Axis Bank vs Deputy Director Directorate Of Enforcement, Delhi

FPA-PMLA-1848/DLI/2017

By this order, we propose to decide the appeal under section 26 of Prevention of Money Laundering Act, 2002 filed on behalf of the appellant, Axis

Bank against the order dated May 31, 2017 passed by the Adjudicating Authority, New Delhi affirming the Provisional Attachment Order dated

January, 27, 2017 thereby allowing the attachment of AUDI Car Model â€" A3 35 TDI DL @CAT 4920 (“said Vehicleâ€). Undisputedly, the

Respondent No. 7 purchased the said Vehicle by availing loan facilities amounting Rs. 18,00,000/- (Rupees Eighteen Lakhs Only) (“Loan

Facilityâ€​) from the Appellant bank.

The facility provided by the Appellant bank was secured by way of Loan-Cum-Hypothecation Agreement dated September 13, 2014, as amended

from time to time, and Irrevocable Power of Attorney dated December 4, 2014 executed by the Respondent No. 7 in favour of the Appellant bank.

The ECIR, being ECIR/11/DLZO/2016 dated November 30, 2016 (“ECIRâ€), was registered by the Respondent No. 1 on November 30, 2016

on the basis of case FIR No. 416 of 2016, dated November 29, 2016, registered under Section 420 read with Section 120B IPC by the Kashmere Gate

Police Station. Thereafter, during investigation Section 409, 419, 467, 468, 471 IPC and Section 7 and 13(1)(d) of the Prevention of Corruption Act,

1988 were added to the FIR.

The Respondent No. 1 in the said ECIR had, interalia, alleged that the Respondent No. 6, 7 and 8 had conspired with Respondent No. 2 and

4, i.e. the officials of the appellant bank, to launder an amount of Rs. 39.17 Crores in the form of demonetized currency by depositing the same in the

account of front companies controlled and managed by Respondent No. 7. The Respondent No. 1 further alleged that the above amount was

deposited into account of various front companies by way of furnishing of false and forged documents. In the light of the above allegations of

Respondent No. 1 also had been that the Respondent Nos. 2, 4, 6, 7 & 8 committed the offence of money laundering as defined under section 3 of the

Prevention of Money Laundering Act, 2002 (“PMLA Actâ€​), and punishable under Section 4 of the PML Act.

In view of said allegations, the Respondent No. 1, vide the Provisional Order attached various properties of the said

Respondents, including the said Vehicle, (“said Propertiesâ€) which according to the Respondent No. 1 was covered under the definition of

“proceeds of crimeâ€​ as defined under Section 2(1)(u) of the PML Act.

The Respondent No. 1 vide the Provisional Order directed the appellant and the other respondents to not to transfer, dispose of, part with or

otherwise deal in any manner, whatsoever, with the said Properties, until and unless specifically permitted by the Complainant.

In view of issuing of the Provisional Order, the Appellant was served with the Show Cause Notice, dated February 28, 2017, issued under

Section 8 of the PMLA Act (“SCNâ€) whereby, the Ld. Adjudicating Authority directed the Appellant bank to show cause as to why the said

Properties attached provisionally by the Respondent No. 1, which are in possession of the Appellant bank, should not be declared as properties

involved in money laundering and be confiscated by the Central Government.

Amongst the said Properties provisionally attached by the Respondent No. 1, were the properties which were allegedly in the

name of the Respondent No. 7 and the same were in control and/or possession of the Appellant bank.

Therefore, in response affidavit dated April 20, 2017, the Appellant bank replied to the SCN issued by the Ld. Adjudicating Authority (PMLA) and

informed the latter that in due compliance of the Provisional Order issued by the Respondent No. 1, the Appellant bank has frozen/suspended the

properties which formed part of the said Properties and were in control/possession of the Appellant bank and belonged to the Respondent No. 7.

Further, vide an e-mail dated April 05, 2017 the Appellant bank requested Axis Asset Management Co. Ltd., which is a separate legal entity, to

freeze/suspend such movable properties of the Respondent No. 7 which were forming part of the said properties and were in control/possession of

Axis Asset Management Co. Ltd. Axis Asset Management Co. Ltd., vide its letter dated April 19, 2017, confirmed that all such properties in their

possession/control belonging to the Respondent No. 7 were frozen/suspended in compliance of the directions passed by the Respondent No. 1 vide the

Provisional Order.

In compliance of the Notice dated December 03, 2016 received from the respondent no. 1, the appellant bank also marked a debit freeze on the

account bearing No. 912010029255251 opened in the name of Respondent No. 7 with the Appellant bank.

It is a matter of the fact that the Respondent No. 7 had also availed the Loan Facility from the Appellant bank for the purpose of purchasing the

said Vehicle. The said Loan Facility was secured by way of Loan Cum Hypothecation Agreement dated September 13, 2014, as amended from time

to time, and Irrevocable Power of Attorney dated December 4, 2014 executed by the Respondent NO. 7 in favour of the Appellant bank.

The Ld. Adjudicating Authority (PMLA), vide the Impugned Order, confirmed the Provisional Order passed by the Respondent No. 1 by

observing that the said Vehicle fell within the purview of “proceeds of crime†which includes not only the proceeds of crime but also the

“value thereofâ€​.

The Appellant Bank aggrieved by the Impugned Order, has filed the instant appeal for the limited purpose of challenging attachment of the said

Vehicle, vide the Provisional Order on various grounds. At present, we are only concern with the vehicle in question. As far as the merit of the case

against the respondent no. 7, we do not wish to express any opinion as we are the view that the said issue is to be determined by the Special Court. At

present, we have to consider as whether the appellant is entitled to take the possession of the vehicle in question and as to whether, the provisional

attachment in relation to vehicle has been passed is sustainable in law or not.

It is true that the Respondent No. 7 has been charged with predicate offence related to the demonetization notification, being Notification No.

2652, dated November 8, 2016, issued by the Government of India (“Demonetization Notification). It is not in dispute that the said predicate

offence was alleged to have been committed by the Respondent No. 7 in and around November, 2016. Further, the said Vehicle was purchased by the

Respondent No. 7, under the Loan Facility, in December, 2015, i.e. prior to the Demonetization Notification. It cannot be denied that the Respondent

No. 7 has made payment of the loan installments to the Appellant bank, under the Loan Cum Hypothecation Agreement, prior to the issuance of the

Demonetization Notification. The first default in the payment of the loan installment occurred only after the issuance of Demonetization Notification by

the Government of India. Thus, it is evident that the said Vehicle has not been procured from the “proceeds of crime†as it is wrongly alleged by

the Respondent no. 1.

In the present case the Respondent no. 1, itself, has taken the stand that it has no objection to the Appellant bank taking release of the said Vehicle

from the Criminal Court. However, the Respondent No. 1 is silent on the necessity to attach the said Vehicle on the ground that the said Vehicle has

been procured by the Respondent No. 7 from the “proceeds of crimeâ€. Further, the Respondent No. 1 has not even once rebutted to the fact that

the Said Vehicle was procured from the funds obtained, from the appellant bank, and much prior to the issuance of the Demonetization Notification.

Further, it is not Respondent No. 1â€s case that the said vehicle, in any manner, was involved in the said predicate offence or the appellant has any

causal linkage and nexus between the said predicate offence with the alleged accused party so that if the answer in this regard is affirmative than the

question of the attachment of the said Vehicle by Respondent No. 1 has been rightly attached. Rather, it is not denied on behalf of respondent no. 1

that the bank is victim and innocent and ultimately after trial, the bank is entitled to recover the loan amount towards the said vehicle.

It is pertinent to mention that under the SARFAESI Act; we have dealt with similar issue in the case of State Bank of India Vs. Joint Director,

Directorate of Enforcement, Kolkata in appeal no. FPA-PMLA-1026/KOL/2015 decided on 14th July, 2017. The view taken in the said matter has

also been re-confirmed in various other appeals. The relevant paras from the said judgement the said appeals FPA-PMLA-1026/KOL/2015 and FPA-

PMLA-1072/KOL/2015 from para 30 to 41 are reproduced here below:-

“30. We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been

widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. & Ors. Wherein after

discussion in para 7-11 it was held that later enactment would prevail with a non-obstante clause. Paras 7-11 reads as under:-

“7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows:

“

“32. Effect of the Act on other laws.â€"(1) The provisions of this Act and of any rules or schemes made there under shall have effect

notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act,

1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or

Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act.â€​

The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law

except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar

non obstante provision is contained in Section 13 of the Special Court Act which reads as follows:

“13. Act to have overriding effect.â€"The provisions of this Act shall have effect notwithstanding anything inconsistent therewith

contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any

decree or order of any Court, tribunal or other authority.â€​

It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act

which must prevail. The decisions cited in the above context are as follows:

“Maharashtra Tubes Ltd. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal;

AllahabadBankv.Canara Bank and Ram Narain v. Simla Banking & Industrial Co. Ltd.

We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial

Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the

1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would

prevail. The head note which brings out succinctly the ration of the said decision is as follows:

“Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of

enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers

the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not

want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment

continue to apply.

The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13. that its provisions are to

prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had

the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have

specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the

provisions of the said Act were to prevail even over the provisions of the Sick Companies Act.

Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which

can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give

directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in

the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand

attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The

distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are

siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and

manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with

the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware

of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give

directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This

can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law

including those of the Sick Industrial Companies (Special Provisions) Act, 1985.

It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he

harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special

Provisions) Act 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is

to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature

intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay

back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst

considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special

Court can, if it is convinced, grant time or installments.

There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is

concerned.â€​

We are in agreement with the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it

makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that

the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the

1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is

clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that

proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any

provision to the contrary in another Act.â€​

The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd. The

judgment rendered on 09.02.2016 reported in 1997 (89) company cases 547 (BOM) para 15 of the said judgment read as under:

To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special

statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the

Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-

obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail

then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. In the present case, the

said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If

the legislature wanted to provide otherwise, they would have specifically so provided.â€​

Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment

titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and

Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016.

The amended provisions give overriding effect over any other law and priority to the secured condition for the time being in force

including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned.

The amended provisions are reproduced as under:

(i) Section 26E of the SARFAESI Act, 2002 :

“26E.  Priority  to  secured  creditors  â€

Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to

any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central

Government or State Government or local authority.

Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy

Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower,

priority to secured creditors in payment of debt shall be subject to the provisions of that Code.â€​

(ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 :

31B. Priority to secured creditors â€" Notwithstanding anything contained in any other law for the time being in force, the rights of secured

creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and

shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and other rates due to the Central

Government, State Government or local authority. Explanation : For the purposes of this section, it is hereby clarified that on or after the

commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are

pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of

that Code.â€​

In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 after the words “the date of the

applicationâ€, “and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served

upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of

debt securities or;â€​ is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid.

Thus, it is very clear from above that the secured creditor, get a priority over the rights of Central or State Government or any other

Local Authority. The amendment has been introduced to facilitate the rights of the secured creditors which are being hampered by way of

attachments of properties, belonging to the financial institutions/secured creditors, done by/in favour of the government institutions.

The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the

latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case “The Assistant

Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors.â€​ that

“There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which

security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the

Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and

has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights

of the parties in respect of even a lis pending.â€​

The Assistant Commissioner (CT) Vs. The Indian Overseas Bank, Madras High Court, WP No. 2675 of 2011 (Full Bench)

“2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and

Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in

the Principle Act, Which reads as under:-

“31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured

debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over

all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local

authority.

Explanation. â€" for the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy

Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to

secured creditors in payment of debt shall be subject to the provisions of that Code.â€​

3 There is, thus, no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assets over which security

interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central

Government, State Government or Local Authority. This section introduced in the Central Act is with “notwithstanding†clause and has

come into force from 01.09.2016.â€​

“4 The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.â€​

“5 The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of

the mortgaged property.â€​

In another Madras High Court judgment in the case of “Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement†has

explained the grievances faced by the financial institutions while holding that

“For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which

consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase

of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect

and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that

the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution

made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime. Today, if the

Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing

Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have

indulged in. This cannot be purport of the Act.â€​

In a case contested by one of the branches of the Appellant Bank, the High Court of Madras “State Bank of IndiaÂ

Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors.†while upholding the Amendment Act, 2016

to Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same court in The Assistant Commissioner (CT), Anna

Salai-III Assessment Circle (supra) lifted the attachment entry and held that

“In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realise

the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold

good qua 2002 Act as well.â€​

B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(D Bw)ho 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 value of any property derived or obtained directly or indirectly as a result of

criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence

having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must

carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under

Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the

acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional

attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the

property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2)

process…â€​

The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of

India V/s. Satyawati Tondon and Ors. In paras no. 6, 55 & 56 has held as under:-

To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks

and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of the civil

courts for frustrating the proceedings initiated by the banks and other financial institutions.

It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability

of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have

serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High

Courts will exercise their discretion in such matters with greater caution, care and circumspection.

Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking

action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set

aside. Since the respondent has not appeared to contest the appeal, the costs are made easy.â€​

In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in

the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the

PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High

Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter.

Under the Loan Cum Hypothecation Agreement, on the occurrence of event of default, inter alia, failure on the part of Respondent No. 7 to

repay the installment/s on the Loan Facility, the Appellant Bank is entitled to recover the entire outstanding Loan Facility

along with interest from the Respondent No. 7 and further take physical possession the said Vehicle for the purpose of recovery of the Loan Facility.

The relevant portion of the Loan Cum Hypothecation Agreement is reproduced hereunder for the convenience of this Honâ€bleÂ

Appellate Tribunal;

“12 (A) Events of default

The Bank may by a written notice to the Borrower, declare all sums outstanding under the Loan (including the principal, interest, charges,

expenses) to become due and payable forthwith irrespective of any agreed maturity and enforce the security created in favour of Bank for

the Loan upon the occurrence (in the sole decision of the Bank) of any one or more of the following:

a) The Borrower commits any default in the payment of EMIs and in the payment of any other amounts to the Bank when due and payable;

b) The borrower fails to pay to any person other than the Bank any amount when due and payable or any person other than the Bank

demands repayment of the Loans or dues or liability of the borrower in any such person ahead of its repayment terms as previously agreed

between such person and the Borrower

u) The Hypothecated Vehicle is confiscated, attached, taken into custody by any authority or subject to any execution proceedings;

………………..

Notice on the happening of an Event of Default

If any event of default or any event which, after the notice or lapse of time or both would constitute an event of default shall have

happened, the Borrower shall forthwith give the Bank notice thereof in writing specifying such event of default or such event.

(B) Consequences of Default

In the event of default as stated above the Bank shall have the right:-

a) To recover the entire dues of Loan.

b) To suspend any withdrawal to be effected in the Loan account.

c) Take possession of the Vehicle whether by itself or through any of the Recovery Agents or Attorneys as may be appointed by the Bank.

d) ……..

II. Further, the Bank shall after giving notice be entitled to forthwith take physical possession of the Vehicle and alienate, sell, transfer the

Vehicle either by itself or through its agents and sell or otherwise deal with the same to enforce the bankâ€s security and recover the dues,

without the intervention of Court. In the exercise of the powers herein contained, the Bank shall not be bound or liable for any losses the

Borrower may suffer as a result of the said realization and sale. In the event of the Bank or its authorized representatives being prevented

from securing possession of the Vehicle, the representatives of the Bank shall be entitled to break open the lock and enter the premises for

the purpose herein stated.

III. The Borrower agrees to procedure for recovery or enforcement of the security which shall be as follows:

1) The bank shall be giving normally a notice of 7 (seven) days to repay the entire dues of Loan, failing upon which the Bank shall be

entitled to repossess the vehicle through Bank’s representative or any other person as may be appointed by the Bank from time to time.

However in case of emergency and non-availability of borrower’s details and/or whereabouts, the Bank shall be entitled to take

possession of the vehicle without any notice. …….

That the Bank shall after taking the possession send a final notice of 7 (seven) days to the Borrower to repay the entire dues along with the

interest, repossession charges and any other changes as may be applicable, failing upon which the Bank shall be entitled to sale the said

vehicle by public or private auction or private treaty as it may deem fit.â€​

(emphasis supplied)

After availing the Loan Facility, the Respondent NO. 7 had failed to repay the loan installment and the said Loan Facility is in default since

December 15, 2016. It is respectfully submitted that as on July 12, 2017, the Respondent No. 7 is liable to pay Rs. 12,08,949/- (Rupees Twelve Lakhs

Eight Thousand Nine Hundred and Forty Nine Only) to the Appellant bank, vide Loan A/c No. AUR012601217345, under the Loan Cum

Hypothecation Agreement dated September 13, 2014.

A bare perusal of the terms of the Loan Cum Hypothecation Agreement, it is evident that, in the event Respondent No. 7 fails to service the loan

installments as per the Loan Cum Hypothecation Agreement, the Appellant bank has the right and is entitled to take possession and sell off the said

Vehicle to recover the Loan Facility provided by the Appellant bank to the Respondent No. 7.

The terms of the Loan Cum Hypothecation Agreement, in the event of default by the Respondent No. 7 in service of the loan installments, a right

has accrued in favour of the Appellant bank to enforce the security for the purpose of recovery of the Loan Facility, alongwith interest and charges, if

any, granted by the Appellant bank to the Respondent no. 7.

The Adjudicating Authority (PMLA) failed to appreciate the fact that the said Vehicle had been purchased by the Respondent No. 7 out of the

Loan Facility provided by the Appellant Bank and said Vehicle does not fall under the definition of “proceeds of crime†as in terms of the Loan

Cum Hypothecation Agreement and Irrevocable Power of Attorney, the Appellant Bank has the first priority/charge over the hypothecated vehicle for

recovery of its dues and the charge of the Respondent No. 1 is subservient and inferior to the charge/transfer in favour of the Appellant and the same

is not overridden by the provisions of PMLA, 2002.

It is settled law that the assets hypothecated to the bank must be protected from attachment by Respondent No. 1. Despite the fact that the

asset/vehicle was purchased prior to the acts alleged to the accused-Respondents and that admittedly there was no taint on the monies used to partly

repay the loan amount to the Appellant bank, the Ld. Adjudicating Authority has confirmed the attachment of an asset hypothecated to a bank.

The Ld. Adjudicating Authority failed to appreciate that the Respondent No. 1 while passing the Provisional Order, proceeded on an erroneous

belief that the ownership of the attached vehicle vests with the Respondent No. 7 and that the same therefore falls within the definition of

“proceeds of crimeâ€. It appears that the relevant documents of loan and relevant clauses of agreement have not been read at the time of PAO or

by the Adjudicating Authority while confirming the PAO.

On the face of the said agreement that the ownership of the attached vehicle which is secured by a Loan Cum

Hypothecation Agreement would not pass to the borrower until the borrower has repaid the entire amount due and payable to the Lender in

accordance with the terms and conditions of the Loan Cum Hypothecation Agreement. In view of the default on the part of Respondent No. 7 to

repay the loan amount, the Appellant has every right to enforce the security clause for recovery of the Loan Facility granted by the Appellant bank to

the Respondent no. 7.

The Adjudicating Authority (PMLA), while passing the Impugned Order, did not consider the judicial precedents cited by the appellant on the

above propositions of law asserting the supremacy and priority of the charge/rights of the appellants (being Secured inconsistency between the two,

before giving an overriding effect to the non obstante clause. Neither the respondent no. 1 nor the Ld. Adjudicating Authority (PMLA) have indicated

what “law†was being overridden by their use of Section 71 of the Act, and how such law was inconsistent with the provisions of the PMLA,

2002. The objectives of the PMLA, 2002 do not detract or derogate from the protection of legitimate transactions and financial assets as afforded by

legislation such as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The learned Adjudicating

Authority (PMLA) has failed to appreciate that the definition of “proceeds of crime†and/or “value thereof†has no application to the facts of

the present case inasmuch as in the present case, the legitimacy of the transaction entered into between the Appellant and the Respondent No. 7 is

not in dispute. Therefore, the attached vehicle being the subject matter of the Loan Facility which predates the allegations of money laundering against

the Respondent No. 7, is clearly identifiable and admittedly, not having been obtained or derived out of any criminal activity, does not fall within the

definition of “proceeds of crimeâ€​ or “value thereofâ€​.

The Ld. Adjudicating Authority (PMLA) has not understand that the Loan Facility provided by the Appellant to the Respondent No. 7 for

purchase of the attached vehicle is public money and not proceeds of crime or value thereof. Thus, no order can be passed by the Respondent No. 1

prejudicing the genuine business transaction of the Appellant Bank. The impugned order is patently illegal and not sustainable in law.

For the above referred facts and reasons, we set-aside the Impugned order dated May 31, 2017 confirming the Provisional Order passed by the

Respondent No. 1/Directorate of Enforcement with respect and limited to the attachment of the vehicle AUDI Car Model-A3 35 TDI DL 2CAT

4920; and also provisional attachment order no. 01/2017 dated January 27, 2017 passed by the Respondent No. 1/Directorate of Enforcement with

respect to and limited to the attachment of the vehicle AUDI Car Model-A3 35 TDI DL 2CAT 4920; and also provisional attachment order no.

01/2017 dated January 27, 2017 passed by the Respondent No. 1/Directorate of Enforcement with respect to and limited to the attachment of the

vehicle AUDI Car Model-A3 35 TDI DL 2CAT 4920. The vehicle in question shall be returned to the appellant forthwith who is entitled to disposed

of and after adjustment of loan amount party, the appellant is entitled to file the recovery of balance amount as per law.

The appeal and pending application are disposed of.

No costs.

Copy of order be given “dastiâ€​ to both parties.