that the transaction in favour of the saidGunaseelan, is not genuine. It is not the case of respondent that thesaid Gunaseelan is a Benami or employee of G. Srinivasan and thatGunaseelan did not pay any amount as sale consideration or thesale consideration paid by Gunaseelan was no legitimatemoney. There is no material to show nexus and link of Gunaseelanwith G. Srinivasan and his Benamies. In the absence of anyverification or investigation by respondent with regard togenuineness or otherwise of the purchase by Gunaseelan; whetherhe ....
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....e offences punishable under Section120-B read with 420, 467, 471 IPC and section 13(2) read with13(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 PMLAand therefore on of the condition for issuing provisional attachmentorder is satisfied. The other important point to be determined iswhether the properties attached vide Provisional attachment orderare involved in money-laundering. The only defense or explanationraised by Defendants, particularly Def No. 2 to 8 is that the landedproperties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants withouthaving any knowledge, whatsoever, that these properties werederived or obtained through criminal activities relating to scheduleoffence. It has been demonstrated by them that they verified thetitle deeds relating to the properties and after due verification ofevery details entered into the sale transactions as such these arebona fide deals entered by them against proper sale considerationand the money paid to the seller is also well explained. 22. Against the above arguments vehemently raised by thedefenda....
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.... the property did not possess financial capacity to providesuch huge amounts and that they are not genuine purchasers ofagricultural products of appellants. The respondent has not madeany such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additionaldocuments produced before it, but rejected the same on the groundthatAppellantshave not given any valid reasons for not filing thesame before the Adjudicating Authority. Having considered theAdditional documents, the appellate authority failed to give anyfinding on merits after verifying with the concerned Bank." 49. From the scheme of the Prevention of Money Laundering Act, 2002and its object, it is clear that the intention of the legislation was not toapply the Act to the transaction subject matter of the present case. 50. The ED in its provisional order as well as in the complaint before theLd. Adjudicating Authority admitted that the properties which are subjectmatter are mortgaged with the appellants banks. The borrowers acquiredand possessed by the respective owners since 2000, much before theborrowers availed the loan from the appellants banks and therefore nopr....
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....ng any opinion with regard to matters pending before the SpecialCourt in relation to schedule offences and the complaint under this Act. These matters are to be considered as per law. 54. There is no money laundering in the present case as far as thebanks are concerned. Due to the attachment proceedings by the ED theAppellant banks are not able to recover the public money by way of sellingthe properties. The proceedings for recovery have been initiated back in theyear 2009. The ED in its provisional order as well as in the complaint filedbefore the Ld. Adjudicating Authority has admitted and acknowledged thatthe Properties which are mortgaged with the Banks were acquired andpossessed by the respective owners much before the Respondents availedthe loan from the Appellant Banks and therefore no proceeds of crime areinvested in these properties. These properties have been purchased evenprior to the coming in force of the PML Act in the year 2002. 55. The ED has also filed the copies of the sale deeds/ title deeds of theproperties which shows the date of acquisition of all the properties. Theoriginal title deeds of all the properties are lying with the Appellant Bank. The Appel....
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....l attachment order of the Respondent No. 1 andthus causing huge loss to the Appellant/SBI. 59. The Adjudicating Authority did not understand that the allegedillegal money received by the Respondents from the Union Bank of Indiacannot overshadow the huge amount of credit facilities which were takenby the Respondents from the appellant bank in lieu of the properties keptas security with the Appellant Bank. Thus, making the Appellant Bank therightful owner of the said properties which are already in the possession ofthe Appellant Bank under the SARFAESI Act. The origin of the funds is notillegal or unlawful in any manner. The funds were only deposited in theaccounts with the Appellant Bank against the drawings already availed oravailed subsequently. 60. We also find that the Adjudicating Authority has not examined thelaw on mortgage and securities. The Appellants Banks are liable to recoverhuge amounts in the above loan accounts and the appellant bank beingthe mortgagee/transferee of the interest in the properties is entitled torecover its dues with the sale of the properties. The properties stoodtransferred by way of mortgage to the Appellant Bank much before thealleged criminal ....
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....dproperties and has held that the illegally acquired properties are earnedand acquired in ways illegal and corrupt, at the cost of the people and thestate, the state is deprived of legitimate revenue to that extent hence theseproperties must justly go back where they belong, the state. In the presentcase as the money belongs to the Appellant Bank it is liable to berecovered by the Appellants Banks. 63. The property of the Appellant Bank cannot be attached or confiscatedwhen there is no illegality or unlawfulness in the title of the Appellant andthere is no charge of money laundering against the Appellant. Themortgage of property is the transfer under the transfer of property act asthere is no dispute as regards the origin of funds or the title of theproperties. As far as the bank is concerned, the bank had to recover itsoutstanding dues by taking over the possession of the mortgagedproperties in case the Respondents are not able to pay back the creditfacilities availed by the Respondents and by way of the SARFAESIprovisions these properties are being taken in possession by the appellantbank so that recovery can be made from the accounts which have becomeNPA. 64. The respondent ....
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....rityinterest is created, shall have priority and shall be paid in priority over all otherdebts and Government Dues including revenue, taxes, cesses and rates due tothe Central Government, State Government or Local Authority. 10. The Adjudicating Authority also did not correctly deal with theprovisions under Section 26-E of the SARFAESI Act, 2002, notwithstandingcontained in any other law for the time being in force, after the registration ofsecurity interest, the Debts Due to any secured creditor shall be paid in priorityover all other debts and all revenues, taxes, cesses and rates due to the CentralGovernment, State Government or Local Authority. 11. In the impugned order, the Adjudicating Authority has failed to considerthe admitted position which was recorded by the Deputy Director ofEnforcement Directorate Mumbai by letter dated 19.08.2017, that the propertyin issue already stands mortgaged with the Appellant Bank by M/s PolestarTraders (P) Ltd and the account has been declared NPA as on 31.03.2017 andSARFAESI action has been initiated and Symbolic possession of the property inissue has been taken by the Appellant Bank under Section 13(4) on14.07.2017. 12. In the impugned o....
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....uld not be applicable to the detriment of suchsecured creditors. 17. The impugned order is totally perverse and against the law and withoutapplication of mind that as per Section 19 (20) (A) and Section 19 (20) (B) ofRecovery of Debt due to Banks & Financial Institution Act, 1993 being a Nonobstinateclause will have an over ridding effect over the PMLA Act, 2002,which states that the proceeds from sale of secured assets shall beappropriated first toward the recovery of costs and thereafter towards the debtowed to the Banks or financial institutions. 18. The correct interpretation of Section 31B of Recovery of Debt due toBanks & Financial Institution Act, 1993 being non obstinate clause will havean over ridding effect over the PMLA Act, 2002, which states that the rights ofthe secured creditors to realize secured debts due and payable to them by saleof assets over which security interest is created shall have priority and shall bepaid in priority over all other debts and government due to the CentralGovernment, State Government or Local Authority. 19. The Respondent no. 1 has relied on the judgment of the Hon'bleSupreme Court passed in the matter of KSL & Industries Ltd. vs.A....
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.... the RDDB Act may be considered to be aspecial law in relation to the recovery of debts and the SICA maybe considered to be a general law in this regard. For this purposewe rely on the decision in LIC Vs. Vijay Bahadur (supra). Normallythe latter of the two would prevail on the principle that theLegislature was aware that it had enacted the earlier Act and yetchose to enact the subsequent Act with a non- obstante clause. Inthis case,however, the express intendment of Parliament in thenon-obstante clause of the RDDB Act does not permit us to takethat view. Though the RDDB Act is the later enactment, sub-section(2) of Section 34 specifically provides that the provisions of the Actor the rules thereunder shall be in addition to, and not inderogation of, the other laws mentioned therein including SICA. 50. The term "not in derogation" clearly expresses the intention ofParliament not to detract from or abrogate the provisions of SICA inany way. This, in effect must mean that Parliament intended theproceedings under SICA for reconstruction of a sick company to goon and for that purpose further intended that all other proceedingsagainst the company and its properties should be stayed pe....
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....tinterpreted when we know why it was enacted. With thisknowledge, the statute must be read, first as a whole and thensection by section, clause by clause, phrase by phrase and word byword. If a statute is looked at, in the context of its enactment, withthe glasses of the statute-maker, provided by such context, itsscheme, the sections, clauses, phrases and words may take colourand appear different than when the statute is looked at without theglasses provided by the context. With these glasses we must look atthe Act as a whole and discover what each section, each clause,each phrase and each word is meant and designed to say as to fitinto the scheme of the entire Act. No part of a statute and no wordof a statute can be construed in isolation. Statutes have to beconstrued so that every word has a place and everything is in itsplace." 53. Moreover, we have found nothing contrary in the intention ofthe SICA to exclude a recovery application from the purviewof Section 22, indeed there could be no reason for such exclusionsince the purpose of the provision is to protect the properties of asick company, so that they may be dealt with in the best possibleway for the purpose of its reviva....
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....cellaneous Provisions (Amendment)Act, 2016 and its provisions have been given effect from 01.09.2016. TheParliament in its wisdom has not excluded the application of the amendedprovisions to the proceedings under PMLA. In other words, had theParliament intended to exclude the application of non-obstante clause ofSARFAESI Act and RDDB Act to PMLA then it would have done soexpressly as has been specifically prescribed in the amended provisions. Itmay also be noted here that the judgment of Hon'ble Supreme Court inthe matter of KSL & Industries Ltd (supra) has been delivered in theyear 2014 whereas the amendment in aforesaid two Acts have beenbrought in the year 2016. 22. One more important thing to be noted that the Hon'ble SupremeCourt in the aforesaid case KSL & Industries Ltd. (supra) matter hasheld that the provisions of SICA, in particular section 22, shall prevail overthe provisions for the recovery of debts in the RDDB Act because of thefact that the non-obstante provision of RDDB Act has specifically excludedSICA from its application. 23. The conflict of non-obstante clause arising in respect of two or moreenactments then the same have to be resolved by taking into ....
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....f Chief Manager, Syndicate BankVs. Dy. Director, PMLA in Appeal no. FPA-PMLA-A-34/CAL/2009. Wehave gone through the said order from which it appears that the facts ofthat appeal are quite different from the facts of the present appeal. In thesaid appeal proceeds of crime were used to acquired properties and thoseacquired properties were mortgaged with the Bank. Para 2 of the saidorder of this Tribunal which reflects the brief facts of the case isreproduced below to clear the cloud:- "2. Brief facts: M/s Hindustan International, Kolkata proprietorSh. Gopinath Das operated and maintained current a/c 01000051007and 03921011000797 with State Bank of India, Overseas Branch,Kolkata (in short SBI) and Oriental Bank of Commerce, Stand RoadBranch, Kolkata (in short OBC) respectively with the intention to defraudthe bank and submitted fake and forged documents for export of goodssuch as Invoice, Packing List, Quality and Quantify Certificate, SDFDeclaration, Undertaking, Origin of Good Certificate, Shipping Bill, Bill oflading etc. to the bank and god these bills discounted against L/C(s) andobtained an amount of Rs. 12,28,22,463/- and Rs. 1,30,43,433/- fromState Bank of India and Rs. 6,76....
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....nce these properties must justly go backwhere they belong, the state. In the present case as they money belongs tothe IDBI Bank it is public money. The IDBI Bank has the right to propertyunder the Constitution of India. The property of the IDBI Bank cannot beattached or confiscated if there is no illegality in the title of the appellantand there is no charge of money laundering against the appellant. Themortgaged 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 partywho is also innocent and is entitled to recover the loan amount. It is alsonot disputed by the respondent that the properties in dispute aremortgaged with Bank and it has to go to Bank ultimately. The onlysubmission of the respondent that u/s 8(8) of PMLA, the possession begiven to Bank after the trail and final outcome of criminal matters againstthe barrowers. We do not agree with the argument in this regard in view ofamendment in the two statutes. Even otherwise the trial would takenumber of years. The public money cannot be stalled otherwise Bankingsystem would be collapsed. Even otherwise, as per amendment of thisprovision, the pro....