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2019 (2) TMI 962
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....ikhil Pillai Advocate & Mr. Krishna Datta Multani, Advocate, Mr. Manoranjan Sharma, Advocate, Mr. Siddharth Aggarwal, Advocate Mr. Nikhil Pillai, Advocate JUDGEMENT FPA-PMLA-2534/CHN/2018, FPA-PMLA-2533/CHN/2018 &FPA-PMLA-2498/CHN/2018 1. By this order, we propose to decide the above-mentioned three appeals filed by the appellants under Section 26 of the Prevention of Money Laundering Act, 2002 against common Order dated 27.07.2018 passed by the Adjudicating Authority confirming the provisional attachment order no. 02/2018 dated 13.02.2018 passed in O.C. No. 897/2018 dated 6.3.2018 in ECIR/CEZO/01/2017 dated 06.01.2017. 2. All the appellants have separately argued theirrespective appeals. The facts are common so as the legal issues, thus, by single order these are being decided. 3. The main allegations of the ED in the present case is that wrongful gain to the Appellant M/s. VGN Proprty Developers Pvt. Ltd. and wrongful loss to the Government of India of Rs. 115 Crores has been caused by sale of the property admeasuring about 10.46 Acres in Guindy Village, Chennai (hereinafter referred to as the "said property") at a sale price of Rs. 272 Crores whereas the guideline....
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....er value and thereby caused wrongful loss to Government of India. 5. On 06.01.2017, Directorate of Enforcement registered ECIR/CEZO/01/2017 against the persons mentioned in the preceding paragraph on the basis of FIR RC MAI 2016 A0050. 6. On 13.02.2018, in pursuance to the above said ECIR, the Respondent No.1 proceeded to pass a Provisional Attachment Order (hereinafter referred to as the PAO) No 02/2018 and inter alia provisionally attached the land admeasuring 10.46 acres mentioned above, to the extent of INR 115,00,00,000/- (Rupees One Hundred and Fifteen Crores). 7. The copy of the said Provisional Attachment Order was forwarded, along with the materials relied upon therein, to the Adjudicating Authority as required under Section 5(2) of the Act. 8. Further, a complaint dated 05.03.2018 in terms of Section 5(5) of PMLA, 2002 was filed by the Deputy Director, Directorate of Enforcement, Chennai before the Adjudicating Authority (PMLA), New Delhi, which was taken cognizance of by the said authority vide Original Complaint (OC) No. 897/2018. 9. The Adjudicating Authority disposed of the above said complaint and confirmed the PAO No. 02/2018 dated 13.02.2018 vide Ord....
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....perty from March/April 2007onwards. However, as per details available on record, the sale could not go through,owing to the Government of Tamil Nadu objecting to the sale ofland to the bidder. After various rounds of litigation, andpursuant to an order of the Hon'ble Supreme Court in 2009, theconsortium of banks was permitted to take possession of the landand they initiated proceedings under the Securitisation andReconstruction of Financial Assets and Enforcement of SecuritiesInterest Act, 2002 ("SARFAESI") to recover the dues owed to theconsortium. 14.1 In March 2013, after various failed efforts to sell the subject Property through public auction, an offer made by VGN to purchase the subject Property for a sum of Rs. 272 crores pursuant to a SARFAESI action initiated by a consortium of HTL'slenders led by SBI which came to be accepted by the consortium of lenders. The sale of the subject Property by HTL to VGN was completed above the floor price of Rs. 250 crore that was set for the subject Property by the SBI consortium. It is not denied by the respondent no. 1 that it was decision of the consortium and HTL that is the subject matter of the alleged scheduled off....
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....operty, which included the development rights over inter aim the subject Property. An escrow agreement 14.06.2013 was executed between VGN, Respondent No. 3 - IL&FS and HDFC Bank, whereby monies and other payments owed under the Debenture Trust Deed and the other transaction documents would be deposited in the escrow accounts assigned for each of the properties including the subject Property. 14.6 Finally, an indenture of mortgage was executed by VGN in favourof IL&FS on 19.06.2013 in relation to the Subject Property, which indicated that the exclusive first ranking charge created on the subject Property would continue till the final settlement of the transaction. Annexed herewith are copies of the (a) Debenture Trust Deed dated 14.06.2013; (b) Escrow Agreement dated 14.06.2013; (c) Indenture of Mortgage dated 19.06.2013 for the subject Property; (d) Deed of Hypothecation dated 14.06.2013; and (e) Debenture Trustee Appointment Agreement dated 13.06.2013, which are collectively marked as Annexure - A4 (Colly). 14.7 Thepayments were disbursed by the vendors towards itsshare in the investment, to the tune of approx. Rs. 140 crore in midJune 2013 and VGN comm....
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....antees from VGN, purchased the debentures aggregating to Rs. 150 crore from PHL (out of the total issuance of Rs. 400 crore) on a secondary basis in the last week of March 2015. Copies of the (a) Debenture Trust Deed dated 31.01.2015; (b) Escrow Agreement dated 17.02.2015; and (c) Deed of Hypothecation dated 31.01.2015 are filed and marked as Annexure - A5 (Colly). 15. As per M/s. VGN Property Developers P. Ltd. and its pleadings in Appeal no. 2498/2018, the relevant facts are as under:- 15.1 On 28.12.2016 after more than three years of the purchase and development of the subject property on the basis of information received by the Central Bureau of Investigation (hereinafter referred to as "CBI"), Anti-Corruption Branch (hereinafter referred to as "ACB") Chennai, an FIR being FIR No. RC MA1 2016 A0050 (hereinafter referred to as "CBI FIR") was registered by the CBI. The allegation was broadly, that wrongful gain to the Appellant and wrongful loss to the Government of India of Rs. 115 Crores has been caused, by sale of the property admeasuring about 10.46 Acres in Guindy Village, Chennai (hereinafter referred to as the "the said property") at a sale price of Rs. 272 Cro....
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.... their liability as they had conducted due diligence with the records of the subject property. The subject property has been mortgaged immediately in order to create an encumbrance with an intention to escape the clutches of law. 17. However, it is not denied by the respondent no. 1 that beinga party lent financial support to VGN Property Developers P Ltd. for Rs. 140 Crore each to acquire the 10.46 acres of land along with M/s. PHL Finance Pvt. Ltd., with the assistance of common Debenture Trustee M/s. IL & FS Trust Company Limited under registered mortgaged deed entered between M/s. IL & FS Trust Company Limited for Rs. 280 Crore vide Doc. No. 2358/2013 dated 19.06.2013 under SRO, Alandur where M/s. VGN Developers P Ltd. have created a first ranking exclusive mortgage and charge of the immovable property, including the development rights over the properties covered under the agreement. 18. It is pertinent herein to mention that the immovable property purchased for Rs. 272 Crores was mortgaged as above on the same day of purchase, for an amount of Rs. 280 Crores. 19. M/s. IL & FS Trust Company Limited was appointed as Debenture Trustee for the benefit of the Debenture Hol....
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.... Section 13(2) r/w 13(1) (d) of PC Act, 1988 and hence the Central Bureau of Investigation, Anti-Corruption Branch, Chennai has taken up for investigation vide FIR RC MA1 2016 A0050 dated 28.12.2016. The immovable property derived as a consequence of the aforesaid criminal activities itself is "proceeds of crime" as defined under Section 2(1) (u) of PMLA,2002 and involved in money laundering. It is submitted that by virtue of sub-section (1) of Section 5 of the PMLA. The respondent no. 1 is authorized to attach the proceeds of crime possessed "any person" and as per Rule 3 of the Prevention of Money Laundering (Issuance of Provisional Attachment Order) Rules, the respondent no. 1 herein, had issued the Provisional Attachment Order in PAO No. 02/2018 dated 13.02.2018. While issuing the said provisional attachment order, the respondent no. 1 had recorded the reasonable belief on the basis of the materials placed on record and relied upon therein, in detail. 24. It is also a matter which is not denied on behalf of respondent no. 1 that VGN filed a Petition being Criminal OP No. 21905 of 2017 to quash the CBI FIR had been filed by the Petitioner before the Hon‟ble High Court o....
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....s, belonging to the Financial Institutions/ Secured Creditors, done by/in favor of the Government Institutions. 29. The Full Bench of the Hon‟ble High Court of Judicature at Madras in The Assistant Commissioner (CT) Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank &OrsMANU/TN/3743/2016while 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, Hon‟ble High Court held that; "There is, thus, no doubt that the rights of a Secured Creditor to realize secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. 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." 30. That the dictum laid down by th....
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....rary to proviso to Section 5 of the PML Act, 2002, because the encumbrance over the said property in favor of the Appellant was not created to defeat the purpose of PMLA. In the present case, there is no allegation to this effect. By virtue of the proviso the said land being charged in favour of the lenders and they have the primary right over the said land which cannot be hampered by an order of attachment. 33. The lenders are reputed lending institutions and are innocent victims of the proceedings initiated under PMLA Act. Admittedly the lendersis not an accused named in the FIR or the ECIR. There is not even a whisper in relation to the Appellant participation in the alleged scheduled offence. On perusal of the PAO, complaint and notice issued to the Appellant proves that the Appellant has been arraigned as a Respondent in the proceedings, only in view of its prior charge over the said land. 34. This Appellate Authority in State Bank of India Vs. Joint Director, Directorate of Enforcement (FPA-PMLA-2121/DLI/2017) dated 06.02.2018 while considering a similar issue wherein SBI on the basis of a loan had been vested with a prior charge to the attached property, in that case, ....
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.... of Property Act as there is no dispute as regards the origin of funds or the title of the properties. The bank had to recover its out-standing dues by taking over the possession of the mortgaged properties in case the borrowers are not able to pay back the amount. 58. The Respondent No.1 has no lien over the said properties as the Appellant Bank is now the legal transferee of said properties. The said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners because the bank is victim and even after trial, he is to receive back the said properties being victim party u/s 8(8) of the Act. However since the averment is carried out in law, the bank is entitled to dispose the mortgaged property without any delay." 35. The above dictum are squarely applicable in the case of the Respondent No. 2 also and hence the impugned Order is liable to be set aside. It is further submitted that the dictum is reaffirmed by this Hon‟ble Appellate Tribunal in the case Standard Chartered Bank Vs. The Deputy Director, Directorate of Enforcement, Mumbai (FPA-PMLA-1604/MUM/2017). 36. It is submitted on behalf of lend....
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....nsal v District Magistrate, Ghaziabad (1999) 5 SCC 62that guideline value/circle rate notified by the State Government is only a guide to help the registering officer to have the requisite "reason to believe" that the property is under-valued, has to register it and then refer the matter to the Collector to determine its market value. 40. As per practice in the trade, it is not an absolute or infallible guide to determine market value and it is statutorily open for the parties to the transaction to show that the actual market value of the property is less than the guideline value. Guideline value is not sacrosanct but only a factor to be taken note of, if at all available in respect of an area in which the property transferred lies. By no stretch of the imagination can a sale at less than guideline value be construed as causing a loss. 41. It is well settled that, in land acquisition proceedings, the market value for the acquired land are to be fixed by the land Acquisition Collector and the valuation fixed under section 47A of the Indian Stamp Act cannot be the market value and it will be a guideline value only. This clearly shows that the Guideline value is only relevant fo....
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....ake of argument, if the property was purchased at lesser value with the connivance of bank officer, at the best the complaint filed by the CBI would be decided as per its own merit. However, as far as amount spent on sale of plot was untainted amount which was paid by lenders against the security. 47. There is no denial that after the clarification made by the CBI in its Counter Affidavit filed before the High Court, the only allegation that remained was of causing loss to the SBI by waiver of interest of Rs. 53.50 crores. This waiver admittedly and can only possibly benefit HTL which took the loan from SBI and not the Appellant which has nothing to do with the transaction between SBI and HTL. 48. It is not explained in PAO by the ED and the Adjudicating Authority as to which transaction has occasioned this loss, who are the parties to the transaction, what was the rate of interest, who authorized the waiver of interest, whether such a power existed or not, the procedure for exercise of this power, whether or not this procedure was followed, who has benefitted from the waiver of interest and above all, what exactly is the illegality, if any and if at all such a interest waive....
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.... earlier made a bid of 298 Crores) was contacted and it refused to participate in further auctions saying they are interested in commercial, not residential land. This was the reason that there was no going back to RMZ‟s earlier offer of Rs. 298 Crores 55. The Adjudicating Authority has not complied with the mandatory requirement of section 8(2) (a) of the PMLA, as per which the Adjudicating Authority has to deal with the reply to the show cause notice filed by the person whose property has been provisionally attached. The Hon‟ble Delhi High Court in its judgment dated 02.09.2015 in WP(C) 8266 of 2015 titled Farida Begum Biswas v UOIheld that that the accused is entitled to explain the sources of income, earning or assets, out of which or by means of which he has acquired the property, lead evidence and furnish any other information in his possession to justify the legitimate means of acquiring the properties in dispute. It is only after taking all the submissions of the accused and documents brought on record to establish the sources of his property so attached that the adjudicating authority takes a final decision on the same. 56. As is evident from the impugned....
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....nts to its lenders.The Appellant has entered into registered construction agreements with the customers and have legal obligations to deliver the project by September 2019 as per the Real Estate (Regulation and Development) Act, 2016 („RERA‟) which now looks difficult as a result of the attachment by the ED. 61. It is submitted on behalf of the appellant that in view of the said attachment of the flats of 461 buyers, they have become angry/frustrated & irritate and are disturbed in view of attachment and unreasonable and groundless threat of taking the possession of all flats by the respondent no. 1. They have spent the amount from their retirement benefits. 62. Many of them have taken loan from the banks to purchase the flats. Photographs are shown to us that they are trying to commit suicide in front of the construction place. Due to attachment order, the construction has been stopped. It is alleged that VGN is a very old and well respected real estate compay. 63. The buyers have spent their savings for purchase of flats in the building. They want to see some progress of the construction of the building as they have invested their hard earned money. ....
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....ossession of any proceeds of crime; and (b) such proceeds of crime are likely to be considered, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: Provided that no such order of attachment shall be made unless, it relation to the scheduled offences, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country. Provided further that, notwithstanding anything contained in (first proviso), any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director....
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....roperties in question in money laundering. 73 The mandate of Section 8(2) cast a stringent duty upon the Respondent no. 1 which is as under: "taking into account all the 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 under sub section 1 are involved in money laundering...." 74. The Respondent no. 1 did not follow the mandate of Section 8(2) and the finding was given. No cogent and cohesive reason was given for rejection of the submissions in writing. The impugned order is mechanical, without application of judicious mind and as such is liable to be set at naught. In fact, the replies and material produced by the appellants have not been considered by the Adjudicating Authority. There were no discussions about the stand taken by them in their replies. 75. The respondent no. 1 despite being aware that thelendersthat they prior in time interest in the subject Property, Respondent No. 1 - ED proceeded to pass a PAO No. 02/2018 dated 13.02.2018, wherebyattachedthe subject Property to the value of Rs. 115 crore as proceeds of crime. In the PAO, in the column „Present Statu....