AI Structured Summary
Not yet generated for this judgment
Judgment
FPA-PMLA-2178/AHD/2018
The Appellant has filed the present Appeal u/s 26 of the Prevention of Money Laundering Act, 2002 against impugned Order dated 29.12.2017
passed in O.C. No. 805/2017 in POA No. 4/2017 (STSZO) dated 17.07.2017 in ECIR/02/STSZO/2017 dated 14.02.2017 regarding confirmation of
attachment Order in regard to properties mortgaged/hypothecated with the Appellant Bank. This Tribunal has only concerned is to whether, the orders
are passed as per facts and law.
By this order, I proposed to decide the present appeal. The appellant has pressed the relief only with regard to the impugned order and provisional
attachment order. Counsel says that except respondent no. 1, the other respondents are formal parties from them, the balance loan amount is to be
recovered.
The facts of the case as per pleadings are given as under:-
(a) 2014 :Smt. Banuben R. Patel, Respondent No. 3, sold proprietorship of Hotel namely Sai Leela, and approached the Bank for LT Mortgage Loan
of Rs. 3 Crores for construction of a Hotel Building Project and offered mortgaged of certain immovable properties owned by her and standing in her
name on the said date in the Revenue Records.
(b) 18.12.2014 :Legal opinion on the basis of Appellantâ€s Bank letter dated 16.12.2011 was received by the Bank.
(c ) 27.12.2014 : Valuation Certificate received by the Bank.
(d) 20.04.2015 :Loan of Rs. 3 Crores was sanctioned vide No. GSCB/L&A/BOD/2015-16/150/814 repayable on or before 20.02.2016 by 120
instalments of Rs. 2,50,000/- as Principal Amount plus interest thereon. Moratorium Period which included 120 months repayment period. Two Loan
Sureties was obtained. Respondent No. 1 and 2 herein as Guarantors.
(e ) 21.05.2015 : Loan Agreement signed. First Instalment of Rs.100,00,000/- was disbursed.
(f) 20.06.2015 : Deed of Mortgage was executed and registered between the Bank and the Respondent No. 3.
(g) 22.06.2015 : Second Installment of Rs.100,00,000/-was disbursed.
(h) 14.08.2015 : Third Installment of Rs.75,00,000/- was disbursed.
(i) 19.08.2015 : Fourth Installment of Rs.25,00,000/- was disbursed.
Hypothecated / Mortgaged Property of the Goa State Cooperative Bank are as follows :-
a. Agriculture Land admeasuring 500 Sq. mtrs situated at Survey No. 175, Village Janivankad, Daman; purchased by Ms. Bhanuben Rameshpatel on
15.12.2008. Value of Rs. 1,50,000/-.
b. Agriculture Land admeasuring 1200 Sq. mtrs situated in Survey No. 174/6, Village Janivankad, Daman; purchased by Ms. Bhanuben Rameshpatel
on 20.08.2009. Value of Rs. 2,52,000/-.
C. Agriculture Land admeasuring 1100 Sq. mtrs situated at Survey No. 174/5, Village Janivankad, Daman; purchased by Ms. Bhanuben Rameshpatel
on 20.03.2013. Value of Rs. 5,50,000/-. Also, Bank Account No. 00251010000779 with a balance of Rs.5,72,458/-. A/c. 00251010000802 with a
balance of Rs.2,30,111/-. A/c. 00251010000748 with a balance of Rs.1,21,710.49/-. A/c. 00251010000817 with a balance of Rs.4,91,569/-
It is not denied by the respondent no. 1 that Bank being a secured Creditor to the provisions of the Act and the law laid down by the Honâ€ble
Supreme Court of India and this Tribunal in catena of Judgments. In the present case, on 30.11.2015, or consecutive 03 months, Respondent No. 3
failed to pay the installments and accordingly Loan Account has become NPA. As on 09.10.2017, the total outstanding amount payable to the Bank is
Rs. 3,68,10,513/- inclusive of interest; out of which Rs. 43,05,355/- is overdue.
On 26.10.2016 Surat Police intercepted a Consignment of 21,750 bottles of Indian Made Foreign Liquor (IMFL) valued at Rs. 22,98,000/-from the
Container Truck and a case under Gujarat Prohibition Act, 1949 was registered for smuggling of IMFL from Daman (UT) to Gujarat State.
An FIR No. III-13777/2016 on 26.10.2016 invoking Section 66 (1) B, 65 A and 65 (e), 116 (2) and 81 of the Gujarat Prohibition Act, 1949 was
registered against Mr. Ramesh Jaggu Bhai Patel and his wife Mrs. Bhanuben Rameshbhai Patel.
04.01.2017 :A chargesheet No. ACB-01 was filed on 4.01.2017 by the Deputy Superintendent of Police, SC/ST Cell, Surat Rural Police, Surat u/s
173 of Code of Criminal Procedure, 1973 under various sections including Section 120 B IPC and Section 13 (1)(d) of the Prevention of Corruption
Act, 1988 before the Additional Sessions Judge, Surat.
On the basis of allegations mentioned in the charge-sheet. The EIR was recorded vide ECIR /20/STSZO/2017 dated 14.02.2017 under the
Prevention of Money Laundering Act, 2002 by the Enforcement Director against Mr. Ramesh Jaggubhai Patel, this wife Mrs. Bhanuben Patel and
others under various sections and accordingly Investigation was initiated under the provisions of PMLA, 2002 to identify the proceeds of crime.
On 15.02.2017, the ED seized all Deposit Accounts including mortgaged property in question.
On 15.11.2017, Deputy Superintendent of Police, SC/ST Cell, Surat filed supplementary Chargesheet, ACB-61, No. III-119 on 15.03.2017 before
the Additional Sessions Judge and invoking Section 66 (1) B, 65-A, 65-E, 116 (2), 81, 83, 97 (G), 98 & 99 of the Gujarat Prohibition Act, 1949, Section
13 (1) (d) of the Prevention of Corruption Act, 1988 and Section 120-B-465, 467 and 471 of the Indian Penal Code, 1860.
17.07.2017: Accordingly, on the basis of the said Investigation, Appellantâ€s Bank hypothecated / mortgaged property, were attached by the
Provisional Attachment Order No. 4/2017 dated 17.07.2017 in ECIR /02/2017 under Section 8 (3) of the PMLA Act, 2002 read with Regulation 23
along with other properties. (The said provisional Attachment Order dated 17.07.2017 is marked as Annexure A-3 to the main Appeal.)
Admittedly, O.C. No. 805/2017 for confirmation of the provisional Attachment Order dated 17.07.2017 was filed by the E.D. before the
Adjudicating Authority on 12.08.2017. Thereafter, the notice under section 8(1) was issued who on 09.10.2017 filed detailed Reply to the said O.C. .
On 27.11.2017 the Respondent/ED filed Rejoinder to the said Reply.
After hearing on 28th December, 2017 the impugned order passed by Adjudicating Authority confirming the provisional attachment order dated
17.07.2017.
The said order under Section 26 of PML Act, 2002 has been challenged by the bank. .
It is submitted on behalf of the appellant that the impugned Order is illegal, perverse, contrary to law as there is no link between the property
purchased by the accused nor its proceeds of crime and therefore, does not attract the provisions of PMLA Act or come in the definition of Section 2
(u)
The Provisional Attachment Order and the confirmation by the Adjudicating Authority by the impugned Order is passed totally mechanical as the
attached property were acquired / purchased by the Respondent No. 3 before the offence or are in any part of the proceeds of crime. The said
property were purchased prior to period when the facility of Loan was sanctioned to the Burrowers. The mortgage of the property was done as
bonafide purposes nor the Bank is involved in the schedule offences. Nor there is any proceeding pending against the Bank under the PMLA Act
except being arrayed as the Respondent.
The impugned Order failed to take into consideration the overriding effect between the PMLA Act of 2002 and SARFAESI Act.
The Supreme Court Judgment in case of Solidaire India Ltd Vs. Fair Growth Financial Services Ltd. and Anr., reported in (2001) 3 SCC 7 1(Para 7 to
11). Even Bombay High Court reported in 1997 (89) Company Cases 547 Bom in the matter of Bhoruka Steel Ltd Vs. Fair Growth Financial Services
Ltd. (Para 15)
After the amendment of SARFAESI Act, 2002 and DRT Act, 1993 (Recovery of Debt and Bankruptcy Act, 1993) by the Enforcement of
Security Interest and Recovery of Debts, Loss and Miscellaneous provisions (Amendment) Act, 2016 w.e.f. 01.09.2016. The amending provisions
give overriding effect to any other law and propriety to the secured conditions for the time being enforced including the provisions of PMLA in so far
as recovery of loan by the secured creditor is concerned. Amended provisions are as under :-
(i) Section 26E of the SARFAESI Act, 2002 :
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 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 the cases where 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 31 B 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 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 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 the cases where of 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, 19993 after the words “the date of the applicationâ€,
“and includes any liability towards debt securities which remain 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.
From the above amendment and provisions of law, it is clear that the secured Creditors gets a priority over the right of Central or State
Government or any other Local Authority. It is submitted that the amendment has been introduced to facilitate the rights of secured creditors which
are being hampered by way of attachments of properties belonging to the financial institutions/secured creditors in favour of Government Institutions.
The main important issue involved in the present appeal are whether the properties mortgaged with the Appellant Bank are “proceeds of
crime†as defined u/s 2(1)(u) of PMLA. Secondly, whether the PMLA has priority over SARFEASI and RDDB & FI Act. The three member
Bench of this Tribunal, to which we were part of the said Bench, decided the appeals on 14.07.2017 in the group of matters i.e. State Bank of India
vs. Joint Director, Directorate of Enforcement, Kolkata in appeal no. FPA-PMLA-1026/KOL/2015 followed by several other decision in different
matters including recently decided in the matter of IDBI Bank Ltd. Vs. Deputy Director, Directorate of Enforcement, Delhi in FPA-PMLA-
2147/DLI/2018 on 10.05.2018.
The relevant portions of the orders passed in aforesaid appeals are re-produced below:-
“FPA-PMLA-1026/KOL/2015
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€
8.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 ExchangeRegulation 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 nouncertain 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 Narainv. 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 headnote 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) Acy 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.
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 BankruptcyAct, 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.â€
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, 1993after the words ""the date of the
application"",""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;"" 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 whileacknowledging 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.†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 01.09.2016â€
“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 India Vs. The Assistant
Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors.â€, 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. SatyawatiTondon and Ors. In paras no. 6, 55 & 56 has held as under:-
“6. 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.
It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant
â€" i.e. Union of India in order to pay the remaining out-standing amount. The undertaking in this regard is recorded in Court. It is written
agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to pay
the remaining out-standing amount to the State Bank of India in order to clear their liabilities once the attached properties are sold and
even otherwise.
Copy of the settlement of the borrowers and the complainant Bank of India was filed before us. As far as the schedule offence is concerned,
we do not wish to make any comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High
Court u/s 482 Cr. P.C. could be filed.
It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were
pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged
deeds are also not disputed or/and validity of the same are not challenged on behalf of ED.
It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the
recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr.
P.C. at the joint request of the parties.
Three Judge Bench in Narendra Lal Jain &Ors., (supra) held that during the investigation pertaining to the culpability of the accused in
the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were
disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed which was
rejected by the trial court but eventually was allowed by the High Court. The charges in the matter were framed under Section 120-B/420
IPC by the learned trial Judge against the private parties. As far as bank officials are concerned, charges were framed under different
provisions of the Prevention of Corruption of Act, 1988. Being dissatisfied with the said order,, the CBI had preferred an appeal by
obtaining special leave and in that context the court observed that the accused respondent had been charged under Section 120-B/420 IPC
and the civil liability of the respondent to pay the amount had already been settled and further there was no grievance on the part of the
bank. Taking note of the fact that offence under Section 420 of IPC is compoundable and Section 120-B is not compoundable, the Court
eventually opined thus:-
“11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been
mutually settled between the parties and the accused had accepted the liability in this regard, the High Court had thought it fit to invoke its
power under Section 482 Cr.P.C. We do not see how such exercise of power can be faulted or held to be erroneous. Section 482 of the
Code inheres in the High Court the power to make such order as may be considered necessary to, inter alia, prevent the abuse of the
process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard
to the contours of the power available under Section 482 CR.P.C.it must be remembered that continuance of a criminal proceeding which is
likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power
under Section 482 Cr. P.C.
In Sanjay Bhandari V/s. CBI, Crl. M.C. M.C. 5798/2014, Delhi High Court, dated 29.06.2015
“69…..By consent the parties have settled all disputes in the recovery suit, the consent decree of DRT stood to be disposed off as duly
satisfied. There is hence no force in the submission of respondents that the complainant bank has not exonerated the petitioners, first being
the Civil Procedure Code, and the second being the OTS Scheme of the Reserve Bank of India, which the petitioners have extensively
referred to in the original petition. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or
settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. The complainant bank in choosing to enter into
such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up
the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of
issues.â€
“70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner
and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues.
The present petition is maintainable as the same has been filed also on additional grounds and circumstances. No useful purpose would be
served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the
parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the
mind of the Court in whose favour it would be decided.â€
“71. In view of above mentioned reasons, this Court is inclined to quash the proceedings pending against the petitioners, arising out of
R.C. No. 4A/94/SIU(X) dated 23rd May, 1994, titled “CBI vs. N. Bhojraj Shetty &Ors.â€, being C.C. No.65/11, pending in the Court of
Spl. Judge (CBI), Tis Hazari Courts, Delhi.†The said decision has been upheld by the Honâ€ble Supreme Court.
In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan
sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the
attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of
the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-11
at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal
complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the
part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was
recorded.
In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both
banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly did so but
their contention was rejected as appeared from the impugned order.
This Tribunal in the case of IPRS in appeal no. FPA-PMLA-1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as
to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of
the same in para no. 55 to 60 the same read as under:-
“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 purposes 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.â€
“8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section
17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence
under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him
to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under
sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant
information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in
money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property
as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided
further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.
(2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the
aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials
placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-
section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice
had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-
laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach
There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for
release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI
and Ors. (Respondents) MANU/UP/0777/2016decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single
Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so
that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below:-
“26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in
the Money Laundering Act was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property
of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a
person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the
person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also
held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can
still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under
section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High
Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of
money-laundering, he can show before the court that he is innocent and has not received any proceeds of crime.â€
It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has
not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under
notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence
raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money
laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has
attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of
his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon
whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party.
This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are involved in money
laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming
or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or
is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to
release the said property out of the properties by holding that the said property is not involved in money laundering.
For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of
Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of
Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents)
MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:-
“37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive
'and', makes it luminous that any persons concerned in any process or activity connected with such ""proceeds of crime"" relating to a
scheduled offence"" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two
prerequisites are satisfied i.e.-
“(i) Firstly, if he-
(a) directly or indirectly 'attempts' to indulge,
(b) “knowingly†either assists or is a party, or
(c) is “actually involved†in such activity; and
(ii) Secondly, if he also projects or claims it as untainted property;
The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients-
“A. RE: DIRECT OR INDIRECT ATTEMPT:
In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that-
“13. Well then, what is an “attempt� ...In sum, a person commits the offence of ""attempt to commit a particular offence"" when (i) he
intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act
towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the
course of committing that offence.
Thus, an “attempt to indulge†would necessarily require not only a positive ""intention"" to commit the offence, but also preparation for
the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to
produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part of
any of the petitioners.
B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY:
In JotiParshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows-
“5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of ""intention"" or ""knowledge
or ""reason to believe"". We are now concerned with the expressions “knowledge†and ""reason to believe"". “Knowledge†is an
awareness on the part of the person concerned indicating his state of mind. “Reason to believe†is another facet of the state of mind.
Reason to believe"" is not the same thing as “suspicion†or “doubt†and mere seeing also cannot be equated to believing.
“Reason to believe†is a higher level of state of mind. Likewise “knowledge†will be slightly on a higher plane than “reason to
believeâ€. A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to
believe if he has sufficient cause to believe the same.â€
The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or
documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence.
C. Actually involved:
Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled
offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever,
oral or documentary, to substantiate any such allegation qua the petitioners,
D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or
indirect involvement, abetment, conspiracy or common intention, nor is any such case made out even on prima facie basis against any of
them.
The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds
of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e.
the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled
offence, would be utmost necessary, which however is lacking in the instant case.
These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property
is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime
nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said
transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same
principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that
if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes
the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property
with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it
cannot be the Scheme of the Act whereby bona fide person without having any direct/ indirect involvement in the proceeds of the crime or its
dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere
suspicion when the element of mens rea or knowledge is missing.
Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director,
Prevention of Money Laundering Act, Directorate of Enforcement (Respondent)MANU/TN/ 4087/2015 decided on 14.10.2015, relevant
portion of which are reproduced below:-
“ 20. The said sections read as follows:--
“23. Presumption in inter-connected transactions Where money-laundering involves two or more interconnected transactions and one or
more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under
section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority
or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction.
Burden of proof
In any proceeding relating to proceeds of crime under this Act,
(a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary
is proved, presume that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.
In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus
and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies.
One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said
Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for
cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold
the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is
nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the
said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale
consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan
and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the
purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the
hands of Gunaseelan cannot be termed as proceeds of crime.
Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural
lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have
sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed
monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements.
Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and
whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent
does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor.
Considering the materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164
Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The
respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is
genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands
of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge.
Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their
vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties.
Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation.
“21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R.
Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M.
Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC
Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on
of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties
attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants,
particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were
purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal
activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after
due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale
considerationand the money paid to the seller is also well explained.
Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide
heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA,
Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought
without the knowledge that the same is tainted could be subjected to Provisional Attachment Order.
In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any
knowledge that properties have been acquired directly or indirectly though scheduled offence could be subject matter of provisional
attachment order.
It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was
proceeds of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to
the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia
has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA.
Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case.
A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly
appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts
to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case,
Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence.
All the persons involved in that case were close relatives.
In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or
that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to
show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the
property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products
of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate
Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not
given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the
appellate authority failed to give any finding on merits after verifying with the concerned Bank.
It is not denied that the monies have been given for the purchase of the property by the Appellant Bank and not from any tainted source. The
money have gone directly from the Bank accounts to the seller and thereafter the mortgage has been created. It is also not disputed that the monies
released by the Banks was sanctioned for the said purpose and were part of the financing program.
On account of Amendment in SARFAESI Act by way of addition of Section 26(E) to the said Act and in Recovery of Debt Due to Banks and
Financial Institutions Act by Section 31B of the Amended Act, the Appellant Bank would have superior right of recovery of debt dues and the debt
due to the Secured Creditors shall be paid in priority of all other debts and other revenue/taxes/cess payable to the Central Government/State
Government/Local Authorities.
After the promulgation of PML Act, amendments were brought to the SARFESI Act by the Legislature whereby Section 26(E) was introduced to
the SARFASI Act and Section (31B) Recovery of Debt Due to Banks and Financial Institutions Act and the said Acts reads as under :-
“26E. 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, cess and other rates payable to
Central Government or State Government or State Government or local authority.
“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 Governments due including revenues, taxes, cesses and other rates due to the Central Government, State Government or
local authority.
Though both the SARFAESI Act and PML Act are the special Acts. However, the amendments to the SARFAESI Act has been brought
subsequent to the promulgation of PML Act and in particularly on the basis of Central Government notification S.O. 2831(E) dated 01.09.2016, in
order to initiate with the recovery dues of the secured creditors being priority over all other priorities. Admittedly, the properties under reference are
lying Hypothecated/mortgaged with Appellant. The Adjudicating Authority erred in holding that the PMLA would prevail over SARFAESI Act
enacted by Legislature. Thus, the impugned order is liable to be set aside.
The Adjudicating Authority failed to understand that while issuing a provisional attachment order under section 5 of the PMLA, both clauses (a)
and (c) of sub-section (1) need to be fulfilled. It is submitted that in the instant case clause (c) is not attracted because the Respondent had no
“reason to believe†that the alleged proceeds of crime “are likely to be concealed, transferred or dealt with in any manner which result in
frustrating any proceedings relating to confiscation of such proceeds of crime.â€
It is not denied on behalf of the respondent no. 1 that monies of the Banksâ€/Appellant which are public monies and have been disbursed to the
Borrowers are under done under proper sanction, thus under no circumstances, the same can be made to fall within the ambit of section 3 of the PML
Act.
The amendment made in the SARFAESI Act in 2016, clearly states out the priority which the Secured Creditor shall have over the other dues and
Charges.
In view of the above made submissions and the above-mentioned case laws passed by this Tribunal which has duly considered the view of various
High Courts and the Apex Court on the issue involved wherein it has been held that the Secured Creditor (Bank) are the victims of Conspiracies
which have been hatched by the Promoters Borrowers/individuals and cannot be termed or construed as culprit or offender. The interest of the
Secured Creditor being an institution cannot be prejudiced due to the acts of the individuals thereby allowing public money to be painted as tainted
money.
Recently there are amendments in the Prevention of Money Laundering Act, 2002 (15 of 2003) as amended by Finance Act, 2018 (13 of 2018)
including in the proviso of Sub-section 8 of Section 8 of PMLA, 2002 by adding another proviso which is read as under:-
“Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has
suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering:
Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such
properties during the trial of the case in such manner as may be prescribed.â€
In the present appeal it is admitted position that the loan was given by the bank in good faith who had suffered a loss because of non-return of
money by the borrowers. It is evident from the said proviso that incase the claimant would be able to satisfy the Special Court that it has acted in good
faith and suffered the loss despite of having taken all the reasonable precautions and is also not involved in the offence of money laundering then the
Special Court is empowered to restored such property during the trial. In the facts of the present case, the mortgaged properties are not purchased
from the proceed of crime. Those were purchased prior to FIR against borrower/accused and even prior to execution of mortgaged deed agreement.
The question of proceed of crime qua those properties does not arise.
Even the stand of the respondent in almost in all the cases where it was found that the attached properties are mortgaged properties which were
not purchased from proceeds of crime, the Bank are victim parties and are innocent parties who are entitled to recover the loan amount from the said
mortgaged properties, but the banks be allowed to dispose the properties after the trial and final out-come of criminal complaints filed against the
borrowers under schedule offence and prosecution complaint. The said argument cannot be accepted in view of settled law and new amendment in
sub-section 8 of section 8 of the Act. Thus, the stand earlier taken by the respondent no. 1 is wholly vague and without any substance. The provisional
attachment order thus apparently bad and against the scheme of the Act.
I am of the considered opinion that in case the Special Court passes the order to release the property of the victim and innocent party is mortgaged
property could be disposed of for the purpose of adjustment of the amount due from the borrowers.
I am also of the view that once it was found that the appellant is a innocent party who is not involved in the money laundering directly or indirectly
or assist any party and the mortgaged property is also not purchased from the proceeds of crime then the question of provisional attachment order and
confirmation thereof does not arise and the victims/innocent party i.e. innocent party would be entitled to disposed of the said property.
In the fact and circumstances and material available in the present case, the allegation of money laundering, so far as present appellant &
properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002. Both set of appeals
are allowed.
Thus, for reasons recorded above, I set aside the Impugned Order dated 29.12.2017 and the Provisional Attachment Order dated 17.07.2017.
In view of the amendment of sub section 8 of Section 8 proviso (1) and (2), the bank is at liberty to move its claim before the Special Court for
disposing of the said property in accordance with the law. The present appeals are accordingly disposed of in view of aforesaid directions. Till that
time, all parties to the appeals shall not sell and dispose of the property as per details mention in para 4 of earlier part of my order in any manner
directly or indirectly which can only to be disposed in order to recover the amount due once the Special Court will pass the appropriate orders.
The appeal and pending applications are disposed of.
No costs.
Copy of order be given “dasti†to both the parties.