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Judgment
S.N.,Description of the Property,Value (In Rs. Crores)
1.,"Plant of M/s Nakoda Ltd comprising
building, Plant and Machinery, Land
Admesuring 63612 sq.mts situated at
Block No. 1,4, 12 to 19, Village-Karanj
Tehsil: Mandvi, District Surat
(Gujarat), including 20 texturising
machines of M/s Nakoda Ltd
(Hathuran Plant) installed at M/s
Surat Super Yarn Park, Located at vill-
Hathuran, Tehsil: Mangrol, District
SUrat,",",
TOTAL,,Rs 375.71/- Crores
housing of the said plant and machinery (sought to be provisionally attached by the Enforcement Directorate) the same were secured property against,,
out of the loan sanctioned by the Consortium Bank, which is evident from para 35 of the P.A.O. dated 13.04.2018.",,
The Respondentâ€"Deputy Director is relying upon the non-obstante clause in Section 71 of PMLA to claim priority over their debts due to the,,
Appellant Bank. Section 71 of PMLA reads as under:-,,
“The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time,,
being in force.â€,,
There is no denial on behalf of respondent that appellant is a Secured Creditor and is entitled to priority over all other debts and all revenues, taxes,",,
cesses and other rates payable to the Central Government or State Government or Local Authority.,,
The amended provisions of Section 26E of the SAR-FAESI Act, 2002 as amended by the Enforcement of Security Interest and Recovery of",,
Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:-",,
“26E. Priority to secured creditors. -,,
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 StateGovernment or local authority.â€,,
The amended provisions of Section31B of the Recovery of Debts due to Banks and Financial' Institutions Act, 1993 as amended by the",,
Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment)Act, 2016 which reads as under:-",,
“31B. â€" Priority to secured creditors.,,
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, StateGovernment or local",,
authority.â€,,
It was brought to our notice of this Tribunal that the above mentioned provisions had come into force w.e.f. 16.08.2016, empowering this Appellant",,
Bank to have priority over the mortgaged property.,,
The Hon'ble Supreme Court, wherein it has been categorically held that if non-obstante clause is contained in two enactments, the non-obstante",,
clause in the later enactment shall prevail over the non-obstante clause in the earlier enactment.In the case of Solidaire India Ltd. vs. Fairgrowth,,
Financial Services Ltd. (2001) 3 SCC 71, the Supreme Court was considering the effect of the non-obstante clause contained in Section 32 of the Sick",,
Industrial Companies (Special Provisions) Act, 1985 and Section 13 of the Special Court (Trial of Offences Relating to Transactions in Securities)",,
Act, 1992.",,
The Hon'ble Supreme Court has categorically held that the non-obstante clause in the later Act must prevail over the non-obstante clause in the,,
earlier Act. The following is the relevant portion of the decision of the Hon'ble Supreme Court :-,,
“9. 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 prevailâ€,,
The Hon'ble Supreme Court, while deciding this issue unequivocally, was pleased to uphold its own catena of decisions echoed earlier, which are",,
reported in-,,
(i) AIR 1956 SC 614 - Ramnarayan vs. Simla Banking andIndustrial Company Ltd.,,
 (1977) I SCC 750 - Sarvan Singh vs Kasturi Lal,,
 (1993) 2 SCC 144 = Maharashtra Tubes Ltd. vs State Industrial Investment Corporation of Maharashtra Ltd.,,
(iv) (2000) SCC 406 - Allahabad Bank vs. Canara Bank,,
The Hon'ble Supreme Court in the said case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. has approved the decision of the Special,,
Court rendered by the Hon'ble Mr. Justice Variava, as he was then of the Bombay High Court reported in (1997) 89 Comp cases 547 clarifying that",,
the non-obstante clause in the later enactment will prevail over the non-obstante clause in the earlier enactment.,,
The following is the relevant portion of the decision of the Special Court, as appearing at Para 10 of the said Supreme CourtJudgment:-",,
“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 inthe later enactment that the provisions of the earlier enactment",,
continue to apply.â€,,
The afore-stated principle laid down by the Hon'ble Supreme Court has been followed by the Full Bench of the Hon'ble Madras High Court in a,,
recent decision dated 10.11.2016 in W.P. Nos. 2675 (authored by Hon‘ble Mr. Justice S.K. Koul, who is now the Hon‘ble Judge of Supreme",,
Court). TheAssistant Commissioner (Commercial Taxes) Vs. Indian Overseas Bank], in which the Hon'ble High Court upheld the provisions of the",,
amended Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993. The following is the relevant portion of the said",,
decision:-,,
“3. There is, thus, no doubt that the right* of a secured creditor to realize secured debts due and payable by sale of assests 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 LocalAuthority.â€",,
The said principle laid down by the Hon'ble Supreme Court has also been followed by the Hon'ble Madras High Court in another decision dated,,
22.12.2016 in W.P. No.27504 of 2015 and has upheld the provisions of the amended Section 26E of SARFAESI Act. The following is the extract of,,
the relevant portion of the said decision of the Madras High Court:-,,
“8. Concededly, the mortgage in favour of the petitioner Bank was created on 26.05.2005, which was prior to the date of attachment.",,
The date of attachment, as indicated above, was 19.01.2015. To be noted, attachment entry was made by respondent No. 3, on 13.08.2015.",,
This apart, the matter is now put beyond the pale of doubt, as during the pendency of the writ petition, an amendment has been made to the",,
2002 Act with the insertion ofSection 26E. """,,
It is clear from the material placed on record that the Appellant â€" Bank being a Secured Creditor, since it had lent its own money to the",,
Predicate Offender earlier, is entitled to priority over all other debts and government dues, including revenues, taxes, cesses and rates due to the",,
Central Government, StateGovernment or local authority. Hence, the Respondent -DeputyDirector has no power to attach the property of the",,
mortgagors.,,
The Hon'ble Andhra Pradesh High Court in the case of B. Rama Raju vs. Union of India &Ors. reported in (2011) 164 Comp Cases 149 in which,,
the Hon'ble High Court has held that if the Adjudicating Authority is satisfied as to the bona fide acquisition of property, it should relieve such property",,
from provisional attachment by declining to pass anOrder of confirmation of the provisional attachment.,,
The following isthe relevant portion of the Para 103 of the said decision passed by theHon'ble Andhra Pradesh High Court :-,,
“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 thereof 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, assests 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.,,
The AdjudicatingAuthority also has no power to confirm the Attachment under Section8(2) of PMLA. Similarly, it is a simple case of recovery by",,
the Appellant-Bank from its Borrower its own stressed Asset, since the Bank had already lent the money owned by it, which the Bank is entitled to",,
recover the same.,,
The principle laid down in the above decisions of the Hon'ble Supreme Court and the Hon'ble Madras High Court has been followed by this,,
Appellate Tribunal, Prevention of Money Laundering Act, New Delhi, in its catena of decisions, including the decision dated 14.07.2017 in a batch of",,
Appeals filed by various Banks, namely, the State Bank of India vs. The Joint Director Directorate of Enforcement (and connected Appeals) against",,
the Provisional Attachment Order. The Tribunalhas held that as per the amended provisions of Section 26E of SARFAESIAct and 31B of the,,
Recovery of Debts due to Banks and Financial Institutions Act, 1993, a secured creditor will have priority over all other debts and government dues,",,
including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority and accordingly, set aside the",,
Provisional Attachment Orders.,,
The following are the relevant Paragaphs of the said Judgment dated 14.07.2017,,
“46. In the present case, it is undisputedfact that the attached property were purchased much prior to the period when the facility of loan",,
was sanctioned to borrowers. The Bank whilerendering the facilities were bona fide parties. It is not the case of the respondent that the,,
attached properties were purchased after the loan was obtained. The mortgage of the properties were done as bona fide purposes. None of,,
the bank is involved in the scheduledoffence.,,
In view of the entire gamut of thedispute, we are of the considered opinion that the conduct of the banks are always bona fide. Both",,
banks are innocent parties.,,
Thus in the present case even thoughthe Ld. Adjudicating Authority had all the reasons to believe that the above mentioned were,,
mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter â€" 5 properties ;still the Ld.,,
Adjudicating Authority confirmed the provisional attachment order of the respondent no. 1 and thus causing huge loss to the appellant SBI.,,
We also find that the Adjudicating Authority has not examined the law on mortgages and securities.,,
The property of the Appellant bank cannot be attached and confiscated when there is no illegality or unlawfulness in the title of the,,
appellant.,,
The respondent has no lien over thesaid properties as the appellant banks are now the legal transferees ofthe saidproperties.,,
From the entire gamut of the matter, we are of the view that there is no nexus whatsoever between the alleged crime and the two banks",,
who are mortgagees of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out,,
against banks who have sanctioned the amount which is untainted and pure money. They have priority as secured creditors to recover the,,
loanamount/debts by sale of assets over which security interest is created, which remains unpaid.â€",,
This Tribunal in the above Judgment dated 14.07.2017 has also relied upon its own earlierJudgment dated 22.06.2017 in the case Indian Performing,,
Right Society Ltd. vs. The Deputy Director, Directorate of Enforcement,Mumbai, wherein the Tribunal held as follows :-",,
“55. Whether innocent party whose properties i.e.movable or immovable are attached can approach the Adjudicating Authority for,,
release of attached property.,,
The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the",,
Adjudicating Authority for the purpose of release of properties which have been attached in terms of the provisions of Section 5 of the Act.,,
This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all,,
or any of the properties referred to in the notice are involved in money laundering or not.,,
In the present case, this Appellant - Bank is an innocent party since it had already lent its own money to the Predicate Offender and the property",,
in question being mortgaged to the Bank which is provisionally attached by the Respondentâ€" Deputy Director ought to have been released by the,,
Adjudicating Authority under Section 8(2) of PMLA.,,
The reasons given by the Enforcement Directorate for attachment of the plant and machinery duly hypothecated to the Consortium Banks vide,,
Hypothecation Deed dated 19.01.2014. The attachment of the immoveable property admittedly mortgaged to the Consortium Banks through equitable,,
mortgage created on 22.08.2013, inter alia, is that the Respondent No.2 herein have used the money obtained through circular rotation of money",,
(alleged proceeds of crime) for repayment of term loan by which, admittedly, the Respondent No.2 had purchased the plant and machinery in issue.",,
The Consortium Banks (13 in number) through the Appellant Bank have already taken possession of the properties in issue by a Possession Notice,,
dated 21.08.2015 under the provisions of SARFAESI Act, 2002, which are sought to be attached by the Respondent No.1 vide PAO No. 01/2018",,
dated 13.04.2018 i.e. much after the Possession Notice dated 21.08.2015 issued by the Appellant Bank on behalf of the Consortium Banks.,,
It is well settled law that the assets which are “secured assets†under the provisions of SARFAESI Act, 2002 and the provisions contained in",,
RDDBFI Act, 1993, the Banks/ Secured Creditors have a first charge over such properties. This Hon‘ble Appellate Tribunal has already taken this",,
view in the judgment and order dated 14.07.2017 in the case of “State Bank of India vs. Joint Director, Directorate of Enforcement Kolkataâ€,",,
judgment and order dated 25.01.2018 in the case FPA â€" PMLA â€" 1373/GOA/2016 titled as “Punjab National Bank vs.Joint Director,",,
Directorate of Enforcement Goaâ€, judgment and order dated 02.08.2018 in the case FPA â€" PMLA â€" 1604/MUM/2017 titled as “Standard",,
Charter Bank vs.The Deputy Director, Directorate of Enforcement Mumbai"".",,
Therefore, the repayment of loan from the (alleged) proceeds of crime cannot make the property created out of the untainted money liable for",,
attachment under the provisions of PMLA Act, 2002. There is no force in the submission of counsel for the respondent no. 1 that the bank may be",,
asked to approach the Special Court for the relief as sought in the present appeal. The said submission is wholly misconceived as only this Tribunal,,
has exclusive clarification to determine as to whether the attachment is bad and illegal or not No third would purchase the mortgaged properties even,,
if the Special court would pass the order unless the issue of attachment is decided. Under these circumstances, the argument of the ED will definitely",,
help the borrowers who is already happy if attachment and mortgaged properties are not sold.,,
The Adjudicating Authority did not appreciate that the afore mentioned moveable/Immoveable property cannot be said to have been acquired out,,
of “proceeds of crimeâ€as defined in section 2 (1) (u) of the Prevention of Money Laundering Act (PMLA), 2002 and therefore, the same (cannot",,
be Attached under Section 5 of the PMLA by the Enforcement Directorate vide PAO No 03/2018 dated 28.03.2018.,,
The Adjudicating Authority did not appreciate the appellant's grievance against the order of provisional attachment dated 28.03.2018, inter alia,",,
since the same was not justified and tenable under the law as the same was passed in violation of Section 5 of the Act and there was no material on,,
the basis of which the hypothecated/Equitably Mortgaged asset could be provisionally attached.,,
The Adjudicating Authority has admitted the fact that the property in issue has been Mortgaged/Charged by the Respondent No.2 in favour of the,,
Appellant Bank is a secured asset, however, despite of settled position of law,it has confirmed the PAO 01/2018 vide the impugned order dated",,
01.10.2018.,,
Because the learned Adjudicating Authority has not dealt with the Judgments passed bythis Appellate Tribunal in FPA â€" PMLA â€" 1026,,
/KOL/2015 titled as “State Bank of India vs. Joint Director, Directorate of Enforcement Kolkataâ€, FPA â€" PMLA â€" 1373/GOA/2016 titled as",,
“Punjab National Bank vs.Joint Director, Directorate of Enforcement Goaâ€, FPA â€"PMLA â€" 1604/MUM/2017 titled as “Standard Charter",,
Bank vs.The Deputy Director, Directorate of Enforcement Mumbai†who has failed to deal with the Judgment passed bythis Hon‘ble Delhi High",,
Court in W.P. (C) No. 5537 of 2018 titled as “M/s Himachal Emta Power Limited vs Union of India &Ors.â€I am of view that both Authorities,,
are bound to respect the decisions of Supreme Court and High Court. Both have ignored the law by dis-respecting the same which is not proper and,,
against the well established legal system.,,
Because the learned Adjudicating Authority did not understand that the afore mentioned moveable/Immoveable property cannot be said to have,,
been acquired out of “proceeds of crime†as defined in section 2 (1) (u) of the Prevention of Money Laundering Act (PMLA), 2002 and",,
therefore, the same (cannot be Attached under Section 5 of the PMLA by the Enforcement Directorate vide PAO No 01/2018 dated 13.04.2018.",,
The Adjudicating Authority has failed to understand that no case of money laundering is made out against the Appellant Bank who is an innocent,,
party, who sanctioned Consortium Finance of Rs 2082.53 Cr. (which is untainted and pure money) to the Respondent No.2 Company against the",,
Hypothecation/Mortgage of the Movebale/Immoveable property in issue.,,
By virtue of Section 4A Recovery of Debts due to Banks & Financial Institution Act, 1993 as amended by Enforcement of Security Interest &",,
Recovery of Debts Laws & Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016) dated 16.08.2016 the property becomes custodia legis on",,
the institution of Original Application for recovery under the Act and summons upon the defendants.,,
The Adjudicating Authority did not consider that the Respondent No1, themselves have not disputed the fact that the consortium Finance",,
sanctioned by the Appellant Bank herein is untainted and pure money and in an utter disregard to the settled position of law went ahead with the,,
confirmation of the PAO bearing no 01/2018 vide impugned order dated 01.10.2018 .,,
The only reason averred by the Respondent No.1 in the OC bearing No 974/2018, for the Attachment of the afore mentioned",,
Moveable/immoveable property which has been Hypothecated/Mortgaged with the Appellant Bank is that proceeds of crime amounting to Rs 827.98,,
Cr. received by the Respondent No.2 Company through circular rotation (As alleged by the Respondent No.1) was either used for repayment of loans,,
or for repayment of its term loans as Advanced by the Appellant Bank, therefore, the entire Plant and Machinery of M/s NakodaLts and its factory",,
building are “Proceeds of Crime†and the Factory land of M/s Nakoda situated at Block No. 1, 4, 12 to 19 situated at Village-Karanj, Tehsil:",,
Mandvi, District: Surat, Gujarat are also liable to attachment under PMLA as “Value of Such property, therefore, property in issue is said to be",,
acquired out of the Proceeds of crime and at the same time is being attached as value thereof.,,
The Adjudicating Authority did not appreciate that a bare perusal of the afore mentioned section 2(1)(u) of PMLA very clearly stipulates that the,,
property can be attached under the provisions ONLY WHEN, Such property has EITHER been derived or obtained, directly or indirectly as a result",,
of a criminal activity relating to a scheduled offence. However, the complainant has failed to prove/establish that the immoveable property that has",,
been lawfully Mortgaged with the Appellant Bank has EITHER been derived or obtained, directly or indirectly as a result of a criminal activity relating",,
to a scheduled offence.,,
The only reason given by the Respondent No.1 in the present OC 974/2018 is that proceeds of crime amounting to Rs 827.98 Cr. received by the,,
Respondent No.2 Company through circular rotation (As alleged by the Respondent No.1) was either used for repayment of loans or for repayment of,,
its term loans as Advanced by the Appellant Bank, therefore, the entire Plant and Machinery of M/s Nakoda Ltd and its factory building are",,
“Proceeds of Crime†and the Factory land of M/s Nakoda is also liable for attachment under PMLA as “Value of Such property.,,
It is admitted position that the said movebale/immoveable property is not a property that has been derived or acquired, directly or indirectly through the",,
“Proceeds of crimeâ€. Thus, the said mortgaged property in which the bank is the secured creditor is not liable to be attached in lieu of even value",,
therefore. Therefore, the OC 974/2018 is not maintainable as the Respondent No.1 had no jurisdiction to attach the aforementioned immoveable",,
property under the provisions of the PMLA and that the PAO bearing No. 01/2018 is quashed against the appellant.,,
The Adjudicating Authority did not consider that the provisions of The Prevention of Money-Laundering Act, 2002 cannot be construed and",,
implemented t o the detriment of third parties having no connection with and involvement in the scheduled offences which fall within the domain of the,,
Act. The provisions of the Act can only entail penal consequences on those who are guilty of committing of scheduled offences. The rights of a third,,
party having no involvement in the scheduled offences cannot be jeopardized and decimated by the operation of Act as the same would be violative of,,
their legal right under bond fide contracts.,,
In view of above, the impugned order dated 15.10.2018 is set-aside. The PAO is also quashed by allowing the appeal pertaining to the appellant.",,
The M.P. is also disposed.,,
No costs.,,