TMI Blog2018 (5) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... ent no.2 did not remit the OTS amount as per the terms and conditions. Since the OTS conditions were not fulfilled by the respondent no.2, the Appellant Bank cancelled the OTS. The Appellant Bank also filed an Original Application in O.A. No.456 of 2016 against the respondent no.2 and others before the DRT, Madurai and the same is pending adjudication. In the instant case also it is a matter of record that the attached properties as per Annexure R-1 and the list of hypothecated goods enclosed as Annexure R-2 of the appellant’s letter dated 03.11.2017 have also been attached. Following the decision of the case of “State Bank of India Versus The Joint Director, Directorate of Enforcement, Kolkata” [2018 (4) TMI 1411 - ATPMLA, NEW DELHI ] and subsequent similar decisions in various cases, the Impugned Order dated 26.04.2017 and the Provisional Attachment Order dated 09.12.2016 in respect of the mortgaged properties with the Appellant Bank as per Annexure R-1 & the hypothecated goods as per Annexure R-2 of Appellant’s letter dated 03.11.2017 is set aside. - FPA-PMLA-1812/CHN/2017 - - - Dated:- 1-5-2018 - Manmohan Singh Chairman And Shri Anand Kishore Member For the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Import LC (Sub limit of EPC/FBN/FBP) (Fresh) 20.00 4. MTL (Take Over) 31.84 5. Import LC (Take Over) 18.00 6. Bank Guarantee (Take Over) 2.00 7. Bank Guarantee (For disputed liability with SBI) (Fresh) 35.00 8. Forward Contract 288.12 d) Subsequently, at the request of the respondent no.2, the Appellant Bank sanctioned the renewal/ enhancement of the existing facilities vide sanction ticket dated 24.08.2011 and sanctioned the following credit facilities:- S.No. Type of facility Limit Sanctioned (Rs. In Crores) 1. Export Packing Credit 93.00 2. PCFC (Sub limit of EPC) (50.00) 3. FBP/FBN (DA 180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook possession of the charged immovable properties under Section 13(4) of the Act and thereafter, the same was also put on auction and the sale notice was issued on 06.01.2014. The action of the Bank was challenged by the respondent no.2 in S.A. No.39 of 2014 filed before DRT, Madurai. h) One Time Settlement was also proposed by the respondent no.2 but the respondent no.2 did not remit the OTS amount as per the terms and conditions. Since the OTS conditions were not fulfilled by the respondent no.2, the Appellant Bank cancelled the OTS. The Appellant Bank also filed an Original Application in O.A. No.456 of 2016 against the respondent no.2 and others before the DRT, Madurai and the same is pending adjudication. 4. In FIRs, it was alleged by the appellant that all illegal quarrying and using explosive substances were in contravention of Statutory obligations by the respondent No.2 and its partners. 5. On the basis of said allegations, the Enforcement case was registered for investigation under PMLA, Act. Subsequently, a Provisional Attachment Order being PAO No.22 of 2016 dated 09.12.2016 was passed by the respondent no.1 herein. The copy of the Provisional Attachment Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed/charged with the Bank and the Bank as secured creditor, has first preference to bring the said granite blocks and finished products, etc. for sale to recover their outstanding dues. b) That the Adjudicating Authority, while passing the impugned order failed to appreciate that the Appellant Bank enters into loaning transactions in its ordinary course of business and has no role in the alleged irregularities/proceeds of crime generated by the respondent no.2/its partners. Infact, the Appellant has advanced credit facilities to the respondent no.2 on the basis of the Mortgage/Hypothecation and thus, such secured/ charged assets cannot be brought within the purview of PMLA, 2002. If this is allowed to happen, it shall have very wide ramifications and could have adverse implications. The respondent no.1 cannot have any prior claim over the secured assets mortgaged/hypothecated to the Appellant Bank, who as a secured creditor is having priority right/claim to bring all the secured assets for sale. The Appellant Bank is dealing with public money and they are entitled to recover their dues by the sale of the secured assets in accordance with applicable law. The State itself had accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made by the Ld. Adjudicating Authority only against the properties not mortgaged / hypothecated to the appellant bank, otherwise, it would defeat the very purpose of the special enactments. h) The Adjudicating Authority, while passing the impugned order failed to appreciate that as per Section 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and Section 35 of the SARFAESI Act, 2002, the said special enactments are having overriding effect, notwithstanding anything inconsistent therewith in any other law for the time being in force. 10. The respondent no. 1 has defended the impugned order and has made the similar contention as raised by the Adjudicating Authority. 11. The appellant in the present appeal is not pressing any relief against the other respondents except the respondent no.1. As per appellant, they are formal parties. 12. In the present appeal, their main contention is that both orders are against the well settled law and are not sustainable and the same be set- aside against the appellant bank. 13. The case of the Respondent no. 1 in its pleadings is that the Tamil Nadu State Authorities through Police Department of Keelava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under PMLA. 13.3 In the meantime, Shri K. R. Ramasamy @ Traffic Ramasamy filed Writ Petition No. 16841 of 2014 before the Hon ble High Court of Madras praying to issue a WRIT OF MANDAMUS directing the officials of the Enforcement Directorate, Chennai to conduct investigation under PMLA and pass appropriate orders for taking action against the illegal mines functioning in the State under PMLA. In view of the monitoring of the investigation conducted into illegal mining cases by Hon ble Division Bench of High Court of Madras, periodical reports were filed with respect to the progress in the investigation by this Directorate. 13.4 As the object of the PMLA are to prevent the offence of money laundering and to identify the crime proceeds, attach and confiscate the same and also prosecute the Money Laundering offenders, the persons acquainted with the affairs of the company were enquired under Section 50(2) 50(3) of the PMLA. It is ascertained that M/s PRP Granites have commenced their business operations from 1995 as registered partnership firm engaged in quarrying the Granites and in the export of processed dimensional granite blocks. The partners of M/s PRP Granites since 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rai, vide their letter dated 17.05.2016, have, inter alia, stated that they have granted credit facilities to M/s PRP Exports and have obtained certain collateral securities in the form of landed properties. It is claimed that PRP Exports is having an exposure of ₹ 160 Crore and have submitted the details of the immovable properties mortgaged. 13.7 M/s HDFC Bank, Aminjikarai, Chennai, vide their letter dated 18.05.2016 have, inter alia, stated that based on the application received from M/s PRP Exports / M/s PRP Granites the bank have issued loan to the tune of ₹ 31.66 Crore in the name of M/s PRP Exports, S/Shri P. Palanisamy, as co-borrower and P. Suresh Kumar as guarantor for the purpose of purchasing construction equipments and that the bank have initiated recovery proceedings before the Hon ble Debt Recovery Tribunal, Madurai, submitting the details of the credit facilities availed by the borrowers. 13.8 It is alleged that District Collector of Madurai, vide his inspection report dated 19.05.2012, charged the granite mining lease holders for illegal quarrying and the clandestine removal of granites thereby causing huge loss to the State exchequer. The report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the physical orientation of the quarry, they came to a convincing conclusion that the quarry pits in the leasehold areas and non-leasehold area were merged together and formed as a single basin. As the granite quarrying operation was mechanized one, it was impossible to do the quarrying operation in the adjoining non-lease areas without the knowledge /without the active support of the lessee. Therefore, it has been certified that the lessee viz., M/s PRP Exports and their partners alone were having access to the area and thereby indulged in illegal quarrying in the lease hold and non-leased areas. 13.11 The Deputy Director, (Geology and Mining), Chennai, through the evaluation report recommended the District Collector of Madurai for issuance of Show Cause Notice to M/s PRP Exports, M/s PRP Granites and their partners for violations of Tamil Nadu Minor Mineral Concession Rules, 1959, Mines and Minerals (Development and Regulations) Act, 1957 and Granite conservation and Development Rules, 1999, with the allegations that M/s PRP Exports and others have quarried more than the permitted depth in the lease hold area, not followed the scientific and Systematic Quarrying thereby c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lean the land surface to identify the granite stones, used drilling machines to make holes to insert explosive materials to break the granite stones for easy removal of the same, used crane to load it in trailers for further processing, used forged and fabricated documents to cheat the statutory authorities posing the materials as such of lawful quarrying from lease hold lands and thereby committed offences liable for punishment under Section 120 B,447,379, 420,434,465,467,468, 471,304(ii) r/w 511,109,114 IPC of IPC, 1860 and Section 6 r/w 3(a) 4(a) of Explosive Substances Act, 1908 and Section 3(i) 4 of Tamil Nadu Public Property (Prevention of Damage and Loss) Act, 1992 r/w Sec. 109 of IPC 1860, wherein in terms of Section 2(1) (x) and Section 2 (1) (y) of PMLA the following offences are defined as scheduled offence viz., Section 120B (Criminal Conspiracy), 420(Cheating and dishonestly inducing delivery of property), 467 (Forgery of valuable security, will etc.), 471 ( Using as genuine a forged document or electronic record) of Indian Penal Code, 1860, Section 3 (Causing explosion likely to endanger life or property) and Sec. 4 (Attempt to cause explosion, or for making or ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project the same as untainted, have indulged in devious process and transmitted a part of the aforesaid proceeds of crime to acquire 105 immovable properties on payment of Cheque directly in the name of the executors for ₹ 48,62,43,461/- and to acquire 1359 immovable properties on payment of cash as accounted in the ledger account cash books at different places for ₹ 11,42,55,968/- during the period from 2006-07 to 2012-13. Thus it is evident from book of accounts of M/s PRP Exports that proceeds of crime to an extent of ₹ 60 Crore (Rupees Sixty Crores only) towards investment in immovable properties including lands with potential granite resource in the name of M/s PRP Exports and M/s PRP Granites. The lands were ultimately quarried for granite slabs/blocks and then exported in the name of M/s PRP Exports/ M/s PRP Granites as to clearly augment the accruals of benefits/earnings of M/s PRP Exports and M/s PRP Granites. In as much as the investment made in the purchase of immovable properties is attributable directly to the proceeds of crime, and so the further revenue from those business/operations of M/s PRP Exports and M/s PRP Granites also becomes the proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d show cause notice under Section 8(1) of PMLA to the Appellant herein viz., Indian bank to defend the attachment proceedings, if aggrieved. The Appellant claimed that they hold exclusive charge over the hypothecated goods and mortgaged immovable properties against the credit facilities extended to PRP Exports and Others. That the account became NPA and the Appellate bank had initiated recovery proceedings under SARFAESI Act. The Hon ble Adjudicating Authority (PMLA), New Delhi vide Order in OC No. 671/2017 dated 26.04.2017 confirmed the Provisional Attachment Order. As there is statutory liability to take possession of the Confirmed attached Properties in terms of Section 8(4) of PMLA, 2002, forthwith from the order of confirmation under Sec. 8(3) of PMLA, the immovable properties were taken possession in terms of Section 8(4) of PMLA, 2002 in the manner prescribed under Rule 3 of Prevention Of Money- Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 effective from 23.06.2017 by issue of Form I notice, to all the Sub-Registrar under Rule 5(1), publication in local new paper under Rule 6(1) and in the process of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. Thereafter, at the request of the respondent no.2, the Appellant Bank sanctioned the enhancement of the existing credit facilities and took over the credit facilities of the respondent no.2 from State Bank of India and vide sanction ticket dated 01.12.2009 sanctioned the following credit facilities:- S.No. Type of facility Limit Sanctioned (Rs. In Crores) 1. Export Packing Credit PCFC (Take Over) 68.00 2. FBP/FBN (Take Over) 68.00 3. Import LC (Sub limit of EPC/FBN/FBP) (Fresh) 20.00 4. MTL (Take Over) 31.84 5. Import LC (Take Over) 18.00 6. Bank Guarantee (Take Over) 2.00 7. Bank Guarantee (For disputed liability with SBI) (Fresh) 35.00 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of mortgage on 16.11.2010 and Registered Memorandum of Deposit of Title Deeds executed on 07.01.2011 bearing Doc.Nos.94/2011 and 95/2011. Apart from the respondent no.2, one Mr. Deivendran had given personal guarantee and mortgaged his immovable properties. 23. Since the account of the respondent no.2 became NPA, the Appellant Bank had initiated recovery proceedings under the SARFAESI Act and issued Demand Notice under Section 13(2) of the Act in September, 2013. The Appellant Bank took possession of the charged immovable properties including the Hypothecated goods under Section 13(4) of the Act and thereafter, the same was also put on auction and the sale notice was issued on 06.01.2014. The action of the Bank was challenged by the respondent no.2 in S.A. No.39 of 2014 filed before DRT, Madurai. 24. One Time Settlement was also proposed by the respondent no.2 but the respondent no.2 did not remit the OTS amount as per the terms and conditions. Since the OTS conditions were not fulfilled by the respondent no.2, the Appellant Bank cancelled the OTS. The Appellant Bank also filed an Original Application in O.A. No.456 of 2016 against the respondent no.2 and others before the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded provisions give overriding effect over any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned. The amended provisions are reproduced as under: (i) Section 26e of the SARFAESI Act, 2002: 26E. Priority to secured creditors Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation: For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. (ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993: 31B. Priority to secured creditors Notwithstanding anything cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded. 47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the properties as they have lent its valuable money to the borrowers. The property is mortgaged to the Appellant Bank. If tomorrow any borrower fails to repay the loan, the Bank has a legal right to bring the properties to sale and recover its dues. Valuable right will be lost for the Appellant, by order of attachment and eventual confiscation. As a matter of fact, the borrowers may not be interested in repaying the loan, since they are not going to enjoy the property. Therefore, ultimately, the action of the ED/Respondent No. 1 would make the Appellant, a much greater victim than even the accused/Respondents. Though in the present case, the borrowers have a settled their disputes with the Union Bank of India. Terms of settlement have already been recorded by the Court. Those terms are binding upon the parties. On behalf of borrowers, the statement has been made that they are also ready to resolve their disputes with the State Bank of India on reasonable terms. As and when these properties are sold, the banks would be able to receive the public money. The banks in the present case are just victim and not accused. If the attachment would continue against the mortgage property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 61. 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-much before the alleged date of crime. No money disbursed by the Union Bank of India from its Loan Account, has been invested in acquiring his property. Furthermore, the Appellants Banks had mortgaged charge over the property prior to the date of the crime. The Bank has already filed the Suit for recovery and has also had taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be unjustified. 62. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case it is clear by the order of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the banks are innocent parties. They are not involved in any criminal proceedings. If they are asked to await till the trial is over, the systems in these types of cases, the economy would collapse. In the case, of Union Bank of India, no sanction against the employee was granted who is also not involved in any criminal proceedings. 65. From the entire gamut of the matter we are of the view that 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 banks who have sanctioned the amount which is untainted and pure money. They have priority to the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in 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. All the contentions raised by Mr. Matta has no substance. The provisional attachment in the present m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from proceeding with the recovery process, it will ensue irreparable hardship, financial strain and loss of public money. 33. The Adjudicating Authority, while passing the impugned order failed to note that the Appellant Bank accepted mortgage over the lands which are not quarry sites and the basis of attachment and show cause notice is on the assumption that the lands offered as mortgage are quarry sites. This assumption is erroneous and as such the impugned order confirming the Provisional Attachment cannot sustain in law. 34. The Adjudicating Authority has passed the impugned order failing to appreciate that the mortgaged properties were charged much before the disputed claim period and therefore, it is inconceivable that ill-gotten fruits have gone into purchase of these properties so as to attract the provisions of PMLA. Even otherwise it must be appreciated that the bank while accepting mortgage could not have ascertained or foreseen the future disputes and allegations against the source of funds of the borrower/guarantor. 35. The Adjudicating Authority, while passing the impugned order did not understand that the provisions of PMLA, 2002 have to be read in harmony ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter in pursuance of frozen orders of the Deputy Superintendent of Police, Prohibition Enforcement Wing doing vide letter dated 31.08.2012, the loan account became NPA and the total outstanding demand was quantified ₹ 135.08 Crores on the date of NPA. 40. Since the account of the respondent no.2 became NPA, the Appellant Bank had initiated recovery proceedings under the SARFAESI Act and issued Demand Notice under Section 13(2) of the Act, including the hypothecated goods. The Appellant Bank took possession of the charged immovable properties under Section 13(4) of the Act and thereafter, the same was also put on auction and the sale notice was issued on 06.01.2014. The action of the Bank was challenged by the respondent no.2 in S.A. No.39 of 2014 filed before DRT, Madurai. 41. One Time Settlement was also proposed by the respondent no.2 but the respondent no.2 did not remit the OTS amount as per the terms and conditions. Since the OTS conditions were not fulfilled by the respondent no.2, the Appellant Bank cancelled the OTS. The Appellant Bank also filed an Original Application in O.A. No.456 of 2016 against the respondent no.2 and others before the DRT, Madurai and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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