TMI Blog2017 (10) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... no application to the facts of the present case inasmuch as in the present case, the legitimacy of the transaction entered into between the Appellant and the Respondent No. 7 is not in dispute. Therefore, the attached vehicle being the subject matter of the Loan Facility which predates the allegations of money laundering against the Respondent No. 7, is clearly identifiable and admittedly, not having been obtained or derived out of any criminal activity, does not fall within the definition of “proceeds of crime” or “value thereof”. Adjudicating Authority (PMLA) has not understand that the Loan Facility provided by the Appellant to the Respondent No. 7 for purchase of the attached vehicle is public money and not proceeds of crime or value thereof. Thus, no order can be passed by the Respondent No. 1 prejudicing the genuine business transaction of the Appellant Bank. The impugned order is patently illegal and not sustainable in law. We set-aside the Impugned order dated May 31, 2017 confirming the Provisional Order passed by the Respondent No. 1/Directorate of Enforcement with respect and limited to the attachment of the vehicle AUDI Car Model-A3 35 TDI DL 2CAT 4920; and also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, alleged that the Respondent No. 6, 7 and 8 had conspired with Respondent No. 2 and 4, i.e. the officials of the appellant bank, to launder an amount of ₹ 39.17 Crores in the form of demonetized currency by depositing the same in the account of front companies controlled and managed by Respondent No. 7. The Respondent No. 1 further alleged that the above amount was deposited into account of various front companies by way of furnishing of false and forged documents. In the light of the above allegations of Respondent No. 1 also had been that the Respondent Nos. 2, 4, 6, 7 8 committed the offence of money laundering as defined under section 3 of the Prevention of Money Laundering Act, 2002 ( PMLA Act ), and punishable under Section 4 of the PML Act. 5. In view of said allegations, the Respondent No. 1, vide the Provisional Order attached various properties of the said Respondents, including the said Vehicle, ( said Properties ) which according to the Respondent No. 1 was covered under the definition of proceeds of crime as defined under Section 2(1)(u) of the PML Act. 6. The Respondent No. 1 vide the Provisional Order directed the appellant and the other respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cum Hypothecation Agreement dated September 13, 2014, as amended from time to time, and Irrevocable Power of Attorney dated December 4, 2014 executed by the Respondent NO. 7 in favour of the Appellant bank. 12. The Ld. Adjudicating Authority (PMLA), vide the Impugned Order, confirmed the Provisional Order passed by the Respondent No. 1 by observing that the said Vehicle fell within the purview of proceeds of crime which includes not only the proceeds of crime but also the value thereof . 13. The Appellant Bank aggrieved by the Impugned Order, has filed the instant appeal for the limited purpose of challenging attachment of the said Vehicle, vide the Provisional Order on various grounds. At present, we are only concern with the vehicle in question. As far as the merit of the case against the respondent no. 7, we do not wish to express any opinion as we are the view that the said issue is to be determined by the Special Court. At present, we have to consider as whether the appellant is entitled to take the possession of the vehicle in question and as to whether, the provisional attachment in relation to vehicle has been passed is sustainable in law or not. 14. It is true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Enforcement, Kolkata in appeal no. FPA-PMLA- 1026/KOL/2015 decided on 14th July, 2017. The view taken in the said matter has also been re-confirmed in various other appeals. The relevant paras from the said judgement the said appeals FPA-PMLA- 1026/KOL/2015 and FPA-PMLA-1072/KOL/2015 from para 30 to 41 are reproduced here below:- 30. We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. Ors. Wherein after discussion in para 7-11 it was held that later enactment would prevail with a nonobstante clause. Paras 7-11 reads as under:- 7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows: 32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 973) and the Urban Land (Ceiling and Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13. that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act. Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 when we find that whenever the legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act. 31. The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olvency 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 provisions of that Code. (ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 : 31B. Priority to secured creditors Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise 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 other rates due to the Central Government, 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 provisions of that Code. 34. In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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, 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, 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 provisions of that Code. 3 There is, thus, no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assets 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 Local Authority. This section introduced in the Central Act is with notwithstanding clause and has come into force from 01.09.2016. 4 The law having now come into force ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 read as under:- 103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over the entire outstanding Loan Facility along with interest from the Respondent No. 7 and further take physical possession the said Vehicle for the purpose of recovery of the Loan Facility. The relevant portion of the Loan Cum Hypothecation Agreement is reproduced hereunder for the convenience of this Hon‟ble Appellate Tribunal; 12 (A) Events of default The Bank may by a written notice to the Borrower, declare all sums outstanding under the Loan (including the principal, interest, charges, expenses) to become due and payable forthwith irrespective of any agreed maturity and enforce the security created in favour of Bank for the Loan upon the occurrence (in the sole decision of the Bank) of any one or more of the following: a) The Borrower commits any default in the payment of EMIs and in the payment of any other amounts to the Bank when due and payable; b) The borrower fails to pay to any person other than the Bank any amount when due and payable or any person other than the Bank demands repayment of the Loans or dues or liability of the borrower in any such person ahead of its repayment terms as previously agreed between such person and the Borrower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the Bank shall be entitled to sale the said vehicle by public or private auction or private treaty as it may deem fit. ( emphasis supplied ) 18. After availing the Loan Facility, the Respondent NO. 7 had failed to repay the loan installment and the said Loan Facility is in default since December 15, 2016. It is respectfully submitted that as on July 12, 2017, the Respondent No. 7 is liable to pay ₹ 12,08,949/- (Rupees Twelve Lakhs Eight Thousand Nine Hundred and Forty Nine Only) to the Appellant bank, vide Loan A/c No. AUR012601217345, under the Loan Cum Hypothecation Agreement dated September 13, 2014. 19. A bare perusal of the terms of the Loan Cum Hypothecation Agreement, it is evident that, in the event Respondent No. 7 fails to service the loan installments as per the Loan Cum Hypothecation Agreement, the Appellant bank has the right and is entitled to take possession and sell off the said Vehicle to recover the Loan Facility provided by the Appellant bank to the Respondent No. 7. 20. The terms of the Loan Cum Hypothecation Agreement, in the event of default by the Respondent No. 7 in service of the loan installments, a right has accrued in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not consider the judicial precedents cited by the appellant on the above propositions of law asserting the supremacy and priority of the charge/rights of the appellants (being Secured inconsistency between the two, before giving an overriding effect to the non obstante clause. Neither the respondent no. 1 nor the Ld. Adjudicating Authority (PMLA) have indicated what law‟ was being overridden by their use of Section 71 of the Act, and how such law was inconsistent with the provisions of the PMLA, 2002. The objectives of the PMLA, 2002 do not detract or derogate from the protection of legitimate transactions and financial assets as afforded by legislation such as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The learned Adjudicating Authority (PMLA) has failed to appreciate that the definition of proceeds of crime and/or value thereof has no application to the facts of the present case inasmuch as in the present case, the legitimacy of the transaction entered into between the Appellant and the Respondent No. 7 is not in dispute. Therefore, the attached vehicle being the subject matter of the Loan Facility which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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