TMI Blog2018 (4) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... been to block the loan amount against the mortgaged properties being innocent person as is sought to be done in the instant case. If the impugned order is taken as correct, it would be a patently absurd situation once substantial securities of the bank are not available for the benefit of Bank. Such a result does not advance the objects of the Act. For the above said reasons as mentioned above, the impugned order dated 24.10.2017 is set-aside, consequently the provisional attachment also does not survive and the same is quashed. This judgement & order is without prejudice to the matters pending against the borrowers before the Special Court. The attachment of mortgaged properties with the appellant bank is lifted. - MP-PMLA-4148/MUM/2017 (STAY) AND FPA-PMLA-2121/DLI/2017 - - - Dated:- 6-2-2018 - MR. MANMOHAN SINGH, J. For The Appellant : Shri S.L. Gupta, Advocate For The Respondent : Shri N.K. Matta, Advocate JUDGMENT 1. By this order I propose to decide the above mentioned appeal filed against the order dated 24.10.2017 passed by the adjudicating authority. 2. The facts in the present matter are almost common as in earlier appeal allowed being no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .05.2017 u/s 13(2) of the SARFAESI Act and in the said Notice, the properties mortgaged with the Appellant Bank has been mentioned. Before the Bank should take the action u/s 13(4) of the SARFAESI Act, the ED started its proceedings and attached the properties. The notice u/s 13(2) is filed as ANNEXURE 89 of the Appeal paper-book). The mortgage properties mentioned at Sl. No. A and C of the provisional attachment order matches with the description of the properties mentioned by the bank in the notice. 10. The date of acquisition and the description of the respective properties is detailed at para 4(a) of the appeal and the same are reproduced here below. Sl. No. Date of acquisition of the property Description of the immovable property Area 1. 24.11.2008 Hotel Oyster, Plot No. 30, behind IBP petrol pump, Piplod, Surat (Plot along with the construction erected thereon) Plot admeasuring 489.62 sq. mtrs. along with the construction erected thereon. 2 07.04.2010 Duplex row house No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans / credit facilities from the Appellant Bank since the year 2009. At present the following loans are mentioned in the books of the Appellant Bank: a) the Term Loan-I of ₹ 48.00 Crores was sanctioned on 23.07.2009 vide the Agreement of Loan dated 10.08.2009 for acquiring 192 Vehicles; b) the Term Loan-II of ₹ 97.50 Crores was sanctioned on 30.04.2011 for acquiring 348 vehicles vide the Agreement of Loan dated 13.05.2011; c) the Term Loan-III of ₹ 144.00 Crores was sanctioned on 15.03.2013 vide the Agreement of Loan dated 25.03.2013 for the purchase of 465 Vehicles; and d) the existing three TLs were restructured on 11.02.2015 with total outstanding amount of ₹ 213.07 crores of which share of TL I is ₹ 5.68 crores; the share of TL II is ₹ 47.12 crores; the share of TL III is ₹ 135.92 crores and the share of FITL is ₹ 24.35 crores for total 1005 vehicles. 13. The Appellant Bank as per pleading is to recover ₹ 206.20 Crores with interest from 29.11.2014 from the Borrower/ Guarantors/ Securities/ Mortgage Properties/ Personal Assets. The present amount recoverable by the Appellant Bank is more than ₹ 270.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule of Properties (page Nos. 21-22) of the PAO admittedly were acquired on 02.07.2010, which is prior to the date of commission of the alleged offence. 20. All the properties subject matter of the Appeal, which are mortgaged with the Appellant Bank were acquired by the alleged accused/mortgagor prior to the date of crime. 21. That the proceeds of crime are defined in Section 2(1) (u) of the Prevention of Money Laundering Act, 2002 which reads as under:- Proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property. It is clear that the properties at Sl. No. A C (listed from 3to 8) of the Schedule of Properties of the PAO are not derived or obtained, directly or indirectly from the criminal activity or the proceeds of crime. 22. The provision of PML Act is to punish the accused person involved in money laundering, but not to the innocent who is not involved in the crime. 23. Counsel for the respondent no. 1 does not deny that the bank is a victim who is entitled to recover the money, however this sole argument is that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case The Assistant Commissioner (CT), Anna Salai- III Assessment Circle Vs. The Indian Overseas bank and Ors. MANU/TN/3743/2016 that 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. 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. 28. 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. MANU/TN/3619/2016 , while uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication if favour of the respondent in view of amendment brought by in the respective statues. Rahter now the said judgement can be applied against the arguments of respondent no. 1. 31. In another Madras High Court judgment in the case of Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement has explained the grievances faced by the financial institutions while holding that For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must come to bank. It is a public money. It is Government bank. Even Government is stressing that all borrwoers should pay the due amount so that the economy of this country must run smoothly. If the matter settled and bank as per settlement would received money. It is for the special court to take the call about the settlement. 34. It is also settled law that generally when the dispute between the parties are settled in criminal matter pertaining to the recovery of outstanding amount, on joint petition, the High Court while exercising its discretion in criminal petition u/s 482 Cr. P.C. may or may not quash the FIR. On moving the joint request of the parties. Secondly, why the bank should want for number of years till the trial is over against the borrowers and final judgment is passed. 35. Three Judge Bench in Narendra Lal Jain Ors., (supra) held that during the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. The complainant bank in choosing to enter into such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues. 70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues. The present petition is maintainable as the same has been filed also on additional grounds and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of moneylaundering, he can show before the court that he is innocent and has not received any proceeds of crime. It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to indul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfy any of the following necessary ingredients- A. RE: DIRECT OR INDIRECT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, (1980) 3 SCC 57, the Hon'ble Supreme Court observed that- 13. Well then, what is an attempt ? ...In sum, a person commits the offence of attempt to commit a particular offence when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the course of committing that offence. Thus, an attempt to indulge would necessarily require not only a positive intention to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part of any of the petitioners. B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY: In Joti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant case. 59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime. 22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration and the money paid to the seller is also well explained. 22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order. 23. In the instant case the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank. 39. From the scheme of the Prevention of Money Laundering Act, 2002 and its object, it is clear that the intention of the legislation was not to apply the Act to the nature transaction involved in the present case. 40. The ED in its provisional order as well as in the complaint before the Adjudicating Authority admitted that the properties which are subject matter are mortgaged with the appellant bank. The borrowers acquired the properties much before the borrowers availed the loan from the appellant bank and therefore no proceeds of crime were invested in these properties. The copies of the title deed of the properties would show the same acquisition to be prior to dates of alleged fraud, if any committed even as per the case of the respondent no. 1. 41. The mortgaged properties are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to the events of funds diversion and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are mortgaged with the Banks were acquired and possessed by the respective owners much before the Respondents availed the loan from the Appellant Banks and therefore no proceeds of crime are invested in these properties. 46. From the entire impugned order, it was passed without application of mind and consulting the judgments of supreme court, full court of Madras High Court and various High Courts. The Adjudicating Authority does not want to read the amendment carried in the status as well as the judgements rendered by the higher court. The application of section 5 8 of the PML Act, 2002 wrongly applied by the Authority. The account of the borrowers is declared as Non-Performing Asset (NPA). 47. Although the said decisions were relied upon as well as was vehemently argued by the counsel for Appellant Bank yet the Ld. Adjudicating Authority did not look into the facts and law involved in the contentions of the Appellant Bank. 48. The legal right under SARFAESI is taken away from the Appellant Bank by the ED vide Attachment Order dated 08.06.2017 and by the Ld. Adjudicating Authority vide Impugned Order 24.10.2017. The Adjudicating Authority failed to understand tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject matter/five properties; still the Ld. Adjudicating Authority confirmed the provisional attachment order of the Respondent No. 1 and have caused huge loss to the Appellant/SBI. Both ED and Adjudicating Authority have failed to apply the law on the subject. Had the consulted the law and provisions of PML Act, 2002 in meaning of manner, the PAO and impugned order not to have been passed. 54. The Adjudicating Authority has not examined the law on mortgage and securities. The Appellant Bank is liable to recover huge amounts in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the Appellant Bank much before the alleged criminal action. The alleged proceeds of crime has not been used for acquiring the mortgage properties. 55. The Ld. Adjudicating Authority has failed to considered that the ED has attached all the properties without examining the case of the banks. The evidence on record suggested that all the properties were acquired by the accused much before the alleged date of crime. The Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law, the bank is entitled to dispose the mortgaged property without any delay. 59. There is no nexus whatsoever between the alleged crime and the two bank who are mortgagee of all the properties 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. The bank has priority to the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. 60. The Ld. Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. In the circumstances available in the present case, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002. 61. The Adjudicating Authority has blindly relied upon the submissions made by the Respondent No. 1/ED and has not given due weightage to the facts brought before the eyes of law by the Appellant Bank. Also, the Ld. Adjudicating Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n many cases has ignored judgements of the Supreme Court, Full bench of Madras High Court and many High Courts and even of this tribunal. Such order are being passed without consulting law and facts of the matter. 64. The intention of the Act could not have been to block the loan amount against the mortgaged properties being innocent person as is sought to be done in the instant case. If the impugned order is taken as correct, it would be a patently absurd situation once substantial securities of the bank are not available for the benefit of Bank. Such a result does not advance the objects of the Act. 65. The Bank relies on the case of Indian Bank Vs. Government of India and M/s Palpap Ichinichi Software International Ltd. , decided by Madras High Court on 11.07.2012, wherein it was held in similar circumstances that Sections 5, 8 and 9 of the Act cannot be used by the authorities to inflict injury of the victim i.e. the Bank. As far as actual amount due from the borrowers are concerned, the out-standing amount would be decided by the appropriate authority. For the same, no figures are being determined by this judgment. 66. For the above said reasons as mentioned above, t ..... 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