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Judgment
V. Ramasubramanian, J.—While the Indian Bank has come up with the first writ petition challenging a provisional order of attachment
passed by the Joint Director of Enforcement, the Company whose property was so attached has come up with the second writ petition challenging
the provisional attachment well as a consequent complaint lodged with the Adjudicating Authority. I have heard Mr. M. Balachandar, Learned
Counsel for the petitioner in the first writ petition, Mr. R. Yashodhvardhan, learned Senior Counsel for the petitioner in the second writ petition and
Mr. M. Ravindran, learned Additional Solicitor General assisted by Mr. M. Dhandapani, learned Standing Counsel for respondents.
As stated above, the petitioner in the first writ petition is the Indian Bank and the petitioner in the second writ petition is a company, which
borrowed monies from the Indian Bank. The factual matrix, out of which the present writ petitions arises, is as follows:-
(i) The petitioner in the second writ petition was sanctioned 3 term loans, under a sanction ticket dated 2.1.2006 by the Indian Bank. With the
money so advanced by the Indian Bank, the petitioner in the second writ petition, hereinafter referred to as the ""company"", purchased a property
at old Door No. 14, New Door No. 17, Trunk Road (G.S.T. Road), St. Thomas Mount, Chennai-16, under a Sale Deed dated 15.2.2006,
registered as document No. 280/2006 in the office of the Joint Sub Registrar, Saidapet.
(ii) On 31.1.2008, the Indian Bank lodged a complaint with the Superintendent of Police, Central Bureau of Investigation against the company,
alleging that the company and the officers of the company, had defrauded the Bank. The complaint lodged by the Indian Bank was registered as
RC No. 1/E/2008-CBI-EOW/Chennai, on 6.2.2008.
(iii) Similarly, the State Bank of India lodged a complaint alleging that the company organised personal loans for 161 persons, showing them as its
employees. This complaint was lodged in RC No. 11/E/2008-CBI-EOW/Chennai, on 14.11.2008.
(iv) The Bank of India lodged another complaint in RC No. 9/E/2008-CBI-EOW/Chennai, on 29.9.2008, alleging that the company obtained
loans under Star Personal Loan Scheme in the name of 149 persons allegedly employed by them.
(v) On the complaint lodged by the Indian Bank, a charge sheet was filed in No. 21/2008 on the file of the Additional Chief Metropolitan
Magistrate, Egmore, Chennai. Another charge sheet was laid in No. 9/2009 on 11.12.2009 in respect of the complaint filed by the State Bank of
India. The charge sheet alleged that the company and one Mr. S. Senthilkumar, who is its Managing Director, had committed offences punishable
under Sections 120-B, 420, 467, 468 and 471 of the Indian Penal Code.
(vi) The charges framed against the company and its officers also included the offences indicated in the Schedule in terms of Section 2(1)(y) of the
Prevention of Money Laundering Act, 2002.
(vii) Thereafter, the Joint Director of Enforcement passed an order bearing No. 01/2012 on 22.2.2012 u/s 5(1) of the Prevention of Money
Laundering Act, 2002, hereinafter called the ""Act"", directing the provisional attachment of the aforesaid property bearing old Door No. 14, New
Door No. 17, Trunk Road (G.S.T. Road), St. Thomas Mount, Chennai-16. The order was passed on the premise that the said property
purchased in the name of the company was acquired out of the proceeds of crime as defined in Section 2(1)(u) of the Act and that therefore, it
was liable for adjudication and confiscation in terms of Section 8 of the Act.
(viii) Immediately upon coming to know of the said order of provisional attachment, the Indian Bank came up with the above writ petition W.P.
No. 4696 of 2012, contending that the account of the company had already become a non-performing asset and that since the property was
mortgaged to them, the Bank had already taken steps to bring the property to sale in terms of the provisions of the SARFAESI Act, 2002. The
prayer in the writ petition was to quash the provisional order of attachment.
(ix) Pending disposal of the writ petition, the Indian Bank also sought an interim stay of all further proceedings pursuant to the provisional order of
attachment, in M.P. No. 1 of 2012. The writ petition was admitted on 28.2.2012 and this Court also granted an interim stay as prayed for in M.P.
No. 1 of 2012. While granting interim stay, this Court issued a direction to the effect that if the property was auctioned by the Bank, the sale
proceeds shall be kept in an interest bearing lien account until further orders.
(x) As per Section 5(1) of the Act, the provisional attachment order passed by the Directorate of Enforcement can be in force only for a period of
150 days. But within 30 days, the Directorate can seek a confirmation of the order from the Adjudicating Authority u/s 8. Therefore, the Director
of Enforcement filed an application before the Adjudicating Authority and the same was taken on file in O.C. No. 129/2012 and notice was issued
to the company and its Managing Director. Interestingly, the Bank was not made a party before the Adjudicating Authority in the application filed
by the Director of Enforcement.
(xi) Immediately upon receipt of the notice from the Adjudicating Authority, the company came up with the second writ petition viz., W.P. No.
12854 of 2012, challenging not only the provisional attachment order of the Directorate, but also the complaint lodged by the Directorate with the
Adjudicating Authority.
(xii) The writ petition filed by the company was admitted on 30.5.2012. In M.P. No. 1 of 2012, the company also sought an interim stay. But this
Court granted a limited stay in M.P. No. 1 of 2012 only with regard to the confiscation proceedings. Unfortunately, the proceedings before the
Adjudicating Authority at this stage, were not actually confiscation proceedings, but proceedings for confirmation of the provisional order of
attachment. Therefore, the Adjudicating Authority proceeded with the enquiry.
(xiii) In view of the fact that the Adjudicating Authority proceeded to hear the application filed by the Directorate for confirmation of the provisional
order of attachment, the company sought a modification of the interim order when the miscellaneous petition came up for hearing. However, the
Directorate filed its counter to the main writ petition and the learned Standing Counsel for the Directorate agreed to argue the main writ petitions
themselves.
Therefore the main writ petitions themselves were taken up for hearing. When the writ petitions were part heard, the Adjudicating Authority
passed an order on 26.6.2012, confirming the provisional order of attachment, till the conclusion of the proceedings before the appropriate
Criminal Court. Therefore, the validity of the said order was also canvassed in the arguments in the main writ petitions.
As pointed out above, the petitioners in both the writ petitions do not oppose the criminal prosecution. As a matter of fact, the Indian Bank is
one of the 3 complainants. The complaint of the Indian Bank also happens to be the first among the three. It is on the basis of these complaints that
criminal prosecution has been launched and charge sheets have already been filed. But both the lender and the borrower are now aggrieved by the
order of attachment and the adjudication proceedings. While the grievance of the Bank is that their right to proceed against the property under the
SARFAESI Act, stands impaired by the provisional order of attachment, the grievance of the company is that the property sought to be attached
does not represent the proceeds of a crime.
Therefore, two questions arise for consideration viz., (i) as to whether the property sought to be attached represents the proceeds of the crime
and (ii) if the property represents the proceeds of the crime, where would the claim of the complainant-Indian Bank stand. QUESTION No. 1:
In order to find an answer to the first question, it is necessary to take a close look at the provisions of The Prevention of Money Laundering
Act, 2002. It was enacted with the object of preventing money laundering and for providing for confiscation of property derived from or involved
in money laundering and for matters connected therewith or incidental thereto. The expression ""money laundering"" is defined u/s 2(1)(p) of the Act
to have the same meaning as assigned to it in Section 3. Section 3 states that a person is guilty of the offence of money laundering, if he directly or
indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the
proceeds of crime and projecting it as untainted property. Therefore, the stress is on two things viz., (i) involvement in any process or activity
connected with the proceeds of crime and (ii) projecting it as untainted property.
The expression ""proceeds of crime"" is defined in Section 2(1)(u), to mean any property derived or obtained, directly or indirectly, by any person
as a result of criminal activity relating to a scheduled offence or the value of any such property.
The expression scheduled offence is defined u/s 2(1)(y) to mean (i) the offences specified under Part A of the Schedule; or (ii) the offences
specified under Part B of the Schedule if the total value involved in such offences is rupees thirty lakhs or more; or (iii) the offences specified under
Part C of the Schedule.
It is the contention of the company that since the entire sale consideration for the purchase of the property in question had gone from the Bank
to the vendors, the property cannot be taken to represent the ""proceeds of crime"" within the meaning of Section 2(1)(u). The Bank, which is the
petitioner in the first writ petition, does not go so far. In other words, the Bank does not take a specific plea that the property sought to be
attached does not represent the proceeds of crime. Alt that the Bank says is that since the sale consideration had gone out of the funds of the Bank
and also since the property was mortgaged to them, they have a right to recover their dues by bringing the property to sale in exercise of the power
conferred by SARFAESI Act, 2002.
The learned Additional Solicitor General and Mr. M. Dhandapani, learned Standing Counsel for respondents, raised a preliminary objection
that the property was purchased from out of the funds secured by the company by fraudulent means from 3 different Banks and that the Indian
Bank did not pay the entire sale proceeds. According to the Learned Counsel for the respondents, the fact that the company committed a fraud
upon the Banks and the fact that the property was purchased from out of the funds secured by the company, by fraudulent means from 3 Banks,
are not disputed by the Bank. Therefore, it is their contention that the definition of the expression proceeds of crime u/s 2(1)(u) stands satisfied and
that hence, the respondents have the power to attach the property u/s 5.
In so far as the factual contention that only a part of the sale consideration flowed from the Indian Bank and that the money paid by other
Banks have also gone into the purchase of the property, is concerned, I do not think that I can actually go into the same. As on date, I have 3
pieces of evidence, which of course I would consider only for the purpose of prima facie finding and not for a final adjudication. They are (i) a
positive assertion is by the Indian Bank in paragraphs 2 and 3 of the affidavit in support of the writ petition that the entire sale proceeds for the
purchase of the property in question were paid by the Indian Bank; (ii) the very earliest complaint to the Economic Offences Wing of the Central
Bureau of Investigation about the alleged fraudulent activities of the company was by the Indian Bank and hence the very foundation for the action
of the respondents is the complaint of the Indian Bank and (iii) the original vouchers produced by the Indian Bank during the course of hearing of
the writ petitions before me go to show that each one of the payments mentioned in the relevant recitals of the Sale Deed, had gone out of the
Indian Bank. Therefore, prima facie, I find that the entire sale consideration for the purchase of the property in question had directly gone from the
Bank to the vendors and the vendors executed a Sale Deed in favour of the company. Hence the respondents cannot justify the order of
attachment on the sole ground that Indian Bank paid only a part of sale consideration and that the remaining part of the sale consideration flowed
out of the funds of the other Banks. I make it clear that this conclusion of mine, is only prima facie, since the final conclusion can only be drawn by
a fact finding Court where a criminal prosecution is now pending.
Having settled the question of fact raised by the respondents, now let me turn to the legal issue as to whether the property purchased entirely
out of the funds provided by the Bank can be said to represent the proceeds of crime.
As seen from the definition of the expression ""proceeds of crime"" u/s 2(1)(u), any property derived or obtained as a result of criminal activity
relating to a scheduled offence would come within the meaning of the expression. The expression ""property"" is defined u/s 2(1)(v) to mean any
property or assets of every description. Therefore, the property in question would certainly come within the definition of the expression ""property
u/s 2(1)(v). That the property was obtained by the company accused of committing various offences cannot also be in doubt since the Sale Deed
stands in the name of the company and the Directors of the company, are accused in the Criminal Court. Therefore, what remains to be seen is
whether the acquisition of such property by the company was as a result of a criminal activity relating to a scheduled offence or not.
The Schedule to the Act contains 3 Parts viz., Part A, Part B and Part C. Part A contains 4 paragraphs, Part B contains 25 paragraphs and
Part C merely relates to offences of cross border implications that may be covered by Parts A and B.
Part A of the Schedule to the Act, covers offences under various enactments. They can be presented in a tabular column as follows:-Paragraph
Offences Paragraph-1 Offences under Sections 121, 121-A, 489-A and 489-B of the Indian Penal Code. Paragraph-2 Offences under Sections
15 to 24, 25-A, 27-A and 29 of the NDPS Act. Paragraph-3 Offences under Sections 3 to 5 of the Explosive Substances Act, 1908. Paragraph-
4 Certain offences under The Unlawful Activities (Prevention) Act, 1967 17. Part B of the Schedule to the Act enlists under 25 paragraphs,
various offences under various Acts. They can be presented in a tabular column as follows:-
Part B of the Schedule to the Act enlists under 25 paragraphs; various offences under various Acts. They can be presented in a tabular column
as follows:-
Offences under the Suppression or Unlawful Acts against Safety of Maritime Navigation and Fixed Platforms on Continental Shelf Act, 2002
Keeping in mind the list of offences that fall under various paragraphs of Part A or Part B of the schedule to the Act, let me now turn to the
offences for which the company and its Directors are sought to be prosecuted. As pointed out earlier, there are 3 complaints against the company
and its Directors. The first lodged by the Indian Bank, the second lodged by the State Bank of India and the third lodged by the Bank of India.
From a perusal of the complaint lodged by the Directorate of Enforcement before the Adjudicating Authority in O.C. No. 129/2012, it is seen that
the offences in respect of which the company and its Directors are sought to be prosecuted, are the same in respect of all the 3 complaints. They
are under Sections 120-B r/w Sections 420, 467 and 471 IPC. It is stated in the complaint lodged by the Directorate of Enforcement with the
Adjudicating Authority that the offences u/s 120-B r/w Sections 420, 467 and 471 IPC are scheduled offences in terms of Section 2(1)(y) of the
Prevention of Money Laundering Act, 2002. But as seen from the tabular column given above, Paragraph 1 of Part A of the Schedule includes
offences under Sections 121, 121-A, 489-A and 489-B of the IPC alone. Therefore, the case on hand does not fall under Part A of the schedule.
In so far as Part B is concerned, it is interesting to note that prior to 1.6.2009, Paragraph 1 of Part B of the schedule included within itself, the
offences under Sections 302, 304, 307, 308, 327, 329, 364A, 384 to 389, 392 to 402, 467, 489-A, 489-B, 412, 413, 414, 417, 418, 419,
420, 421, 422, 423, 424, 467, 471, 472, 473, 475, 476, 481, 482, 483, 484, 485, 486, 487 and 488 of the Indian Penal Code. But with effect
from 1.6.2009, the old paragraph 1 of Part B of the schedule to the Act, was substituted by a new Paragraph 1, by the Prevention of Money
Laundering (Amendment) Act, 2009. Now Paragraph-1 of Part B lists out only the offences under Sections 120-B, 255, 257, 258, 259, 260,
302, 304, 307, 308, 327, 329, 364-A, 384 to 389, 392 to 402 and 411 IPC. Therefore, the offences under Sections 420, 467 and 471 IPC do
not any longer form part of Paragraph 1 of Part B of the schedule to the Act. However, Section 120-B is now included in Paragraph 1 of Part B,
though it was not there prior to 1.6.2009. But any offence u/s 120-B has to be read only along with other offences.
A careful reading of the complaint filed by the Directorate of Enforcement with the Adjudicating Authority in O.C. No. 129/2012 shows that
except the offence u/s 120-B, all other offences viz., offences under Sections 420, 467 and 471, of which the company is charged, are no more
scheduled offences under Paragraph 1 of Part B of the schedule to the Act after 1-6-2009. But the First Information Reports by all the 3 Banks
came to be lodged on 6.2.2008, 14.11.2008 and 29.11.2008 respectively. Therefore, at the time of the alleged commission of the offences and at
the time of the lodging of the First Information Reports, the offences complained about the company constituted the offences under Paragraph 1 of
Part B of the schedule to the Act.
Therefore, it is clear that the criminal activity alleged against the company and its Directors relates to scheduled offences, at least at the time of
the alleged commission and at the time of the lodging of the complaints (though they are not so any more after the amendment). In so far as the Part
B offences are concerned, the offences listed therein would come within the meaning of expression ""scheduled offence"" u/s 2(1)(y) only if the total
value involved in such offences is Rs. 30 lakhs and more. This condition is also satisfied in the cases on hand. Therefore, the ingredients of the
expression proceeds of crime stand satisfied, in view of the fact (i) that the company is charged of committing scheduled offences and (ii) the
property in question is allegedly derived as a result of a criminal activity relating to scheduled offences. Hence I cannot sustain the first contention
that since the entire sale consideration for the property was paid by the Bank, it cannot be termed as the proceeds of crime. Prima facie, the
property represents the proceeds of crime and it is upto the accused to establish, by evidence, before the criminal court that it is not so. I make it
clear that the criminal court should independently go into the question without being influenced by my preliminary finding on this question.
QUESTION No. 2:
The second question that arises for consideration is as to where would the claim of the Bank stand, if the property is taken to represent the
proceeds of crime. I think this question is of extreme importance for various reasons. Therefore, it requires an in depth analysis.
It can be easily appreciated from the narration of facts that the very initiation of the action by the respondents is on the basis of the criminal
complaints lodged by the 3 Nationalised Banks with the Central Bureau of Investigation. Today the respondents presume that the allegations are
true. The respondents have proceeded with the action in terms of the Prevention of Money Laundering Act, 2002 only on the presumption that the
allegations made by the Banks in their complaints are true.
If, as presumed by the respondents, the allegations made by the Banks in their complaints are true, then these Nationalised Banks are the
victims of a fraud committed by the company and its officers. In other words, it is the Banks'' money which has actually been made use of by the
company and its Directors to buy properties in their names. Where do these victims stand, vis-�-vis accused in such cases?
Unfortunately, the Prevention of Money Laundering Act, 2002, does not appear to take note of the above question viz., as to where the
victims stand. Interestingly, a look at Paragraph 1 of Part B of the schedule shows that the offence of kidnapping for ransom, punishable u/s 364-
A, the offences related to extortion punishable under Sections 384 to 389 and offences relating to robbery and dacoity punishable u/s 392 to 402
have also been made scheduled offences, if the value of the property involved is more than Rs. 30 lakhs. Therefore, the properties which represent
the proceeds of these crimes can be attached u/s 5 of the Act and an adjudication can takes place in terms of Section 8. Once the order of
attachment is confirmed after adjudication and the accused is convicted of the offences, the property gets confiscated in terms of Section 8(6).
Once the property is confiscated u/s 8(6), it vests absolutely in the Central Government free of all encumbrances u/s 9.
In other words, the Prevention of Money Laundering Act, 2002, not only seeks to punish the offenders, but also seeks to punish the victims of
such offences. Take for instance a case, where an offence of kidnapping for ransom punishable u/s 364-A takes place. If the amount involved is
more than rupees 30 lakhs, it is a scheduled offence under this Special enactment. Therefore, if the accused is apprehended and charged under this
Act and the money is also recovered, then the person who paid the ransom to the accused and who happens to be the victim of the crime, will lose
his money by virtue of Section 8(6) and Section 9. He would rather prefer to turn hostile in the criminal case by reaching an agreement with the
accused so that the attachment order gets lifted u/s 8(5) enabling him to take away his money. In other words, Section 8(6) and Section 9, which
seeks to punish the victims of crime along with the accused, appear to be a disincentive for the victims. The same analogy holds good even for
offences of robbery and dacoity punishable under Sections 392 to 402, which are included in Paragraph 1 of Part B of the schedule to the Act. A
person, who is robbed or a person on whom dacoity is committed, has to lose his property to the Central Government by virtue of Section 8(6)
and Section 9 of the Act, if the stand taken by the respondents is accepted. For the victims of crime, there would virtually be no difference
between the accused and the Central Government, as in any case, they would have to lose their property, to either of the two.
Coming to the facts of the case on hand, it is clear from the facts on the basis of which the respondents have proceeded, that if the order of
adjudication made by the Adjudicating Authority becomes final, after the conviction of the company and its Directors by the Criminal Court, the
Central Government would confiscate such property in terms of Section 8(6). Thereafter, the property would vest in the Central Government free
of all encumbrances u/s 9. In other words, the Banks, who were the victims of fraud, may have to lose the property to the Central Government, for
no fault of theirs except that they were defrauded by the company.
The above disturbing feature which is inbuilt in the Act, was sought to be played down by Mr. M. Dhandapani, learned Standing counsel for
the respondents, on the ground that u/s 8(6), the confiscation of the property will not take place automatically and that it would happen only after
giving an opportunity to the person concerned. But that argument is hardly convincing. A careful reading of Section 8 would show that there is no
provision for the Adjudicating Authority to hand over the properties to third parties, unless they establish that the property does not represent the
proceeds of crime. Sub-section (1) of Section 8 enables the Adjudicating Authority to serve a notice on the person who is alleged to have
committed an offence under the Act, calling upon him to indicate the source of income and also calling upon him to show cause as to why the
properties should not be declared to be properties involved in money laundering and confiscated to the Government. Sub-section (2) obliges the
Adjudicating Authority to conduct an enquiry and record a finding whether all or any of the properties indicated in the notice, are involved in
money laundering.
The proviso to sub-section (2) of Section 8 enables any person who claims the property to be his own, also to be given an opportunity of
being heard to prove that the property is not involved in money laundering. This proviso makes it clear that the leverage given to the Adjudicating
Authority to release the property is limited to instances where the property is proved to be not involved in money Laundering. This is only a very
same leverage given to the Adjudicating Authority. None of the sub-sections of Section 8 enables the Adjudicating Authority to release a property
to a third party, even after the property is proved to be involved in money laundering.
In other words, if a property is proved to be involved in money laundering, the Adjudicating Authority has only one choice viz., to make the
attachment absolute, wait for the final adjudication by the Criminal Court and either release the property to the accused if he is acquitted in the
Criminal Court or confiscate the property to the Central Government if the accused is convicted by the Criminal Court. Therefore, Section 8 in its
entirety is accused-centric and Central Government-centric. It does not take into account the plight of victims of crime.
The learned Additional Solicitor General submitted that since the Banks involved in this case are Nationalised Banks, they can always
approach the Central Government for the apportionment of the value of the property sought to be attached. But this is hardly a solution to the
problem. It is only by coincidence that the complainants in this case, are Nationalised Banks. There may be cases of persons who are victims of
dacoity, robberty, kidnapping for ransom etc. After their property gets confiscated u/s 8(6) and vests with the Central Government u/s 9, those
victims will have to be out in the streets.
I am conscious with the fact that the validity of the Act is not under challenge before me and that the validity of the Act has already been upheld
by a Division Bench of the Andhra Pradesh High Court. I am only testing the strengths and weaknesses of the provisions of Sections 5, 8 and 9 for
the limited purpose of finding an answer to the second question as to whether the Bank can be left high and dry. In view of the inherent lacuna in
the Act, I think the banks cannot be left high and dry. There is also one more reason for me to come to the conclusion.
The Prevention of Money Laundering Act, 2002, is a parliamentary enactment. It received the assent of the President on 17.1.2003 and it was
published in the Gazette of India dated 20.1.2003. Section 71 of the Prevention of Money Laundering Act, 2002 declares that the provisions of
this Act, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. But the SARFAESI
Act, 2002 is also a Central enactment which received the assent of the President on 17.12.2002 and published in the Gazette of India dated
18.12.2002. Section 35 of the said Act also declares that the provisions of the Act shall have overriding effect on any other law for the time being
in force or any instrument having effect by virtue of such law. In other words, both these enactments are almost contemporary though the
Prevention of Money Laundering Act, 2002 may technically be taken to be a subsequent legislation if one goes strictly by the chronology.
However, the very object of the Prevention of Money Laundering Act, 2002 is completely different from what the respondents are now attempting
to do. The preamble to the Act, would show that the Act was passed, with a view to give effect to the resolution S-17/2 adopted by the General
Assembly of the United Nations on 23rd February 1990 for ""Political Declaration and Global Program of Action"" and for implementing the
declaration viz., ""Political Declaration"" adopted by the Special Session of the United Nations General Assembly held in June 1998. The Statement
of Objects and Reasons of the Act would show that the primary object for which the Act came into existence was for prevention of laundering of
proceeds of drug crimes committed by global criminals/terrorists, involved in illicit trafficking of narcotic drugs and psychotropic substances. The
more and more the Act is used for tackling normal offences punishable under the Indian Penal Code, committed within the territories of India, the
result would be disastrous to the victims of crime. Therefore, I am of the view that Sections 5, 8 and 9 cannot be used by the respondents to inflict
injury upon the victims of the crime. Hence the second question is to be answered in favour of the Bank.
Apart from the second question that I have decided as above, there are also two more questions to be addressed. These two questions raised
by Mr. R. Yashodvardhan, learned Senior Counsel for the company, which is the petitioner in the second writ petition are (i) that the whole
proceedings before the Adjudicating Authority are vitiated in the teeth of a stay order in force in the first writ petition and (ii) that at any rate, the
failure of the respondents to make the Indian Bank a party to the proceedings before the Adjudicating Authority also made the whole proceedings
null and void.
I think both the above contentions merit acceptance. The provisional order of attachment was passed by the Deputy Director on 22.2.2012.
Immediately the Indian Bank filed a writ petition in W.P. No. 4696 of 2012 on 27.2.2012. On 28.2.2012 itself, the writ petition was admitted.
While admitting the writ petition, this Court granted an interim stay in M.P. No. 1 of 2012. The prayer in M.P. No. 1 of 2012 in W.P. No. 4696
of 2012 filed by the Bank reads as follows: -
Petition praying that in the circumstances stated therein and in the affidavit filed therewith, the High Court will be pleased to grant stay of all further
proceedings of the order dated 22.2.2012 of the first respondent viz., the Directorate of Enforcement in File No. ECIR/06/CZO/PMLA/2009,
ECIRs 27 and 35/CZO/PMLA/2010.
On the above prayer, this Court passed an interim order on 28.2.2012 which reads as follows :-
Interim stay for a period of four weeks.
Notice. Private Notice is permitted.
In the meantime, since it is reported by the petitioner-Bank that the subject property is going to be auctioned tomorrow under SARFAESI Act, by
the petitioner-Bank, the sale proceeds of the auction shall be kept in an interest bearing lien account until further orders.
The first respondent was served with notice in the miscellaneous petition in the first week of March 2012. The counsel for the first respondent
Mr. M. Dhandapani entered appearance on 13.3.2012. Therefore, the first respondent is supposed to be aware of the interim stay order at least
on 13.3.2012. But the first respondent filed the original complaint O.C. No. 129/2012 on the file of the Adjudicating Authority, on 15.3.2012. I
can understand that if the original complaint had been lodged even before the stay order was communicated. But the original complaint was lodged
on 15.5.2012 by the first respondent, after the first respondent entered appearance through counsel in W.P. No. 4696 of 2012. This is clearly an
attempt at overreaching the interim stay order passed by this Court. The first respondent is fortunate that the Bank did not initiate any contempt
proceedings. Mr. M. Dhandapani, Learned Counsel for the first respondent contended that the first respondent had no alternative except to file a
complaint, since a period of 30 days is fixed statutorily u/s 5(5) of the Act, for the filing of a complaint. The said period cannot be enlarged by
anyone including the Adjudicating Authority. The order of attachment passed by the Deputy Director itself can be in force only for a period of not
more than 150 days u/s 5(1). Therefore, the Learned Counsel contended that the filing of the complaint was necessitated by force of
circumstances.
But I do not agree. There are several things that the first respondent was entitled to do, to overcome the said obstacle, without violating the
interim stay order passed by this Court. The period of 30 days fixed u/s 5(5) was to expire only on 23.3.2012. After having entered appearance
through the counsel on 13.3.2012, the first respondent could have come up with a prayer before this Court, seeking a limited leave at least to file
the original complaint before the period statutorily fixed u/s 5(5). Even if the first respondent had been unable to get the matter listed for hearing or
unable to get any orders, the first respondent would have exhibited bona fides in at least making an application before this Court after 13.3.2012,
but before 23.3.2012 and going ahead with the filing of the complaint due to force of circumstances, But, the first respondent did not do so.
Alternatively, the first respondent could have taken another step. There is no restriction on the power of the Deputy Director u/s 5(1) to pass
any number of orders of attachment. If one order of attachment goes, there is no impediment for issuing another order of attachment and thereafter
filing a complaint within 30 days. The first respondent did not even examine such an option. But in total defiance of the order of interim stay granted
by this Court, the first respondent filed the original complaint before the Adjudicating Authority. Therefore, the learned Senior Counsel for the
petitioner is right in contending that the whole proceedings before the Adjudicating Authority are null and void.
What is more intriguing is the fact that in the original complaint filed before the Adjudicating Authority, the first respondent did not even make
the Bank a party. After having come to know that the Bank had approached this Court and also obtained not only an interim stay of further
proceedings, but also a leave to proceed with the auction sale under the SARFAESI Act, 2002, the first respondent, in all fairness, should have
impleaded the Bank as a party to the original complaint before the Adjudicating Authority. The failure of the first respondent to do so cannot be
condoned.
Today, the first respondent takes a stand that the Bank could have got impleaded by virtue of the proviso to Section 8(2). But unfortunately,
for the first respondent, the obligation is not on the part of the Bank to get impleaded. The obligation is actually on the part of the Adjudicating
Authority as could be seen from the language of Section 8(2). It reads as follows:-
(2) The Adjudicating Authority shall, after -
(a) considering the reply, if any, to the notice issued under sub-section (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.
Therefore, there is an obligation on the part of the Adjudicating Authority to hear the Bank, when it is pointed out to the Adjudicating Authority
that the Bank had already laid a claim and that they also have obtained an interim stay of all further proceedings.
But unfortunately the Adjudicating Authority has confirmed the attachment by the order dated 26.6.2012 passed during the pendency of the
writ petition and during the operation of a stay order, without even impleading the Bank. In paragraph 11 of its order dated 26.6.2012, a copy of
which was produced by the Learned Counsel for the respondents, the Adjudicating Authority has found fault with the Director for filing the
complaint. The Adjudicating Authority has pointed therein that though the conduct of the Officer who filed the complaint was wrong, the complaint
does not become ab initio void or non-est. But it is actually the other way about. The officer was under a statutory constraint to file a complaint
within 30 days, but, the Adjudicating Authority had a time limit of 150 days (in terms of section 5) to pass a final order. The Authority had the
leverage and obligation to wait till the disposal of the writ petition or at least till the stay order was vacated. The Courts have repeatedly held that
any proceeding initiated, conducted or concluded in violation of an order of interim stay or injunction is non-est in the eye of law. The Adjudicating
Authority should have at least waited for this Court to dispose of the writ petition filed by the Bank or in the alternative, directed the impleadment
of the Bank as a party. By virtue of the interim order dated 28.2.2012, this Court has permitted the Bank to proceed with the auction sale of the
property under the SARFAESI Act, 2002. The action of the Adjudicating Authority in proceeding with the hearing of the original complaint
despite being aware of the interim stay order and also proceeding to pronounce a final order on 26.6.2012, is clearly in defiance of the interim stay
order of this Court. Therefore, the whole proceedings are vitiated and even the order dated 26.6.2012 passed during the pendency of these writ
petitions is illegal and are liable to be set aside as null and void. In view of the above, both the writ petitions are allowed, the provisional order of
attachment dated 22.2.2012 as well as all further proceedings pursuant thereto including the original complaint and the order of confirmation dated
26.6.2012, are set aside as illegal. I am conscious of the fact that the order of confirmation dated 26.6.2012 was passed during the pendency of
these writ petitions and that the same is not under challenge. But it hardly matters, in view of the fact that once the provisional order of attachment
dated 22.2.2012 goes, there is nothing for the Adjudicating Authority to confirm. There will be no order as to costs. However, the findings
recorded herein shall not have a bearing on the criminal prosecution. Consequently, connected miscellaneous petitions are closed.