AI OCR 
TaxTMI 
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2019 (4) TMI 250
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....PMLA", for short) against more or less similar orders of the appellate tribunal (constituted under Section 25), such orders having been rendered on appeals of the respondents ("banks") vis-à-vis the orders of provisional attachment issued by the enforcement officers under Section 5, as confirmed by the adjudicating authority under Section 8, give rise, inter alia, to certain common questions of law of import concerning nature of property that may be attached under this special law as indeed the conflict arising from claim of bonafide acquisition of interest by third parties. Hence, they have been heard together and are being decided by this common judgment. THE ISSUES 2. The measure of attachment of property involved in "money laundering", it essentially representing "proceeds of crime" (as defined in law), is provided to ensure that the ultimate objective of "confiscation" of such ill-gotten property be not frustrated, the power and jurisdiction to order confiscation being vested in the Special Court. As would be seen at length in later part of this judgment, the provisions for attachment (followed by adjudication) leading to confiscation are sanctions in addition to ....
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....under PMLA, as confirmed by the adjudicating authority, and the claim of the respondent bank ("Axis Bank") over the said Audi car on account of hypothecation in relation to the finance that had been provided by it for its acquisition by the said registered owner. 7. There is no dispute between the parties herein as to the facts that the registered owner of the Audi Car had availed of loan facility vide account no. AUR012601217345 from the above mentioned bank for purchasing the same in December, 2015, he having executed, inter alia, the Loan-cum-Hypothecation Agreement dated 13.09.2014 and irrevocable Power of Attorney dated 04.12.2014 in its favour and by virtue of such documents the vehicle is under hypothecation with the bank, the finance provided for its acquisition having remained unpaid. The bank, it appears, had taken certain steps, through its separate legal entity (Axis Asset Management Company Ltd.), to take over the control/possession of the said asset and recover its dues by its sale, the liability, as on 12.07.2017, being Rs. 12,08,949/-. 8. The Government of India had announced demonetization policy on 08.11.2016, in terms of which the then existing Indian curre....
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.... gold, statedly proceeds of the above-said crimes, were effected from close associates of Rajeev Singh Kushwaha. 11. Primarily on the basis of above-mentioned facts, and the material gathered during investigation into the police case, it involving scheduled offences, information was also conveyed to enforcement authorities, which resulted in ECIR no.11/2016 being registered on 30.11.2016 under PMLA. The investigation into the said case under PMLA has led to a complaint being presented, on 01.02.2017, under Section 45 upon which cognizance has been taken by the Special Court. 12. Simultaneously, on the basis of reasons to believe recorded in writing, provisional attachment order no.01/2017 was passed and properties of Rajeev Singh Kushwaha of the total value of Rs. 3.40 Crores were attached on 27.01.2017. These include the Audi car. The adjudicating authority, by its order dated 31.05.2017, confirmed the attachment order. Before confirmation, the adjudicating authority had issued a notice (under Section 8) to the bank to show cause as to why the properties, including the Audi Car, be not attached. The request of its asset management company for suspending the provisional attac....
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....the said loan, title deeds of immovable properties were tendered by the borrowers and guarantors and the said properties were accordingly subjected to mortgage/hypothecation. The loan, was not repaid and the account was classified as "non-performing asset" (NPA) w.e.f. 30.04.2009. 17. The SBI, in exercise of its power under Section 13 (4) of SARFAESI Act, took over the hypothecated property/mortgage property (the immovable properties) vide notice dated 07.12.2008. The action was challenged by the second respondent before the Debt Recovery Appellate Tribunal (DRAT), constituted under Recovery of Debts Due to Banks And Financial Institutions Act, 1993 (for short, "RDDBFI Act" - since renamed as the Recovery of Debts and Bankruptcy Act, 1993 or "RDBA"), but without success. The SBI, thereafter, moved Debt Recovery Tribunal (DRT), by OA no. 151/2011, for issuance of recovery certificate by sale of the mortgaged properties and hypothecated securities. The request was granted by the DRT on 15.02.2013, the amount outstanding as on 07.09.2009 being Rs. 6.44 crore. 18. The inquiries statedly brought out that the performa invoices and receipts presented in support of the claim of purch....
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..../s Aryan Electronics. 23. It is stated that Arun Suri had taken cash credit facility from IDBI in January, 2009 executing various security documents thereby creating equitable mortgage in respect of six properties, including the said two shops, depositing the title deeds with the bank. The cash credit facility initially sanctioned for Rs. 300 lakhs on 23.10.2009 was enhanced to Rs. 500 lakhs and further to Rs. 750 lakhs on 10.07.2010, both times, on request, the charge of equitable mortgage having been extended for enhanced facilities. 24. The borrower (Arun Suri) failed to maintain financial discipline and defaulted in deposit of sale proceeds through the cash credit account, it being declared NPA on 31.12.2012 by IDBI. The bank initiated action under Section 13 (2) of SARFAESI Act on 30.01.2013, a receiver having been appointed by the Chief Metropolitan Magistrate (CMM), by order dated 07.06.2017, to take possession of one of the mortgaged properties. The IDBI also moved DRT for recovery of its dues (by OA no. 582/2014), the amount outstanding at that stage being Rs. 11,19,81,600.44. 25. Meanwhile, certain serious irregularities involving foreign exchange transactions in....
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....ar, Lucknow (UP); commercial shop no. SS-14, Gulmohar Complex, Section 15, Noida (UP); Factory Land & Building at A-43, Section-8, Noida, UP; Land & Building (Two storeyed) Industrial Shed and Machineries, situated at plot no. 350, Section 3, Phase-II, Industrial Growth Centre, Bawal, Haryana; Agricultural Land (7.35 acre), Khata no. 28, 55/109, Maujapur, Tehsil, Sikanderpur, Ballia, UP and Agricultural Land, Mauzapur, Gata No. 1009, Pargana Sikandarpur, Purbi, Tehsil, Sikandarpur, Dist. Ballia, UP, the total mortgage value whereof at the relevant point of time is stated to be Rs. 2129.74 lakhs. Shambhu Prasad Singh is described as owner of the first said property and coowner in the last two above-mentioned properties, DSIPL being indicated to be the owner of fourth said property, Shyam Singh Bhatter having title over the other two properties, in one as a coowner. 29. It is stated that, on 10.12.2009, DSIPL had approached the PNB to take over the then existing liabilities from Syndicate Bank. The PNB sanctioned credit facilities to the tune of Rs. 2010.50 lakhs on 18.02.2010 on the request of Shambhu Prasad Singh. The credit facility was enhanced from then Rs. 650 lakhs to 1800 ....
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....A. The tribunal has also observed that the properties in question had not been acquired out of any proceeds of crime, their acquisition being prior to the commission of offence of money-laundering. It was also noted that there was no nexus between those indulging in money laundering on one hand and the PNB (or its employees) on the other, its claim under the mortgage being a charge which merited priority. 35. The above order of the appellate tribunal was challenged by Union of India in this appeal and, by order dated 25.07.2018, it was directed that the first four above-mentioned properties shall not be alienated by the PNB. 36. In this case, there have been certain developments post the decision of the tribunal rendered on the appeal of PNB on 16.05.2018. The PNB proceeded to invoke the jurisdiction of the National Company Law Tribunal (NCLT), it being the adjudicating authority under the recently enacted Insolvency and Bankruptcy Code, 2016 ("Insolvency Code", for short), by filing a company petition, it being no. (IB)-718(PB)/2018, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against DSIPL. The NCLT, by its order dated 27.09.2018, admitted the sai....
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....t), 481 (4.82 Hect), 482 (2.95 Hect) Total 9.17 Hect) situated at Vill-Gudri, Distt, Katni and Khasra no. 499, 501/1 502/2m 503/1, 503/2 (part), 2162/1, 2162 (part), piproudh, NH7, Distt-Katni (MP). The first three properties are stated to be owned by SVIL, next four held in the name of Rajiv Jain, the one following owned by Sanjay Jain and the last two of SVIL Mines Ltd., a sister concern. 39. In the loan accounts, the aforesaid directors of SVIL had stood guarantee, a corporate guarantee to secure credit facility having also been executed by SVIL, it being claimed that the company in whose favour money was being borrowed was majorly engaged in the business of trading of agro-commodities and manufacturing and marketing of essence oils, perfumery compounds, flavours, fragrances and aromatic chemicals. The loans were taken and the mortgage contracts created during 2005 and 2007, the properties which were placed under mortgage having been acquired during 1994 to 2005. 40. All the loans became NPA after 2011. A forensic audit of the borrowers was carried out by the consortium (led by PNB) in the wake of resolution of December, 2013. The audit report brought out serious financial....
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....o the assets that may have been acquired, derived or obtained as a result of money-laundering. To put it simply, it appears that the enforcement authority having not been able to lay its hands on the property derived or obtained from money laundering has proceeded to reach out to other assets of the suspects that appear prima facie to have been acquired earlier from legitimate means because they are properties of the same value as would have been the value of the pecuniary advantage gained by money-laundering. 46. It is in the above context that the conflicts involving third party claims have arisen because the respondents (banks) claim to have acquired lawful interest (by mortgage or hypothecation) in the properties (which have been attached) in due course of their banking activities. It is not disputed that neither the concerned bank nor any of its agents or employees have had any connection whatsoever with any act of commission or omission relating to the money-laundering of which the borrowers are accused in these cases. It is also well conceded by the State (the appellant) that the banks in these matters may be entitled to and may have been pursuing lawful remedies where-un....
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....oning that such measures be "without prejudicing the rights of bona fide third parties". 50. The Prevention of Money-Laundering Act, 2002 ("PMLA") though enacted and notified on 17th January, 2003, came into force w.e.f. 01.07.2005 and has been amended more than once, lastly by the Finance Act, 2018 and the Prevention of Corruption (Amendment) Act, 2018. It was brought on the statute book with the avowed objective "to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incident thereto", pursuant to the obligation in terms, inter alia, of Political Declaration and Global Programme of Action, annexed to the resolution S-17/2 as adopted by the General Assembly of the United Nations on 23.02.1990 and the Political Declaration adopted by the Special Session of the United Nations General Assembly on 8-10 of June, 1998, the global view, which India shares, being that "money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty". As is noted in the "statement of objects and reasons" for this law to be enacted, in ....
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....ent (9th chapter) for assistance to be given by India to other sovereign States or expected by from the latter vis-à-vis property that is subject matter of money-laundering, this being dependent upon agreements to such effect being entered into by India with other countries. Similarly, the law envisages certain obligations (4th chapter) on the part of banking companies, financial institutions and intermediaries to render assistance to the enforcement agency not only by maintaining records but also reporting, or giving access, to information about certain transactions for dealing with the scourge of money-laundering. The PMLA establishes an enforcement agency, collectively described as "Authorities" (8th Chapter) and criminal justice fora styled as "Special Courts" (7th chapter) conferring, by Section 44, upon the latter (i.e. the special courts), exclusive jurisdiction to try the offence (under Section 4) of "money-laundering" and any "scheduled offence" connected thereto, also making it the court of cognizance vis-à-vis the offence of money-laundering (under Section 3). 53. For comprehensive understanding of the law on money-laundering (under PMLA), it may also be....
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....A generally on the director (of enforcement), or on an additional director or joint director or a deputy director, appointed in terms of Sections 48 and 49. These officers are the authorities who have been conferred by law with the powers and jurisdiction to carry out the requisite probe leading to criminal action vis-à-vis the offence of money-laundering defined in Section 3 and also to initiate action in the nature of attachment leading to confiscation of "proceeds of crime" (Sections 50 and 51). Detailed provisions have been made (in 5th Chapter) to equip these functionaries with the requisite powers of survey (Section 16), search and seizure (Section 17), search of persons (Section 18), arrest (Section 19), retention of property (Section 20) and retention of records (Section 21). By virtue of Section 65, the provisions of Code of Criminal Procedure, 1973 (Cr.P.C.) also apply to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under PMLA, insofar as the same are "not inconsistent" with the provisions of PMLA (Section 75). Similar is the application of Cr.P.C. to the proceedings before special court by virtue of Sec....
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....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 authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act. Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted; (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with ....
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....ting" the "reasons to believe" that if attachment be not ordered "immediately" the omission to do so is similarly "likely to frustrate"; (vi) the order of provisional attachment, to be issued in writing, to be valid maximum for one hundred eighty days from the date of such order (this excluding the period for which the order may have been stayed by the court); and (vii) submission of a copy of provisional order of attachment by the empowered officer to the adjudicating authority, in a sealed envelope in the manner prescribed, such submission to include "material" in possession of the officer directing such provisional attachment. 62. The provisional order of attachment has the outside validity of maximum one hundred eighty days and the concerned authority must take the matter to the adjudicating authority for confirmation, such submission being in the form of "complaint" under Section 5 (5) within thirty days from the date of provisional attachment, and the complaint must necessarily set out the facts on the basis of which it is made. 63. The provisional attachment of the property by the enforcement officers is an executive action. The law mandatorily requires its scrut....
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....ering. (3) Where the Adjudicating Authority decides under subsection (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or record seized or frozen under section 17 or section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property or record shall- (a) continue during investigation for a period not exceeding ninety days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and (b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60 by the Special Court; (4) Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possessio....
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.... in such manner as may be prescribed." 64. As noted earlier, the enforcement officers of the prescribed rank have also been conferred with the powers of search and seizure (Section 17) and power to carry out search of persons (Section 18). Occasions may arise and the competent authority during the course of investigation may seize any such record or property and if seizure "not be practicable" to freeze the record or property. In terms of Section 17 (1) and 17 (1A) similar situation may arise in case of search of persons under Section 18 (1). All such seizures of record, or property, or directions for freezing of such record or property are also matters that require confirmation by the adjudicating authority. 65. Restricting this study of the law to the proceedings leading to confirmation of the attachment by the adjudicating authority with reference to Section 8 of PMLA, it may be noted that the prescribed procedure begins by issuance and service of notice within thirty days by the adjudicating authority on the person respecting whom there is reason to believe as to either (a) his complicity in the crime in the offence of money-laundering or (b) of he being in possession of ....
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.... Mere confirmation of attachment by the adjudicating authority does not lead to the person claiming interest in the property being divested of such interest as he legitimately holds, inasmuch as the expression "attachment" is defined by section 2 (1) (d) to mean prohibition of transfer, conversion, disposition or movement of property by an order issued under third Chapter of PMLA. As is seen, upon perusal of Section 5 (4), mere order of provisional attachment does not prevent a person "entitled to claim" any interest in the property ("person interested") or to enjoyment of an immovable property (for example a lessee) from such enjoyment, the possibility of taking over the possession of such property or for it to be treated as "frozen" [Section 17 (1A)] arising only upon confirmation by the adjudicating authority under section 8 (4). In terms of such scheme, the attachment is an interim measure, eventual intendment being that in the event of it being "found" that the offence of money-laundering has been committed and that "such property" is involved or has been used for such offence to be committed, the same shall be ordered to be "confiscated to the Central Government" [Section 8 (....
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....money-laundering". It is with this view that the law permits the special court (by section 8) to not only "release" from attachment but even "restore" the confiscated property (or its part) to the claimant with a proven legitimate interest (third party) and further allow such party as may have claim over an encumbrance lawfully and bona fide created to recover its legitimate dues from the debtor "by a suit for damages" though treating as "void" the encumbrance or charge that may have been created by the person found guilty of money-laundering "with a view to defeat" the law in PMLA (provisos to Section 9). 73. The PMLA provides for presumptions to be raised about a property having the character of "proceeds of crime" being involved in money-laundering and also respecting the illicit nature of a transaction involving its acquisition on account of connection with other transaction(s) of suspect nature, the relevant clauses to such effect contained in Sections 23 and 24 to be discussed later. APPELLATE TRIBUNAL'S APPROACH 74. In the impugned decisions of the appellate tribunal, reference is made to the conclusions on question of law arrived at by the said forum in its earlier....
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.... against serious adverse impact on the rights of banks and other financial institutions to recover their dues under RDDBFI Act (or RDBA) and SARFAESI Act on account of intervention by the High Court under Article 226 of the Constitution of India, pointing out that the said enactments had brought into existence "special procedural mechanism for speedy recovery of dues of banks and financial institutions" ensuring that the defaulting borrowers were "not able to invoke the jurisdiction of the civil courts". This decision has no relevance to the issues that arise in the present matters. 77. In B Rama Raju (supra), the petitioner before the Andhra Pradesh High Court was accused of having indulged in certain acts of omission or commission constituting the offence of money laundering as defined in Section 3 of PMLA. His property had been provisionally attached by the enforcement officer in the course of investigation. He had challenged the vires of PMLA in so far as it would permit such attachment. While dealing with such prayer, the learned single Judge of the said High Court observed thus : "Since proceeds of crime is defined to include the value of any property derived or obtaine....
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....ord "forfeiture". For clarity in this regard, the following observations of the Supreme Court in Gunwant Lal Godawat vs. Union of India and Anr., (2018) 12 SCC 309 should suffice :- "39. The expression "confiscation" is not defined in the Rules. It had roots in the Latin word Confiscare - to consign to fiscus i.e. transfer to treasury, as a punishment or in enforcement of law. Though, the expression is generally understood as having implications associated with a crime.... The words "forfeiture" and "confiscation" have come to be used interchangeably. The General Clauses Act, 1897 does not employ the word "confiscation". On the other hand, it employs the word "forfeiture" in Section 6(d). Having regard to the long history of the usage of those two expressions, we are of the opinion that "forfeiture" is an expression which takes within its sweep "confiscation" also for the purpose of law [Salig Ram vs. Secy of State of India in Council, 1872 SCC Online PC 43]." (emphasis supplied) FORFEITURE (CONFISCATION) : NATURE OF SANCTION 81. Some argument was raised to urge that the process of attachment (for confiscation) under PMLA is in the nature of punishment for an offence an....
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....attachment", such objection requiring inquiry and adjudication (Section 84 Cr.PC). 85. The absconder, in any case, must come up "within two years from the date of the attachment" to claim restoration of the property or net proceeds of its sale, or residue thereof, by showing and proving to the satisfaction of the criminal court that he had not absconded to evade the process. After two years, the criminal court virtually becomes functus officio in the matter. In these provisions under the general law, however, the core issue that the court is to inquire into is the connection, if any, between the absconder and the property. The property of a third person cannot be attached under Section 83 to compel the appearance of an accused. 86. The Criminal Law Amendment Ordinance, 1944 ("the 1944 Ordinance") is one of the earliest legal measures put in position to take away the ill-gotten wealth, in case of public servants engaging in corrupt practices. The said law continues to operate till date, the jurisdiction to enforce it having been conferred on the Special Judge appointed under the Prevention of Corruption Act, 1988, inter alia, by Section 5(6), as reinforced by a new provision (....
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....tute book with the avowed objective of meeting the challenge of "serious threats to the economy and the security of the nation" posed by activities in the nature of smuggling, foreign exchange manipulations and violation of certain laws (Income Tax, Wealth Tax, etc.) by malpractices resulting in augmenting of ill-gotten gains and accumulation of ill-gotten wealth, it having become necessary to assume powers "to deprive such persons of their illegally acquired properties". The enactment thus focused on forfeiture of "illegally acquired property". It defines, by Section 2(2), the "person" to whom the law is to apply to include not only every person who has been held guilty and convicted for offences (involving specified amounts of money) under specified laws (i.e. Customs Act, 1962, Foreign Exchange Regulation Act, 1947, Foreign Exchange Regulation Act, 1973, Sea Customs Act, 1878) and those against whom order of detention is made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), also taking in its sweep others including "every person who is a relative (as specified by second explanation, of such convict)", "every associate (as sp....
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....away his right over property thereby acquired, it affecting his civil rights. All the more so, because the jurisdiction to order attachment of the property is vested in the executive and its confirmation is left to decision of the quasi-judicial body i.e. adjudicating authority. 92. The statutory authorities vested with the jurisdiction to provisionally direct or confirm attachment are, however, expected to assess, even if tentatively, the value of proceeds of crime so that it is ensured that only proceeds or assets of the offender of money-laundering of equivalent value are subjected to restraint, the evaluation undoubtedly open to variation or modification in light of evidence gathered till the probe is concluded. 93. The provision for "provisional attachment" and its confirmation, pending trial before court (wherein the issue of confiscation would come up at the time of determination of guilt in criminal case), is similar to the one for "attachment before judgment" in civil law. The law conceives of possibility of disposal of ill-gotten assets to "frustrate" the objective. The argument to the contrary is thus repelled. Ultimately, the confiscation is left to the special co....
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....he idea is to take away from the hands of the offender of such crimes the ill-gotten assets or property, the focus being on "illegally acquired property", its definition, by Section 68-B (g), requiring a connection between the acquisition of the property and the contravention of the NDPS Act and, interestingly, also including "the equivalent value of such property". Generally speaking, to qualify as "illegally acquired property" for purposes of NDPS Act, the property must be one "derived or obtained" by income, earnings or assets attributable to NDPS offence or "traceable (wholly or partly)" to property of former nature or acquired by means of income or earnings or assets the source of which cannot be proved by the person convicted of (or arrested for) an offence under the law relating to narcotic drug and psychotropic substance (whether in India or outside) or one who is related to or associate of such person (subject to certain other requirements to be fulfilled). 97. The interpretation and application of the provisions relating to attachment and forfeiture of illegally acquired property under NDPS Act was subject matter of decision of the Supreme Court in Aslam Mohd. Merchant....
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....quired on one hand and those claiming to have paid the consideration for such acquisition on the other. But, particularly in the context of attachment and confiscation, the disputes might also involve a transferee, for consideration, of property suspected to be held benami in the name of transferor. Such transferee is given (by Section 27) the right to object to confiscation, it being incumbent on him to prove that the property had been held or acquired by him from the transferor (benamidar) "without his having knowledge of the benami transaction". The test, thus, is of the transaction being bonafide and for "adequate consideration". The taint of benami in such disputes would generally precede the acquisition by the bonafide holder. 100. In contrast to the above mentioned earlier legislations, the Fugitive Economic Offenders Act is of recent origin, it having come into force with effect from 21.04.2018. The objective of this legislation is "to provide for measures to deter economic offenders from evading the process of law in India", which is similar to one of existing general law of proclamation and attachment under Sections 82-83 Cr. PC, the idea being to compel appearance. As....
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....ceeds of crime", as given in Section 2(1)(u) is as under : "proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad; (emphasis supplied) 104. The above definition may be deconstructed into three parts :- (i). property derived or obtained (directly or indirectly) as a result of criminal activity relating to scheduled offence; or (ii). the value of any such property as above; or (iii). if the property of the nature first above mentioned has been "taken or held" abroad, any other property "equivalent in value" whether held in India or abroad. 105. It is vivid that the legislature has made provision for "provisional attachment" bearing in mind the possibility of circumstances of urgency that might necessitate such power to be resorted to. A person engaged in criminal activity intending to convert the proceeds of crime into assets that can be projected as legitimate (or untainted) would generally b....
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....is essential that, before the order of attachment is confirmed, there must be some assessment (even if tentative one) as to the value of wrongful gain made by the specified criminal activity unless it be not possible to do so by such stage, given the peculiar features or complexities of the case. The confiscation to be eventually ordered, however, must be restricted to the value of illicit gains from the crime. For the sake of convenience, the properties covered by the second and third categories may be referred to as "the alternative attachable property" or "deemed tainted property". 108. Generally, there would be no difficulty in proceeding with the attachment or confiscation of a tainted property respecting which there is material available to show that the same was derived or obtained as a result of criminal activity of specified nature, so long as such property is found held by the person who had indulged in such criminal activity, it amounting to money-laundering, as indeed those who may have aided or abetted such acts. Dispute, however, is likely to arise in relation to attachment or confiscation upon questions being raised at the instance of the person suspected of money....
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....ivalent value of the offender of money-laundering (or his abettor) are subjected to attachment to such extent, the eventual order of confiscation being always restricted to take over by the Government of illicit gains of crime, the burden of proving facts to the contrary being on the person who so contends. 111. If such other property as above (the alternative attachable property or deemed tainted property) is owned by, or held in the name of, the accused, objections to attachment (or confiscation) would generally concern the material on which reasons to believe about money-laundering and acquisition of proceeds of crime are founded or the value of the property which has been attached. Again, the possibility of conflict involving interest of a third party comes in for which the bonafides of the acts through which such third party may have acquired interest in the targeted property, as indeed of the lawfulness and adequacy of consideration for such acquisition, would need scrutiny. THE ARGUMENT OF PREVALENCE OF CERTAIN LAWS (RDBA, SARFAESI ACT & INSOLVENCY CODE) OVER PMLA 112. Chronologically speaking, RDBA (in its original form and moniker RDDBFI Act) was enacted in 1993, ....
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.... enactment was to provide for expeditious adjudication of the claims of the banks and financial institutions and quite distinct from the objective of the latter. 117. The SARFAESI Act, on the other hand, has aimed at regulating "securitisation and reconstruction of financial assets" as indeed "enforcement of security interest" besides certain other objectives, the "existing legal framework relating to commercial transactions" having "not kept pace with the changed commercial practices and finance sector reforms" such institutions in India not having the "power to take possession of securities and sell them" unlike their counterparts in the international arena, this resulting in "slow pace of recovery of defaulting loans and mounting levels of non-performing assets". 118. While construing the scheme and provisions of SARFAESI Act, a division bench of this court (of which I was a member) in Urmila Kumari vs. Om Prakash Jangra and Ors., 2015 SCC OnLine Del 8283 had noted as under : "24. The expression "security interest" as defined in Section 2(1)(zf) SARFAESI Act means "right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor ....
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....rmitted, by Section 13(4), to take recourse to any of the measures indicated in the said clause "to recover his secured debt". The measures include taking of the "possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset". Noticeably, Section 13(4) broadly indicates the said measures, pursuit whereof requires compliance with the procedure that is laid out in detail thereafter." 119. The SARFAESI Act and RDBA (earlier RDDBFI Act) have an overlap in the matter of judicial remedy. In Urmila Kumari (supra), it was further noted as under :- "39. The procedure prescribed by the law, and rules, for enforcement of security interest, as noted above, at the hands of the secured creditor (or its authorized officer) is subject to the remedy of appeal before the Debts Recovery Tribunal (DRT), constituted under RDDBFI Act, in terms of Section 17 SARFAESI Act. As noted earlier, mere non-acceptance of the objection or representation in response to the initial notice under Section 13(2) does not confer the right of challenge through appeal. The remedy of appeal becomes available as soon as effective act....
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....of amendments to RDBA (then RDDBFI Act) being indicated thus : "3. The amendments proposed in the Recovery of Debts due to Banks and Financial Institutions Act, 1993 inter alia, include (i) expeditious adjudication of recovery applications; (ii) electronic filing of recovery applications, documents and written statements; (iii) priority to secured creditors in repayment of debts; (iv) debenture trustees as financial institutions; (v) empowering the Central Government to provide for uniform procedural rules for conduct of proceedings in the Debts Recovery Tribunals and Appellate Tribunals." 124. Similarly the prime objective sought to be served by the amendments to SARFAESI Act was set out in the statement of objects and reasons as under :- "2. The amendments in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are proposed to suit changing credit landscape and augment ease of doing business which, inter alia, include (i) registration of creation, modification and satisfaction of security interest by all secured creditors and provision for integration of registration systems under different laws relating to pro....
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.... on or after the commencement of the Insolvency and Bankruptcy Code, 2016 in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code." 127. The Insolvency Code (referred to in explanations in above quoted clauses), enacted and enforced in 2016, with the objective of consolidating and amending the laws "relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote enterpreneurship, availability of credit and balance the interest of all the stake holders including alteration in the order of priority of payment of government dues" has also come with a declaration of its primacy through the following provision : "238. Provisions of this Code to override other laws - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 128. It is the view of the a....
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....ration by secured creditors and other creditors" - containing sections 26-B to 26-E - is primarily meant to extend the above-said requirement of compulsory registration, inter alia, of "security interest over any property of the borrower" to "all creditors other than the secured creditors". As and when the said Chapter (no. IV-A) is notified and brought into force, the registration of the "security interest" would become a condition precedent for the creditor to exercise "any right" of "enforcement of securities" under the SARFEAESI Act by virtue, inter alia, of Section 26-B(3) and Section 26-D. 132. But, the position of law may be examined assuming also the situation to prevail when above noted amendment to SARFEAESI Act, come into force. In this context, the objects and reasons of the laws have to be the guiding factors. The law on the subject may be noted here. 133. The issue in Bhoruka Steel Ltd. (supra) before the Bombay High Court concerned conflicting claims under the then existing Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA" for short) and Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 ("the Special Courts Act of....
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....1). While concluding that the objective of the two enactments is entirely different, and observing that "the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of the other is to provide for speedy recovery of debts of banks and financial institutions", the rule laid down in a previous decision reported as LIC vs. D.J. Bahadur, (1981) 1 SCC 315, to the following effect was noted :- "52. In determining whether a statute is a special or a general one, the focus must be on the principal subjectmatter plus the particular perspective. For certain purposes, an Act may be general and for certain other purposes it may be special and we cannot blur distinctions when dealing with finer points of law. In law, we have a cosmos of relativity, not absolutes - so too in life..." 136. The court also referred to the principle of contextual construction laid down in earlier ruling of RBI v. Peerless General Finance & Investment Co. Ltd., (1987) 1 SCC 424, holding thus :- "33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the....
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....in RDBA by the amending Act of 2016, holding the financial institution (a secured creditor) to have the "priority of charge" over the mortgaged property and with reference to said provision (Section 31B) held thus : "3. 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." 139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, SARFAESI Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is "du....
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....ment dues taking a back seat, on Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co. & Ors., (2000) 5 SCC 694; Union of India & Ors. vs. SICOM Limited & Anr., (2009) 2 SCC 121; Bank of Bihar vs. State of Bihar & Ors., (1972) 3 SCC 196; and Pr. Commissioner of Income Tax vs. Monnet Ispat and Energy Limited, SLP No.6483/2018, decided on 10.08.2018, is misplaced. 143. The proceeds of crime, there is no doubt, are not even remotely covered by the expressions "revenues, taxes, cesses" or other "rates". The word "revenue" is the controlling word, the expressions following (taxes, cesses, rates) taking the colour from the same. The word revenue, in the context of Government is to be understood to be conveying taxation [Gopi Pershad vs. State of Punjab, AIR 1957 Punjab 45 (DB)]. This is how the expression is defined by Black's Law Dictionary, Eighth Edition as also by Cambridge English Dictionary (accessible online). The reliance by the respondents on the use of the expression "non-tax revenue" with reference to PMLA under major accounting head "0047 Other Fiscal Services" in the list of Heads of Accounts of Union and States issued by Controller General of Accounts, Department of Expend....
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....distinct from the purposes of the three other enactments viz. RDBA, SARFAESI Act and Insolvency Code, the latter cannot prevail over the former. There is no inconsistency. The purpose, the text and context are different. This court thus rejects the argument of prevalence of the said laws over PMLA. THE RIGHTS OF THIRD PARTY ACTING BONA FIDE 148. In view of the conclusions reached as above, rejecting the argument of prevalence of RDBA, SARFAESI Act and Insolvency Code over PMLA, the said laws (or similar other laws, some referred to above) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other, with regard to assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" rendering the same "proceeds of crime", within the mischief of PMLA. The PMLA, declares, by virtue of Section 71, that it has over-riding effect over other existing laws, such provision containing non-obstante clause with regard to inconsistency apparently to be construed as referable to the dealings in "money-laundering" and "proceeds of crime" relating....
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....earlier noted, the presumptions that can be drawn in terms of Sections 23 and 24 of PMLA are to be borne in mind, the burden of proving facts contrary to the case of money-laundering being on the person claiming to have acted bonafide. 151. The appellate tribunal, in the decision (dated 14.07.2017) earlier rendered (In Kolkata case), and followed in the matters from which these appeals have arisen, has also observed thus : "59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property or any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime....
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....n the writ petition is alleged to have indulged in. This cannot be purport of the Act. 48. Fortunately, the Adjudicating Authority is obliged under the proviso to Sub-Section (2) of Section 8 to issue a notice to every person, who claims the property to be his own and to provide an opportunity of being heard even to such a person. Therefore, the Adjudicating Authority is obliged to issue a notice to LIC Housing Finance Limited. They have already issued show cause notices to the writ petitioners, though the petitioner in the second writ petition is not obliged of obtaining the property as a result of any criminal activity, to come within the definition of the expression "proceeds of crime". The Adjudicating Authority has power, why, even an obligation and a statutory duty under Section 8(2) to look into the evidence produced by the petitioner in the second writ petition and LIC Housing Finance Limited and to come to an independent conclusion as to whether the provisional order of attachment is to be confirmed or not. Therefore, I am of the view that the petitioners should submit themselves to the enquiry under Section 8(1)." 153. The ruling in V.M. Ganesan (supra), referred to....
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....cipal money with interest thereby secured known as "the mortgage money", the instrument by which such transfer is effected called a "mortgage deed". 157. Section 60 of TPA provides for the right of the mortgagor to require the mortgagee to deliver the mortgage deed and all documents relating to mortgage property and where the mortgagee is in possession of such property to deliver possession thereof to him at any time after the money has become due subject to he (the mortgagor) paying or tendering, at a proper time and place, the mortgage money, such right being known as the equity of "redemption". The mortgagor being the owner who had parted with some rights of ownership has a right to get back the mortgaged property and the mortgage deed, in exercise of his right of ownership. The right of redemption is a statutory right under TPA which cannot be extinguished, this being subject to the right of the creditor to seek the remedy of fore-closure or sale under Section 67 or to exercise the power under Section 69 to sell the mortgaged property or appoint a receiver under Section 69A [Shivdev Singh and Anr. Vs. Sucha Singh and Anr. (2000) 4 SCC 326]. To put it simply, a mortgage is tr....
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.... or charged with the offence of money-laundering on the other. In cases of this nature, the person accused of money-laundering must have had an interest in such property at least till the time of engagement in the proscribed criminal activity from which he is stated to have derived or obtained pecuniary benefit which is to be taken away by attachment or confiscation. It is with this view that PMLA provides for a possible presumption to be drawn, under Section 24(b) using the expression "may presume", about a property being "involved in money-laundering" in the case of person other than the one who is charged with the offence of money-laundering. There is no doubt that such presumption, if drawn, may also be rebutted by evidence showing facts to the contrary. 161. The law conceives of possibility of third party interest in property of a person accused of money-laundering being created legitimately or, conversely, with ulterior motive "to frustrate" or "to defeat" the objective of law against money-laundering. In case of tainted asset - that is to say a property acquired or obtained as a result of criminal activity - the interest acquired by a third party from person accused of mo....
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....nclusion is that the bonafide third party claimant has a legitimate right to proceed ahead with enforcement of its claim in accordance with law, notwithstanding the order of attachment under PMLA, the latter action is not rendered irrelevant or unenforceable. To put it clearly, in such situations as above (third party interest being prior to criminal activity) the order of attachment under PMLA would remain valid and operative, even though the charge or encumbrance of such third party subsists but the State action would be restricted to such part of the value of the property as exceeds the claim of the third party. 165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the precedi....
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....d or, further if the trial of a case for the offence under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest will have to be inquired into and adjudicated upon only by the special court. 170. But, the above exception cannot be applied to all cases of bona fide third party claimants so as to confer a general right to seek release of such property as last mentioned above from attachment even in cases where the encumbrance is created or interest acquired at a time around or after the date or period of criminal activity. In this category of cases, the third party will have the additional burden to prove that it had exercised due diligence having "taken all reasonable precautions" at the time of acquisition of such interest or creation of such charge, the jurisdiction to entertain and inquire into such claim and grant relief of release after order of attachment has attainted finality, or of restoration after order of confiscation, vesting only in the special court under Section 8(7) & (8) PMLA. The due diligence is to be tested amongst others, on the touchstone of questions as to whether the party had indulged in transac....
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.... Insolvency Code, the latter three legislations do not prevail over the former. (vii). The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with "money-laundering" and "proceeds of crime" relating thereto. (viii). The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" and consequently being "proceeds of crime", within the mischief of PMLA. (ix). If the property of a person other than the one accused of (or charged with) the offence of money-laundering, i.e. a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of money-laundering (or his abettor), or it was involved in a transaction which had interconnection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek re....
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....tion so long as the charge or encumbrance of such third party subsists, the attachment under PMLA being valid or operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party. (xv). If the bonafide third party claimant (as aforesaid) is a "secured creditor", pursuing enforcement of "security interest" in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the pr....