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Judgment
Name of the
Borrower","Unique
Proteins","Sterling
Biotech","PMT
Machines",Sterling SEZ
Date of
Acquisition","nd
22 March
2014","25th March
2014",27th June 2014,"28th
September 2016
Assignor Bank,"SICOM
Limited",Federal Bank,"Oriental Bank of
Commerce",Dena Bank
Nature of
Facilities",Term Loan,"Working Capital
&
Term Loan",Working Capital,Term Loan
Share in Debt,100%,"9.67% of
the WC Debt
and 0.24% of
the TL Debt","11.28% of
the WC Debt","4.67% of
Total Debt
Proteins was declared as NPA by SICOM Limited on 30th November 2012, due to default in repayment of the said loan amount. Appellant in its",,,,
ordinary course of business, acquired this outstanding loan from SICOM Limited with all rights, title and interest, along with the underlying security",,,,
interests, pledges and/or guarantees in respect of the said loan vide an Assignment Agreement dated 22nd March 2014 under the provisions of",,,,
SARFAESI Act, 2002. Properties attached under the PAO and mentioned at Sl. Nos. 4, 18 and 39 in the PAO and in the Complaint are properties on",,,,
which this Defendant holds a security interest, pursuant to the Assignment Agreement dated 22nd March 2014 executed between SICOM Limited",,,,
and Appellant.,,,,
Post assignment of debt in favour of appellant, certain group entities of Sandesara Group, i.e., Sterling International Enterprises Limited, PMT",,,,
Engineering Limited, Intense Consultancy Services Private Limited, Yogi Consultancy Services Private Limited, Nishant Consultancy Services Private",,,,
Limited, Saika Consultancy Services Private Limited, Triangle Investment Company Limited mortgaged certain additional securities in favour of",,,,
appellant, as an additional security for due repayment of the loans availed by Unique Proteins vide a duly executed Memorandum of Entry dated 22nd",,,,
September 2014. Properties attached under the PAO and mentioned at Sl. Nos. 26, 35, 37, 40, 42, 43, 45, 48 and 52 in the PAO and in the Complaint",,,,
are properties which stood mortgaged in favour of this appellant in view of the aforesaid Memorandum of Entry dated 22nd September 2014. For the,,,,
loans pertaining to Unique Proteins, the appellant holds a legal and subsisting security interest over the properties attached under PAO and mentioned",,,,
in the Complaint at Sr. Nos. 4, 18, 26, 35, 37, 39, 40, 42, 43, 45, 48 and 52.",,,,
Facts pertaining to the acquisition of loans of Sterling Biotech,,,,
Federal Bank, as a part of consortium, sanctioned working capital facilities of INR 60,00,00,000/- (Rupees Sixty Crore only) and term loan facility",,,,
of INR 10,00,00,000/- (Rupees Ten Crore only). The said loan was secured by way of charge over assets of Sterling Biotech vide Memorandum of",,,,
Entry dated 28th April 2009 and 27th January 2012 respectively. Thereafter, the loan account of Sterling Biotech was declared as NPA by Federal",,,,
Bank on 30th November 2012, due to default in repayment of the said loan amount. Appellant in its ordinary course of business, acquired this",,,,
outstanding loan from Federal Bank with all rights, title and interest, along with the underlying security interests, pledges and/or guarantees in respect",,,,
of the said loan vide an Assignment Agreement dated 25th March 2014 under the provisions of SARFAESI Act, 2002. Properties attached under the",,,,
PAO and mentioned at Sl. Nos. 6, 7 and 9 in the Complaint are properties on which this Defendant acquired a security interest pursuant to the",,,,
Assignment Agreement dated 25th March 2014 executed between Federal Bank and appellant.,,,,
Facts pertaining to the acquisition of loan of PMT Machines,,,,
Oriental Bank of Commerce, under consortium lending, sanctioned various credit facilities to PMT Machines, which were enhanced/reviewed",,,,
from time to time. The said facilities were secured by way of charge over the assets of PMT Machines vide Agreement of Hypothecation of Assets,,,,
dated 15th March 2005, Deed of Hypothecation dated 20th March 2007, and Joint Deed of Hypothecation dated 26th September 2008. Thereafter, the",,,,
loan account of PMT Machines was declared as NPA by Oriental Bank of Commerce in December 2012, due to default in repayment of the said",,,,
loan amount. Appellant in pursuance of its aforementioned business activities, acquired this outstanding loan from Oriental Bank of Commerce with all",,,,
rights, title and interest, along with the underlying security interests, pledges and/or guarantees in respect of the said loan vide an Assignment",,,,
Agreement dated 27th June 2014 under the provisions of SARFAESI Act. Property attached under the PAO and mentioned at Sl. No. 1 in the,,,,
Complaint is the property on which this Defendant acquired a security interest over pursuant to the Assignment Agreement dated 27th June 2014,,,,
executed between Oriental Bank of Commerce and appellant. The petition for initiating Corporate Insolvency Resolution Process (“CIRPâ€),,,,
against PMT Machines has been admitted by the NCLT Mumbai vide order dated 22nd October 2018 under the Insolvency and Bankruptcy Code,",,,,
2016 (“the Codeâ€). Hence, in view of the CIRP being initiated, moratorium under Section 14 of the Code has been imposed and insolvency",,,,
resolution professionals have been appointed. A copy of the said order dated 22nd October 2018 passed by the NCLT Mumbai is marked herewith,,,,
and produced as Exhibit â€" “Aâ€.,,,,
Facts pertaining to the acquisition of loan of Sterling SEZ,,,,
Dena Bank had sanctioned a loan of INR 30,00,00,000/- (Rupees Thirty crores) in favour of Sterling SEZ under consortium lending vide a duly",,,,
executed Common Loan Agreement dated 27th June 2008. The loan was secured by way of charge over assets of Sterling SEZ vide Memorandum of,,,,
Entry dated 19th December 2008 and Deed of Hypothecation dated 19th December 2008. Thereafter, the loan account of Sterling SEZ was declared",,,,
as NPA by Dena Bank on 31st March 2012, due to default in repayment of the said loan amount. Appellant in pursuance of its aforementioned",,,,
business activities, acquired this outstanding loan from Dena Bank with all rights, title and interest, along with the underlying security interests, pledges",,,,
and/or guarantees in respect of the said loan vide an Assignment Agreement dated 28th September 2016 under the provisions of SARFAESI Act,",,,,
2002. Properties attached under the PAO and mentioned at Sl. No. 10 in the Complaint is the property on which this Defendant acquired a security,,,,
interest pursuant to the Assignment Agreement dated 28th September 2016 executed between Dena Bank and appellant. The petitions seeking to,,,,
initiate CIRP against Sterling Biotech, Sterling International Enterprises Limited and Sterling SEZ have been admitted by the NCLT Mumbai under the",,,,
Code vide Orders dated 11th June 2018, 16th July 2018 and 16th July 2018 respectively.",,,,
Thereafter, it was only on 30th August 2017, i.e., more than a year after the last of the Sandesara Group loans had been acquired by appellant.",,,,
The First FIR was registered by the CBI/AC-III/New Delhi on 30th August 2017 under Sections 13(2) r/w 13(1)(d) of the Prevention of Corruption,,,,
Act, 1988 (“PC Actâ€) and Section 120B of the Indian Penal Code, 1860 (“IPCâ€) against, inter alia, Sterling Biotech.",,,,
The Second FIR dated 25th October 2017 was registered for offences allegedly committed under Section 13(2) r/w 13(1)(d) of the PC Act and 120B,,,,
r/w Sections 420, 467, 468 and 471 of the IPC against Sterling Biotech. Pursuant to the registration of the Second FIR, the Complainant registered",,,,
ECIR/HQ/17/2017 dated 25th October 2017 and took up the matter for investigation on 27th October 2017.,,,,
In none of the FIRs referred above, name of assignor of loan JMFARC or any of its personnel has been mentioned. Further, the said Second FIR",,,,
itself shows that there was a criminal conspiracy to cheat the public sector banks, some of whom have assigned the loans to appellant and hence",,,,
having stepped into the shoes of the victim banks, the appellant is also a victim. Further, without prejudice to above, Complainant in Para 5 of its reply",,,,
to the reply filed by appellant, has itself candidly admitted that there is no impropriety and illegalities alleged against JM Financial Asset Reconstruction",,,,
Company Limited i.e. appellant. Further, many of the properties mentioned in PAO which are mortgaged/charged in favour of appellant, are also",,,,
charged/mortgaged in favour of other Banks/Financial Institutions, who have not been made a party to these proceedings.",,,,
On 11th April 2018, the Enforcement Directorate (“EDâ€) issued a letter of the even date to this Defendant under Sections 50(2) and 50(3) of",,,,
the PMLA calling upon this Defendant to furnish information regarding the loans of the said Sterling Entities which had been acquired by this,,,,
Defendant. In response thereto, appellant collated all the information available with it at that juncture insofar as the loans of the said Sterling Entities",,,,
are concerned and communicated the same to the ED vide letter dated 18th April 2018. Further, vide letter dated 27th April 2018, this Defendant",,,,
provided the ED with additional information pertaining to the loan accounts of the said Sterling Entities. Subsequently, this Defendant again issued",,,,
another letter dated 11th June 2018 providing details pertaining to the loan of PMT Machines, as soon as it was made available to appellant by Oriental",,,,
,DATE,PARTICULARS,,
1.,"15th March
2005","Oriental Bank of Commerce, under consortium lending sanctioned
various credit facilities to PMT Machines, which, amongst other
securities, were also secured by way of a charge over assets of
PMT Machines, as recorded under Agreement of Hypothecation of
Assets of
even date.",,
2.,"20th March
2007","Oriental Bank of Commerce, under consortium lending
sanctioned/enhanced various credit facilities to PMT Machines,
which, amongst other securities, were also secured by way of a
charge over assets of PMT
Machines, as recorded under Deed of Hypothecation.",,
3.,27th June 2008,"Dena Bank, under consortium lending sanctioned a loan in favour of
Sterling SEZ vide a Common Loan
Agreement of even date.",,
4.,"26th
September
2008","Oriental Bank of Commerce, under consortium lending
sanctioned/enhanced various credit facilities to PMT Machines,
which, amongst other securities, were also secured by way of a
charge over assets of PMT Machines, as recorded under joint
Deed of Hypothecation of even date.",,
5.,"19th December
2008","Loans granted by Dena Bank to Sterling SEZ were, amongst other
securities, were also secured by way of a charge over assets of
Sterling SEZ, as recorded under Memorandum of Entry and Deed
of Hypothecation of even date.",,
6.,28th April 2009,"Federal Bank, as a part of consortium sanctioned certain credit
facilities in favour of Sterling Biotech, which, amongst other
securities, were also secured by way of a charge over assets of
Sterling Biotech, as recorded under a Memorandum of Entry of
even date.",,
7.,"19th May
2010","Loan Agreement executed between SICOM Limited and
Unique Proteins.",,
8.,18th June 2010,"Charge was created in favour of SICOM Limited vide
Memorandum of Entry of even date, as a security for loans granted
to Unique Proteins.",,
9.,"27th January
2012","Federal Bank, as a part of consortium sanctioned certain credit
facilities in favour of Sterling Biotech, which, amongst other
securities, were also secured by way of a charge over assets of
Sterling Biotech as
recorded under a Memorandum of Entry of even date.",,
10.,"31st
March 2012","Loan account of Sterling SEZ was declared as NPA by Dena
Bank.",,
11.,4th July 2012,"Charge was created in favour of SICOM Limited vide
Memorandum of Entry of even date, as a security for
loans granted to Unique Proteins.",,
12.,"30th
September
2012","Loan account of Sterling Biotech was declared as NPA by Federal
Bank.",,
13.,"30th
November
2012","Loan account of Unique Proteins was declared as NPA
by SICOM Limited.",,
14.,"December
2012","Loan account of PMT Machines was declared as NPA by
Oriental Bank of Commerce.",,
15.,"22nd March
2014","Defendant No. 85 acquired the outstanding loan of Unique Proteins
from SICOM Limited including all its rights, title and interest vide a
registered Assignment Agreement dated 22nd March 2014 and
hence obtained a valid and subsisting secured charge over the
JMFARC Mortgaged Properties at Serial Nos. 4, 18 and 39 in the
PAO and in the Complaint.",,
16.,"25th March
2014","Defendant No. 85 acquired the outstanding loan of Sterling Biotech
from Federal Bank including all its rights, title and interest vide a
registered Assignment Agreement dated 25th March 2014 and
hence obtained a valid and subsisting secured charge over
JMFARC Mortgaged Properties at Serial Nos. 6, 7 and 9 in the
PAO and in the Complaint.",,
17.,27th June 2014,"Defendant No. 85 acquired the outstanding loan of PMT Machines
from Oriental Bank of Commerce including all its rights, title and
interest vide a registered Assignment Agreement of even date, and
hence obtained a valid and subsisting secured charge over the
JMFARC Mortgaged Properties at Serial. No. 1 in the
PAO and in the Complaint.",,
18.,"22nd
September
2014","Certain group entities of Sandesara Group mortgaged certain
additional securities in favour of Defendant No. 85, as an additional
security for due repayment of the loans availed by Unique Proteins,
mentioned at Serial Nos. 26, 35, 37, 40, 42, 43, 45, 48 and 52 in the
PAO
and in the Complaint",,
19.,"28th
September
2016","Defendant No. 85 acquired the outstanding loan of Sterling SEZ
from SICOM Limited including all its rights, title and interest vide a
registered Assignment Agreement dated 28th September 2016 and
hence obtained a valid and subsisting secured charge over the title
deeds of the JMFARC Mortgaged Properties
Serial No. 10 in the PAO and in the Complaint.",,
20.,11th April 2018,"Letter issued by the ED of the even date to this Defendant under
Sections 50(2) and 50(3) of the PMLA calling upon this Defendant
to furnish information regarding the loans of the said Sterling
Entities which had been acquired by this Defendant.",,
21.,"18th April
2018","Reply sent to the ED by this Defendant providing loans
details of the Sterling Entities which it had acquired.",,
22.,27th April 2018,"Letter sent to the ED by this Defendant providing additional
information pertaining to the loan accounts
of the Sterling Entities.",,
23.,29th May 2018,"The PAO was issued which inter alia attached the
JMFARC Mortgaged Properties under the provisions of the
PMLA.",,
24.,11th June 2018,"Letter sent to the ED by this Defendant providing details pertaining
to the loan of PMT Machines.
CIRP under Code initiated vide order dated 11th June 2018 by
Hon‟ble NCLT Mumbai against Sterling Biotech.",,
25.,14th June 2018,"Corrigendum to PAO was issued which inter alia attached the
JMFARC Mortgaged Properties under the provisions of the
PMLA.",,
26.,28th June 2018,"Original Complaint O.C No. 989/2018 was filed by the
Complainant.",,
27.,4th July 2018,"The SCN was issued by the Ld. AA against Defendant No 85 as
per the PMLA.",,
28.,16th July 2018,"CIRP under the Code initiated vide order dated 16th July 2018 by
Hon‟ble NCLT Mumbai against Sterling SEZ and Sterling
International Enterprises Limited.",,
29.,"22nd October
2018","CIRP under the Code initiated vide order dated 22nd October 2018
by Hon‟ble NCLT Mumbai against PMT Machines.",,
record and has, on that basis, arrived at his “reasons to believeâ€. The process of thinking of the officer must be discernible and the reasons have",,,,
to be made explicit. It is only the reasons that can enable the reviewing authority to discern how the officer formed his reasons to believe.,,,,
The Honâ€ble Delhi High Court in M/s Himachal Emta Power Ltd. v UOI & Ors. (in W.P.(C) 5537/2018) has held that in order to pass an order,,,,
of provisional attachment, it was necessary for the ED to have reasons to believe that the property sought to be attached was “derived or",,,,
obtained†from any scheduled crime. The said judgement also states a mandatory condition when a PAO can be passed, the relevant portion is",,,,
reproduced hereinbelow:,,,,
“16. A plain reading of Section 5(1) of the PML Act indicates that an order of provisional attachment can be passed only where the,,,,
concerned officer has reasons to believe on the basis of material in his possession that: (a) any person is in possession of proceeds of,,,,
crime; and (b) such proceeds are likely to be concealed, transferred, or dealt with any manner which would result in frustrating any",,,,
proceedings relating to confiscation of such proceeds of crime.â€,,,,
In the absence of valid reasons to believe being given by the ED in the captioned matter, it is not a mere irregularity, but a blatant illegality. The",,,,
ED has failed to show any linkage, valid or otherwise, between appellant and the alleged crimes committed by persons belonging to the Sandersara",,,,
Group and therefore, committed an irreversible illegality and as such, the JMFARC Mortgaged Properties are liable to be released from attachment.",,,,
It is alleged on behalf of appellant that, if acquired, the outstanding loans of the Sterling entities in bona fide belief of it being NPA accounts, with",,,,
no prior knowledge of any fraud / criminal activity committed by these Defendants on the Bank. The POA has totally disregarded the fact that such,,,,
an order will frustrate the rightful claims of the present Defendant, which is an asset reconstruction company, and which has taken over the financial",,,,
assets of the Sterling entities, together with underlying security interests and all rights, title and interest thereon in accordance with all applicable laws,",,,,
and with bona fide intention, and after paying a huge consideration to the assignor Banks/Financial Institutions. It is submitted that at the time of",,,,
commission of the alleged offences, Defendant No.85 was not a party or a related party to any of the transactions and loans that were acquired by the",,,,
said Sterling Entities or other entities under the Sandesara Group. Appellant only came to be associated with the account and assets of said Sterling,,,,
Entities prior to filing of any complaint/FIR or proceedings being initiated against the Sandesara Group and therefore, there was no reason for this",,,,
Defendant to suspect any wrong doing on part of the said Sterling Entities prior to acquiring their loans.,,,,
The appellant submits that majority of the properties over which this Defendant acquired a security interest had been purchased by the Sandesara,,,,
Group prior to the year 2008, which is when the ED alleges the offences started (as per the Second FIR). It is submitted that at the very least, the",,,,
properties which were acquired by the Sandesara Group prior to the year 2008 cannot be said to have been acquired by the proceeds of crime and as,,,,
such, cannot fall within the purview of PMLA. Further, in any event, this Defendant acquired security interest over the majority of JMFARC",,,,
Mortgaged Properties, by virtue of assignment under the provisions of SARFAESI Act, much before the registration of any FIR or ECIR. Therefore,",,,,
the said JMFARC Mortgaged Properties cannot fall within the purview of the PMLA. In view of the aforesaid, it is submitted that the PAO should be",,,,
set aside summarily so that the interests of this Defendant are not further prejudiced.,,,,
It is admitted position that appellant is a secured creditor of the Sterling Entities and has to recover huge outstanding dues from the said Sterling,,,,
Entities. The appellant, being a secured creditor is entitled to recover the outstanding dues. Further, it has been repeatedly held that NPAs are choking",,,,
the banking system and the system is already struggling for some time and banking conditions are deteriorating day by day.,,,,
The JMFARC Mortgaged Properties are either protected under the provisions of the SARFAESI Act, DRT Act or the provisions of the Code and",,,,
the said special enactments override the provisions of the PMLA, therefore, JMFARC Mortgaged Properties cannot be attached under the provisions",,,,
of PMLA, especially since no allegation of against the appellant or assignor has been made. Therefore, the PAO ought not to have confirmed and the",,,,
JMFARC Mortgaged Properties.,,,,
The Complainant itself has accepted in their Rejoinder dated 12th October 2018 in Para No. 5 under “Reply to Paras in respect of preliminary,,,,
grounds of Defendant No 85†that there is in no illegality and impropriety alleged against this Defendant. This should be strictly construed in favour,,,,
of this Defendant, and be deemed as an admission on part of the Complainant. The relevant para is reproduced hereinbelow:",,,,
“JM Financial Asset Reconstruction Company Limited has been made Defendant as per the instructions received from the Ld.,,,,
Adjudicating Authority which reads “Properties mortgaged to any party/bank/financial institutions etc., such party should invariably be",,,,
made Defendant in the Original Complaintâ€. Therefore, the Complainant with bonafide intention made JM Financial Asset Reconstruction",,,,
Company Limited as a defendant in the PAO and Original Complaint and also there is no impropriety and illegalities were alleged against,,,,
JM Financial Asset Reconstruction Company Limited by the Complainant.,,,,
The present appellant is a victim of the fraud played by Sterling Entities and their Directors, if at all. The appellant was not a party or even a",,,,
related party to any of the transactions and loans that were acquired by the Sterling Entities, and only came to be associated with their account and",,,,
assets through the respective Assignment Agreements.,,,,
The counsel for the respondent has supported the impugned order. He argued the PAO was passed as per law. The appellant has no option to,,,,
approach to the Special Court for released of properties or should wait for final order after trial.,,,,
The present Appellant is concerned, the said attached properties namely bearing Serial Nos. 1,4,6,7,9,10,18,26,35,37,39,40,42,43,45,48 and 52 in the",,,,
PAO and the Complaint, to the extent and charged in favour of the Appellant (together hereinafter referred to as “JMFARC Mortgaged",,,,
Propertiesâ€) and in view of which this, Appellant has rights as a secured creditor in the said properties.",,,,
Out of the 17 JMFARC Mortgaged Properties, the ED has admittedly not even attempted to provide reasons to believe for 16 properties.",,,,
Out of 17 JMFARC Mortgaged Properties, the ED has attached 14 properties which have been acquired prior to the date on which the alleged",,,,
scheduled offences were committed. The said 14 properties out of the 17 JMFARC Mortgaged Properties have been acquired prior to the date on,,,,
which the alleged scheduled offences were committed is an admitted position of fact between the parties. The Appellant, in Paragraphs 8.4 to 8.7, has",,,,
set out the dates on which the JMFARC Mortgaged Properties were originally acquired by the respective members of the Sandesara Group. In its,,,,
Rejoinder dated 12 October 2018, in the paragraph-wise response, in response to the above mentioned paragraphs, the ED has stated on affidavit that",,,,
the contents of the same are “matter of record. No commentsâ€. Therefore, even the Respondent admits that the said properties were acquired",,,,
prior to the date on which the scheduled offences were alleged to have been committed, i.e. 2008.",,,,
The FIRs were admittedly registered in the year 2017. The assignment of the loans from various banks and/or Financial Institutions in favour of,,,,
the Appellant were done between March 2014 to September 2016, validly under the provisions of SARFAESI Act. Therefore, the Appellant had no",,,,
indication regarding any money laundering charges/allegations regarding commissioning of any scheduled offence, and as such, the Appellant acted in",,,,
a bona fide manner and cannot be made to suffer the consequences of attachment of the JMFARC Mortgaged Properties. The Respondent has,,,,
admitted in its Rejoinder that there is no impropriety and illegalities were alleged against the Appellant herein i.e. JM Financial Asset Reconstruction,,,,
Company Limited.,,,,
The Appellant has nothing to do and has no connection with the allegation of crime committed by the defendants/respondent no. 2 Bharat Bomb,,,,
and other persons concerned involved for the offences of money-laundering. The Appellant is not holding any funds of any of the,,,,
defendant/respondent. The mortgage properties are admittedly not derived from criminal activities or proceed of crime. The scope of the PMLA is to,,,,
punish the accused person and not to punish the innocent person who is not involved in the crime within the meaning of Section 2 (v) read with Section,,,,
3 of the Act. The appellant is not charge-sheeted nor any prosecution complaint has been filed against the appellant. The appellant have also no,,,,
objection if the borrowers properties which were acquired from proceed of crime be dealt by the respondent in any manner.,,,,
There is no nexus whatsoever, between the alleged crime and the appellant who is mortgagee of the property and is a victim of the fraud and is",,,,
innocent party. The definition of proceed of crime as per Section (u) of the Act comprises of the property which is derived or obtained as a result of,,,,
criminal activities. The mortgaged property is not acquired from proceed of crime.,,,,
It is argued on behalf of the appellant that the present case is squarely covered by the recent judgment of the Honâ€ble Delhi High Court in,,,,
Directorate of Enforcement vs. Axis Bank & Ors. reported in 2019 SCC Delhi 7854 dated 2.4.2019 , wherein, it has been observed as under:",,,,
“163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in",,,,
the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is",,,,
suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot",,,,
conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the",,,,
commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-off. From this, it naturally",,,,
follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration,",,,,
acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or frustrated",,,,
by attachment of such property to such extent by enforcement authority in exercise of its power under Section 8 PMLA.,,,,
Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide",,,,
third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law,,,,
for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect",,,,
of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the",,,,
preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat",,,,
allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its",,,,
value, if any, thereafter to be made available for purposes of PMLA.â€",,,,
The Honâ€ble High Court of Delhi has held that the interest of a third party in the property of an accused, acquired prior to the commission of the",,,,
proscribed offence cannot be defeated or frustrated by attachment of such property U/s 8 of the Act. The Honâ€ble High Court further recognized,,,,
the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act,,,,
would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property",,,,
as exceeds the claim of the third party, if any.",,,,
Pertaining to jurisdiction of this appellate tribunal, it is clear that in terms with the statutory safeguards incorporated in the Act, any party aggrieved",,,,
by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Honâ€ble,,,,
Tribunal U/s 26 of the Act and then before the Honâ€ble High Court U/s 42 of the Act against the order of this Tribunal. Accordingly, under the",,,,
legislative and statutory scheme of the Act, unless a party has exhausted its remedies in appeal right up to the Honâ€ble High Court, an order",,,,
confirming the attachment cannot be said to have attained finality. This Tribunal is only concerned with the validity of the impugned order and,,,,
provisional attachment order which has been confirmed.,,,,
Therefore, this Tribunal possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the",,,,
Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. Upon an argument,,,,
being raised by the Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending.,,,,
The Honâ€ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be,,,,
inquired into by the Special Court only if the order confirming the attachment “has attained finalityâ€. An order cannot be said to have attained,,,,
finality until and unless all the remedies under the Act have been exhausted. No doubt, the bank and financial institutions are always at liberty to",,,,
approach the Special Court (if so desired) in order to invoke the amended provision of sub section 8 of Section 8, however, it is wrong to suggest that",,,,
the bank and financial institutions are not entitled to challenged the order of attachment because this tribunal is only exclusively having jurisdiction to,,,,
examine the validity of attachment and to decide the same under section 26 of the Act as to whether attachment was valid or not. The bank and,,,,
financial institution are entitled to take the remedy before the Special Court after the decision of appeal or during the pendency of appeals.,,,,
The main findings of the Honâ€ble High Court of Delhi in which the exceptions are created, are as follows:-",,,,
(i) Date of Commission of offence of Money Laundering under PMLA is the “cut off†date and if the Bank has mortgaged / charge over the,,,,
properties prior to the commission of offence under PMLA, then it is a Bonafide Claimant and its Statutory rights canâ€t be defeated under Section 8",,,,
of PMLA, 2002.",,,,
(ii) Priority of Bonafide Claimants / Secured Creditors will have their dues realized, first from the sale of such attached immovable assets and if any",,,,
balance is left out, then the balance amount shall go to the ED on the premise that the said properties will continue to remain attached with the ED",,,,
under PMLA on the ground of value thereof.,,,,
(iii) Prior mortgage charge of secured creditors must be registered qua the mortgaged immovable properties only then Bankâ€s statutory rights under,,,,
Section 13 of the SARFAESI, Act are protected and protected.",,,,
(iv) SARFAESI, action initiated prior to the commission of offence of Money Laundering under PMLA would remain valid and interest of secured",,,,
creditors will remain protected.,,,,
If paras 167 to 169 of Honâ€ble High Courtâ€s Judgment are read co-jointly with para-163 and 165, it is clear from the same that if the",,,,
attachment has attained finality or if order of confiscation has been passed, the claim and legitimate interest will have to be inquired by the Special",,,,
Court. The said findings are correct if the situation as in the present case appears are the same. In the present case, attachment has not attained",,,,
finality or any confiscation has been passed or any trial has commenced under the Section-4 of PMLA against the appellants. In fact, appellants are",,,,
innocent parties. They are victim. The trial against accused parties may take number of years. Their case is squarely covered under para-163 and 165,,,,
of the judgement.,,,,
From the facts of the present, it is evident that legal issues of the Appellant case are similar to the judgement rendered by Honâ€ble Delhi High",,,,
Court as (a) The Appellant is not an accused and is bona fide third party to the transactions complained of by the ED; (b) The Appellant disbursed a,,,,
loan in accordance with law to the Respondents Accused and created a mortgage over the Secured Property prior to the commission of the Scheduled,,,,
Offence in respect of the Secured Property; and (c) The Appellant commenced the proceedings under SARFAESI Act against the Secured Property,,,,
prior to its provisional attachment. (d) The said property was not acquired from the proceed of crime.,,,,
The appellant is always at liberty to approach the Special Court to initiate the proceeding for disposal of mortgaged property, if so desired, who is",,,,
agreeable to deposit the excess amount if such situation will arise. Counsel for appellant after taking the instructions from his clients stated that his,,,,
clients are duty bound to deposit the excess amount with the respondent.,,,,
It is submitted on behalf of appellant that in view of propositions of law has been laid down in support of Appellantâ€s case in light of the judgment,,,,
of the Honâ€ble Delhi High Court in the case of Enforcement Directorate v. Axis Bank & Ors. [Criminal Application No. 143 of 2018, Judgment",,,,
dated 2 April 2019]:,,,,
(a) Pre-requisites of Attachment: (i) Existence of material which is the basis of the “reasons to believeâ€; (ii) existence of identifiable,,,,
“property†which qualifies to be treated as “proceeds of crimeâ€; (iii) there being likelihood that such proceeds of crime are to be concealed or,,,,
transferred or dealt with in any such manner as may result in “frustrating†the proceedings relating to its confiscation;,,,,
(iv) the “reasons to believe†relating to such foundational material (as above) having been “recorded in writingâ€; (v) prior submission of,,,,
chargesheet or a “complaint†in the court of cognizance respecting the “scheduled offence†to which the proceeds of crime relate unless,,,,
there is “reasons recorded in writing†the “reasons to believe†that if attachment be not ordered “immediately†the omission to do so is,,,,
similarly “likely to frustrateâ€; and other formal requirements. [Paragraph 61 at Page No. 32 â€" 33 of the Judgment],,,,
(b) For tainted properties, i.e., properties for which reasons to believe exists that such properties were acquired directly from the proceeds of crime,",,,,
the Enforcement Directorate is bound to justify that such third party interest was created with a view to frustrate/to defeat the law against money,,,,
laundering.,,,,
In this regard, it is pertinent to note that out of the 17 JMFARC Mortgaged Properties, for 16 properties no reasons to believe have been provided at",,,,
all and for the one other property (at Sl. No. 18 of the PAO), the Respondent has failed to justify how third party interest in the said property was",,,,
created with a view to defeat the provisions of PMLA. [Paragraph 161 at Page No. 93 of the Judgment.],,,,
(c) Mortgaged Properties for which no reasons to believe have been provided, have been attached since there are equivalent in value to tainted assets,",,,,
the Complaint and the PAO were necessarily required to state that the said tainted assets cannot be traced. However, the Respondent has not even",,,,
complied with this aspect as well.,,,,
In any event, the Respondent has all along maintained across multiple filed pleadings that the JMFARC Mortgaged Properties have been attached",,,,
since they have been acquired from “proceeds of crime†and not because they are of equivalent value and hence this defence is also not available,,,,
to the Respondent.[ Paragraph 162 of the Judgement.],,,,
(d) If a bona fide third party claimant had acquired interest in the property which is subjected to attachment at a time anterior to the commission of the,,,,
criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in such property by such third party cannot",,,,
conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the commission of",,,,
criminal activity which his the basis of such action under PMLA can be safely treated as the cut-off. An interest in the property of an accused,",,,,
vesting in a third party acting bona fide, for lawful and adequate consideration, acquired prior to the commission of the prescribed offence evincing",,,,
illicit pecuniary benefit to the former, cannot be defeated or frustrated by attachment of such property. [Paragraph 163 at Page No. 94 of the",,,,
Judgment.],,,,
It is admitted position between the parties that 14 of the JMFARC Mortgaged Properties have been acquired prior to 2008 (date on which the,,,,
offences were allegedly commissioned) therefore, the attachment order is not sustainable as per settled law. The Appellant is a secured creditor under",,,,
the provisions of the DRT Act, the SARFAESI Act and the IBC, the provisions under PMLA must take a backseat to the enforcement of the",,,,
Appellantâ€s right as a secured creditor.,,,,
The Appellant is a bona fide third party and was not even involved in the initial loan being extended by the banks/ financial institutions to the,,,,
Sterling Group entities. The Appellant has acquired the loans from the banks/ financial institutions under provisions of SARFAESI Act, under",,,,
legitimate commercial banking transaction. The Appellant has no knowledge regarding any illegality allegedly committed by Sterling Group entities and,,,,
as such, the Appellant being an assignee is to be suffered because of attachment under PMLA.",,,,
Additionally, assignor banks and/or financial institutions had also not declared the borrower accounts as “fraud accounts†as per the existing",,,,
Reserve Bank of India guidelines. All the assignment agreements executed between assignor banks and/or financial institutions and Appellant contain,,,,
an affirmative covenant that the accounts assigned have not been classified as “fraud accounts†and that fraudulent accounts do not form part of,,,,
the assignment agreements.,,,,
The impugned order confirming the provisional attachment order is passed without application of mind and without understanding the law, it is",,,,
liable to be quashed with regards to mortgage properties.,,,,
I do not agree with the submission of counsel appearing on behalf of ED that the banks may not be allowed to dispose of the mortgage properties,,,,
owned by Muhul Choksi and Nirav Modi and we should wait for trial to be faced by these offenders and it would also have some bearing in their,,,,
extradition proceedings. The main reasons for disagreeing his arguments are that the mortgage properties were acquired much prior period from the,,,,
date of offense. The banks are innocent and victims. The banks are not charge-sheeted. They are the secured creditors. Banks moneys have been,,,,
looted by these cheaters. Public Sectors banks†money is the public money. The banks are in critical conditions as these alleged accused have,,,,
cheated every citizen of this country. The courts in overseas countries are aware about the mortgage law. Rather, if their mortgage properties are",,,,
disposed off, loan amount would be decreased. No doubt, they should also be dealt with criminal liabilities, but recovery process cannot be stalled in",,,,
this way. These joneys are always happy if their mortgage properties shall remain attached and should not be disposed of. It is also held that if the,,,,
mortgage properties are not the proceeds of crime, the said properties cannot be attached in lieu of value thereof as banks are the secure creditors,",,,,
but ED, no doubt, after investigation, is welcome to attach the properties in lieu of value thereof only in the cases where it was virtually not possible to",,,,
trace out the properties which were purchased from proceeds of crime, but other than the mortgage properties which were not acquired from",,,,
proceeds of crime. Borrowers mortgage properties can not secure in safe heaven if they failed to return back the loan amount otherwise public will,,,,
suffer.,,,,
No doubt, this tribunal is clear in its mind that if the property was acquired from proceeds of crime and at the time of mortgage, the bank is aware",,,,
and still the loan is sanctioned, then said property can be attached even in lieu of value thereof if the borrowers has concealed or is concealing the",,,,
proceeds of crime, but under those circumstances, there must be material or prima facie evidence on record before passing the provisional attachment",,,,
orders.,,,,
This order is being passed in relation to mortgage properties in favour of banks which are not purchased from proceeds of crime. The same were,,,,
purchased and mortgage with the banks prior to the of crime period. ED is not precluded to attach other private properties and all other assets of the,,,,
alleged accused.,,,,
It is clarified that this order shall have no bearing in any proceedings initiated against the alleged accused including extradition proceedings pending,,,,
or proposed to be initiated in any part of the world. Those are to be considered as per law and without any influence of this order which is being,,,,
passed in the interest of public as bank money is a public money. Most of the banks are public sector banks. Their valid and legal recovery can not be,,,,
blocked for years without valid reasons. Therefore, the issue in hand is being decided only for limited purposes 53. In the light of above, the impugned",,,,
order is set-aside with regard to the attachment of properties which are mortgaged with the appellant or its assignor. The appeal is allowed. The,,,,
provisional attachment order dated 14.06.2018 is quashed with regard to the appellant.,,,,
No costs.,,,,