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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

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 Represented by: Mr. M. Balachandar (for Indian Bank) Mr. R.Yashodhvardhan, Sr. Counsel for Mr. B.Natarajan Respondent Represented by: Mr. M. Ravindran, Additional Solicitor General Mr. M. Dhandapani, Standing Counsel. COMMON ORDER While the Indian Bank has come up with the first writ petition challenging a provisional order of attachment passed by the Joint Director of Enfo .....

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Counsel for respondents. 3. As stated above, the petitioner in the first writ petition is the Indian Bank and the petitioner in the second writ petition is a company, which borrowed monies from the Indian Bank. The factual matrix, out of which the present writ petitions arises, is as follows:- (i) The petitioner in the second writ petition was sanctioned 3 term loans, under a sanction ticket dated 2.1.2006 by the Indian Bank. With the money so advanced by the Indian Bank, the petitioner in the s .....

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ompany, had defrauded the Bank. The complaint lodged by the Indian Bank was registered as RC No.1/E/2008-CBI-EOW/Chennai, on 6.2.2008. (iii) Similarly, the State Bank of India lodged a complaint alleging that the company organised personal loans for 161 persons, showing them as its employees. This complaint was lodged in RC No.11/E/2008-CBI-EOW/Chennai, on 14.11.2008. (iv) The Bank of India lodged another complaint in RC No.9/E/2008-CBI-EOW/Chennai, on 29.9.2008, alleging that the company obtain .....

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nces punishable under Sections 120-B, 420, 467, 468 and 471 of the Indian Penal Code. (vi) The charges framed against the company and its officers also included the offences indicated in the Schedule in terms of Section 2(1)(y) of the Prevention of Money Laundering Act, 2002. (vii) Thereafter, the Joint Director of Enforcement passed an order bearing No.01/2012 on 22.2.2012 under Section 5(1) of the Prevention of Money Laundering Act, 2002, hereinafter called the "Act", directing the p .....

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achment, the Indian Bank came up with the above writ petition W.P.No.4696 of 2012, contending that the account of the company had already become a non-performing asset and that since the property was mortgaged to them, the Bank had already taken steps to bring the property to sale in terms of the provisions of the SARFAESI Act, 2002. The prayer in the writ petition was to quash the provisional order of attachment. (ix) Pending disposal of the writ petition, the Indian Bank also sought an interim .....

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order passed by the Directorate of Enforcement can be in force only for a period of 150 days. But within 30 days, the Directorate can seek a confirmation of the order from the Adjudicating Authority under Section 8. Therefore, the Director of Enforcement filed an application before the Adjudicating Authority and the same was taken on file in O.C.No.129/2012 and notice was issued to the company and its Managing Director. Interestingly, the Bank was not made a party before the Adjudicating Authori .....

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tay. But this Court granted a limited stay in M.P.No.1 of 2012 only with regard to the confiscation proceedings. Unfortunately, the proceedings before the Adjudicating Authority at this stage, were not actually confiscation proceedings, but proceedings for confirmation of the provisional order of attachment. Therefore, the Adjudicating Authority proceeded with the enquiry. (xiii) In view of the fact that the Adjudicating Authority proceeded to hear the application filed by the Directorate for co .....

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2012, confirming the provisional order of attachment, till the conclusion of the proceedings before the appropriate Criminal Court. Therefore, the validity of the said order was also canvassed in the arguments in the main writ petitions. 5. As pointed out above, the petitioners in both the writ petitions do not oppose the criminal prosecution. As a matter of fact, the Indian Bank is one of the 3 complainants. The complaint of the Indian Bank also happens to be the first among the three. It is on .....

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s of a crime. 6. Therefore, two questions arise for consideration viz., (i) as to whether the property sought to be attached represents the proceeds of the crime and (ii) if the property represents the proceeds of the crime, where would the claim of the complainant-Indian Bank stand. QUESTION No.1: 7. In order to find an answer to the first question, it is necessary to take a close look at the provisions of The Prevention of Money Laundering Act, 2002. It was enacted with the object of preventin .....

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involved in any process or activity connected with the proceeds of crime and projecting it as untainted property. Therefore, the stress is on two things viz., (i) involvement in any process or activity connected with the proceeds of crime and (ii) projecting it as untainted property. 8. The expression "proceeds of crime" is defined in Section 2(1)(u), to mean any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a schedule .....

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on had gone from the Bank to the vendors, the property cannot be taken to represent the "proceeds of crime" within the meaning of Section 2(1)(u). The Bank, which is the petitioner in the first writ petition, does not go so far. In other words, the Bank does not take a specific plea that the property sought to be attached does not represent the proceeds of crime. All that the Bank says is that since the sale consideration had gone out of the funds of the Bank and also since the propert .....

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rned counsel for the respondents, the fact that the company committed a fraud upon the Banks and the fact that the property was purchased from out of the funds secured by the company, by fraudulent means from 3 Banks, are not disputed by the Bank. Therefore, it is their contention that the definition of the expression proceeds of crime' under Section 2(1)(u) stands satisfied and that hence, the respondents have the power to attach the property under Section 5. 12. In so far as the factual co .....

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writ petition that the entire sale proceeds for the purchase of the property in question were paid by the Indian Bank; (ii) the very earliest complaint to the Economic Offences Wing of the Central Bureau of Investigation about the alleged fraudulent activities of the company was by the Indian Bank and hence the very foundation for the action of the respondents is the complaint of the Indian Bank and (iii) the original vouchers produced by the Indian Bank during the course of hearing of the writ .....

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tion and that the remaining part of the sale consideration flowed out of the funds of the other Banks. I make it clear that this conclusion of mine, is only prima facie, since the final conclusion can only be drawn by a fact finding Court where a criminal prosecution is now pending. 13. Having settled the question of fact raised by the respondents, now let me turn to the legal issue as to whether the property purchased entirely out of the funds provided by the Bank can be said to represent the p .....

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y" under Section 2(1)(v). That the property was obtained by the company accused of committing various offences cannot also be in doubt since the Sale Deed stands in the name of the company and the Directors of the company, are accused in the Criminal Court. Therefore, what remains to be seen is whether the acquisition of such property by the company was as a result of a criminal activity relating to a scheduled offence or not. 15. The Schedule to the Act contains 3 Parts viz., Part A, Part .....

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121A Conspiracy to commit offences punishable by section 121 against the State. 489A Counterfeiting currency notes or bank notes 489B Using as genuine, forged or counterfeit currency notes or bank notes PART A PARAGRAPH 2 OFFENCES UNDER THE NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES ACT, Section Description of offence 15 Contravention in relation to poppy straw. 16 Contravention in relation to coca plant and coca leaves 17 Contravention in relation to prepared opium 18 Contravention in relation .....

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Substances Act, 1985. 25A Contravention of orders made under section 9A of the Narcotic Drugs and Psychotropic Substances Act, 1985 27A Financing illicit traffic and harboring offenders. 29 Abetment and criminal conspiracy. PART A PARAGRAPH 3 OFFENCES UNDER THE EXPLOSIVE SUBSTANCES ACT 1908 Section Description of offence 3 Causing explosion likely to endanger life or property 4 Attempt to cause explosion, or for making or keeping explosives with intent to endanger life or property 5 Making or p .....

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, nuclear devices etc. 17 Punishment for raising fund for terrorist act 18 Punishment for conspiracy etc. 18A Punishment for organizing of terrorist camps 18B Punishment for recruiting of any person or persons for terrorist act 19 Punishment for harbouring etc. 20 Punishment for being member of terrorist gang or organization 21 Punishment for holding proceeds of terrorism 38 Offence relating to membership of a terrorist organization 39 Offence relating to support given to a terrorist organizatio .....

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counterfeit Government stamp 260 Using as genuine a Government stamp known to be counterfeit 302 Murder 304 Culpable homicide not amounting to murder, if act by which the death is caused is done with the intention of causing death. 307 Attempt to murder. 308 Attempt to commit culpable homicide. 327 Voluntarily causing hurt to extort property, or a valuable security, or to constrain to do anything which is illegal or which may facilitate the commission of the offence. 329 Voluntarily causing grie .....

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hment for cheating 418 Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect 419 Punishment for cheating by personation. 420 Cheating and dishonestly inducing delivery of properties 421 Dishonest or fraudulent removal or concealment of property to prevent distribution among creditors 422 Dishonestly or fraudulently preventing debt being available for creditors 423 Dishonest or fraudulent execution of deed of transfer containing false statement .....

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ounterfeiting a property mark 486 Selling goods marked with a counterfeit property mark 487 Making a false mark upon any receptacle containing goods 488 Punishment for making use of any such false mark. PART B PARAGRAPH 2 OFFENCES UNDER THE ARMS ACT 1959 Section Description of offence 25 To manufacture, sell, transfer, convert, repair or test or prove or expose or offer for sale or transfer or have in his possession for sale, transfer, conversion, repair, test or proof, any arms or ammunition in .....

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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, 6, 7 or 11 of the Arms Act, 1959 in such manner as specified in sub-section (2) of section 26 of the said Act. Other Offences specified in section 26. 27 Use of arms or ammunitions in contravention of section 5 or use of any arms or ammunition in contravention of section 7 of the Arms Act, 1959. 28 Use and possession of fire arms from unlicensed person or for delivering a .....

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isions of section 39 relating to wild animals etc. to be Government property 51 read with section 44 Contravention of provisions of Section 44 relating to dealings in trophy and animal articles without licence prohibited 51 read with section 48 Contravention of provisions of section 49-B relating to prohibition of dealings in trophies, animals articles, etc. derived from scheduled animals 51 read with section 49-B Contravention of provisions of section 49-B relating to prohibition of dealings in .....

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blic servant taking gratification other than legal remuneration in respect of an official Act 8 Taking gratification in order, by corrupt or illegal means, to influence public servant 9 Taking gratification for exercise of personal influence, with public servant 10 Abetment by public servant of offences defined in section 8 or section 9 of the Prevention of Corruption Act 1988 13 Criminal misconduct by a public servant PART B PARAGRAPH 6 OFFENCES UNDER THE EXPLOSIVES ACT 1884 Section Description .....

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g and substantial acquisition of securities or control PART B PARAGRAPH 9 OFFENCES UNDER THE CUSTOMS ACT 1962 Section Description of offence 135 Evasion of duty or prohibitions PART B PARAGRAPH 10 OFFENCES UNDER THE BONDED LABOUR SYSTEM(ABOLITION) ACT 1976 Section Description of offence 16 Punishment for enforcement of bonded labour 18 Punishment for extracting bonded labour under the bonded labour system 20 Abetment to be an offence. PART B PARAGRAPH 11 OFFENCES UNDER THE CHILD LABOUR (PROHIBIT .....

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STICE (CARE AND PROTECTIONOF CHILDREN) ACT 2000 Section Description of offence 23 Punishment for cruelty to juvenile or child 24 Employment of juvenile or child for begging 25 Penalty for giving intoxicating liquor or narcotic drug or psychotropic substance to juvenile or child 26 Exploitation of juvenile or child employee PART B PARAGRAPH 14 OFFENCES UNDER THE EMIGRATION ACT 1983 Section Description of offence 24 Offences and penalties PART B PARAGRAPH 15 OFFENCES UNDER THE PASSPORT ACT 1967 Se .....

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Knowing use of infringing copy of computer programme 68A Penalty for contravention of section 52A PART B PARAGRAPH 18 OFFENES UNDER THE TRADE MARKS ACT 1999 Section Description of offence 103 Penalty for applying false trademarks, trade description etc. 104 Penalty for selling goods or providing services to which false trade-mark or false trade description is applied 105 Enhanced penalty on second or subsequent conviction 107 Penalty for falsely representing a trade mark as registered 120 Punish .....

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NT VARIETIES AND FARMERS RIGHTS ACT 2001 Section Description of offence 70 read with section 68 Penalty for applying false denomination etc. 71 read with section 68 Penalty for selling varieties to which false denomination is applied 72 read with section 68 Penalty for falsely representing a variety as registered 70 read with section 68 Penalty for subsequent offence PART B PARAGRAPH 22 OFFENCES UNDER THE ENVIRONMENT PROTECTION ACT 1986 Section Description of offence 15 read with section 7 Penal .....

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operating industrial plant PART B PARAGRAPH 25 OFFENCES UNDER THE SUPPRESSION OF UNLAWFUL ACTS AGAINST SAFETY OF MARITIME NAVIGATION AND FIXED PLATFORMS ON CONTEINENTAL SHELF ACT 2002 Section Description of offence 3 Offences against ship, fixed platform, cargo of a ship, maritime navigational facilities, etc. 18. Keeping in mind the list of offences that fall under various paragraphs of Part A or Part B of the schedule to the Act, let me now turn to the offences for which the company and its Di .....

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espect of all the 3 complaints. They are under Sections 120-B r/w Sections 420, 467 and 471 IPC. It is stated in the complaint lodged by the Directorate of Enforcement with the Adjudicating Authority that the offences under Section 120-B r/w Sections 420, 467 and 471 IPC are scheduled offences in terms of Section 2(1)(y) of the Prevention of Money Laundering Act, 2002. But as seen from the tabular column given above, Paragraph 1 of Part A of the Schedule includes offences under Sections 121, 121 .....

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Indian Penal Code. But with effect from 1.6.2009, the old paragraph 1 of Part B of the schedule to the Act, was substituted by a new Paragraph 1, by the Prevention of Money Laundering (Amendment) Act, 2009. Now Paragraph-1 of Part B lists out only the offences under Sections 120-B, 255, 257, 258, 259, 260, 302, 304, 307, 308, 327, 329, 364-A, 384 to 389, 392 to 402 and 411 IPC. Therefore, the offences under Sections 420, 467 and 471 IPC do not any longer form part of Paragraph 1 of Part B of th .....

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o more scheduled offences under Paragraph 1 of Part B of the schedule to the Act after 1-6-2009. But the First Information Reports by all the 3 Banks came to be lodged on 6.2.2008, 14.11.2008 and 29.11.2008 respectively. Therefore, at the time of the alleged commission of the offences and at the time of the lodging of the First Information Reports, the offences complained about the company constituted the offences under Paragraph 1 of Part B of the schedule to the Act. 21. Therefore, it is clear .....

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d more. This condition is also satisfied in the cases on hand. Therefore, the ingredients of the expression proceeds of crimestand satisfied, in view of the fact (i) that the company is charged of committing scheduled offences and (ii) the property in question is allegedly derived as a result of a criminal activity relating to scheduled offences. Hence I cannot sustain the first contention that since the entire sale consideration for the property was paid by the Bank, it cannot be termed as the .....

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crime. I think this question is of extreme importance for various reasons. Therefore, it requires an in depth analysis. 23. It can be easily appreciated from the narration of facts that the very initiation of the action by the respondents is on the basis of the criminal complaints lodged by the 3 Nationalised Banks with the Central Bureau of Investigation. Today the respondents presume that the allegations are true. The respondents have proceeded with the action in terms of the Prevention of Mo .....

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s-a-vis accused in such cases? 25. Unfortunately, the Prevention of Money Laundering Act, 2002, does not appear to take note of the above question viz., as to where the victims stand. Interestingly, a look at Paragraph 1 of Part B of the schedule shows that the offence of kidnapping for ransom, punishable under Section 364-A, the offences related to extortion punishable under Sections 384 to 389 and offences relating to robbery and dacoity punishable under Section 392 to 402 have also been made .....

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the Central Government free of all encumbrances under Section 9. 26. In other words, the Prevention of Money Laundering Act, 2002, not only seeks to punish the offenders, but also seeks to punish the victims of such offences. Take for instance a case, where an offence of kidnapping for ransom punishable under Section 364-A takes place. If the amount involved is more than rupees 30 lakhs, it is a scheduled offence under this Special enactment. Therefore, if the accused is apprehended and charged .....

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with the accused, appear to be a disincentive for the victims. The same analogy holds good even for offences of robbery and dacoity punishable under Sections 392 to 402, which are included in Paragraph 1 of Part B of the schedule to the Act. A person, who is robbed or a person on whom dacoity is committed, has to lose his property to the Central Government by virtue of Section 8(6) and Section 9 of the Act, if the stand taken by the respondents is accepted. For the victims of crime, there would .....

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ms of Section 8(6). Thereafter, the property would vest in the Central Government free of all encumbrances under Section 9. In other words, the Banks, who were the victims of fraud, may have to lose the property to the Central Government, for no fault of theirs except that they were defrauded by the company. 28. The above disturbing feature which is inbuilt in the Act, was sought to be played down by Mr. M. Dhandapani, learned Standing counsel for the respondents, on the ground that under Sectio .....

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notice on the person who is alleged to have committed an offence under the Act, calling upon him to indicate the source of income and also calling upon him to show cause as to why the properties should not be declared to be properties involved in money laundering and confiscated to the Government. Sub-section (2) obliges the Adjudicating Authority to conduct an enquiry and record a finding whether all or any of the properties indicated in the notice, are involved in money laundering. 29. The pr .....

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s of Section 8 enables the Adjudicating Authority to release a property to a third party, even after the property is proved to be involved in money laundering. 30. In other words, if a property is proved to be involved in money laundering, the Adjudicating Authority has only one choice viz., to make the attachment absolute, wait for the final adjudication by the Criminal Court and either release the property to the accused if he is acquitted in the Criminal Court or confiscate the property to th .....

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he problem. It is only by coincidence that the complainants in this case, are Nationalised Banks. There may be cases of persons who are victims of dacoity, robberty, kidnapping for ransom etc. After their property gets confiscated under Section 8(6) and vests with the Central Government under Section 9, those victims will have to be out in the streets. 32. I am conscious with the fact that the validity of the Act is not under challenge before me and that the validity of the Act has already been .....

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It received the assent of the President on 17.1.2003 and it was published in the Gazette of India dated 20.1.2003. Section 71 of the Prevention of Money Laundering Act, 2002 declares that the provisions of this Act, shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. But the SARFAESI Act, 2002 is also a Central enactment which received the assent of the President on 17.12.2002 and published in the Gazette of India dated 18.12. .....

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ely different from what the respondents are now attempting to do. The preamble to the Act, would show that the Act was passed, with a view to give effect to the resolution S-17/2 adopted by the General Assembly of the United Nations on 23rd February 1990 for "Political Declaration and Global Program of Action" and for implementing the declaration viz., "Political Declaration" adopted by the Special Session of the United Nations General Assembly held in June 1998. The Statemen .....

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e, I am of the view that Sections 5, 8 and 9 cannot be used by the respondents to inflict injury upon the victims of the crime. Hence the second question is to be answered in favour of the Bank. 34. Apart from the second question that I have decided as above, there are also two more questions to be addressed. These two questions raised by Mr. R. Yashodvardhan, learned Senior Counsel for the company, which is the petitioner in the second writ petition are (i) that the whole proceedings before the .....

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2012 on 27.2.2012. On 28.2.2012 itself, the writ petition was admitted. While admitting the writ petition, this Court granted an interim stay in M.P.No.1 of 2012. The prayer in M.P.No.1 of 2012 in W.P.No.4696 of 2012 filed by the Bank reads as follows:- "Petition praying that in the circumstances stated therein and in the affidavit filed therewith, the High Court will be pleased to grant stay of all further proceedings of the order 22.2.2012 of the first respondent viz., the Directorate of .....

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lien account until further orders." 37. The first respondent was served with notice in the miscellaneous petition in the first week of March 2012. The counsel for the first respondent Mr. M. Dhandapani entered appearance on 13.3.2012. Therefore, the first respondent is supposed to be aware of the interim stay order at least on 13.3.2012. But the first respondent filed the original complaint O.C.No.129/2012 on the file of the Adjudicating Authority, on 15.3.2012. I can understand that if th .....

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e first respondent had no alternative except to file a complaint, since a period of 30 days is fixed statutorily under Section 5(5) of the Act, for the filing of a complaint. The said period cannot be enlarged by anyone including the Adjudicating Authority. The order of attachment passed by the Deputy Director itself can be in force only for a period of not more than 150 days under Section 5(1). Therefore, the learned counsel contended that the filing of the complaint was necessitated by force o .....

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period statutorily fixed under Section 5(5). Even if the first respondent had been unable to get the matter listed for hearing or unable to get any orders, the first respondent would have exhibited bona fides in at least making an application before this Court after 13.3.2012, but before 23.3.2012 and going ahead with the filing of the complaint due to force of circumstances, But, the first respondent did not do so. 39. Alternatively, the first respondent could have taken another step. There is .....

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Senior Counsel for the petitioner is right in contending that the whole proceedings before the Adjudicating Authority are null and void. 40. What is more intriguing is the fact that in the original complaint filed before the Adjudicating Authority, the first respondent did not even make the Bank a party. After having come to know that the Bank had approached this Court and also obtained not only an interim stay of further proceedings, but also a leave to proceed with the auction sale under the S .....

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of the Adjudicating Authority as could be seen from the language of Section 8(2). It reads as follows:- "(2) The Adjudicating Authority shall, after - a) considering the reply, if any, to the notice issued under sub-section (1); b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in .....

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claim and that they also have obtained an interim stay of all further proceedings. 43. But unfortunately the Adjudicating Authority has confirmed the attachment by the order dated 26.6.2012 passed during the pendency of the writ petition and during the operation of a stay order, without even impleading the Bank. In paragraph 11 of its order dated 26.6.2012, a copy of which was produced by the learned counsel for the respondents, the Adjudicating Authority has found fault with the Director for fi .....

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