TaxTMI 
TaxTMI 
2018 (11) TMI 187
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Adjudicating Authority in O.C. No. 799/2017 (hereinafter referred to as the ("Complaint") whereby the Adjudicating Authority purported to confirm the Provisional Attachment Order No. 05/2017 dated 29.06.2017 ("Attachment Order") issued by the Deputy Director, Directorate of Enforcement, Mumbai ("Respondent No.1") in File No. ECIR/14/MZO/2013 ("ECIR") with regard to attachment of the property being Plot No. D, Commercial District Centre, Paschim Vihar, New Delhi- 110087, area measuring 13158.71 sq. meters ("Subject Property") which was admittedly mortgaged to the Appellant Bank on the reasons that the same was a "proceed of crime." 2. The other appellant has filed the appeal no. FPA-PMLA-2155/MUM/2018 who is borrowers and mortgagor of the said property in favour of the banks challenging the same impugned order. 3. The respondent no. 1 does not deny that the subject Property that have been attached by the Respondent No.1 was duly mortgaged to the Appellant Bank, for the certain credit facilities amounting to INR. 312 Crores (Rupees Three Hundred and Twelve Crores Only), advanced to the borrower i.e. Tirupati Infra Projects Pvt. Ltd. ("TIPL"), by the Appellant Bank. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 13(4) of the SARFAESI, 2002 & Section 19 of the RDB Act, 1993 before the Debt Recovery Tribunal, Delhi against TIPL for a recovery along with the interest on behalf of the Appellant Bank and its members of the Consortium. 10. The Appellant Bank had also initiated Corporate Insolvency Resolution Process against TIPL and the same has been admitted by the Adjudicating Authority of Hon‟ble NCLT, Delhi vide order dated 03.07.2017. 11. The appeal filed before NCLAT by TIPL was dismissed and consequently the moratorium continued to be in effect. 12. It is not denied by the respondent that subject Property was mortgaged with the Appellant Bank before the date of alleged offence i.e. the mortgage was created in the year 2009 and thereafter extended in April, 2013 whereas the FIR against the accused was registered on 30.09.2013. 13. Therefore, the Subject Property cannot be subject matter of attachment when the same was mortgaged prior to the events of the alleged funds diversion and purported frauds committed by the TIPL. The ED does not deny the fact that the said property was four years earlier from the date of alleged offence, thus was not purchased from the proceed of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s clear that the provisions of the PMLA override the provisions of any other law being in force. In this case, the other law i.e. Insolvency & Bankruptcy Code, 2016 being civil law, the provisions of the PMLA will have overriding effect. (iii) Further, the doctrine of pith and substance means that an enactment which substantially falls within the powers expressly conferred by the Constitution upon a Legislature which enacted it cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature. The Court must consider what constitutes in pith and substance the true subject matter of the legislation. If no such examination, it is found that the legislation is in substance one on a matter assigned to the legislature then it must be held to be valid even though it incidentally trenches on matters beyond its legislature. (iv) Section 2 of the Insolvency & Bankruptcy Code, 2016 provides that the provisions of the said Act will apply to companies, partnership firms, etc. As such, there is an express limitation on the application of the code by virtue of Section 2 of the said Code which makes it clear that the code does not stand in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mendments were made to the respective acts i.e. 1st September, 2016 and therefore the provisions which have been inserted in the respective acts that i.e. SARFAESI Act, 2002 & RDB, Act, 1993 will have an overriding effect over the PMLA, Act, 2002. Therefore the right of the Appellant Bank to take action against the Subject Property including sale thereof, cannot be taken away by PMLA, 2002. Please refer to MPPMLA-3363/MUM/2017 (Stay) FPA-PMLA-1604/MUM/2017-Standard Chartered Bank Vs. The Deputy Director, Directorate of Enforcement, Mumbai, wherein the Appellate Tribunal has very categorically held that the provisions of SARFAESI Act, 2002 & RDB, Act, 1993 will prevail over the PMLA, Act, 2002. 18. The Provisional Attachment Order made by the Respondent No.1 is of 29.06.2017 whereas the Subject Property mortgaged to the Appellant Bank was much prior in time and lastly the mortgage was extended on 30.03.2013. 19. The Appellant Bank is pressing relief only in respect of the mortgaged Subject Property as agreed at the time of arguments. The prayer is only to release said property from the provisional attachment order and to set aside the impugned order. Otherwise if attachment wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows: "13. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority." 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: 'Maharashtra Tubes Ltd. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal; Allahabad Bank v. Canara Bank and Ram Narain v. Simla Banking & Industrial Co. Ltd. 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Acy 1985, is to prevail th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a nonobstante clause it means that the Legislature wanted that enactment 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. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the legislature wanted to provide otherwise, they would have specifically so provided." 32. Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. 33. The amended provisions give overriding effect over any other law and priority to the secured con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 35. Thus, it is very clear from above that the secured creditor, get a priority over the rights of Central or State Government or any other Local Authority. 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 institutions. 36. The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case "The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors." that " "There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... V. M. Ganesan vs. The Joint Director, Directorate of Enforcement" has explained the grievances faced by the financial institutions while holding that "For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6, 55 & 56 has held as under:- 6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... greater relation to crimes connected with reference to Illicit Traffic in Narcotic Drugs and Psychotropic Substances, drug crimes and other connected activities. None of the provisions are applicable in the facts of the present case. As far as the borrowers are concerned, we are not expressing any opinion with regard to matters pending before the Special Court 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 the banks are concerned. Due to the attachment proceedings by the ED the Appellant banks are not able to recover the public money by way of selling the properties. The proceedings for recovery have been initiated back in the year 2009. The ED 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 were acquired and possessed by the respective owners much before the Respondents availed the loan from the Appellant Banks and therefore no proceeds of crime are invested in these properties. These properties have be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and are not involved in the offence of money laundering 58. Thus, in the present case, even though the Ld. Adjudicating Authority had all the reasons to believe that the abovementioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/five properties; still the Ld. Adjudicating Authority confirmed the provisional attachment order of the Respondent No. 1 and thus causing huge loss to the Appellant/SBI. 59. The Adjudicating Authority did not understand that the alleged illegal money received by the Respondents from the Union Bank of India cannot overshadow the huge amount of credit facilities which were taken by the Respondents from the appellant bank in lieu of the properties kept as security with the Appellant Bank. Thus, making the Appellant Bank the rightful owner of the said properties which are already in the possession of the Appellant Bank under the SARFAESI Act. The origin of the funds is not illegal or unlawful in any manner. The funds were only deposited in the accounts with the Appellant Bank against the drawings already availed or availed subsequently. 60. We also find that the Adjudicatin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the respondents from the appellant bank which they could not pay due to the losses suffered by the companies. 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 earned and acquired in ways illegal and corrupt, at the cost of the people and the state, the state is deprived of legitimate revenue to that extent hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant Bank it is liable to be recovered by the Appellants Banks. 63. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness 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 as there is no d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... present case, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002. 21. There is no denial on behalf of respondent that the Appellant Bank being a mortgagee of the Subject Property mentioned in the para-1 hereinabove is not required to approach the trial court for getting released the Subject Property that was mortgaged to the Appellant Bank. The Proceedings under section 5 & section 8 of the PMLA, Act, 2002 are civil in nature and therefore the Adjudicating Authority has the power to release the Subject Property (Counsel has referred para-31 of Foziya Samir Godil vs. Union of India 2014 SCC Online Guj 3417). 22. It is not denied by the ED that the bank is a victim party, The loan amount was given to the borrowers with bonafide intention and it must be recovered, however it is submitted that the same is recoverable after the trial against the borrowers. Thus, prayer pressed by the bank in its appeal is strongly opposed. 23. The relevant date and events supplied by the appellant in appeal no. FPA-PMLA-2155/MUM/2018 are mentioned below in order to understand the series of actions pending:- 15.09.2008 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any order thereon. 20.12.2017 Impugned Order is passed confirming the attachment 12.01.2018 Present Appeal filed before this Hon‟ble Appellate Tribunal 02.02.2018 Notice for taking possession under Section 8(4) of PML Act issued by ED 22.02.2018 This Appellate Tribunal passed stay of impugned Order qua the subject hotel in connected Appeal No. FPAPMLA-2173/MUM/2018 filed by BOI 24. 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, the parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993 (after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. The Parliament in its wisdom has not excluded the application of the amended provisions to the proceedings under PMLA. In other words, had the Parliament intended to exclude the application of non-obstante clause of SARFAESI Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 complaint filed against them. 26. The Respondent has also heavily relied on the judgment or order passed by this Tribunal in the matter of Chief Manager, Syndicate Bank Vs. Dy. Director, PMLA in Appeal no. FPA-PMLAA- 34/CAL/2009. We have gone through the said order from which it appears that the facts of that appeal are quite different from the facts of the present appeal. In the said appeal proceeds of crime were used to acquired properties and those acquired properties were mortgaged with the Bank. Para 2 of the said order of this Tribunal which reflects the brief facts of the case is reproduced below to clear the cloud:- "2. Brief facts: M/s Hindustan International, Kolkata proprietor Sh. Gopinath Das operated and maintained current a/c 01000051007 and 03921011000797 with State Bank....
X X X X Extracts X X X X
X X X X Extracts X X X X
....operties herein are mortgaged with the appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime. The relevant sale deed of the mortgaged properties are of 2003 so the date of acquisition is much prior to the date of alleged commission of crime in the present case. 29. In the present case the Adjudicating Authority has come to a conclusion of the impugned order that the defendants are in possession of proceeds of crime and are involved in money laundering. The aforesaid conclusion has not be elucidated by the Ld. Adjudicating Authority in his order. It appears that the only thing was in his mind that section 71 of PMLA has an overriding effect. The provisions of PMLA shall have effect and prevail over provisions of any other Act or its provisions. To this we are not in agreement with the Ld. Adjudicating Authority because of the amendment of 2016 made in SARFAESI Act RDDB Act. The Bank is the rightful claimants of the said property which are already in its possession under SARFAESI Act. 30. The Hon‟ble Supreme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d date of crime. 35. 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. 36. 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 there was absence of such requirement. The said properties are already in the possession of the Appellant Bank under the SARFAESI Act. 37. From the discussion made above, I am of the view that there is no nexus whatsoever between the alleged crime and the Bank who is mortgagee of the properties in questio....