TMI Blog2018 (5) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 there was absence of such requirement. The said properties are already in the symbolic possession of the Appellant Bank under the SARFAESI Act. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the Appellant Bank and there is no charge of money laundering against the Bank. Thus the allegation of money laundering, prima facie, so far as present appellant & properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002. - FPA-PMLA-1958/DLI/2017 - - - Dated:- 16-5-2018 - Justice Manmohan Singh Chairman And Shri G. C. Mishra Member For the Appellant : Shri Vipul Agrawal, Advocate Sh. Bhagya K. Yadav, Advocate For the Respondent : Mr. Mohd. Faraz, Advocate JUDGEMENT FPA-PMLA-1958/DLI/2017 The present appeal has been preferred by the appellant against the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.50 lakhs to ₹ 175.50 lakhs stating the reason that it had received supply orders to the tune of ₹ 2170.90 lakhs from military/paramilitary forces which needed to be completed within 03 months. The request of M/s DSIPL was considered by the bank and limits were enhanced as mentioned above for the period of 06 months, i.e. 30.06.11. The enhanced limit as availed by M/s DSIPL between 18.01.2011 to 09.05.2011 and was not adjusted due to which PNB was put to total loss of ₹ 29.75 cr.. The cash credit limits and other limits as obtained by M/s DSIPL through its directors, viz. Sh. S.P. Singh (D-2) and Smt. Nirmala Bhatter(D-3) on the basis of fictitious supply order shown to have been issued from Defence Authorities and later on, diverted the loan funds to the accounts of various firms/companies, which were allegedly established by Sh. S.P. Singh (D-2) in the name of various other employees showing them as directors/proprietors. Therefore, the credit obtained from the bank had not been utilised for the purpose for which it was obtained and siphoned off through the accounts of other dummy companies. 5. After completion of investigation the CBI has filed chargsheet a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. Singh Negative lien with PNB 86.75 Total 2129.74 Lakhs 9. The aforesaid properties were mortgaged with the Appellant Bank and credit facilities were availed. D-1 therein was given a CC Limit of ₹ 650.00 Lakhs and Term Loan of ₹ 1335.00 Lakhs and One time FLC Limit of ₹ 380.00 Lakhs (within the term loan) along with a takeover of existing CC limit of ₹ 200.00 Lakhs and BG of ₹ 25.50 Lakhs from Syndicate Bank, for which D-1 mortgaged the said properties. 10. The mortgaged properties were already in existence prior to the sanction of the loan as such their classification as proceeds of crime is unjustifiable and the appellant has prior charge to recover from all the mortgaged properties. 11. It is contended by the appellant that it has already suffered a loss amounting to ₹ 29.75 crores plus interest and other charges from the date of NPA and the only security the bank has against the said bad loan are the properties that are mortgaged with it. 12. So far as the properties attached in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n FPA-PMLA-2147/DLI/2018 on 10.05.2018. In all the aforesaid matters the aforesaid legal issues were involved and decided. The relevant portions of the orders passed in aforesaid appeals are re-produced below:- FPA-PMLA-1026/KOL/2015 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 Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act. 8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally 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 payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Fairgrowth Financial Services Ltd. The judgment rendered on 09.02.2016 reported in 1997 (89) company cases 547 (BOM) para 15 of the said judgment read as under: 15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, which contain non- obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Act, 1993 after the words the date of the application , and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or; is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid. 35. Thus, it is very clear from above that the secured cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, naturally it would govern the rights of the parties in respect of even a lis pending. 5 The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property. 38. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2) process 41. The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of India V/s. Satyawati Tondon and Ors. In paras no. 6, 55 56 has held as under:- 6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks and financial institutions, but also made pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But we can only observe that in case of settlement, joint petition for quashing of FIR in the High Court u/s 482 Cr. P.C. could be filed. 43. It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED. 44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr. P.C. at the joint request of the parties. 45. 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 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in the original petition. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not. 8. Adjudication.- (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, 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 money- laundering, 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 involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (a) directly or indirectly 'attempts' to indulge, (b) knowingly either assists or is a party, or (c) is actually involved in such activity; and (ii) Secondly, if he also projects or claims it as untainted property; 38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients- A. RE: DIRECT OR INDIRECT ATTEMPT: In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (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 commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, would be utmost necessary, which however is lacking in the instant 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 purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced 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 categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation 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, Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not 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. 17. FPA-PMLA-2147/DLI/2018 : In appeal no. FPA-PMLA-2147/DLI/2018 this tribunal not only relied on the judgment and order of this tribunal passed in State Bank of India (supra) matter but also discussed and considered the judgment of Hon'ble Supreme Court passed in the matter of KSL Industries vs. Arihant Threades Ltd. Ors. in civil appeal no. 5225/2008 passed in the year 2014 as well as the Judgment order of this Tribunal in the matter of Cheif Manager of Syndicate Bank vs. Deputy Director, PMLA in appeal no. FPA-PMLA/A-34/CAL/2009. 18. In the present case it is an admitted fact that the properties in question were acquired much prior to the period of alleged money laundering. The said p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the pendency of the proceedings relating to any offence under this Act before a court or under corresponding law of any other country, before the competent court of criminal jurisdiction outside India, as the case may be; and become final after an order of confiscation is passed under sub-section (5) to sub-section (7) of section 8 or section 58B or Section (2A) of section 60. 79. The Provisional Attachment Order is confirmed. 80. Conclusion: On a thorough perusal of the PAO, Complaint, relied upon documents, the investigations conducted by the ED and the statements recorded u/s 50 of the PMLA and on careful consideration of the arguments advanced on behalf of the complainant and Defendants undersigned comes to the prima facie conclusion that the defendant have committed the Scheduled Offences, generated proceeds of crime and laundered them. No doubt the properties attached are proceeds of crime or value thereof and are involved in money laundering. Undersigned therefore order confirmation of the above provisional attachment Order. This order shall continue during the pendency of the proceedings relating to any offence under this Act before court or under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents then the same have to be resolved by taking into consideration of policy underlying the enactment and the language used in them. The Prevention of Money Laundering Act has been enacted for forfeiture of crime involved in the money laundering which was considered necessary to deprive persons engaged in serious illegal activities and have thereby been increasing their resources for operating in clandestine manner. The PML Act was created to forfeit illegal properties and to prevent the money laundering activities which are threat to financial system of the country and its integrity and sovereignty. Further the question of prevalence of a subsequent legislation will only come into picture when there is a conflict between the two statutes. The Securitization Act has been enacted for the purpose of establishing a expeditious system for recovery of debts due to Banks and for matters connected therewith or incidental thereto. It only lays down a procedure for recovery of debts due to Banks. The Prevention of Money Laundering act vests the statutory authorities with a power to forfeit proceeds of crime involved in money laundering to the State. There is thus no apparent conflict betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,30,43,433/- from State Bank of India and ₹ 6,76,65,000/- from Oriental Bank of Commerce. The funds which were credited to the above current accounts, were withdrawn from bank for personal gain of Shri Gopinath Das and companies owned and managed by him. Out of these funds, Sh. Gopinath Das has acquired several immovable properties as detailed in the impugned order and mortgaged them with Syndicate Bank, Salt Lake Branch, Kolkata, the present appellant for availing credit facilities to the extent of ₹ 10 crores and got ₹ 4.5 crores fraudulently released from the appellant against fake and forged documents. As the amount of loan given by the appellant was not repaid the account became Non Performing Asset (NPA) and the appellant proceeded u/s 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short Securitisation Act) for recovery of its dues and claimed to have taken possession of the properties on 30.11.2006. 28. It is an admitted fact that the properties herein are mortgaged with the Appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the properties have been mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in acquiring of these properties and hence the same cannot be attached. 32. The Ld. Adjudicating Authority has failed to consider that the ED has attached the properties without examining the case of the bank. The evidence on record suggests that the properties were acquired by the borrower/guarantors much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The Bank has already filed the suit for recovery and has also taken the action under SARFAESI Act. The 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 legally unjustified. 33. 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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