Punjab National Bank vs Deputy Director Directorate Of Enforcement, Delhi

,

FPA-PMLA-1859 & 1950/DLI/2017,

APPEAL NO. 1859/2017,

The above-mentioned appeal has been filed by the appellant against the impugned dated 14.03.2017 thereby confirming the Provisional Attachment,

Order no. 08/2016 (in ECIR no. DLZO/01/2015/AD (BKS) vide F. No. DLZO/01/2015/AD(VM)/2996 dated 30.09.2016, passed under sub-section",

(1) of Section 5 of the PMLA, 2002.",

The case of the appellant is that M/s. Divine Infracon Pvt. Ltd. had availed an overall credit facility of Term Loan of Rs. 373.00 crores and Bank,

Guarantees of Rs.28.84 crores as sanctioned and granted, inter-alia, by all the members of Punjab National Bank Consortium comprises with Punjab",

National Bank, Bank of India (now assigned debts to Phoenix ARC Private Limited), Andhra bank (now assigned debts to M/s. Pridhvi Asset",

Reconstruction and Securitization Company Ltd), Union Bank of India, Bank of Baroda, UCO Bank (now assigned debts to Phoenix ARC Private",

Limited) and Punjab & Sind Bank lastly enhanced on 15.12.2011 vide PNB Consortium. Therefore the Appellate Punjab Nation Bank being the Lead,

Bank of PNB Consortium is competent to file the present appeal also on behalf of the other member Bank of PNB Consortium by virtue of inter-se,

agreement dated 15.12.2011 executed between the member banks of the PNB Consortium whereby appellant was appointed as the Lead of the PNB,

Consortium and further vide Joint lenders, meeting dated 16.06.2017 authorised to file the present appeal on or behalf of other member banks of PNB",

Consortium.,

The appellant Bank being the Lead Bank of PNB Consortium called a JLM Meeting on 06.06.2017 at Circle office PNB, whereby in JLM of the",

PNB Consortium members it was bring into the knowledge of the PNB Consortium members by the borrowers i.e. M/s. Divine Infracon Pvt. Ltd,

through its Directors that a provisional attachment order bearing no. 08/2016 (in ECIR no. DLZO/01/2015/AD (BKS) dated 30.09.2016 was issued,

under sub-section 1 of Section 5 of PMLA, 2002 passed by the Deputy Director, Directorate of Enforcement, whereby the Hotel Raddisson Blu was",

attached in exercise of the powers conferred under section 5(1) of PMLA, 2002 to the extent of Rs.21,10,66,767/- and the Adjudicating Authority",

under the PMLA passed an adjudication order bearing OC No. 0664/2016 dated 14.03.2017 thereby confirming the provisional attachment order,

bearing no. 08/2016 (in ECIR no. DLZO/01/2015/AD (BKS) dated 30.09.2016.,

APPEAL NO. 1950/2017,

The above-mentioned appeal was filed under Section-26 of the PMLA against the Adjudication Order no. OC No. 713/2017 (Zone: Delhi) passed,

on 10.08.2017 by Sh. Tushar V. Shah, Member(Admin), Adjudicating Authority under the Prevention of Money Laundering Act, 2002.",

The appellant submits as under:-,

a) It is submitted that present appellant, the Punjab National Bank is a body corporate constituted under the banking Companies (acquisition and",

transfer of undertakings) Act, 1970 having its head office at 7, Bhikhaji Cama Place, New Delhi-110066 and a branch office amongst other places at",

ARMB, Mayur Vihar, Phase-II, New Delhi-110091. The present appeal is being filed by Shri P.K. Gupta, who is Principal Officer of the",

Bank/attorney of Bank and is competent to institute suit and engage counsel and take all steps for the conduct of the case and is also duly authorized,

by the Bank through an Authorization Letter to sign, verify, plaint, replication, swear affidavits, applications etc. and to execute all documents",

connected with legal proceedings and to do all acts necessary for the prosecution of the case. Further, he is a duly constituted attorney authorized to",

sign and verify the present appeal and do the needful on behalf of the Punjab National Bank.,

b) On 18.04.2017, the appellant Bank being the Lead Bank of PNB Consortium served with a Show Cause Notice of hearing through the respondent,",

whereby it was gathered that a Provisional Attachment Order no. 05/2017 (in ECIR no. 01/DLZO/2017 dated 14.03.2017 along with corrigendum,

dated 05.04.2017 was issued under sub-section 1 of Section-5 of PMLA, 2002 passed by the Deputy Director, Directorate of Enforcement, whereby",

vide the above said POA property at Plot No. 4, Sector-13, Dwarka, New Delhi known as “Hotel Raddisson Blu†was attached in exercise of the",

powers conferred under Section 5(1) of PMLA, 2002 to the extent of Rs.64.70 Crores.",

c) Upon the receipt of the show cause notice, the appellant Bank duly entered the appearance on behalf of Defendant no. 6 and filed a detailed reply",

to the OC no. 713/2017 on 14.06.2017 inter-alia challenging the POA no. 05/2017 and Original Complaint filed by the Deputy Director, Directorate of",

Enforcement under sub-section (5) of section 5 of the PMLA, 2002 as the same is not maintainable and liable to be dismissed in the eye of law.",

d) It is the admitted case of respondent that the appellant is the mortgagee bank in respect of property bearing plot no. 4, Sector-13, Dwarka, New",

Delhi, Hotel managed by Raddison Blue ( hereinafter referred as “Attached Hotelâ€), which was attached by the respondent in exercise of the",

powers conferred under Section 591) of PMLA, 2002 vide Provisional Attachment Order no. 05/2017 dated 14.03.2017 read with corrigendum dated",

5.4.2017 to the extent of Rs.64.70 Crores.,

e) The Provisional Attachment Order no. 05/2017 dated 14.03.2017 read with corrigendum dated 5.4.2017 is arbitrary, perverse and contrary to the",

rights of Secured Creditor provided under the SARFAESI Act, 2002 and against the facts/documents on record and has been passed or attached in an",

undue haste manner and without proper investigation in the matter as a security interest upon the attached property i.e. plot no. 4, Sector-13, Dwarka",

City Centre, Dwarka, Delhi (Hotel Raddison Blue ) thereon was created by the M/s. Divine Infracon Pvt. Ltd in favour of the PNB Consortium",

member Banks for the due repayment of all the Term Loans and other credit facilities amounting to Rs.401.84 Crores sanctioned and disbursed only,

for the construction of the Hotel Raddisson Blue.,

f) The appellant (Respondent no. 6, Punjab National Bank) on behalf of other member banks of PNB Consortium for the recovery of",

Rs.336,46,02,792.48 along with interest as due and recoverable from M/s. Divine Infracon Pvt. Ltd. has already filed a T.A. No.07/2016 (previously",

O.A. No. 730/2015) before the DRT-I, New Delhi for the determination of the debt due and recoverable.",

6 The enforcement of the security interest created by M/s. Divine Infracon Pvt. Ltd upon the secured asset i.e. plot no. 4, Sector-13, Dwarka City",

Centre, Dwarka, Delhi with superstructure thereon created for the due repayment of all the Term Loans of Rs.401.84 Crores, the appellant (PNB",

Consortium) has already initiated measures under section 13 & 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of,

Security Interest Act, 2002 and possession of the attached property was taken over on 7.7.2015 under the provisions of section 13(4) OF",

SARFAESTI Act, 2002.",

As far as relevant dates and events are concerned, the appellant in both appeals have common details. The same are mentioned below:-",

Dates,Events

10.02.2009, 06.03.2009 &

07.03.2009 04.06.2009 &

11.07.2009 14.12.2011/

15.12.2011","PNB Consortium sanctioned a Term loan and BG of Rs 401.84 Crores for

the construction of Five Star Hotel Project cum shopping area at Plot

No.4, Dwarka City Centre Sec13 Dwarka (Radisson Blue Dwarka) to M/s

Divine Infracon Pvt. Ltd. herein.

31.03.2009,"A consortium was constituted between PNB consortium and all the

Loaning document was executed by the M/s Divine Infracon Pvt. Ltd..

,"The Loan was duly secured by the mortgage of immovable property

admeasuring 3.85 acres situated at Plot No.4, Dwarka City Centre Sec 13,

Dwarka with all superstructures thereon.

14.12.2011/

15.12.2011","M/s Divine Infracon Pvt. Ltd. extended the Equitable Mortgage of

property bearing Plot No.4,

Dwarka City Centre along with structure thereon.

30.09.2013

21-02-2015","Account of the M/s Divine Infracon Pvt. Ltd. was declared NPA

as per RBI guidelines by all the Consortium Member Banks.

02-03-2015,"Petitioner Bank on behalf of other Consortium member Banks

issued a Notice u/s 13(2) SARFASEI Act,2002, dated 02-03-

2015, calling upon M/s Divine Infracon Pvt. Ltd. to discharge in

full its liabilities of a sum of Rs.336, 46,02,792.48/- Crores as due

& recoverable as on

28.02.2015, within a period of 60 days.

30-04-2015,"The M/s Divine Infracon Pvt. Ltd. herein have

raised their objections U/s 13(3)(a) of the SARFAESI ACT

2002.

13-05-2015,"Petitioner Bank being the lead bank of the PNB Consortium has

dealt with the objections of the

M/s Divine Infracon Pvt. Ltd.

06-06-2015,"A Joint Lenders Meeting was constituted on the request of the

M/s Divine Infracon Pvt. Ltd. for examining the proposal of

restructuring of the Loan Account, whereby to see the seriousness

of the M/s Divine Infracon Pvt. Ltd. about the restructuring of the

Loan Account, all the consortium member banks asked to deposit

the entire promoter‟s funds of Rs. 15.00 Crores on or

before 31.07.2015 in two instalments.

07-07-2015,"The M/s Divine Infracon Pvt. Ltd. hereby failed to deposit the first

instalment of Rs 7.50 Cr. till 30.06.2015, hence thereafter the

Petitioner Bank took symbolic possession of the property bearing

Plot No. 14, Dwarka City Centre, Sec-13, Dwarka New Delhi

under section 13(4) of SARFAESI Act,

2002.

August 2015,"SA No. 162/2015 was filed by M/s Divine Infracon Pvt. Ltd.

challenging the measures of Section 13(4) of SARFAESI Act,

2002 (pending before DRT-I, Delhi)

November 2015,"TA No. 7/2016 (Old OA No 730/2015) was filed by PNB

Consortium against M/s Divine Infracon Pvt. Ltd. for the recovery

of a sum of Rs. 262,57,87,628.28/-

(pending before DRT-I, Delhi)

January 2016,"Writ Petition bearing No 147/ 2016 filed by PNB Consortium

against M/s Divine Infracon Pvt. Ltd. inter alia praying for the

physical possession of the secured asset which was denied by the

Ld. CMM, Dwarka under section 14 of the SARFAESI Act,

2002.

(pending before High Court of Delhi)

14-03-2017 (PAO 05/2017),"Provisional Attachment Order No.05/2017 (IN ECIR

No./01/DLZO-II/2017) (herein after referred as “POAâ€​)

dated 14-03-2017 along with corrigendum dated 05-04-2017

was issued under sub section 1 of Section 5 of PMLA, 2002

passed by the Deputy Director, Directorate of

enforcement,

,"Hotel Radison Blue at Plot No-4, Sector-13, Dwarka was

attached for the proceeds of crime of

Rs. 64,70,00,000/-

12-04-2017,"Original Complaint No. 713/2017 filed before Adjudicating

Authority by ED under section 5(5) of PMLA, 2002 against

Sanjay Jain and 18 other

Defendants.

In POA and in OC No. 664/2016 and O.C. No. 713/2017, Enforcement Directorate admitted the fact that PNB is a mortgagee bank and property",

attached was mortgaged to secure the liabilities of Rs. 401.84 Crores.,

Statement of mortgagee bank was not recorded under Section 50 of PMLA, 2002.",

It is submitted on behalf of the appellants that the property attached cannot be attached under Section 5 of the PML Act because the Property are,

not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the,

proceeds of crime are likely to be concealed, transferred or dealt with in any manner. The said Property are already in the possession.",

The Security interest upon the attached property was created under SARFAESI Act, 2002 and mortgagee bank is the secured creditor in terms of",

SARFAESI Act, 2002. SARFAESI proceedings initiated in the year 2015 two years prior from the PAO.",

Attached property is under the possession of mortgagee bank since 07-07-2015, hence, it is argued that no question of concealment, transfer, and",

dealing by the borrowers arise.,

OA for the recovery of a sum of Rs. 262,57,87,628.28/- was filed before DRT under RDDBFI Act. Reply of the appeal filed by Shri B.K. Singh,",

Assistant Director, Enforcement Directorate, New Delhi without any authority. Neither, he is deputy director, nor any authorization letter was filed",

along with reply.,

It is submitted on behalf of the appellant that the provisions of PML Act, 2002 does not apply to the Transactions where the rights of the secured",

Creditor were created in accordance with the Transfer of property Act, 1882.",

It is not denied on behalf of the respondent that the Appellant being the mortgagee bank and secured Creditor is entitled to recover amounts,

outstanding in the loan account of M/s Divine Infracon Pvt Ltd from the sale of the Mortgaged Property as it was never the case of the ED that the,

attached Property were purchased after the loan was obtained.,

It has also come on record that the mortgagee bank acted bonafidly while rendering the facilities and mortgage of the Property was done for,

bonafide purposes. The appellant is not involved in the schedule offence. No PMLA proceedings are pending against the work. There is also no,

criminal complaint under the schedule offence under PMLA is pending against the bank. In the Reply of the Respondent Bank to the Appeals, it was",

never urged that the conduct of the bank was malafide all the time.,

Thus, the mortgaged Property are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and",

mortgaged prior to the events of funds diversion and fraud committed by the borrowers.,

As per settled law that the appellant bank is the rightful claimant of the attached property, which are already in the possession of the Appellant",

bank since July 2015 under the SARFAESI Act. The legal right under SARFAESI is taken away from the Appellant Bank by the Enforcement,

Directorate vide provisional attachment Order No.08/2016 dated 30-09-2016. The Respondent failed to understand that the Appellant Bank has stakes,

in the attached Hotel Raddison Blu prior in time. Therefore, the Appellant Bank has the right to recover the loan amount against the mortgaged",

Property under law. The valuable right will be lost if the Order of attachment would continue. The impugned order passed by Respondent would cause,

miscarriage of justice if it is not set-aside.,

The Respondent has failed to consider that the Respondent has attached all the Property without examining the case of the banks. The mortgaged,

Property of the Appellant Bank cannot be attached or confiscated unless link and nexus directly or indirectly established and there is no illegality or,

unlawfulness in the title of the Appellant Bank and there is no charge of money laundering against the Appellant. The mortgage of property is the,

transfer under the Transfer of Property Act as there is no dispute as regards the origin of funds or the title of the Property.,

The Respondent does not have any lien over the said Property as the Appellant bank is now the Legal transferee of said Property. The,

Respondent cannot retain the property over which they have no legal title and the property is to returned to the persons lawfully entitled as the bank is,

the victim and even after trial.,

It has come on record that by the second Amended & Restated Common Agreement dated 15-12-2011, borrowers have been permitted in all",

terms Loan Facility of Rs 373.00 CR and Bank Guarantees of Rs 28.84 Crores, which includes the Additional Term Loan of Rs 25 Crores sanctioned",

by the Lead Bank and the restructuring of the Repayment schedule of Original Term Loan of Rs 275.00 Crores has also been permitted to the,

Borrower. The said relevant facts have not been denied on behalf of respondent.,

As such the properties/ assets acquired by appellant before the initiation of the proceeding under PML Act and properties/ asset in respect of,

which security interest has been created in favour of the bona fide secured creditor ought not be subjected to attachment in view of the aforesaid,

observations of the Honâ€ble Delhi High Court and the State Action would be restricted to such part of the value of the property as it exceeds the,

claim of the bona fide third party.,

As such, in the present case once it has been showed by the Bank of India that proper due diligence was conducted before the properties/ assets",

were mortgaged to them, the properties thus cannot be attached, neither as a “tainted property†nor as “alternative attachable property†since",

it is nobody`s case that the secured creditor had not done the due diligence and/or the transactions were not legitimate.,

It is the case of appellant that the appellant before seeking to create a mortgage of the afore-mentioned properties had conducted due diligence of,

the purchase of the properties and upon being satisfied that the properties are in no way tainted and or benami got created mortgage in favour of the,

Appellant. No contrary evidence is available on record to show that the mortgaged properties were purchased from proceed of crime.,

The attachment of the encumbered property by Respondent No. 1 treating to be tainted is not valid argument if the bonafide third party claimant,

(as aforesaid) is a ""secured creditor"", pursuing enforcement of ""security interest"" in the property (secured asset) sought to be attached, it being an",

alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence",

of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity",

relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest",

prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of",

the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third,

party. In the situations covered by the preceding, the bonafide third party claimant shall be accountable to the enforcement authorities for the",

“excess†value of the property subjected to PMLA attachment. Counsel for the appellant is agreeable to deposit the excess value with the,

respondent no. 1.,

Therefore, it is not possible to hold that the mortgaged properties claimed by the Appellant in no way can be considered to be “Proceed of Crimeâ€",

under Section 2(u) of PMLA. The impugned order does not disclose any reasoning. There is no application of mind whatsoever and it is assumed that,

the properties in question are the proceeds of the crime. There is no reasoning to show as to how the attached properties mortgaged prior to the date,

of alleged offence are the subject matter of proceeds of crime. The Adjudicating Authority has not analysed the facts at all. The order suffers from a,

fundamental error. There is no understanding by the Adjudicating Authority of the contents of the statute, much less its application to the facts of the",

case.,

Section-3 of the Act provides that only a person who is knowingly a party to any activity or is involved in such activity connected with proceeds of,

crime and projects or claims it as untainted property can be guilty of the offence. S.5(1) shows that before any property can be provisionally attached,

there must be material prima facie to show any person is in possession of any proceeds of crime which are likely to be concealed, transferred or dealt",

with in a manner which may frustrate the confiscation proceedings thereof. The primary requirement for invoking S.5(1) is that there must be material,

to show that some proceeds of crime are in possession of any person. The requirement is that material must indicate that any property of whatever,

description in possession of any known person is “proceeds of crime†as defined in S. 2 (u). Finally adjudication proceedings are under S.8.,

Perusal of S.8 (1) shows that if any person has committed an offence under S. 3 or is in possession of proceeds of crime he may be served notice to,

indicate the sources of his income etc. out of which or by means of which he has acquired the attached property. This obviously means that if in,

response to the notice, the person in possession discloses legitimate means for having acquired the property in question, the property cannot deemed to",

be involved in money laundering. Therefore, the attachment thereof cannot be confirmed.",

The legal implication of a mortgage must be understood by both authorities. When a property is mortgaged, the only right which is left in the",

mortgagor is that of the equity of redemption. Otherwise the entire corpus of the property passes to the mortgagee i.e. the appellant Bank in this case.,

The mortgagee has a right to take over the possession of the property and to realise it whereas the mortgagor who is left only with the equity of,

redemption has only the right to make full payment of the dues of the mortgagee and then redeem the property. Otherwise the mortgager is not left,

with any vested right. In other words the mortgaged assets are essentially assets of the appellant Bank and not of the mortgager.,

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 Appellant undertakes to deposit any amount realized, which is in excess of its outstanding dues, with the ED if such situation would arise.",

The Adjudicating Authority failed to apply its mind at the time of issuance of the Show Cause Notice (“SCNâ€). No reason to believe can be,

discerned from the SCN, or the provisional attachment order accompanying the SCN under Section 8 of the PMLA, as to how there was reason to",

believe that the Appellant was in possession of “proceeds of crimeâ€. Adjudicating Authority, in its discussions, did not even consider the reply of",

the Appellants.,

The Adjudicating Authority is bound by the law laid down by the higher courts. No authority has any justification to ignore the law laid down by the,

Supreme Court and various High Courts and this Tribunal, who on the basis of decisions of Honâ€ble Supreme Court and various High Courts, has",

delivered orders. Unless each and every judgment is distinguished or are on different facts, the different conclusion cannot be arrived. The facts and",

legal issues are almost same and the Adjudicating Authority has incorrectly passed the impugned order by not following the orders passed by this,

Tribunal. The appellant is a Public Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers,

which may take many years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the",

commercial market. The trial may continue against the borrowers. One is failed to understand why the bank loan amount be blocked in view of settled,

law.,

This Tribunal is of the considered opinion that the proceeding u/s 8 of PMLA, 2002 before the Adjudicating Authority is a civil proceeding and the",

Adjudicating Authority should have stayed the proceedings on passing of the moratorium order by the NCLT. The continuation of the proceedings,

from the date of commencement of the moratorium order is contrary to the intention of the legislature hence the consequential order of confirmation,

of PAO is contrary to law. In the facts of the present case, it appears that hurdle has been created in the process after passing the order of NCLT",

which ought not to have been done. The question of registering ECIR does not arise. The passing of provisional attachment order was not application,

of mind and without consulting the facts and law.,

In the light of above, both the impugned orders dated 14.03.2017 passed in OC no. 664/2016 and dated 10.08.2017 passed in OC no. 713/2017, are",

set-aside by allowing the appeals. The attachment order with regard to the mortgaged property i.e. plot no. 4, Sector-13, Dwarka City Centre,",

Dwarka, Delhi (Hotel Raddison Blue ) is quashed. The appellants are at liberty to take further steps in accordance with law.",

As far as the case of the borrowers are concerned, they have also challenged the impugned orders by filing of an appeal under section 46 of",

PMLA. The said appeal is listed and will be argued in due course.,

With regard to the criminal liabilities against the borrowers are concerned, we do not wish to express any opinion in this regard. Those matters will",

be decided as per their own merit.,

No costs.,