TMI Blog2018 (2) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under the PMLA, 2002. We set aside the Impugned Order dated 30.05.2016 and the Provisional Attachment Order dated 08.12.2015. The mortgaged properties attached under the PAO 03/2015, so far as, properties concern in this appeal are released from attachment forthwith. - FPA-PMLA-1373/GOA/2016 - - - Dated:- 25-1-2018 - Justice Manmohan Singh Chairman And Shri G. C. Mishra Member For the Appellant : Ms. Bindu Das, Advocate For the Respondent : Mr. Neeraj Atri, Advocate ORDER FPA-PMLA-1373/GOA/2016 The appellant has assailed the impugned order dated 30.05.2016 passed by the Adjudicating Authority, PMLA in Original Complaint (OC) No. 537/2016 in Provisional Attachment Order (PAO) No. 03/2015 dated 08.12.2015 arising out of ECIR/04/NGSZO/2013. The appellant has prayed for following reliefs in this appeal:- i. Quashing and setting aside of the impugned order dated 30.05.2016 passed by learned Adjudicating Authority in OC No. 537/2016 in PAO No. 03/2015 dated 08.12.2015 [Case File No. ECIR/04/NGSZO/2013] to extent of the properties mortgaged with the appellant, leading to release thereof from attachment under the Prevention of Money Laundering Act, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of reference form Central Vigilance Commission, for alleged corruption in the matter of allocation of coal blocks to the private company during the period 2006 to 2009. In the said FIR dated 20.09.2012, it was alleged that Lohara East coal block in the State of Maharashtra was allotted to M/s. Grace Industries Ltd. and M/s. Murli Agro Products Private Limited in violation of extant guidelines. It was further alleged that M/s. Grace Industries Limited willfully misrepresented its networth and provided misleading information to the concerned authority in the Ministry of Coal in respect of the production capacity. It was also alleged that post allocation of the coal block, the promoters and shareholders of M/s. Grace Industries Ltd. sold off their entire holding of equity in November, 2008 to Shri Sanjay Puranlal Agarwal, Director of M/s. Sanvijay Rolling Engineering Ltd., Nagpur (hereinafter referred as SREL), at a stated profit of ₹ 20 crores approximately. 4.2 Based on the FIR registered by Central Bureau of Investigation, New Delhi dated 20.09.2012, and Enforcement Case Information Report (ECIR) bearing No. ECIR/04/NGSZO/2013 dated 26.12.2013 was registered by Nagpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00003523 from 30.10.2013 to 18.07.2014. 5. There is no specific allegation against the appellant either in the PAO or OC. As already stated the Punjab National Bank was defendant No. 5 and the bank has submitted its reply to the OC wherein it was stated that that the Defendant No. 1 approached the bank seeking certain financial facilities vide their application dated 18.03.2010. Acting on that a case credit limit of ₹ 3 crores was sanctioned against hypothecation of stock and further cash credit limit of ₹ 1 crore against hypothecation of book debts was also sanctioned vide sanctioned letter dated 18.03.2010 totaling the limit of ₹ 4,00,000/- was sanctioned to partnership firm of Shri Mukesh Gupta subject to the personal guarantee of Shri Mukesh Gupta, his wife Smt. Seema Gupta and other partner and against mortgage of fixed assets of Shri Mukesh Gupta and Smt. Seema Gupta which includes the aforesaid immoveable properties. 6. It is an admitted fact that a charge has been created on the aforesaid immoveable properties of Shri Mukesh Gupta and Smt. Seema Gupta in favour of the bank in 2010. 7. It is the case of the bank that Shri Mukesh Gupta did not adhe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Recovery of Debts due to Banks Financial Institutions Act, 1993 has since been amended by Enforcement of Security Interest Recovery of Debts Laws Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016) dated 16.08.2016 by virtue of newly added sub-Section 4A of Section 19 of the Act, which now bears the nomenclature- The Recovery of Debts Bankruptcy Act, 1993, the borrowers/guarantors/mortgagors are, by operation of law subjected to injunction in dealing with their properties, mortgaged or uncharged, except in ordinary course of business, without the prior approval of the Debts Recovery Tribunal. The legislative policy is, therefore, demonstrative of the fact that the assets of the borrowers/mortgagors/guarantors become custodial egis on the institution of Original Application for recovery under the above Act and service of summons upon the defendants. The aforesaid legislative policy is contemporary and certainly much subsequent to the enactment of Prevention of Money Laundering Act, 2002. Therefore, the properties which are mortgaged in favour of banks and financial institutions and are subjected to special enactments viz. The Recovery of Debts Bankruptcy Act, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries Ltd., M/s. Radhika Trading Company, M/s. Aditya Trading Company etc. As such the aforesaid property has been provisionally attached invoking provisions of Section 2(1) (u) of PMLA, 2002, in consideration of value thereof. 14. It is further contended by the Ld. Counsel for the Enforcement Directorate that so it was submitted that the said amendment in SARFAESI Act has no application to the present case. 15. We have heard the Ld. Counsel for the appellant as well as for the Enforcement Directorate and have gone through the contentions raised in the appeal memo, written argument and rejoinder filed by the appellant, the reply of the respondent, impugned order, OC, PAO and other relevant materials available in the record. 16. It is the admitted fact that the appellant bank i.e. PNB neither an FIR name accused nor charge sheeted nor any of the officials of the bank are involved either in the scheduled offence or offence committed under the provisions of PMLA. 17. As stated above we have perused the impugned order from which we could not find any material that the subject properties of this appeal has been acquired out of proceeds of crime nor it has been establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of loan. The appellant bank has placed reliance on Bombay Stock Exchange Vs. V.S. Kandalgaonkar Ors. - (2015) 2 SCC 1 and Dena Bank Vs. Bhikhabhai Prabhudas Parekh Co. Ors. - (2000) 5 SCC 694. On the other hand, it is the contention of the respondent Department that Section 71 of PMLA is also a special Act. It has the provisions under Section 71 of the Act which provides that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. It is also contended by the Ld. Counsel for the respondent Department that the provisions of PMLA will have overriding effect over the provisions of SARFAESI as the amendment of 2016 is only with respect to amendment of proviso in the SARFAESI Act not the Act itself. 20. The aforesaid issue of overriding effect and other issues have been covered in the matter of State Bank of India vs. The Joint Director of Directorate of Enforcement Ors. in FPA-PMLA-1026/KOL/2015 vide common order dated 14.07.2017 and also in the matter of Smt. Nasreen Taj vs. The Deputy Director, Directorate of Enforcement Ors., Bangalore in FPA-PMLA-382/BNG/2012 vide common ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Co. Ltd. 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of the said decision is as follows: Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions in Securities) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Acy 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned. 11. We are in agreement with the aforesaid decision of the case, more so wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. 33. The amended provisions give overriding effect over any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned. The amended provisions are reproduced as under: (i) Section 26E of the SARFAESI Act, 2002 : 26E. Priority to secured creditors Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending. 37. The Assistant Commissioner (CT) Vs. The Indian Overseas Bank, Madras High Court, WP No. 2675 of 2011 (Full Bench) 2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principle Act, Which reads as under:- 31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the property vests with the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act. 39. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras State Bank of India Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors. , while upholding the Amendment Act, 2016 to Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same court in The Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) lifted the attachment entry and held that In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realise the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold good qua 2002 Act as well. 40. B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition of property in para 103. The same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy. In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter. 42. It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant i.e. Union of India in order to pay the remaining out-standing amount. The undertaking in this regard is recorded in Court. It is written agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court eventually opined thus:- 11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been mutually settled between the parties and the accused had accepted the liability in this regard, the High Court had thought it fit to invoke its power under Section 482 Cr.P.C. We do not see how such exercise of power can be faulted or held to be erroneous. Section 482 of the Code inheres in the High Court the power to make such order as may be considered necessary to, inter alia, prevent the abuse of the process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard to the contours of the power available under Section 482 CR.P.C.it must be remembered that continuance of a criminal proceeding which is likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power under Section 482 Cr. P.C. In Sanjay Bhandari V/s. CBI, Crl. M.C. M.C. 5798/2014, Delhi High Court, dated 29.06.2015 69 .. By consent the parties have settled all disputes in the recovery suit, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perties were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded. 47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly did so but their contention was rejected as appeared from the impugned order. 48. This Tribunal in the case of IPRS in appeal no. FPA-PMLA- 1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub- section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering, section 58 B or sub- section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach 56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents) MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below:- 26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to only retain the properties which are involved in money laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money laundering. 58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:- 37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind. Reason to believe is not the same thing as suspicion or doubt and mere seeing also cannot be equated to believing. Reason to believe is a higher level of state of mind. Likewise knowledge will be slightly on a higher plane than reason to believe . A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same. The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence. C. Actually involved: Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to substantiate any such allegation qua the petitioners, D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15, relevant portion of which are reproduced below:- 20. The said sections read as follows:-- 23. Presumption in inter-connected transactions Where money-laundering involves two or more inter- connected transactions and one or more such transactions is or are proved to be involved in money- laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter- connected transaction. 24. Burden of proof In any proceeding relating to proceeds of crime under this Act, (a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money- laundering; and (b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering. 21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164 Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge. 24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation. 21. The CBIBS FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA. Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case. 25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives. 26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earned and acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they belong, the state. In the present case as they money belongs to the PNB it is public money. The PNB has the right to property under the Constitution of India. The property of the PNB cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. 25. In para no. 7 of the impugned order the Ld. Adjudicating Authority has stated that the PAO and the O.C. enumerates the 14 properties (which include the mortgaged properties involve in this appeal) standing in the name of Shri Mukesh Gupta Smt. Seema Gupta either singly or jointly and in the name of Gupta International Industries, Nagpur. The details concerning the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Ld. Counsel for the respondent that provision of PMLA will have overriding effect over the provisions of SARFAESI Act as the amendment of 2016 is only with respect to proviso in the SARFAESI Act not the Act itself because there would be no existence of a proviso in the absence of main provision in the Act. The proviso as well as main provision in the Act are inter-related. The proviso is to be read with the main provision. The proviso has got no independent existence. By amending the proviso the law makers of the country have made their intention clear that the SARFAESI Act has overriding effect in the present fact and circumstances of the case. 29. The Ld. Adjudicating Authority has failed to consider that the ED has attached the properties without examining the case of the bank. The evidence on record suggests that the properties were acquired by the borrowers much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The Bank has already filed the suit for recovery and has also taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unauthorized person that person cannot claim title to the property. The said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners because the both banks are victims and even after trial, they are to receive-back the said properties being victim party in normal type of cases u/s 8(8) of the Act. However in the present cases, the banks are innocent parties. They are not involved in any criminal proceedings. If they are asked to await till the trial is over, the systems in these type of cases, the economy would collapse. 34. From the discussion made above, we are of the view that there is no nexus whatsoever between the alleged crime and the Bank who is mortgagee of the properties in question which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against Bank who has sanctioned the amount which is untainted and pure money. They have priority to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in the matter and the primary objective ..... X X X X Extracts X X X X X X X X Extracts X X X X
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