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M/s. Indian Bank Represented by its Chief Manager, Asset Recovery Management Branch-I & Palpap Ichinichi Software International Ltd. Versus Joint Director Of Enforcement Chennai

2012 (7) TMI 1007 - MADRAS HIGH COURT

Provisional order of attachment - offences for which the company and its Directors are sought to be prosecuted - Held 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 "sche .....

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n 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. - The Authority had the leverage and obligation to wait til .....

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urt 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 pet .....

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r 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. - Writ Petition Nos.4696 and 12854 of 2012 M.P.Nos. 1, 1 and 2 of 2012 - Dated:- 11-7-2012 - V. Ramasubramanian, J. Appellant Re .....

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chment well as a consequent complaint lodged with the Adjudicating Authority. 2. 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. 3. As stated above, the petitioner in the first writ petition is the Indian Bank and the petitioner i .....

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7, 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 .....

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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. Senthil Kumar, 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 comp .....

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ount, 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 .....

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dmitted 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 Director .....

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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 .....

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us 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. 4. 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 C .....

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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. 6. Therefore, two questions arise for consideration viz., (i) as to whether the property sought to be attached r .....

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connected therewith or incidental thereto. The expression "money laundering" is defined under Section 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, .....

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he 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. 10. 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 t .....

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ferred by SARFAESI Act, 2002. 11. 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 wa .....

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so 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) t .....

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t 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 th .....

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roperty 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 under Section 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" under Section 2(1)(v). That the property was obtained by the company accused of committing various offences cannot als .....

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r implications that may be covered by Parts A and B. 16. Part A of the Schedule to the Act, covers offences under various enactments. They can be presented in a tabular column as follows:- PART A PARAGRAPH 1 OFFENCES UNDER THE INDIAN PENAL CODE Section Description of offence 121 Waging, or attempting to wage war or abetting waging of war, against the Government of India. 121A Conspiracy to commit offences punishable by section 121 against the State. 489A Counterfeiting currency notes or bank not .....

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21 Contravention in relation to manufactured drugs and preparations 22 Contravention in relation to psychotropic substances. 23 Illegal import into India, export from India or transshipment of narcotic drugs and psychotropic substances. 24 External dealings in narcotic drugs and psychotropic substances in contravention of section 12 of the Narcotics Drugs and Psychotropic Substances Act, 1985. 25A Contravention of orders made under section 9A of the Narcotic Drugs and Psychotropic Substances Act .....

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1967 Section Description of offence 10 read with section 3 Penalty for being member of an unlawful association etc 11 read with sections 3 and 7 Penalty for dealing with funds of an unlawful association 13 read with section 3 Punishment for unlawful activities 16 read with section 15 Punishment for terrorist act 16A Punishment for making demands of radioactive substances, nuclear devices etc. 17 Punishment for raising fund for terrorist act 18 Punishment for conspiracy etc. 18A Punishment for o .....

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arious offences under various Acts. They can be presented in a tabular column as follows:- PART B PARAGRAPH 1 OFFENCES UNDER THE INDIAN PENAL CODE Section Description of offence 120B Criminal conspiracy 255 Counterfeiting Government stamp 257 Making or selling instrument for counterfeiting Government stamp 258 Sale of counterfeit Government stamp 259 Having possession of counterfeit Government stamp 260 Using as genuine a Government stamp known to be counterfeit 302 Murder 304 Culpable homicide .....

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the commission of the offence. 364A Kidnapping for ransom, etc. 384 to 389 Offences relating to extortion. 392 to 402 Offences relating to robbery and dacoity. 411 Dishonestly receiving stolen property 412 Dishonestly receiving property stolen in the commission of a dacoity 413 Habitually dealing in stolen property 414 Assisting in concealment of stolen property 417 Punishment for cheating 418 Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to prot .....

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ctronic record 472 and 473 Making or possessing counterfeit seal, etc., with intent to commit forgery 475 and 476 Counterfeiting device or mark 481 Using a false property mark 482 Punishment for using a false property mark 483 Counterfeiting a property mark used by another 484 Counterfeiting a mark used by a public servant. 485 Making or possession or any instrument for counterfeiting a property mark 486 Selling goods marked with a counterfeit property mark 487 Making a false mark upon any recep .....

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mmunition in contravention of section 7 of the Arms Act, 1959. Contravention of section 24A of the Arms Act, 1959 relating to prohibition as to possession of notified arms in or through public places in disturbed areas. Other offences specified in section 25 26 To do any act in contravention of any provisions of section 3, 4, 10 or 12 of the Arms Act, 1959 in such manner as specified in sub-section (1) of section 26 of the said Act. To do any act in contravention of any provisions of section 5, .....

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ms Act 1959 or any rule made thereunder. PART B PARAGRAPH 3 OFFENCES UNDER THE WILD LIFE (PROTECTION) ACT 1972 Section Description of offence 51 read with section 9 Hunting of wild animals 51 read with section 17-A Contravention of provisions of section 17-A relating to prohibition of picking uprooting etc. of specified plants 51 read with section 39 Contravention of provisions of section 39 relating to wild animals etc. to be Government property 51 read with section 44 Contravention of provisio .....

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TION) ACT 1956 Section Description of offence 5 Procuring, inducing or taking persons for the sake of prostitution 6 Detaining a person in premises where prostitution is carried on 8 Seducing or soliciting for purpose of prostitution 9 Seduction of person in custody PART B PARAGRAPH 5 OFFENCES UNDER THE PREVENTION OF CORRUPTION ACT 1988 Section Description of offence 7 Public servant taking gratification other than legal remuneration in respect of an official Act 8 Taking gratification in order, .....

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D ARTS TREASURES ACT 1972 Section Description of offence 25 read with section 3 Contravention of export trade in antiquities and art treasures 28 Offences by companies PART B PARAGRAPH 8 OFFENES UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 Section Description of offence 12A read with section 24 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control PART B PARAGRAPH 9 OFFENCES UNDER THE CUSTOMS ACT 1962 Section Descript .....

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of the provisions of section 3 PART B PARAGRAPH 12 OFFENCES UNDER THE TRANSPLANATATION OF HUMAN ORGANS ACT 1994 Section Description of offence 18 Punishment for removal of human organ without authority 19 Punishment for commercial dealings in human organs 20 Punishment for contravention of any other provision of this Act PART B PARAGRAPH 13 OFFENCES UNDER THE JUVENILE JUSTICE (CARE AND PROTECTIONOF CHILDREN) ACT 2000 Section Description of offence 23 Punishment for cruelty to juvenile or child .....

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scription of offence 14 Penalty for contravention of provisions of the Act etc. 14B Penalty for using forged passport. 14C Penalty for abetment PART B PARAGRAPH 17 OFFENCES UNDER THE COPYRIGHT ACT 1957 Section Description of offence 63 Offences or infringement of copyright or other rights conferred by this Act 63A Enhanced penalty on second and subsequent convictions 63B Knowing use of infringing copy of computer programme 68A Penalty for contravention of section 52A PART B PARAGRAPH 18 OFFENES .....

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tion Description of offence 72 Penalty for breach of confidentiality and privacy 75 Act to apply for offence or contravention committed outside India PART B PARAGRAPH 20 OFFENCES UNDER THE BIOLOGICAL DIVERSITY ACT 2002 Section Description of offence 55 read with section 6 Penalties for contravention of section 6 etc. PART B PARAGRAPH 21 OFFENCES UNDER THE POTECTION OF PLANT VARIETIES AND FARMERS RIGHTS ACT 2001 Section Description of offence 70 read with section 68 Penalty for applying false den .....

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3 OFFENCES UNDER THE WATER (PREVENTION AND CONTROL OF POLLUTION) ACT 1974 Section Description of offence 41(2) Penalty for pollution of stream or well 43 Penalty for contravention of provisions of section 24 PART B PARAGRAPH 24 OFFENCES UNDER THE AIR (PREVENTION AND CONTROL OF POLLUTION) ACT 1981 Section Description of offence 37 Failure to comply with the provisions for operating industrial plant PART B PARAGRAPH 25 OFFENCES UNDER THE SUPPRESSION OF UNLAWFUL ACTS AGAINST SAFETY OF MARITIME NAVI .....

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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 .....

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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 b .....

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009. But any offence under Section 120-B has to be read only along with other offences. 20. 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 under Section 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 Rep .....

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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" under Section 2(1)(y) only if the total value involved in such offences is ₹ 30 lakhs and more. This condition is also satisfied in the cases on hand. Therefore, the ingredients of the expression proceeds of crimes .....

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ence, 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: 22. 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. 23. I .....

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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-a-vis accused in such cases? 25. Unfortunately, the Prevention of Money Laundering Act, 2002, does not appear to take note o .....

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sent the proceeds of these crimes can be attached under Section 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 under Section 8(6), it vests absolutely in the Central Government free of all encumbrances under Section 9. 26. In other words, the Prevention of Money Laundering Act, .....

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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 under Section 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 da .....

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rty, to either of the two. 27. 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 under Section 9. In .....

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tunity 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 in .....

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y 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 .....

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c and Central Government-centric. It does not take into account the plight of victims of crime. 31. 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 person .....

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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. 33. 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 .....

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r 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, .....

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n 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 .....

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e, 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. 35. 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 .....

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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." 37. The first respondent was served with notice in the miscellaneous petition in the .....

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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 under Section .....

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e said obstacle, without violating the interim stay order passed by this Court. The period of 30 days fixed under Section 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 under Section 5(5). Even if the first respondent had been unable to get the matter listed for hearing .....

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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 .....

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before the Adjudicating Authority. The failure of the first respondent to do so cannot be condoned. 41. 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 Adjudic .....

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, 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." 42. 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. 43. But unfortunately the Adjudicating Auth .....

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int 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 .....

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