TaxTMI 
TaxTMI 
2026 (3) TMI 33
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Appellant Bank since 2012 by M/s Simbhaoli Sugars Ltd., to secure the repayment of the amount outstanding as due and payable by M/s Simbhaoli Sugars Ltd. He therefore pleaded that Pari-Passu Charge was with the Appellant Bank. Since the amounts as due and payable by M/s Simbhaoli Sugars Ltd. were neither paid by M/s Simbhaoli Sugars Ltd. nor the account was regularized by M/s Simbhaoli Sugars Ltd., the Appellant herein issued a Demand Notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act") dated 05.10.2018 to M/s Simbhaoli Sugars Ltd. demanding an amount of Rs. 257,28,72,955.71 (Rupees Two Hundred Fifty Seven Crore Twenty Eight Lakh Seventy Two Thousand Nine Hundred Fifty Five and Paise Seventy One Only) as on 04.10.2018 and called upon M/s Simbhaoli Sugars Ltd., to discharge in full by paying Rs. 257,28,72,955.71 (Rupees Two Hundred Fifty Seven Crore Twenty Eight Lakh Seventy Two Thousand Nine Hundred Fifty Five and Paise Seventy One Only) as on 04.10.2018 along with future interest and incidental expenses/cost within 60 days of receipt of the notice. The S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the Appellant, have been attached as the property equivalent in value simply on the grounds that the original proceeds of crime could not be attached as the same have been used up/exhausted by the accused company towards payment of cane dues, loan payments and other operational expenses. Having admitted that the property which is the subject matter of attachment is not actually the proceeds of crime, nor having been purchased out of the proceeds of crime the same is not entitled to be attached under the Act of 2002. Entire Act and the scheme of act clearly enunciate the said position of law. Thus, the Ld. Deputy Director had no power whatsoever to attach the properties in question nor does the Provisional Attachment Order No. 02/2019 dated 29.06.2019 in ECIR No. ECIR/LKZO/02/2018 deserved to be confirmed. Moreover, the OC does not disclose the nexus between the proceeds of crime and the attached properties. 4. Ld. Counsel for the Appellant contended that the Deputy Director who issued the PAO has solely relied upon the Judgment of the Hon'ble High Court of Delhi in the matter of Axis Bank Ltd. in Crl. A. No. 143 of 2018. However, it was incorrect reading of the Judgment. Mor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A is erroneous, because even at the stage of attachment the claim of the Appellant Bank is well established. 5. Ld. Counsel for the Appellant further argued that the legal position has been authoritatively settled by the Hon'ble Supreme Court in Pavana Dibbur vs. Directorate of Enforcement, 2023 SCC OnLine SC 1586, wherein it was categorically held that properties acquired prior to the commission of the scheduled offence cannot be treated as proceeds of crime, as they lack any causal connection with the alleged criminal activity. The Hon'ble Court further observed that the provisions of the PMLA cannot be applied retrospectively so as to invalidate lawful transactions entered into before the alleged offence. Ld. Counsel therefore pleaded to allow the Appeal. 6. Ld. Counsel for the Respondent Directorate submitted that the Impugned Order is well reasoned and speaking. He alleged that the M/s Simbhaoli Sugars Ltd. cheated and defrauded the OBC on the pretext of financing sugar cane farmers of the region. Rs. 148.60 crores taken as loan for 5762 farmers was diverted by M/s Simbhaoli Sugars Ltd. to its own needs. The said Company and its Officials had conducted improper K....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tire scheme had been devised. 8. Ld. Counsel for the Respondent Directorate contended that the Judgment (supra) in the Axis Bank has made it clear that the proceeds of crime shall include the 'value thereof', if in case the proceeds of crime has been dissipated. Moreover, the Judgment requires balance to be maintained among the various legislations, so as to ensure harmony while operating in their respective fields. Even the Hon'ble Supreme Court in the matter of Vijay Madanlal Choudhary has held that the proceeds of crime include the equivalent value as well, in view of the provisions of Section 2(1)(u) of PMLA. In the present instance, the attachment under PMLA has not only secured the proceeds of crime, but also taken care of the unrepresented victims i.e. the farmers, as well as settle the claims of the Appellant Bank. The Impugned Order has fairly allowed the Appellant Bank to settle its claim under Section 8(8) of PMLA. Ld. Counsel further argued that the mortgage of the attached properties does not negate the attachment, as is obvious from the provisions of the statute. He contended that Section 5(1) of PMLA in Sub-Clause (b) states that where such proceeds of crime are l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the 1[proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. [Explanation.-For the removal of doubts, it is hereby clarified that,- (i) a person shall be guilty of offence of money- laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as unta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any proceeds of crime; and (b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country: Provided further that, notwithstanding anything contained in [first proviso], any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director auth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elieve that thing but not otherwise. If the material in hand has no nexus with the belief or there is no material or tangible information for the formation of belief then in such a case the reasonable belief may be vitiated. It is open to examine the question whether the reason for the belief has a rational connection or a relevant bearing to the formation of the belief and is not extraneous or irrelevant to the purpose of the Section. In the present case such rational connection exists. Although the court cannot investigate about the sufficiency of the material the court can certainly examine whether there was any material in possession of the officer concerned and whether the material had any nexus with the formation of the belief. We find that the Deputy Director had adequate material to have the reasonable belief as is obvious from the list of statements recorded under Section 50 of PMLA and documents obtained and scrutinized which are mentioned in paragraph 6 of the PAO. In the present case the reasonable belief formed by the Deputy Director is based on the material available before her. Thus, there is a 'well established link or nexus between the belief formed and the mat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of "property" as in Section 2(1)(v) is equally wide enough to encompass the value of the property of proceeds of crime. Such interpretation would further the legislative intent in recovery of the proceeds of crime and vesting it in the Central Government for effective prevention of money laundering." The perusal of the para quoted above shows that the argument of the appellant that "the value of any such property" cannot be regarded as proceeds of crime has to be rejected. 12. The definition of "proceeds of crime" has three limbs is also elaborated in the Judgment given by the Hon'ble Delhi High Court in the case of Axis Bank [(2019) SCC OnLine Del 7854]. The relevant paras are quoted herein: "106. Among the three kinds of attachable properties mentioned above, the first may be referred to, for sake of convenience, as "tainted property" in as much as there would assumable be evidence to prima facie show that the source of (or consideration for) its acquisition is the product of specified crime, the essence of "money laundering" being its projection as "untainted property" (Section 3). This would include such property as may have been obtained or acquired by using th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rpretation of the definition of proceeds of crime given in Section 2(1)(u) of PMLA. The relevant paragraphs have been quoted as follows: "11. It was submitted that the properties acquired prior to the commission of crime had no nexus with the crime and thus could not have been attached. It was not obtained or derived directly or indirectly out of criminal activities relating to the scheduled offence. The respondent could not show nexus of three properties with the crime out of four attached by them. 12. The reference of the judgment of the Apex Court in the case of Pavana Dibur (2023 SCC OnLine SC 1586) and also of Kerala High Court in the case of Satish Motilal Bidri (WP(CRL) No. 406/2024, decided on 28.06.2024) has been given. To analyze the issue, we may quote the definition of `proceeds of crime‟ given under Section 2(1)(u) of the Act of 2002, which is quoted thus: "(u) "proceeds of crime" means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case in hand falls in the second category of the definition of "proceeds of crime" because proceeds are not available and, therefore, the property of equivalent value is attached. 15. The argument has been made in reference to the judgment of Kerala High Court in the case of Satish Motilal Bidri (supra) and the judgment of Apex Court in Pavana Dibur (supra) to hold that the properties acquired prior to commission of crime would not fall in the definition of "proceeds of crime". We are unable to accept the arguments which may otherwise make second part of the definition of "proceeds of crime" to be redundant. It would be for the reason that if the definition is taken only in two parts leaving the middle part, then it would be difficult for the enforcement agencies to protect the property till completion of the crime to save the victim from crime committed by the accused. It would be for the reason that if the property acquired prior to commission of crime would not fall in the definition of "proceeds of crime", then the accused would commit the crime and immediately proceeds would be siphoned off or vanished so that it may not remain available for attachment. In fact, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udgment aforesaid, rather applied the judgment of Punjab and Haryana High Court in the case of Seema Garg Vs. Deputy Director, Directorate of Enforcement, reported in 2020 SCC OnLine Punjab & Haryana 738. With due respect, we are unable to apply the judgment of Kerala High Court going against Para 68 of the judgment of the Apex Court in the case of Vijay Madanlal Choudhary (supra). The judgment of Seema Garg (Supra) has been dealt with by the Delhi High Court in the case of Prakash Industries Ltd. v. Directorate of Enforcement reported in 2022 SCC OnLine Del 2087. The relevant paras are quoted hereunder: "76. Seema Garg principally holds that the phrase value of any such property and property equivalent in value held within the country or abroad cannot be ascribed the same meaning and effect. The learned Judges comprising the Division Bench then proceeded to hold that even if the intent of the legislature was to include any property in the hands of a person within the ambit of the expression proceeds of crime‖, there would be no need to create three limbs of definition of proceeds of crime. xxxxx 79. Regard must also be had to the fact that the legislatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the phrase ―or the value of any such property from Section 2(1)(u). That would not only violate the well settled tenets of statutory construction but would clearly amount to the Court rewriting the provision itself in a manner that it stands deprived of vital and purposive content. The Court further notes that Axis Bank had enunciated important safeguards which would apply in respect of third-party interests in deemed tainted property. Those caveats duly secure and protect bona fide third-party interests created for valid consideration. This Court, thus, reaffirms those defences as were culled out in Axis Bank. The Court thus reiterates the interpretation accorded to Section 2(1)(u) by this Court in the aforesaid decision. Consequently, and for all the aforesaid reasons this Court finds itself unable to agree with the principles as laid down in Seema Garg as well as the subsequent decisions rendered by the Andhra Pradesh High Court in Kumar Pappu Singh Vs. Union of India and the Patna High Court in HDFC Bank Limited Vs Government of India, Ministry of Finance. 81. The Court also takes note of the position that although SLP (Crl.) No. 28906/2019 is pending before t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....predicate offense would stand saved." 21. The issue aforesaid was not raised in the case of Pavana Dibbur (supra). The counsel appeared therein did not elaborately argue the issue by referring to the definition of "proceeds of crime" having three limbs to give meaning to each limb for the interpretation of the definition of the "proceeds of crime". The reference of Para 68 of the judgment of three judges Bench of the Apex Court in the case of Vijay Madanlal Choudhary (supra) was not cited and thus counsel for the respondent submitted that the judgment in the case of Pavana Dibbur (supra) does not propound ratio on definition of "proceeds of crime" and, therefore, direction for the property acquired prior to commission crime is to be taken on facts of that case. 22. It has already been clarified by us that if the definition of "proceeds of crime" is given interpretation by dividing it into two parts or by taking only two limbs, then it would be easy for the accused to siphon off or vanish the proceeds immediately after the commission of scheduled offence and in that case none of his properties could be attached to secure the interest of the victim till conclusion o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....we are not in agreement with the counsel for the appellant who has questioned the attachment in reference to the property acquired prior to commission of crime. We are not going even further that the properties have nexus with the proceeds out of the crime but even in given circumstances and scenario that the property was acquired prior to commission of crime then, also under certain circumstances, it can be attached for "the value of any such property." xxxxx 23. At this stage, it is reiterated that any other interpretation other than the one taken by Delhi High Court in the cases of Axis Bank (supra) and Prakash Industries (supra) for the definition of "proceeds of crime" would defeat the object of the Act of 2002. It is more especially when the arguments raised by the appellant that the property acquired prior to the commission of crime would not fall in the definition of "proceeds of crime". In that case, the task of the accused would become very easy to first commit the scheduled offence and after obtaining or deriving the property out of the criminal activities, immediately siphon off or vanish so that it may not remain available for attachment and otherwise the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpact of the word 'inquiry' by the court. It is a settled principle of law that an interpretation which leads to the conclusion that a word used by the legislature is redundant, should be avoided as the presumption is that the legislature has deliberately and consciously used the words for carrying out the purpose of the Act. The legal maxim "A Verbis Legis Non Est Recedendum" which means, "from the words of law, there must be no departure" has to be kept in mind. 40. The court cannot proceed with an assumption that the legislature enacting the statute has committed a mistake and where the language of the statute is plain and unambiguous, the court cannot go behind the language of the statute so as to add or subtract a word playing the role of a political reformer or of a wise counsel to the legislature. The court has to proceed on the footing that the legislature intended what it has said and even if there is some defect in the phraseology etc., it is for others than the court to remedy that defect. The statute requires to be interpreted without doing any violence to the language used therein. The court cannot re-write, recast or reframe the legislation for the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proceeds of crime till its confiscation/release but also to secure the interest of the creditor financial institution/bank. In this regard, certain observations have been made in Conclusion Paragraph 171 of the Judgment (supra) of which the following sub- paragraphs, which are relevant to the issue at hand, are being reproduced: "(vi) The objective of the PMLA being distinct from the purpose of the 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 the PMLA. xxxxx (xii) An order of ....