TaxTMI 
TaxTMI 
2019 (12) TMI 1019
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....Pending application stands disposed of." 2. Since the matter is remanded to this Tribunal and since the appeal is restored, the present appeal has to be decided in the light of the order passed in CRL.A. 143/2018 & Crl.M.A. 2262/2018 in the matter of The Deputy Director, Directorate of Enforcement, Delhi Versus Axis Bank & Ors. and four other batch matters. In view of the above, the matter is heard afresh. 3. In FPA-PMLA-1974/DLI/2017 filed by State Bank of India, none appeared. However, the materials available on record in respect of both the parties are considered. Since, the property involved in the present appeals is same and the nature of pleadings are also same, so the appeals are taken up together and a common order is passed. The facts are already recorded in the earlier order dated 15.03.2018 which may be read in the present order. However, the relevant Paras are reproduced below; "2. The Syndicate Bank (appellant in appeal no. 1) and the State Bank of India (SBI) (appellant in appeal no. 2) were defendant nos. 8 &7 respectively in O.C. no. 763/2017. 3. These two appellants have preferred the present appeals u/s 26 of Prevention of Money Laundering Act-2002 (PMLA) ....
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.... 18/07/2007 entered between M/s SSPL and "Vatika Greenfield Projects Pvt. Ltd." and Syndicate Bank. M/s SSPL agreed to create mortgage of the said property in favour of Syndicate Bank Consortium and further agreed not to transfer/alienate or to create any charge over the said property without the prior consent of the Syndicate Bank consortium. This is worth to submit here that Syndicate Bank Consortium was acting as leader of consortium with SBI. In Addition to above M/SSPL. also executed an agreement to mortgage dt. 29.03.2007 in favour of Syndicate Bank. Copy of Tripartite agreement dt. 18.7.2007 including agreement to mortgage dt. 29.03.2007 are placed on record. 6. It is also revealed that in connivance with other accused persons the R-2 defrauded the appellants in their cash credit loan account by dishonest means of inflating the value of stocks. They had also indulged in removal of hypothecated stocks without banks knowledge through illegal sale of cars. SSPL company account remains irregular since 6/12/2008 as such the said account was classified as NPA on 31.03.2009. 7. That on 29.03.2007 borrower M/s. Surhit Services Pvt. Ltd. (SSPL) executed agreement to Mortgage th....
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....nk of India has been credited towards the loan account of SSPL. 10. Admittedly the property in question Flat No. 2/601, Type: Sovereign, Block No. II, 6th Floor, Vatika City, Sohna Road, Gurgaon is a secured asset of the Appellant Banks in terms of the Tripartite Agreement dt. 18.07.2007 r/w Agreement to Mortgage dt. 29.03.2007 being part of the security to the amount of Credit Facilities by Appellant Banks granted by Syndicate Bank to the Respondent No. 2 M/s SSPL. 11. The loan amounts were released by the Appellant Syndicate Bank in 5 installments, as and when demanded by the Builder M/s Vatika Land Base Ltd. (hereinafter referred to as "the Builder"), remitted a sum of Rs. 28,95,698/- between 03.05.2007 to 17.09.2008 towards the property in question. The said amount of Rs. 28,95,698/- was remitted by debiting/liquidating the Fixed Deposit kept by the Respondent No. 2 M/s SSPL much prior to 30.09.2008. 12. It is contended by the Appellants that on 25.08.2009 the Appellant Syndicate Bank issued notice under Sec. 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 calling upon the Respondent No. 2 M/s SSPL to pay ....
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..... After valuation of the flat/property as on date." The CBI Court vide order dated 04.03.2013, on an erroneous appreciation of the facts and circumstances of the case, held that the appellant Syndicate Bank shall be paid only the amount financed by it to purchase the property. 19. It is the case of the Syndicate Bank that there being no irregularity or illegality in Syndicate Bank taking the property in question as security and the appellant Syndicate Bank being entitled to sell the same and appropriate the proceeds towards the dues of the Respondent no. 2 M/s SSPL under Sec. 13 (4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 the appellant Syndicate Bank filed Criminal Revision Petition No. 299 of 2013 in May, 2013 before the Hon'ble High Court of Delhi against the order of the CBI court dated 04.03.2013. 20. The High Court by order dated 07.11.2014 was pleased to de-seal the property in question in favour of the appellant Syndicate Bank noting the submission of the Bank "that it is a secured creditor and is entitled to recover its due in terms of Sec. 13 (4) of the Securitization and Reconstruction of Financial ....
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....ellant Syndicate Bank had granted credit facilities to the extent of Rs. 26.50 Crores to M/s SSPL. Recovery Certificate for recovery of Rs. 28,27,18,238/- (Rupees twenty eight Crores twenty seven lakhs eighteen thousand two hundred thirty eight only) has been issued by the Debt Recovery Tribunal vide recovery Certificate No. 394/15 dated 23.09.2015 which the Appellant Syndicate Bank is not able to recover so far. 27. As per the Provisional Attachment Order No. 04/2017 in ECIR No. ECIR/05/DZ/2013/AD (AKS) dated 31.03.2017, a sum of Rs. 8.96 Crores is outstanding against M/s SSPL with State Bank of India against the amount of Loan of Rs. 13 Crore sanctioned to M/s SSPL by the State Bank of India on 30.09.2008. As per Deputy Director Enforcement, Delhi Zone-I, New Delhi, the accused persons named above, "have committed the offence of Money Laundering as defined under Section 3 and punishable under Section 4 of the PMLA, 2002; as the money has been transferred and layered and further invested in the properties procured in the name of entity." That according to the Deputy Director, the property in question is Flat No. 2/601, Type: Soverign, Block No. II, 6th Floor, Vatika City, Sohna ....
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....0.09.2008. Therefore the transfer cannot be from the proceeds of the crime. 36. The amount of Rs. 5 Crore transferred to the Account of the respondent no. 2 on 12.06.2008 to the appellant Syndicate Bank was to clear another loan account with of the said respondent no. 2 with Syndicate Bank i.e. OSL 01/08. (Please see statement of account of the respondent no. 2 with Syndicate Bank entry for Rs. 4,97,62,012.19 dated 13.06.2008. Similarly, the amount of Rs. 2.5 Crores transferred to the account of the respondent no. 2 with the appellant Syndicate Bank was to reduce the overdrawn limit in the account (Please see statement of account of the respondent no. 1 with Syndicate Bank entry for Rs. 2.5 crores dated 27.06.2008. 37. Even borrower the (Respondent no. 2 on 17.06.2008 requested the SBI to transfer a sum of Rs. 25 lakhs to their account with Syndicate Bank (Para 7.6 at Page 7 of the Complaint). But as per appellant Syndicate Bank the said request was not acted upon by SBI (there is no such entry in the account of the Respondent no. 2 with Syndicate Bank (Statement of Account does not show any such entry). In any case, this also prior to 30.09.2008. Therefore, it is apparent on t....
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....na fide, for lawful 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. 164. Though the sequitur to the above conclusion 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 ....
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....e appellants that the respondents herein should have approached the special court, instead of the appellate tribunal, for consideration of their respective claims. 169. In view of above-noted legislative scheme, it must be clarified that if the order confirming the attachment has attained finality, or if the order of confiscation has been passed 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....
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....e of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him. (vi). The objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and 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 ....
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.... third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the third party will not be subjected to confiscation 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 cr....
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....al) or the case of cheating by use of fabricated defence supply orders (fourth appeal), both involving public servants, require closer scrutiny as to the claim of the respondent banks of bonafide action. Though there is no such element of complicity on part of any of the officials of the respondent banks in the case relating to fictitious hospital equipment (second appeal) or the one involving consortium of banks (fifth appeal), scrutiny respecting legitimacy and bonafide of the claim on the touchstone, inter alia, of the subsisting value of the secured interest and chronology of events leading to attachment would be necessary. 174. It will be appropriate that such further scrutiny as is necessary on the touchstone of above principles is undertaken by the appellate tribunal after calling for further responses (and inputs) from each side. 175. Ordered accordingly. 176. Thus, the appeals are allowed. The impugned decisions of the appellate tribunal are set aside. The matters arising out of the appeals of the respondents stand revived and restored for further consideration by the appellate tribunal. The parties are directed to appear before the said forum on 15.04.2019. 177. T....
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....PL and adjusted the said amounts so realized towards the dues of M/s. SSPL. 8. 2010 The appellant and SBI lodge complaint of cheating with CBI against M/s. SSPL. 9. 06.09.2011 The FD kept by M/s. SSPL having been exhausted, the appellant paid the last installment demanded by the builder amounting to Rs. 8,44,864/- by debiting Overdraft Account of M/s. SSPL. 10. 26.09.2011 The appellant filed O.A. No. 143/2011 before DRT, Delhi. 11. 29.01.2013 The property in question attached by CBI. 12. 07.11.2014 The Hon‟ble High Court Delhi ordered to deseal the property in question in favour of the appellant noting the submission of the appellant that it is a secured creditor and is entitled to recover its due in terms of Section 13(4) of SARFAESI Act, 2002. 8. During the course of hearing the learned counsel for the appellant submitted the following; a) It is clear finding of this Tribunal that the property in question has not been derived or obtained as a result of criminal activity relating a scheduled offence. b) There is no material available to show that security interest was created "to defeat" the provisions of the Prevention of Money- Laundering Act,....
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....ty has also confirmed the Provisional Attachment Order and allowed the Original Complaint filed by Enforcement Directorate vide its order dated 02.08.2017, confirming the provisional attachment of assets worth Rs. 80,50,549.80/-. c. That, the respondent Syndicate Bank preferred an appeal against the order dated 02.08.2017. The Hon‟ble Appellate Authority, Prevention of Money Laundering Act at New Delhi vide its Orders dated 15.03.2018 allowed the appeal of the respondent bank and set aside the confirmation of Provisional Attachment Order dated 02.08.2017. d. That, a prosecution complaint has also been filed in Hon‟ble Trial Court under PMLA, 2002 against M/s Surhit Service Pvt. Ltd. and its Directors for prosecution and confiscation of the attached property. Hon‟ble Trial Court has taken cognizance of the same and the case is pending for trial. e. That, Enforcement Directorate filed an appeal no. Crl. A. 603/2018 in Hon‟ble Delhi High Court u/s 42 of the PMLA, 2002 against the Order dated 15.0.3.2018 passed by Hon‟ble Appellate Tribunal(PMLA) in FPA-PMLA-1935/DLI/2017 in which Hon‟ble High Court vide order dated 01.11.2019 disposed the ap....
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....le deed in their favour by M/s Vatika Greenfields Projects Pvt. Ltd." Further, from Tripartite Agreement which was signed between Appellant Bank, Builder and M/s. Surhit Services Pvt. Ltd. dated 18.07.2007 the aforesaid fact is again clear that the property in dispute was never mortgaged to the appellant Bank and the extract of the agreement in this regard is as below: "One of the terms and conditions of the said sanction of credit facilities that amongst others the borrower shall create the mortgage of the scheduled property on completion of construction and other formalities of transfer by the builder in favour of the Borrower and meanwhile to project the interest of the Bank an agreement shall be entered into by the builder with the borrower in favour of the bank agreeing for certain terms and conditions." Thus, from the aforesaid facts, it is clear that the claim of the appellant bank that it was a mortgagee is not tenable as the property in question was never mortgaged to the appellant Bank. i. Further, it is submitted that the attached property is a proceeds of crime. It is also relevant to mention herein that in the present case Prosecution complaint has already been....
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....3 Crores was sanctioned to M/s. SSPL by State Bank of India. xii. On 25.08.2009, the appellant issued notice under Section 13(2) of SARFAESI Act, 2002 to Respondent no.2 M/s. SSPL to pay the dues of the Bank. xiii. In 2010, the appellant bank and SBI lodge complaints of cheating with CBI against M/s. SSPL. xiv. On 06.09.2011, the FD kept by M/s. SSPL having been exhausted, the appellant paid the last installment demanded by the builder amounting to Rs. 8,44,864/- by debiting Overdraft Account of M/s. SSPL. xv. On 26.09.2011, the appellant filed O.A. No. 143/2011 before DRT, Delhi. xvi. On 29.01.2013, the property in question attached by CBI. xvii. On 07.11.2014, the Hon‟ble High Court of Delhi ordered to deseal the property in question in favour of the appellant noting the submission of the appellant that it is a secured creditor and is entitled to recover its due in terms of Section 13(4) of SARFAESI Act, 2002. 12. The bonafide as well as due diligence in sanctioning the loan by the appellant to M/s. SSPL has not been doubted by the respondent at any point of time. It is also not clarified by the respondent how the property in question is acquired out of proceed....
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....9.3.2007 with the petitioner bank i.e. Syndicate Bank. An agreement of mortgage to the said effect had been executed. This property had been mortgaged as a security for the loan amount of Rs. 26.50 crores which had been sanctioned by the bank to the borrower (M/s Surhit Services Pvt. Ltd.). On 18.7.2007 the borrower, builder (M/s Vatika Land Base Ltd.) and the petitioner bank entered into a tripartite agreement. The contention of the petitioner bank is that the bank is a secured creditor and the property had been mortgaged with the bank; the impugned order dismissing the application of the bank and not allowing the de-sealing of the property had committed a folly. The reply filed by the CBI has been perused. It is not in dispute that the present property stood as a security with the petitioner bank pursuant to which a loan had been granted to M/s Surhit Services Pvt. Ltd. There is also no dispute to the factum of the tripartite agreement entered into between the bank (petitioner), builder and the borrower. The CBI has reiterated that the afore noted flat is a secured asset of the Syndicate Bank. It has supported the stand of the petitioner bank and has stated that since the ban....
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....on‟ble High Court of Delhi in the recent decision of "The Deputy Director, Directorate of Enforcement, Delhi Vs. Axis Bank & Ors.," reported in 2019 SCC Online Del 7854 (hereinafter referred to as the "Axis Bank Decision") has rightly held that the interest of a third party in the property of an accused, acquired prior to the commission of the proscribed offence cannot be defeated or frustrated by attachment of such property under Section 8 of the Act. 19. The Hon‟ble High Court further recognized the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property as exceeds the claim of the third party, if any. (Reference Paragraph No. 162-164 of the Axis Bank Decision) speak for itself. In terms with the Axis Bank Decision, the claim of the Respondent to the property would be restricted to such part of the aggregate value of the property attached as exceeds the claim of the Appellant. Claim of the Bonafide Third Party Claimant to be d....
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....ry and legislative scheme of the Act. It would amount to an exercise in futility and wasteful litigation if the Appellant were required to be a mute spectator to the confirmation of attachment of mortgaged property at this stage and await the conclusion of criminal trial under the PMLA, 2002 to agitate and pursue its rightful legal claim over such property on which security interest has been created. 23. Therefore, the Adjudicating Authority by the Impugned Judgment has erred in failing to recognise the legitimate claim of the Appellant at the stage of confirmation of the PAO itself as the Appellant Bank is a victim of the fraud by M/s. SSPL the effect of the Impugned Judgment, depriving it of pursuing its legal claims against property mortgaged to it. The value of the property on account of the present case as well as the FIR has depreciated significantly and is deteriorating on a daily basis, such that any delay in enforcement of recovery by the Appellant would be rendered meaningless. In the present case, the Appellant is the victim of the fraud played upon it by M/s. SSPL. 24. The authorised officer has failed to trace out the other property which is involved in the money l....
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....connection with the allegation of crime committed by the borrower. They are not involved for the offences of money-laundering. The secured property is admittedly not derived from criminal activities or proceeds 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 (v) read with Section 3 of the Act. The appellant is not charge sheeted nor any prosecution complaint has been filed against the appellant. 32. There is no nexus whatsoever, between the alleged crime and the appellant who has secured property and is a victim of the fraud and is innocent party. The definition of proceeds of crime as per Section 2 (u) of the Act comprises of the property which is derived or obtained as a result of criminal activities. The secured property is not acquired from proceeds of crime. 33. The scheme of the Act is such that is cannot apply to a transaction of the nature as in the present case against the appellant. Money of appellant is public money and its right under SARFAESI cannot be taken away by the attachment order, in case the attachment continues against the mortgage property,....
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....lways at liberty to approach the Special Court (if so desired) in order to invoke the amended provision of sub-section 8 of Section 8, however, it is wrong to suggest that the bank and financial institutions are not entitled to challenged the order of attachment because this tribunal is only exclusively having jurisdiction to examine the validity of attachment and to decide the same under section 26 of the Act as to whether attachment was valid or not. The bank and financial institutions are entitled to take the remedy before the Special Court after the decision of appeal or during the pendency of appeals. 37. In view of judgment passed by the High Court also, I am of the view that the Provisional Attachment Order dated 24.03.2017 passed by ED and impugned order dt. 02.08.2017 passed by the Adjudicating Authority, PMLA, confirming the Provisional Attachment Order is to be quashed and set aside. 38. The Hon‟ble High Court of Delhi, vide order dated 06.12.2019 passed in Crl.A.1090/2018 in the matter of Directorate of Enforcement Versus Indian Overseas Bank & Ors. have clarified the "status quo" order of Hon‟ble Supreme Court passed in the appeal against the order dated ....