TaxTMI 
TaxTMI 
2019 (9) TMI 224
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....409, 465, 467, 468, 471, 474, 477(A) of IPC. It was inter-alia alleged in the complaint that the Complainant had been induced into making investments by false representations and assurances given by the promoters and senior management of National Spot Exchange Limited (hereinafter referred to as NSEL) with a deliberate intention to dishonestly misappropriate his funds and had been cheated by NSEL. 3. As Sections 120-B, 467 and 471 of IPC are Scheduled Offences under PMLA, an ECIR bearing no. F.No. MZO/ECIR/14/2013 dated 14.10.2013 has been registered by Enforcement Directorate and investigation was undertaken under PMLA. Consequent to the investigation, Provisional Attachment Order No. 24/2014 dated 31.12.2014 was passed by the Deputy Director, Enforcement Directorate, Mumbai Zonal Office. In the said order the following properties are attached: Sr. No. Description of property Sub-Description of Property Value (Rs. Crore) Extent of POC value (Rs.) 1. Plant of M/s. Naraingarh Sugar Mills Ltd. comprising Land, building, plant & machinery situated at Village: Banondi, PO Shahzadpur, Tehsil - Naraingarh, District - Ambala, Haryana. Land Area of the Sugar Plan....
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.... all the securities were obtained by the Appellant after carrying out due diligence and compliance of all KYC requirements. d) The land of the Company M/s. Naraingarh Sugar Mills (Respondent No.4) mortgaged with Appellant IREDA was purchased in the year 1995 i.e. much prior to the commission of the alleged offence of money laundering in the year 2013. e) The offence is alleged to have been committed/surfaced on or about 2013 whereas the Appellant herein had sanctioned the loan amount for Rs. 10,339 Lacs on 12.09.2012 and consequently disbursed Rs. 76.84 Crores for the co-generation power plant of M/s. Naraingarh Sugar Mills Ltd. Thus, at the time of disbursement of loan amount, which actually is public money, the Appellant herein was not in the knowledge of any offence of the money laundering committed by M/s. Naraingarh Sugar Mills Ltd. f) The amount disbursed by the Appellant was used by the Company towards the setting up of co-generation power plant and purchase of raw material. g) The ED admittedly has been able to trace the tainted money and claims/alleges that the same has been utilised for repayment of bank loans. Thus, if ED has been able....
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....Appellant in the present matter is confined to the fact that in the year 2012 on the application of Respondent no.4 herein i.e. M/s. Naraingarh Sugar Mills Ltd. for grant of financial assistance for setting up the 25 MW Bagasse based Cogeneration project in their existing sugar mill capacity of 2500 TCD (to be expanded to 5500 TCD) at Village- Banondi, Taluka- Naraingarh, District- Ambala, Haryana, the Appellant vide sanction letter dated 12.09.2012 and Loan Agreement dated 07.03.2013 sanctioned the loan to the tune of Rs. 10,339 Lacs (Rs. 6,709 Lacs main loan and Rs. 3,630 Lacs Additional/ bridge loan towards the Sugar Development Fund/SDF). 8. That the Appellant was shocked to receive the copy of the Provisional Attachment Order no. 24/2014 dated 31.12.2014 where it was stated that the plant of Respondent no. 4 comprising land, building, plant and machinery situated at Village- Banondi, PO- Shahzadpur, Tehsil- Naraingarh, District- Ambala Haryana had been provisionally attached under Section 5(1) of the Act for a period of 180 days pursuant to FIR No. 216 of 2013 dated 30.09.2013, registered with MRA Marg, Police Station, Mumbai against M/s. National Spot Exchange Limited (her....
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.... said project for purchase, installation and building of Co-generation project and therefore the attached land and plant machinery cannot be construed to be crime proceeds. (v) The title deeds of the aforementioned property are in the possession of the Appellant, since the attached property is mortgaged by way of equitable mortgage with the Appellant. All the charges have been created much prior to the impugned order and order of provisional attachment. It is submitted that the rights of the Appellant under the law of the land are superior and has priority, more particularly under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Securitization Asset reconstruction and Enforcement Act, 2002 as also under Companies Act, 1956/2013. (vi) The appellant did the requisite due diligence before sanctioning the loan and as there was no whisper of the said fraud committed by the Respondent No.4 and prior to the said transactions leading to alleged crime proceeds, the appellant sanctioned the loan to Respondent no. 4 for setting up the cogeneration project and the same is built from the loan extended to it by the appellant and hence to no stretch of ima....
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.... machinery. 11. The Appellant has relied upon the following Judgments: (i) The Deputy Director, Directorate of Enforcement, Delhi v. Axis Bank & Ors. in CRL.A. 143/2018 & Crl.M.A. 2262/2018 and connected matters. Date of Judgment: 02.04.2019. (ii) Standard Chartered Bank v. Deputy Director of Enforcement: 2018 SCC Online ATPMLA 15. Date of Judgment: 02.08.2018. 12. This appeal was fixed for arguments on 22.08.2019. On the previous date, i.e. 18.07.2019 an adjournment was sought from the side of the Respondent ED to argue the matter and accordingly the appeal was adjourned to 22.08.2019 for arguments. None appeared from the side of the Enforcement Directorate even after passover on 22.08.2019. However, we have taken care of the case of the Respondent ED by going through the entire record. However, the Ld. Counsel for the appellant argued the matter. 13. We have gone through the Provisional Attachment Order and documents enclosed therewith, the O.C., the Impugned Order, the reply of the Appellant before the Adjudicating Authority and other materials available on record. 14. We have already stated about the case of the Enforcement Directorate in the in....
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....ant knew about the involvement of the Respondent no.4 in any money laundering. It is the case of the Respondent ED that proceeds of crime have been used for repayment of Bank loans. Therefore, it appears that the properties attached herein are attached as value thereof. 17. It is seen from the materials available on record that the Appellant has bonafidely advanced the public money for setting-up of the Bagasse based Cogeneration Project after due diligence. 18. The Hon'ble High Court of Delhi at New Delhi, in the matter of Deputy Director, Directorate of Enforcement, Delhi Vs. Axis Bank in CRL.A. 143/2018 & Crl.M.A. 2262 of 2018 dated 02nd April, 2019, has dealt with identical matter involving identical issues. 19. The rights of Appellant being the secured creditor would survive in spite of the order of the attachment under PMLA remains operative. Therefore, the Appellant being the lawful mortgagee/transferee of the interest in the Subject Properties are entitled to recover its dues with the sale of the Subject Properties as the Hon'ble High Court in the Judgment has also held that "mere issuance of an attachment order does not ispo facto render illegal prior charge of....
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....f the aforesaid properties were created before the date of registration of FIR. 23. The Hon'ble Delhi High Court on the Axis Bank Judgment (supra) had observed that:- "...the charge or encumbrance of third party in property attached under PMLA cannot be treated or declared void unless material is available to show that it was created to defeat the PMLA, such declaration rendering such properties available for attachment and confiscation under PMLA, free from encumbrance..." The Hon'ble Delhi High Court further observed that:- "a party in order to be considered as a bonafide third party claimant for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complacent in, the offence of money laundering, and that it had made all compliances with the existing law including, if so required, by having said security interest registered" 24. It is submitted on behalf of the Appellant that the properties attached cannot be attached under Section 5 of the PML Act because the properti....
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....ies as it exceeds the claim of the bona-fide third party. 30. As such, in the present case once it has been showed by the Appellant that proper and due diligence was conducted before the properties were mortgaged to them, the properties thus cannot be attached, neither as a 'tainted property' nor as 'alternative attachable property' since it is nobody's case that the secured creditor had not done the due diligence and/or the transactions were not legitimate. 31. It is not possible to hold that the mortgaged properties claimed by the Appellant in anyway can be considered to be "Proceeds 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. The Adjudicating Authority has not analysed the facts at all. The order suffers from a fundamental error. 32. The legal implication of a mortgage must be understood by both authorities. When a property is mortgaged, the only right which is left in the mortgagor is that of the equity of redemption. Otherwise, the entire corpus of the property passes to the mortgagee i.e. the Appella....