TaxTMI 
TaxTMI 
2025 (4) TMI 692
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....attachment has been made not only by the persons whose properties have been attached but even by the financial institutions to whom the said properties alleged to have been mortgaged. Ten properties involved in the attachment belong to M/s Sai Infosystem (I) Ltd.; M/s Atrium Infocomm Pvt. Ltd.; M/s Sujyot Infrastructure Pvt. Ltd.; Shri Bhupen Dalsukhrai Savani; Smt. Sarangi Bhupen Savani. The property seems to have been mortgaged to State Bank of India (SBI) and Indian Bank and accordingly appeals have been preferred by the financial institutions apart from Smt. Hemangi Samir Kakkad, Shri Bhupen Dalsukhrai Savani, Smt. Sarangi Bhupen Savani; and M/s Sujyot Infrastructure Pvt. Ltd. through Shri Sunil S. Kakkad. The properties were attached by the provisional attachment order dated 08.11.2019 after registration of FIR on 04.08.2016 by the Central Bureau of Investigation, Banking Security & Fraud Cell (CBI, BS&FC), Mumbai on a written complaint of Shri Shekhar Tripathi, Deputy General Manager & Regional Head, Bank of Baroda, Ahmedabad, City Region, Ahmedabad and ECIR against M/s Sai Infosystem (I) Ltd. and Shri Sunil S. Kakkad being the Director of the Company and other unknown dir....
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....nancial institutions. Based on the FIRs, the respondent recorded the ECIR and during the course of the investigations, statement of many persons were recorded under Section 50 of the Prevention of Money Laundering Act, 2002 (in short "the Act of 2002"). The main accused, Shri Sunil S Kakkad was summoned on different dates but he did not appear initially but finally in the month of September, 2019 his statements were recorded. These appeals were argued mainly by the Counsel appeared for the State Bank of India. The properties belonging to M/s Sai Infosystem (I) Ltd. and M/s Atrium Infocomm Pvt. Ltd. were mortgaged to the appellant Bank. The financial institutions initiated the action under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "Securitization Act of 2002" ). The matter remained pending before the Debts Recovery Tribunal (DRT), Ahmedabad, Gujarat though the appellant State Bank of India said to have taken the possession of the properties. It is further submitted that a Resolution Plan was passed by the National Company Law Tribunal (NCLT), Ahmedabad vide order dated 22.08.2019 and anot....
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....mmission of offence, thus could not have been considered to be the proceeds of crime. The intention and object of the Act of 2002 is to deprive the offender from enjoyment of illegally acquired funds out of the crime and not to deprive the innocent person. The mortgaged property does not fall in definition of "proceeds of crime" under section 2(1)(u) of the Act of 2002. The properties were attached solely on the ground that Shri Sunil K Kakkad, who was the past Director of the companies had siphoned off the funds and invested the money into immovable properties in the name of Companies. It is, however, a fact that mortgaged properties were purchased much prior to commission of crime. Thus, there were no nexus between the crime and the properties mortgaged to the financial institutions. The period of alleged crime is from the year 2009 to 2013 while the properties mortgaged to the appellant- SBI and other institutions is prior to the date aforesaid. Thus, it could not have been attached by the respondent. The fourth argument raised by the Counsel for the appellant was in reference to the definition of "proceeds of crime". It was to emphasize that the definition aforesaid covers t....
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....submissions made by the parties and scanned the record carefully. It is a case where multiple FIRs were registered by the financial institutions from time to time for the offence under Section 120-B read with Section 420 of IPC and Section 13(2) read with Section 13(1)(d) of Prevention of Corruption Act, 1988. It was alleged that M/s Sai Infosystem (I) Ltd. represented by Mr. Sunil S. Kakkad entered into a conspiracy with the public servants of financial institutions and availed various credit facilities from the Bank of Baroda based on false and inflated stocks and receivable statements. The LCs were opened on related companies which then got dissolved and the accused fraudulently and dishonestly siphoned off the funds and thereby caused wrongful loss to the Bank of Baroda to the tune of Rs. 104.78 crores. An FIR was registered even by the Allahabad Bank containing the similar allegations for the loss of Rs. 51.62 crores. The Corporate Bank also lodged an FIR with CBI, Mumbai alleging an offence of Section 120-B read with Section 420 IPC where an amount of Rs. 109 crore is involved. A similar FIR was lodged even by the State Bank of Bikaner and Jaipur in the year of 2016 itself....
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....egal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratoriu....
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....on are explored and ensuring that its various creditors do not initiate individual actions which may hamper or impede the resolution process. It is essentially aimed at preserving the insolvency estate and the suspension of actions against the debtor. The moratorium order staves off actions that may be initiated for enforcing security interests, claims by individual creditors, a restraint against the dissipation of its assets while the process of its restructuring is explored. It essentially seeks to sequester the assets of the debtor from actions which may be initiated by its creditors. It is during this crucial period that the viability of the debtor is assessed during the CIRP. xx xx xx xx xx xx xx xx xx xx xx 80. As would be evident from the aforesaid discussion, the primordial purpose of a moratorium as enunciated hereinabove, is clearly distinct from the purpose and objectives of attachment action taken under the PMLA. PMLA is not concerned with the recovery or enforcement of a debt. Proceedings for attachment that may be initiated in terms thereof cannot by any stretch of imagination be viewed as being akin to an action for enforcement or recovery of a debt. PMLA....
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.... following additional reasons. PMLA seeks to subserve a larger public policy imperative. The enactment represents a larger public interest, namely the fight against crime and the debilitating impact that such activities ultimately have on the society and the economy of nations as a whole. Tainted assets are those which would have been obtained through surreptitious means and modes, through layered transactions aimed at obfuscating their origins. The legislation aims at denuding the perpetrators of crime of gains obtained from such activities. It is a reparation measure which seeks to strip and deprive criminals of benefits derived and retained by the adoption of illegal and dishonest action. The PMLA is an enactment which is aimed at affecting the disgorgement of illegal gains. The Court deems it apposite to note that the Insolvency Law Committee Report, 2016 had pertinently observed in Para 8.11 that the moratorium provision is not liable to be interpreted as barring all possible actions "especially where countervailing public policy concerns are involved". It also took note of laws prevailing in different jurisdictions which permit regulatory actions which though not aimed at col....
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.... therein. The authorities under the aforementioned two statutes consequently must be accorded adequate and sufficient leeway to discharge their obligations and duties within the demarcated spheres of the two statutes. 87. In a case where in exercise of their respective powers a conflict does arise, it is for the Courts to discern the legislative scheme and to undertake an exercise of reconciliation enabling the authorities to discharge their obligations to the extent that the same does not impinge or encroach upon a facet which stands reserved and legislatively mandated to be exclusively controlled and governed by one of the competing statutes. The aspect of legislative fields of IBC and PMLA and the imperative to strike a correct balance was rightly noticed and answered by the learned Judge in Axis Bank." 93. On a consideration of the precedents which have come to be rendered on the aforesaid subject, this Court finds that both NCLT and NCLAT, have correctly taken the view that the moratorium would not prevent the authorities under the PMLA from exercising the powers conferred by Sections 5 and 8 notwithstanding the pendency of the CIRP. The view as taken and exp....
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....ability Partnership Act, 2008 (6 of 2009), or an officer who is in default, as defined in clause (60) of section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section. (2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not-- ....
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....ffence committed prior to commencement of CIRP where such property is covered under a Resolution Plan approved by the Adjudicating Authority under Section 31 which results in the change of control of the corporate debtor. Sub-Section (2) of Section 31 pre-supposes approval of Resolution Plan to impose a bar for the action against the property of the corporate debtor. In the instant case, the appellant has not submitted approval of the Resolution Plan under Section 31 of IBC, 2016. The explanation appended below sub-section(2) to Section 32A of IBC covers even the attachment, seizure etc. under any law which may be applicable to the corporate debtor. Thus an action of attachment is barred, if Resolution Plan is approved under Section 31 of the IBC. In the instant case, the appellant has failed to place on record approval of the Resolution Plan rather it seems they have guided themselves by sub-section 1 of Section 32A ignoring that action against the property has been prohibited under sub-section 2 of Section 32A and not under Section 32A(1), if the Resolution Plan is approved under Section 31 of the IBC. Here we may add that even sub-section (2) of Section 32A of IBC would be ap....
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....t cannot be accepted. The Counsel for the appellant made a reference to the judgment of Bombay High Court in the case of Shiv Charan versus Adjudicating Authority in Writ Petition No. 9993 of 2023. It was submitted that in the judgment supra, it was held that section 32A(2) give immunity even without a successful Resolution having been approved. We have gone through the judgment. Sub-section 2 of Section 32A of IBC would apply and bar an action against the property of the corporate debtor in relation to the offence committed prior to commencement of CIRP if a property is covered by the Resolution Plan and has been approved by the Adjudicating Authority under Section 31 of IBC, 2016. The approval of the plan under Section 31 of IBC, 2016 is a pre-condition to apply Section 32A(2) of IBC. An embargo on attachment under sub-section (2) of Section 32 would not apply till resolution plan is approved and that too if a property is covered therein. We are unable to take a view going contrary to the statute which has already been upheld by the Hon'ble Supreme Court holding it to be constitutionally valid. Accordingly, we are unable to take a view favourable to the appellant in the absenc....
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....ered. The relevant paras of the said judgment are quoted hereunder: "19. The reference to the judgment in the case of Pavana Dibur (supra) has been given where the Ld. Counsel for the parties did not refer Para 68 of the judgment in the case of Vijay Madanlal Choudhary (supra) decided by three judges of the Apex Court. In fact, elaborate arguments to define "proceeds of crime" on the issue were not raised by the parties after referring to the object of the Act of 2002 which was enacted out of the international convention. The Delhi High Court has discussed the issue elaborately and otherwise if we apply the judgement of Kerala High Court in the case of Satish Motilal Bidri (supra,) it would be making the second limb of the definition of "proceeds of crime" to be redundant. The counsel who appeared before the Kerala High Court did not argue that the definition of "proceeds of crime" has three limbs and unfortunately the view expressed by Delhi High Court in Axis Bank (supra) was not discussed elaborately while it was cited by the counsel. 20. The Ld. Single judge of Kerala High Court did not subscribe the judgment aforesaid, rather applied the judgment of Punjab an....
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.... would essentially amount to erasing the expression value of any such property as appearing in Section 2(1)(u) altogether. The Court further notes that in Seema Garg the learned Judges themselves observed that the phrase value of any such property would not mean and include any property which has no link, direct or indirect, with property derived or obtained from commission of a scheduled offence. The Court observes that Section 2(1)(u) clearly and in unambiguous terms includes not only property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence but also the value of any such property. Seema Garg thus seems to gloss over the statutory imperatives underlying the deployment of the phrase "or the value of any such property and the concept of deemed tainted properties enunciated in Axis Bank. On a plain textual interpretation of Section 2(1)(u) as well as in the backdrop of the amendatory history of that provision, this Court finds itself unable to agree with the line of reasoning adopted in Seema Garg. As held hereinbefore, affirmation of Seema Garg would amount to virtually deleting the phrase "or the value of any such property....
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.... to the "value of any such property" or "property equivalent in value held within the country or abroad". However, both the italicised categories would be liable to be invoked in cases where the actual tainted property cannot be traced or found out. It is only where the respondents are unable to discover the tainted property that they can take the statutory recourse to move against properties which may fall within the ambit of "value of any such property or "property equivalent in value held within the country or abroad. To the aforesaid limited extent, properties purchased prior to 01 July 2005 may also become vulnerable and subject to action under the Act. However, enforcement action against such properties would have to satisfy the tests and safeguards as propounded in Axis Bank with the learned Judge observing that in such a situation it would have to be established that the person accused of money laundering had an interest in such property at least till the time that he indulged in the proscribed criminal activity. The learned Judge further observed that bona fide rights acquired by third parties prior to the commission of the predicate offense would stand saved." 21....
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....d rather be entitled to seek release of the properties from the Special Judge even during the trial which would be after hearing the interested parties. If we release the properties in favour of the institutions without analyzing a contest in the hand of the mortgagor of the property, it would be against the principle of natural justice and for that reason we may refer the judgment of this Tribunal in the case of FPA-PMLA-3223/MUM/2019JM Financial Asset Reconstruction Company Ltd. vs. The Deputy Director, Directorate of Enforcement, Mumbai &Anr.dated 26th April 2024which clarified the right of the financial institutions. It has very well protected even under the Act of 2002. The relevant paras of the said judgement JM Financial Asset Reconstruction Company Ltd. (supra) are quoted hereunder: "21. We have already recorded finding that the attachment of the property does not effect or transfer the title unless the property is confiscated and it can be when the accused is convicted. The settlement of the property, if confiscated is provided under section 8 (8) of the Act of 2002. If the prayer of the financial institution for protection of their right and for that to lift the ....
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....ncial institution leaving and even affecting the claim of the victim who lodged the criminal case against the accused. In case of release of the property from attachment at the instance of financial institution, it can be auctioned where it may achieve the amount greater than what is due to the financial institution. In that case, the financial institution can retain the amount to the extent it is due to them and remaining has to be given to the person who mortgaged the property which would be none but can be the accused and thereby the accused would be benefited on release of the property in a given case by getting the amount over and above secured, out of the auction to settle the dues of financial institutions. In that case again victim would suffer whereas if the mechanism given under section 8 (8) is applied, safeguard would exist to settle the amount in favour of the rightful claimant". It is otherwise a fact in the CIRP, bank may agree for lesser amount than due and it would be finalized with the approval of the plan. At this stage we may further deal with the another argument raised by the appellant in reference to the SARFAESI Act of 2002 to hold that the aforesaid A....