Union Bank Of India vs Deputy Director, Directorate Of Enforcement,Mumbai

Sr. No.,Particulars of the Security,"Es(cid:20)mated Value of the security in

Lakhs

1.,"Unit No. 905, Jewel World, 175, Kalbadevi Road, Mumbai-2",24.00(as per valuation dt. 25.10.2016)

2.,"Unit No. 906, Jewel World, 175, Kalbadevi Road, Mumbai-2","349.00(as per valua(cid:20)on dt

25.10.2016)

3.,"Shop No. 3, Ground floor Nisarg CHS Ltd, AB Road, Vile Parle (West)

Mumbai-56","531.48 (as per valua(cid:20)on dated

04.08.2017

e

t)

4.,"Shop No. 4, Ground floor Nisarg CHS Ltd, 04.08.2017 AB Road, Vil

Parle (West) Mumbai-56",

5.,"Basement No. 1 Nisarg CHS Ltd, AB Road, Vile Parle (Wes

Mumbai-56",

6.,"Shop No. 404 and 405, 4th Floor, Shail‘s Mall, TPS No. 3, Villag

Changis-pur, CG Road, Navrangpura, Ahmedabad (Gujarat)","2e82.60(as per valua(cid:20)on dated

16.03.2017)

,TOTAL VALUATION,1187.08 Lakhs

demonetization i.e. November-December 2016 therefore the said properties which had been purchased prior to creation of mortgage in 2011 could not,,

be considered as proceeds of crime by any stretch of interpretation.,,

(b). The right and title of the properties mortgaged to the bank vest in the bank and therefore they cannot be considered as the properties of borrowers,,

and cannot be attached for any crime done by them.,,

(c ). The bank had already initiated action under SARFAESI Act which, as held by the Hon‘ble Tribunal, has overriding effect.",,

(d). The Holding on operation in the account were allowed by the bank with regard to loan accounts are duly permissible as per the recovery policy of,,

the bank and are in consonance with the extant guidelines of the Reserve Bank of India.,,

(e ). The bank has no role or connection with the alleged offences committed by the borrower punishable under Prevention of Money Laundering Act,",,

2002.,,

(f). The banks present dues are more than Rs. 125 Crore and the available assets with them are valued at less than 10% of that amount.,,

(g). The money lent by the bank is public money as the banks money is actually customers money held by the bank in trust.,,

(h). The properties mortgaged with the bank could not have been purchased or acquired with the proceeds of alleged crime since the same had been,,

purchased much earlier to the earliest possible date of alleged crime and therefore cannot be considered as properties acquired from the proceeds of,,

the crime,,

It is alleged on behalf of the bank that the appellant bank has no sympathies with any person having committed any offence under the,,

Prevention of Money Laundering Act, 2002 but bank concerned only with the order of attachment passed on the properties in their hand as mortgaged",,

properties which form the security for their huge outstanding.,,

This tribunal has, inter alia, time and again in large number of cases, held that the secured asset of a bank cannot be attached or confiscated when",,

there is no illegality or unlawfulness in the title of the bank and that there is no charge of money laundering against the bank.,,

It was also propounded that the bank would be entitled to recover its dues by proceeding against the mortgaged/hypothecated properties under the,,

provisions of SARFESI Act, 2002 and the RDDBFI Act 1993, as the Directorate of Enforcement would have no lien over the property which",,

already stands legally transferred to the bank.,,

This Tribunal has perused and examined the material available on records and has also heard the arguments of the learned,,

counsels for both the parties and gone through the written submission filed.,,

The Respondentâ€"Deputy Director is relying upon the non-obstante clause in Section 71 of PMLA to claim priority over their debts due to the,,

Appellant Bank. Section 71 of PMLA reads as under:-,,

“The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in,,

force.â€​,,

There is no denial on behalf of respondent that appellant is a Secured Creditor and is entitled to priority over all other debts and all revenues, taxes,",,

cesses and other rates payable to the Central Government or State Government or Local Authority.,,

The amended provisions of Section 26E of the SAR-FAESI Act, 2002 as amended by the Enforcement of Security Interest and Recovery of",,

Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:-",,

“26E. Priority to secured creditors. -,,

Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to",,

any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central",,

Government or StateGovernment or local authority.â€​,,

The amended provisions of Section31B of the Recovery of Debts due to Banks and Financial' Institutions Act, 1993 as amended by the",,

Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment)Act, 2016 which reads as under:-",,

“31B. â€" Priority to secured creditors.,,

Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due",,

and payable to them by sale of assets, over which security interest is created, shall have priority and shall be paid in priority over all other",,

debts and government dues including revenues, taxes, cesses and rates due to the Central Government, StateGovernment or local",,

authority.â€​,,

It was brought to our notice of this Tribunal that the above mentioned provisions had come into force w.e.f. 16.08.2016, empowering this Appellant",,

Bank to have priority over the mortgaged property.,,

The Hon‘ble Supreme Court, wherein it has been categorically held that if non-obstante clause is contained in two enactments, the non-obstante",,

clause in the later enactment shall prevail over the non-obstante clause in the earlier enactment.In the case of Solidaire India Ltd. vs. Fairgrowth,,

Financial Services Ltd. (2001) 3 SCC 71, the Supreme Court was considering the effect of the non-obstante clause contained in SectionÂ",,

32 of the Sick Industrial Companies (Special Provisions) Act, 1985 and Section 13 of the Special Court (Trial of Offences Relating to",,

Transactions in Securities) Act, 1992.",,

The Hon‘ble Supreme Court has categorically held that the non-obstante clause in the later Act must prevail over the non-obstante clause in the,,

earlier  Act. The following is the relevant portion of the decision of the Hon'ble Supreme Court :-,,

“9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act,,

which must prevailâ€​,,

The Hon'ble Supreme Court, while deciding this issue unequivocally, was pleased to uphold its own catena of decisionsÂ",,

echoed earlier, which are reported in-",,

(i) AIR 1956 SC 614 - Ramnarayan vs. Simla Banking andIndustrial Company Ltd.,,

(1977) I SCC 750 - Sarvan Singh vs Kasturi Lal,,

(1993) 2 SCC 144 = Maharashtra Tubes Ltd. vs State Industrial Investment Corporation of Maharashtra Ltd.,,

(iv) (2000) SCC 406 - Allahabad Bank vs. Canara Bank,,

The Hon'ble Supreme Court in the said case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. has approved the decision of the Special,,

Court rendered by the Hon'ble Mr. Justice Variava, as he was then of the Bombay High Court reported in (1997) 89 Comp cases 547 clarifying",,

that the non-obstante clause in the later enactment will prevail over the non-obstante clause in the earlier enactment.,,

The following is the relevant portion of the decision of the Special Court, as appearing at Para 10 of the said Supreme CourtJudgment:-",,

“Where there are two special statues which contain non-obstante clauses, the later statute must prevail. This is because at the time of",,

enactment of the later statute, the Legislature was aware of the earlier Legislation and its non-obstante clause. If the legislature. still confers",,

the later enactment with a non-obstante clause, it means that the Legislature wanted that enactment to prevail. If the Legislature does not",,

want the later enactment to prevail, then it could and would provide inthe later enactment that the provisions of the earlier enactment",,

continue to apply.â€​,,

The afore-stated principle laid down by the Hon'ble Supreme Court has been followed by the Full Bench of the Hon'ble Madras High Court in a,,

recent decision dated 10.11.2016 in W.P. Nos. 2675 (authored by Hon‘ble Mr. Justice S.K. Koul, who is now the Hon‘ble Judge of Supreme",,

Court). TheAssistant Commissioner (Commercial Taxes) Vs. Indian Overseas Bank], in which the Hon'ble High Court upheld theÂ",,

provisions of the amended Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993. The following is the",,

relevant portion of the said decision:-,,

“3. There is, thus, no doubt that the right* of a secured creditor to realize secured debts due and payable by sale of assests over which",,

security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the",,

Central Government, State Government or LocalAuthority.â€​",,

The said principle laid down by the Hon'ble Supreme Court has also been followed by the Hon'ble Madras High Court in another decision dated,,

22.12.2016 in W.P. No.27504 of 2015 and has upheld the provisions of the amended Section 26E of SARFAESI Act. The following is the extract of,,

the relevant portion of the said decision of the Madras High Court:-,,

“8. Concededly, the mortgage in favour of the petitioner Bank was created on 26.05.2005, which was prior to the date of attachment.",,

The date of attachment, as indicated above, was 19.01.2015. To be noted, attachment entry was made by respondent No. 3, on 13.08.2015.",,

This apart, the matter is now put beyond the pale of doubt, as during the pendency of the writ petition, an amendment has been made to the",,

2002 Act with the insertion ofSection 26E. """,,

It is clear from the material placed on record that the Appellant â€" Bank being a Secured Creditor, since it had lent its own money to the",,

Predicate Offender earlier, is entitled to priority over all other debts and government dues, including revenues, taxes, cesses and rates due to the",,

Central Government, StateGovernment or local authority. Hence, the Respondent -DeputyDirector has no power to attach the",,

property of the mortgagors.,,

The Hon'ble Andhra Pradesh High Court in the case of B. Rama Raju vs. Union of India &Ors. reported in (2011) 164 Comp Cases 149 in which,,

the Hon'ble High Court has held that if the Adjudicating Authority is satisfied as to the bona fide acquisition of property, it should relieve such property",,

from provisional attachment by declining to pass anOrder of confirmation of the provisional attachment.,,

The following isthe relevant portion of the Para 103 of the said decision passed by theHon'ble Andhra Pradesh High Court :-,,

“103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of,,

criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence",,

having a probative value that his acquisition is bona fide, legitimate and for fair market value paid thereof the adjudicating authority must",,

carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under,,

Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assests or means to justify the bona fides in",,

the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional",,

attachment by declining to pass an order of confirmation of the provisional attachment.,,

The AdjudicatingAuthority also has no power to confirm the Attachment under Section8(2) of PMLA. Similarly, it is a simple case of recovery by",,

the Appellant-Bank from its Borrower its own stressed Asset, since the Bank had already lent the money owned by it, which the Bank is entitled to",,

recover the same.,,

The principle laid down in the above decisions of the Hon'ble Supreme Court and the Hon'ble Madras High Court has been followed by this,,

Appellate Tribunal, Prevention of Money Laundering Act, New Delhi, in its catena of decisions, including the decision dated 14.07.2017 in a batch of",,

Appeals filed by various Banks, namely, the State Bank of India vs. The Joint Director Directorate of Enforcement (and connected Appeals) against",,

the Provisional Attachment Order. The Tribunalhas held that as per the amended provisions of Section 26E of SARFAESIAct and 31B of the,,

Recovery of Debts due to Banks and Financial Institutions Act, 1993, a secured creditor will have priority over all other debts and government dues,",,

including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority and accordingly, set aside the",,

Provisional Attachment Orders.,,

The following are the relevant Paragraphs of the said Judgment dated 14.07.2017,,

“46. In the present case, it is undisputedfact that the attached property were purchased much prior to the period when the facility of loan",,

was sanctioned to borrowers. The Bank whilerendering the facilities were bona fide parties. It is not the case of the respondent that the,,

attached properties were purchased after the loan was obtained. The mortgage of the properties were done as bona fide purposes. None of,,

the bank is involved in the scheduledoffence.,,

In view of the entire gamut of thedispute, we are of the considered opinion that the conduct of the banks are always bona fide. Both",,

banks are innocent parties.,,

Thus in the present case even thoughthe Ld. Adjudicating Authority had all the reasons to believe that the above mentioned were,,

mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter â€" 5 properties ;still the Ld.,,

Adjudicating Authority confirmed the provisional attachment order of the respondent no. 1 and thus causing huge loss to the appellant SBI.,,

We also find that the Adjudicating Authority has not examined the law on mortgages and securities.,,

The property of the Appellant bank cannot be attached and confiscated when there is no illegality or unlawfulness in the title of the,,

appellant.,,

The respondent has no lien over thesaid properties as the appellant banks are now the legal transferees ofthe saidproperties.,,

From the entire gamut of the matter, we are of the view that there is no nexus whatsoever between the alleged crime and the two banks",,

who are mortgagees of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out,,

against banks who have sanctioned the amount which is untainted and pure money. They have priority as secured creditors to recover the,,

loanamount/debts by sale of assets over which security interest is created, which remains unpaid.â€​",,

This Tribunal in the above Judgment dated 14.07.2017 has also relied upon its own earlierJudgment dated 22.06.2017 in the case Indian Performing,,

Right Society Ltd. vs. The Deputy Director, Directorate of Enforcement,Mumbai, wherein the Tribunal held as follows :-",,

“55. Whether innocent party whose properties i.e.movable or immovable are attached can approach the Adjudicating Authority for release of,,

attached property.,,

The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating",,

Authority for the purpose of release of properties which have been attached in terms of the provisions ofSection 5 of the Act. This can be seen by,,

reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties,,

referred to in the notice are involved in money laundering or not.,,

In the present case, this Appellant - Bank is an innocent party since it had already lent its own money to the Predicate Offender and the property",,

in question being mortgaged to the Bank which is provisionally attached by the Respondentâ€" Deputy Director ought to have been released by the,,

Adjudicating Authority under Section 8(2) of PMLA. The proceedings before the authority and this tribunal are of civil proceedings. It is wrong to,,

allege that this tribunal has no jurisdiction to pass such order.,,

The Adjudicating Authority did not appreciate that the afore mentioned moveable/Immoveable property cannot be said to have been acquired out,,

of “proceeds of crimeǁas defined in section 2 (1) (u) of the Prevention of Money Laundering Act (PMLA), 2002 and therefore, the same (cannot",,

be Attached under Section 5 of the PMLA by the Enforcement Directorate vide PAO No 09/2017 dated 14.11.2017.,,

The Bank in its usual course of business provides finance and credit facilities to its customers. The Appellant Bank has therefore no reason to,,

doubt the source for which the money has been borrowed by the Bank.,,

If the bank is an innocent party and victim from the hand of borrowers, who mortgaged the properties which were not acquired from the proceed",,

of crime, being a secured creditors, the mortgaged properties cannot be attached equivalent to the value thereof if the said properties are not",,

purchased from the proceed of crime or as a result of criminal activity at the time of sanctioning the loan.,,

The finding of both authorities are against law for attaching the mortgaged properties without any valid reasons. Banking,,

system cannot be destroyed in this manner.,,

It is settled law that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime. The Adjudicating,,

Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be",,

seriously prejudiced.,,

In the light of above, the impugned order dated 24.04.2018 is set-aside.",,

Consequently, the provisional attachment order is also quashed as far as Bank is concerned. It is clarified that the Bank has only restricted his prayer",,

qua attachment of mortgaged property. The complaints against the borrowers may continue as per law for which the Bank has no concerned.,,

No costs.,,