TaxTMI 
TaxTMI 
2019 (9) TMI 943
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....e Insolvency and Bankruptcy Code, 2016, which is under process. 3. During the pendency of appeal, Intervener Application which is filed by the Committee of Creditors / Consortium of Banks through UCO Bank, Leader of Consortium of Banks. UCO Bank is a member of the Committee of Creditors (CoC) and it has total 33.97% voting rights in the CoC was allowed. CoC consortium of Banks have authorized and given consent to the UCO Bank Limited on behalf of Committee of Creditors / Consortium of Banks has been impleaded as appellant no. 2. 4. There are the following members of the committee of creditors; (Amount in Crore) Sr No. Bank / Financial Creditor Claimed Amount INR Admitted Amount INR % Voting 1 UCO Bank -Pimpri - WC 121.28 121.28 25.80% 2 UCO Bank - Hong Kong - ECB 33.40 30.23 6.43% 3 UCO Bank - Singapore - ECB 10.81 8.18 1.74% 4 Indian Bank - Pune - WC 7.36 7.36 1.57% 5 Indian Bank - Singapore - ECB 35.63 35.63 7.58% 6 JM Financial ARC (assigned by OBC) - WC 26.04 26.04 5.54% 7 HDFC Bank - WC 6.20 6.20 1.32% 8 L&T Financial Services Ltd - Corporate L....
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....ry No.153, Hissa 1B, village village Pimpri Waghare, Nehru Nagar within PCMC Limits, Distrct Pune) 3. PMT Machines availed corporate loan of Rs. 30 crores from L&T Financial Services Ltd vide Corporate Loan Agreement dated 21.04.2011 dated 15.04.2011. The Deed of Hypothecation dated 21.04.2011. Annexure-G: Copy of Corporate Loan Agreement dated 15.04.2011. Annexure-H: Copy of Hypothecation Deed dated 21.04.2011.[Page No.163-Schedule I- Hypothecated assets: All moveable fixed and current assets (Subservient Charge)] 4. Property No.2 land admeasuring 26.67 Acres was mortgaged in favor of the SREI Infrastructure Finance Limited vide Declaration dated 25.05.2012. The Rupee Term Loan Agreement dated 09.01.2015 was executed by the PMT Machines Limited and pursuant to which Deed of Mortgage dated 23.01.2017 and 20.02.2017 was executed. Annexure-I Copy of Declaration dated 25.05.2012.(Page 170: First Schedule- Land admeasuring about 26.79 acres situated at Kadachala, Taluk-Halol, District-Panchmahal, Gujarat) Annexure-J Copy of Rupee Term Loan Agreement dated 23.02.2017. Annexure-K Copy of Deed of Mortgage dated 23.01.2017 & 20.02.2017.(Page No.251:Schedule II- A....
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....ed in the year 2007 vide Registered Agreement dated 17.02.2007 executed between M/s.Galaxy Developers, PMT Machines Limited and Premier City Sahakari Gruhrachna Sanstha Maryadit, registered under Serial No.HVL-18/1332/2007 in respect of Flat No.502 @ Index-II and Serial No.HVL-18/2999/2007 in respect of Flat No.501 @ Index-II. (e ) Sl. No. 5 : 3rd and 4th Floor, Permesh Corporate Tower, Karkardooma, Community Centre, Delhi. Vehicles : (f) Sl. No. 12 : dated19-12-2007, Honda Civic DL-13-C-0764 having value of Rs. 12,60,364. It is submitted that the assets were acquired by the PMT Machines Limited much before the commission of the alleged offences and the assets are mortgaged with consortium of banks. 9. The Account of the PMT Machines Limited become NPA in the year 2011-12. The Consortium of Banks of ECB Facility filed Recovery Suit before the Debt Recovery Tribunal against the PMT Machines Limited On 17.06.2013. 10. On 05.08.2017, the Enforcement Directorate ('ED') conducted search and seizure under the provisions of FEMA and Income Tax Act at Mumbai, Vadodara premises of Sterling Group, its Promoters and Promoters' Companies. On 30.08.2017, CBI ....
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....the company. The monthly turnover is around Rs. 10 - 15 crore. PMT Machines Ltd. caters to various PSUs i.e. DRDO, ISRO, HAL, Ordnance Factory, BHEL, BEL, Mazagon Dock, BEML, Indian Railways, Bombardier (world's biggest train manufacturer), NTPC, L&T Defense, Mahindra & Mahindra Defense, Jaguar, Mercedes, Mahindra & Mahindra, Hero Honda, Ford, Bajaj etc. The above customers are regular customer of the Company and there are many on-going orders. The Company manufactures various customized machines, tools and parts of machines having national security and national importance i.e. tanks, nuclear reactor parts, tools for manufacturing ammunition, navy ship parts, machines/ tools for DRDO, ISRO etc. It takes several months to manufacture and deliver customized machines and tools after obtaining the Purchase Order. 16. It is informed that there are more than 1000 employees and workmen working with the Company. The fate of 1000 employees is hanging in a lurch as the due to the attachment Banks and Financial Creditors are unable to achieve objective under IBC. 17. The Appellant no. 2 Banks and Financial Creditors are pressing relief claimed in the appeal filed by the Resolution Profe....
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....ch prior to the date of alleged offence committed. Counsel appearing on banks and financial institution has informed that on the basis of their complaint an action was taken against the borrowers. 26. It is imperative to bear in mind that the intention and objective of the legislature while legislating the Prevention of Money Laundering Act, 2002 ("PMLA") was to deprive the offender (of money-laundering), the enjoyment of "illegally acquired" fruits of crime by taking away his right over property acquired through such means, and to obviate the threat of money laundering to the financial system of the country. The IBC on the other hand, has been enacted 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 entrepreneurship, availability of credit and balance the interest of all the stake holders including alteration in the order of priority of payment of government dues." 27. Section 5 of the PMLA prescribes for the attachment of the assets acquired by means of tainted money, and....
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.... in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under subsection (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (2) of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under subsection (1) from such enjoyment. Explanation. - For the purposes of this subsection "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. 28. Section 5 demonstrates that the objective of the attachment is to prevent the likelihood of concealment, transfer or dealing with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime. The Appellant no. 1 Company is undergoing CIRP under the provisions IBC and the aegis of the RP, who has filed the present ....
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....awful and adequate consideration, acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or frustrated by attachment of such property to such extent by the enforcement authority in exercise of its power under Section 8 PMLA. ... 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 preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made availab....
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....e proceedings initiated by the Bank of India under the Code is ought to be given precedence over the proceedings initiated under PMLA Act in respect of the aforementioned properties. The said position has been clarified by the Hon'ble High Court of Delhi in the matter 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 wherein in Paragraph 171, the court held that: " (xv): If the bona fide 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 moneylaundering (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....
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....es 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. 15. 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. 16. The Hon'ble Delhi High Court on the Axis Bank Judgement (supra) had observed that "...the charge or encumbrance of third party in property attached under PMLA cannot ....
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....he 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. 32. The attachment of the encumbered property by Respondent No. 1 treating to be tainted is not valid argument 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 re....
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.... possession discloses legitimate means for having acquired the property in question, the property cannot deemed to be involved in money laundering. Therefore, the attachment thereof cannot be confirmed. 34. 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 appellant Bank in this case. The mortgagee has a right to take over the possession of the property and to realise it whereas the mortgagor who is left only with the equity of redemption has only the right to make full payment of the dues of the mortgagee and then redeem the property. Otherwise the mortgager is not left with any vested right. In other words the mortgaged assets are essentially assets of the appellant Bank and not of the mortgager. 35. B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition of property in para-103. The same read as under:- "103. Since proceeds of crime is defined to include the....