TaxTMI 
TaxTMI 
2019 (3) TMI 822
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty No. 17 - 801 Prasad Chambers, Opera House, Mumbai. Property No. 18 - 802 Prasad Chambers, Opera House, Mumbai. Property No. 19 - Office No. 6, B Wing, 1 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai. Property No. 20 - Office No. 3, B Wing, 3 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai. Property No. 21 - Office No. A/1, A Wing, 3 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai. Property No. 22 - Office No. 1, A Wing, 7 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai. Property No. 23 - Flat No. 3701, 37th Floor, Springs 1, G.D. Ambedkar Marg, Dadar East, Mumbai. Property No. 31 - Land and Bungalow at Gut No. 1355, Hissa No. 1, Village Awas, Taluka Alibaug, District Raigad. Property No. 32 - Commercial Building called Axis Multi Comples, Block A, Action Aria, 1 C, Plot No. CF-29, New Tower, Kolkata. Property No. 37 - 84. 13 Acres at Balwant Nagar at Munde Gao, Taluka Igatpuri, Di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Facility, the Appellant initiated all its rightful legal remedies to recover such amounts by issuing Recall Notices, Demand Notices and Notices U/s 13(2) of the Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act ("SARFAESI") to the borrowers and corporate and personal guarantors, as mentioned in Paragraph Nos. 4.9 and 4.12 of the Appeal. The Appellant mentioned a description of the Securities, which included the Properties (subsequently attached by the Respondent) which had been secured in favour of the Appellant, in Annexure III and II of the Recall Notices and Notices under SARFAESI respectively. (Annexure Nos. A8 (Colly) Recall Notice & Notice Under SARFAESI, A9(Colly) Demand Notice @ Pg 1209, 1232, 1255 respectively). 4.5. The Appellant in its individual capacity, has declared the account of GGL and GECL as Non-Performing Asset (NPA) with effect from 31.03.2018.The Appellant and the other Consortium Lenders have filed Original Applications before the Debt Recovery Tribunal ("DRT"), Mumbai being OA No. 408/2018 and OA No. 520/2018 on 05.07.2018 and 18.08.2018 U/s 19 of the Recovery of Debts Due to Banks and Financial Institution....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rseas branches of Indian banks. 7. Upon the conclusion of investigation, the Respondent arrived at the finding that since "the proceeds of crime have been siphoned off out of the country, the same is not available for attachment in the Country....Thereafter, the said funds were routed and diverted to various overseas companies out of country with the intention to launder the proceeds of crime....Therefore, the said three accused entities have acquired the proceeds of crime and layered the same out of country to hide its criminal origin. Therefore the said proceeds of crime is not available in the country for attachment" though admittedly the Appellant is has not been charged by the Respondent for the offence of money laundering. On similar lines the Adjudicating Authority, concludes in its order that the proceeds of crime generated were layered out of the country and were not available in the country for attachment. Erroneously, the Respondent then went ahead to take a diametrically opposite stand, which is noted in the Impugned Order, "As such, the said properties mentioned at Para 24 of the PAO are deemed to be proceeds of crime in lieu thereof generated as a result of crim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny proceedings under this Act", which condition is sine-qua-non to the provisional attachment of properties by the Respondent. The Adjudicating Authority is recorded at page 39 of the Impugned Order, which reads as under: "..The Deputy Director observed that Shri Mehul Choksi is not co-operating with the investigation at all as he has not attended office of Enforcement Directorate despite of three summons having been issued to him under the provisions of the PMLA. The Deputy Director therefore, believed that the likelihood of selling and/or disposing of the said properties are extremely high. Therefore, the Director has reason to believe that the properties mentioned at Para 24 of PAO i.e the proceeds of crime are likely to be concealed, transferred or dealt with in such a manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter-III of the Prevention of Money Laundering Act." 14. However, if the Respondent is exercising such jurisdiction, the duty is also cast upon to attach properties in a very careful manner after consulting the law. In the present case, it is the admitted case of both authorities that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the stipulated circumstances as envisaged in the statute. Therefore, in the absence of circumstances as envisaged under Section 5(1)(b) as well as the 2nd Proviso of Section 5(1) of the Act, Provisional Attachment Order and confirmation thereof in the Impugned Order is passed against the law. As far as exercise of jurisdiction under the second proviso, no doubt, it empowers the respondent to attach the properties if all requirements prescribed are satisfied. Similarly, if the said proviso, the respondent were entitled to invoke the second proviso by attachment of all other properties, except mortgaged properties. 17. It appears from the Complaint as was filed by the Respondent, it would reveal there is no mentioning or investigation into the Charge of the Appellant over the Properties where the bank is the secured creditors. The investigation is on the basis of real facts and the steps of provisionally attaching properties for which the charge is already with the appellant who is otherwise secured creditators. There is no denial that the properties were purchased prior to the period when the alleged offences were committed, and thus cannot be a part of the alleged proceeds ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Banks and Financial' Institutions Act, 1993 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:- "31B. - Priority to secured creditors. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale 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." 24. The Hon'ble Supreme Court, wherein it has been categorically held that if non-obstante clause is contained in two enactments, the nonobstante clause in the later enactment shall prevail over the nonobstante clause in the earlier enactment. In the case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. (2001) 3 SCC 71, the Supreme Court was considering the effect of the non-obstante clause contained in Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 and Section 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by Hon'ble Mr. Justice S.K. Koul, who is now the Hon'ble Judge of Supreme Court). The Assistant Commissioner (Commercial Taxes) Vs. Indian Overseas Bank], in which the Hon'ble High Court upheld the provisions of the amended Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993. The following is the relevant portion of the said decision:- "3. There is, thus, no doubt that the right* of a secured creditor to realize secured debts due and payable by sale of assests 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." 30. The said principle laid down by the Hon'ble Supreme Court has also been followed by the Hon'ble Madras High Court in another decision dated 22.12.2016 in W.P. No.27504 of 2015 and has upheld the provisions of the amended Section 26E of SARFAESI Act. The following is the extract of the relevant portion of the said decision of the Madras High Court:- "8. Concededly, the mortgage in favour of the petitioner Bank was created on 26.05.2005, which was prior to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt. Further, it would amount to an exercise in futility and wasteful litigation if the Appellant is required to be a mute spectator to the confirmation of attachment of mortgaged properties at this stage and await the conclusion of trial u/s 3, 4 of the Act to agitate and pursue its rightful legal claim over such mortgaged properties. 33. The Mortgage Deed being a registered document ought to give precedence to the claim of the Appellant. Further, the Appellant Bank is a victim of the fraud perpetuated by Mr Mehul Choksi and the Gitanjali group companies including GGL and GECL, which is further aggravated by the effect of the Impugned Order, depriving it of pursuing its legal claims against properties mortgaged to it. Both orders passed by ED and Adjudicating Authority are contrary to law and facts. 34. The Adjudicating Authority has wrongly confirmed the Attachment The bank is as per agreement and documents is entitled for recovery by the Appellant-Bank from its borrower its own stressed Asset, since the Bank had already lent the money owned by it, which the Bank is entitled to recover the same. The impugned order has been passed without application of mind. Both authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mentioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter - 5 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. 60. We also find that the Adjudicating Authority has not examined the law on mortgages and securities. 63. The property of the Appellant bank cannot be attached and confiscated when there is no illegality or unlawfulness in the title of the appellant. 64. The respondent has no lien over the said properties as the appellant banks are now the legal transferees of the said properties. 65. From the entire gamut of the matter, we are of the view that there is no nexus whatsoever between the alleged crime and the two banks who are mortgagees of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against banks who have sanctioned the amount which is untainted and pure money. They have priority as secured creditors to recover the loanamount/debts by sale of assets over which security interest is created, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bankruptcy Act, 1993, wherein, Under the aforesaid two special enactments, a bank or financial institution is entitled to recover its dues by non-adjudicatory and adjudicatory mechanism respectively. 41. In the present case, it is admitted by the respondent no. 1 that the Adjudicating Authority by itself has not disputed the fact that the Consortium Finance sanctioned by the Appellant herein is untainted and pure money and in an utter disregard to the settled position of law went ahead with the confirmation of the PAO in the impugned order. 42. The Adjudicating Authority did not appreciate that the provisions of The Prevention of Money-Laundering Act, 2002 do not constitute any overriding statutory charge so as to defeat and make sub servient the rights of the bank as a secured creditor. It is no longer res integra that crown debts have no priority over the claim of a secured creditor under a contract of loan. 43. The Prevention of Money-Laundering Act, 2002 does not override the provisions of The Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest. Act, 2002 should be construed harmoniously so as to give effect to both. The realization o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ocal authorities. 47. The Adjudicating Authority in the Impugned Order opined that neither Section 26(E) SARFAESI nor Section 31(B) RDDBFI can be construed to exempt the "proceeds of crime" within the meaning assigned to it under PMLA. It further went ahead to hold that the Appellant had statutory recourse in terms of sub clause 8 of section 8 of the Act which takes care of the interest of a claimant with a legitimate interest in the property. 48. The legislative intent for relief at this stage can be borne out from the fact that under the proviso to sub clause 1 and 2 of section 8 of the Act, prior to the confirmation of the PAO, the Adjudicating Authority is required to adjudicate over the claim of an innocent party who seeks claim over the attached property, apart from the person to whom notice had been issued. 49. Under Section 8(1), upon receipt of a Complaint u/s 5(5) of the Act, if this Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which....
X X X X Extracts X X X X
X X X X Extracts X X X X
....layed upon it by Mr. Mehul Choksi and the Gitanjali group of companies. Accordingly, the Adjudicating Authority erred in confirming the attachment of properties already mortgaged to the Appellant. 55. The Adjudicating Authority has failed to understand that the NCLT Mumbai vide order dated 08.10.2018 has declared moratorium under Section 14 of the IBC, 2016, inter alia, the said section 14 of the IBC, 2016 prohibits the continuation of pending suits or proceedings against the corporate debtor (i.e. Respondent No.2 herein). Therefore, the Adjudicating Authority could not have confirmed the PAO bearing No. 03/2018 dated 28.03.2018 passed by the Respondent No.1. 56. The said process is promoted by the Government of India. Apex Court has also held in favour of the bank and the main provisions valid in order to recover the amount in the interest of public. One fails to understand why both authorities are against the said process of recovery. 57. In view of the non-obstante clause as contained in Section 238 of the IBC, 2016, the Adjudicating Authority could not have continued with the Attachment proceedings under the PMLA. 58. The Reasoning of the Adjudicating Authority is n....