TaxTMI 
TaxTMI 
2019 (6) TMI 1206
X X X X Extracts X X X X
X X X X Extracts X X X X
....8 dated 24th April, 2018 ("Attachment Order")issued by the Deputy Director, Directorate of Enforcement, Ahmadabad in File No. ECIR/AMZO/03/2018 ("ECIR"). 2. The allegations against the borrowers are as under:- Central Bureau of Investigation (CBI), Gandhinagar has registered FIR no. 0292018A0006 dated 26.03.2018 against M/s. Diamond Power Infrastructure Ltd., Vadodara (DPIL), Shri Suresh Narain Bhatnagar, Founder of DPIL, Shri Amit Suresh Bhatnagar, Managing Director, DPIL, Shri Sumit Suresh Bhatnagar, Joint Managing Director of DPIL, Unknown Public Servants of various banks and unknown others for commission of offence under Section 420, 467, 468, 471 r/w 120-B of IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. The said FIR inter alia reveals that: (a) M/s. DPIL has caused a loss of Rs. 2654.40 crore to a consortium of 11 banks (including public as well as private sector banks) and Financial Institutions. (b) M/s. DPIL had resorted to exorbitant turnover projections for forthcoming years and submitted false stock statements to the lead bank in order to get more drawing power in their cash-credit accounts. They also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AT credit and bank credits. (g) The above modus operandi involving forged documents and diversion of funds has resulted in availability of stock to the tune of Rs. 338.44 Crore only which is hugely inadequate for repayment of loans to the tune of Rs. 2654.40 Crore. 3. The Appellant has nothing to do and has no connection with the allegation of crime committed by the borrowers and other persons concerned involved for the offences of money-laundering. The Appellant is not holdings any funds of any of the defendant/respondent. The mortgage properties are admittedly not derived from criminal activities or proceed of crime. The scope of the PMLA is to punish the accused person and not to punish the innocent person who is not involved in the crime within the meaning of Section 2 (1)(u) read with Section 3 of the Act. The appellant is not charge-sheeted nor any prosecution complaint has been filed against the appellant. The appellant has also no objection if the borrowers properties, which were acquired from proceed of crime, be dealt with by the respondent in any manner. 4. There is no nexus whatsoever, between the alleged crime and the appellant, who is mortgagee of the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CRORE (Second Schedule Part A of MOE dated 21.10.2015) S.No. Name of Rupee Term Loan Lender Total Amount Rs. (In Crores) 1. Allahabad Bank 56.71 2. Axis Bank 79.81 3. Bank of Baroda 91.51 4. Bank of India 215.88 5. Corporation Bank 120.53 6. Dena Bank 75.63 7. ICICI Bank 178.61 8. State Bank of Hyderabad 19.25 9. State Bank of Mysore 76.69 10. IFCI Limited 57.35 11. Exp ort - Import Bank of India 106.80 TOTAL 1078.21 EXTERNAL COMMERCIAL BORROWINGS OF Rs. 109.30 CRORE (Second Schedule Part B of MOE dated 21st October, 2015) S.No. Name if ECB Lenders Term Loans (USD Millions) 1. Axis Bank 9.63 2. Bank of India 8.00 TOTAL 17.63 (In Indian Rupees, taken as 109.30 Crore) NON CONVERTIBLE DEBENTURE HOLDERS (Second Schedule Part B of MOE dated 21st October, 2015) S.No. NCD Holder Amount (Rupees in Crore) 1. Bank of Maharashtra 11.47 2. Corporation Bank 9.17 3. CSEB Gratuity and Pension Fund 7.34 4. Dena Bank Employee Gratuity Fund 4.59 5. Dena Bank Employee Pension Fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... • Part II - 18.2.1999 • Part III - 01.09.2006 • Part IV- 25.2.2008 • Part V- 24.1.2008 • Part VI- 17.7.2007 • Part VII- 17.7.2007 • Part VIII- 17.7.2007 • Part IX- 24.1.2008 • Part X- 02.08.2011 • Part XI 21.6.2007 • Part XII- 12.3.2012 • Part XIII- 23.3.2012 • Part XIV - 19.3.2012 • Part XV- 23.3.2012 • Part XVI- 19.3.2012 • Part XVII- 26.9.2012 • Part XVIII- 21.6.2012 • Part XIX- 20.7.2012 • Part XX- 18.9.2012 • Part XXI - 21.9.12 • Part XXII- 20.7.12 • 26.9.2012 • 01.11.2012 • 10.2.2014 2 Wind Turbine Generator JMD 260 , Cap acity 2.1 MW Installed at MojeCHarp odi Nani Tal Abdasa ,Dist Kutch (Owned by DPIL ) Diamond Power Infrastructure Ltd 21.10.15 Detailed in Schedule 11 & 12 (Page 482 - 485) 27.2.2012 3 Wind Turbine Generator JMD 260 , Cap acity 2.1 MW Installed at MojeCHarp odi Nani Tal Abdasa ,Dist Kutch (Owned by DPIL ) Diamond Power In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cess against Respondent No. 2 which was duly admitted by the Hon'ble NCLT Ahmedabad on 24th August, 2018. Copy of the order passed by NCLT Ahmedabad is annexed and marked as ANNEXURE A7. 12. However, in the meanwhile, vide the Provisional Attachment Order No. 02/2018 dated 24th April, 2018 issued by Respondent No. 1 in File No. ECIR/AMZO/03/2018, the Subject Property was provisionally attached on the pretext that the Subject Property was a "proceed of crime" within the meaning of Section 2(u) of the PMLA, 2002. 13. It is stated on behalf of appellant that as on 7th June, 2018 approximately an amount of Rs. 2400 Crore (Rupees Two Thousand Four Hundred Crores) along with uncharged interest that is due and payable by Respondent No. 2 to the Appellant Consortium together with further interest till the date of payment and/or realization of thereof. It is also submitted that the outstanding amount due to the Appellant is public money and that the Appellant has the right to deal with the Subject Properties. 14. The Adjudicating Authority vide the Impugned Order dated 1st October, 2018 has confirmed the Provisional Attachment Order No. 02/2018 dated 24th April, 2018 issued by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erest 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 property as is in excess of the claim of the said third party." 19. In the present appeal, the Subject Properties mentioned at serial number 1 and 5 of the Complaint belong to Respondent No. 2 after carrying out due compliances were mortgaged with the Appellant in the year July 2008 and thereafter were extended from time to time on various dates till October 2015 for securing the facilities advanced by the Appellant. 20. The properties mortgaged to the Appellant were acquired by Respondent No. 2 between March 1993 and January 2008. The details of the acquisitions are mentioned in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d/ or frustrate the proceeding under the PMLA Act and hence the said properties can be held to be "tainted property". Since in the present case, the bona fide third party claimant, secured creditor, had initiated action in accordance with law for enforcement of interest prior to the order of attachment under PMLA, the PMLA attachment takes a back seat allowing the secured creditor to enforce its claim and only the remainder to be made available for purposes of PMLA. The properties in the present case are thus not liable to be attached even as "alternative attachable property", as held in Para 165 of the judgment of Hon`ble Delhi High Court in the case of Deputy Directorate of Enforcement Delhi and Ors. vs Axis Bank in CRL.A. 143/ 2018 &Crl.M.A. 2262 of 2018 dated April 02, 2019. 25. As already mentioned in the present case, it has come on record that the that the security interest in respect of the of the aforesaid properties were created much before the date or period of the alleged criminal activity in respect of which the attachment order was passed. 26. The Hon'ble Delhi High Court on the Axis Bank Judgement (supra) had observed that "...the charge or encumbrance....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pondent No. 2 in order to secure the facilities sanctioned by the Appellant had mortgaged the properties mentioned in serial number 2, 3, 4, 11 and 14 of the Complaint. 31. The properties mentioned at serial number 2,3 and 4 were acquired by Respondent No. 2 on 27th February, 2012. The details of the acquisitions are mentioned at Annexure A4Page 482 and 483 of documents filed by the Appellant. Similarly, the properties mentioned at 11 and 14 of the Complaint were acquired by the promoters of Respondent No. 2 on 17th March, 2015, the details of acquisitions are mentioned at Annexure A4 page 478 and 480. 32. It is the case of appellant that the appellant before seeking to create a mortgage of the aforementioned properties had conducted due diligence of the purchase of the properties and upon being satisfied that the properties are in no way tainted and or benami got created mortgage in favour of the Appellant. No contrary evidence is available on record to show that the mortgaged properties were purchased from proceed of crime. 33. The term loan advanced to the Respondent No. 2 for construction of windmill in District Kutch were duly constructed and were mortgaged to the App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rties claimed by the Appellant in no way can be considered to be "Proceed of Crime" under Section 2(u) of PMLA. The impugned order does not disclose any reasoning. There is no application of mind whatsoever and it is assumed that the properties in question are the proceeds of the crime. There is no reasoning to show as to how the attached properties mortgaged prior to the date of alleged offence are the subject matter of proceeds of crime. The Adjudicating Authority has not analysed the facts at all. The order suffers from a fundamental error. There is no understanding by the Adjudicating Authority of the contents of the statute, much less its application to the facts of the case. 37. Section-3 of the Act provides that only a person who is knowingly a party to any activity or is involved in such activity connected with proceeds of crime and projects or claims it as untainted property can be guilty of the offence. S.5(1) shows that before any property can be provisionally attached there must be material prima facie to show any person is in possession of any proceeds of crime which are likely to be concealed, transferred or dealt with in a manner which may frustrate the confisc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2) process..." 40. The Appellant undertakes to deposit any amount realized, which is in excess of its outstanding dues, with the ED if such situation would arise. 41. Adjudicating Authority failed to apply its mind at the time of issue of the Show Cause Notice ("SCN"). No reason to believe can be discerned from the SCN, or the provisional attachment order accompanying the SCN under Section 8 of the PMLA, as to how there was reason to believe that the Appellant was in possession of 'proceeds of crime'. Adjudicating Authority, in its discussions, did not even consider the reply of the Appellants. 42. The Adjudicating Authority is bound ....