TMI Blog2018 (7) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... attached properties are mortgaged properties which were not purchased from proceeds of crime, the Bank are victim parties and are innocent parties who are entitled to recover the loan amount from the said mortgaged properties, but the banks be allowed to dispose the properties after the trial and final out-come of criminal complaints filed against the borrowers under schedule offence and prosecution complaint. The said argument cannot be accepted in view of settled law and new amendment in sub-section 8 of section 8 of the Act. Thus, the stand earlier taken by the respondent no. 1 is wholly vague and without any substance. The provisional attachment order thus apparently bad and against the scheme of the Act. once it was found that the appellant is a innocent party who is not involved in the money laundering directly or indirectly or assist any party and the mortgaged property is also not purchased from the proceeds of crime then the question of provisional attachment order and confirmation thereof does not arise and the victims/innocent party i.e. innocent party would be entitled to disposed of the said property. In the fact and circumstances and material available in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant No.6 initiated arbitral proceedings, which resulted in an award dated 10.03.2016. E. Therefore, the Defendant No.6 also issued a notice dated 27.10.2016, 8. From the above, it is clear that the Secured Property is not proceeds of crime as it was acquired much prior to generation of the proceeds of crime . A perusal of the OC and the relied upon documents indicates that the Complainant has made no effort in tracing the actual proceeds of crime , which are the funds siphoned away from the NRHM scam. 9. In conclusion, it is submitted that the Complainant is required to act in a non-adversarial and impartial manner and is required to assist this Hon ble Authority in discharging its obligations under the PMLA. As such, the Complainant has a fiduciary as well as a statutory duty to place on record all relevant facts, which would enable this Hon ble Adjudicating Authority to determine whether or not to take recourse to provisional attachment was even justified. In fact, the Complainant did not even bother to examine the representatives of the Defendant No.6 during the course of the investigation and completely ignored the letter dated 08.05.2017 sent by the Defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was passed without application of mind. He also states that the appellant is not pressing any relief in this appeal against the respondent nos. 2 to 7 who are the formal parties, however, mortgaged properties have to be sold after the order passed by the Special Court. As far as the present appeal is concerned, his submission is that both orders are not sustainable in law and facts. 5. The present case centres around a scam perpetrated in the National Rural Health Mission ( NRHM ) scheme, whereby, it is alleged that the Respondent Nos. 2 to 4, in conspiracy with various government officials and ministers including the Respondent No.5, have siphoned away money from the NRHM scheme. It is further alleged that the payments under NHRM scheme were made by the Government of U.P. to the Respondent No.4 Company during the period starting from 26.09.2009 up to 19.09.2011. On a perusal of the Provisional Attachment Order and the Original Complaint, it is clear that the alleged conspiracy commenced in the year 2009. 6. Sh. Surinder Nath Mediratta was allotted the property bearing No.B- 42, Ashok Vihar, Phase-1, Delhi-110 052 ( Secured Property ) by the Delhi Development Authority ( DDA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial Assets and Enforcement of Security Interest Act, 2002.True copy of the notice dated 27.10.2016 is filed along with the appeal as Annexure A-8. 14. As such, the only avenue left for appellant for recovering the loan advanced to the Respondent Nos.2 to 4 is the Secured Property. 15. Despite of having full knowledge, the Respondent No.1, without any application of mind and in contravention of the provisions of the PMLA, provisionally attached the Secured Property vide Provisional Attachment Order No.03 of 2017 dated 05.04.2017 and subsequently filed the Original Complaint No. 773 of 2017 dated 03.05.2017 before the Adjudicating Authority.True coy of the Provisional Attachment Order No.03 of 2017 dated 05.04.2017 is filed along with the appeal as Annexure A-9.True copy of the Original Complaint No. 773 of 2017 dated 03.05.2017 is filed along with the appeal as Annexure A-10.The appellant addressed a letter dated 08.05.2017, which is filed along with the appeal as Annexure A-11, to Respondent No.1 bringing to its attention the Loan Agreement and its security interest over the Secured Property. 16. Notwithstanding the fact the Secured Property was acquired by the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 22,61,42,000/- andthe same are liable for provisional attachment to protect against any further transfer or encumbrance upon the same. 22. Hence, the provisional attachment order goes against the express mandate of S. 5(1)(b) of PMLA in as much as the Respondent No.1 has failed to even record his satisfaction that the Secured Property attached as proceeds of crime in the present case is likely to be concealed, transferred or dealt with in any manner which may result in frustrating proceedings relating to confiscation under the Act. As such, the question of dissipation does not arise in the instant case as the original title deeds are in the possession of the Appellant. 23. The only cursory mention of this pre-condition is made subsequently, where the provisional attachment order goes on to generically note that: 41. In view of the overwhelming evidences as discussed above, I have reason to believe that: .. iv. Investigation under the Act has revealed that the persons in ownership and control of the assets acquired out of Proceeds of Crime i.e. both M/s SurgicoinMedequip Pvt. Ltd. as well as Shri Abhay Kumar Bajpai have been clandestinely disposing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax [2015] 378 ITR 421 (Delhi). the prime facie formation of belief should be rational, coherent and not ex facie incorrect and contrary to what is on record . A rubberstamp reason can never take the character of reasons to believe , as explained by the Supreme Court in Union of India v. Mohan Lal Kapoor (1973) 2 SCC 836. In Dilip N. Shroff v. CIT (2007) 6 SCC 329, the Supreme Court decried the practice of issuing notices in a standard pro forma manner without material particulars and without deleting inappropriate words or paragraphs. 28. Having gone through the material on record and orders passed as well as notice issued under Section 8(1) of the PML Act to the banks, there are no valid reasons-to-believe orders are passed in view of above referred judgement rendered by the Hon ble High Court (DB). 29. The important issue involved in the present appeal are whether the properties mortgaged with the Appellant Bank are proceeds of crime as defined u/s 2(1)(u) of PMLA. Secondly, whether the PMLA has priority over SARFEASI and RDDB FI Act. 30. The three member Bench of this Tribunal, to which we were part of the said Bench, decided the appeals on 14.07.2017 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may notice that the Special Court had in another case dealtwithasimilar contention. In Bhoruka Steel Ltd. v. FairgrowthFinancialServices Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of the said decision is as follows: Where there are two special statutes 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 obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Acy 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. 33. The amended 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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. 37. The Assistant Commissioner (CT) Vs. The Indian Overseas Bank, Madras High Court, WP No. 2675 of 2011 (Full Bench) 2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principle Act, Which reads as under:- 31B. Notwithstanding anything contained in any other law for the time being in force, the rights 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act. 39. 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. , while upholding the Amendment Act, 2016 to Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same court in The Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) lifted the attachment entry and held that- In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realise the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold good qua 2002 Act as 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:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy. In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter. 42. It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant i.e. Union of India in order to pay the remaining out- standing amount. The undertaking in this regard is recorded in Court. It is written agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to pay the remaining out- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thus:- 11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been mutually settled between the parties and the accused had accepted the liability in this regard, the High Court had thought it fit to invoke its power under Section 482 Cr.P.C. We do not see how such exercise of power can be faulted or held to be erroneous. Section 482 of the Code inheres in the High Court the power to make such order as may be considered necessary to, inter alia, prevent the abuse of the process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard to the contours of the power available under Section 482 CR.P.C.it must be remembered that continuance of a criminal proceeding which is likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power under Section 482 Cr. P.C. In Sanjay Bhandari V/s. CBI, Crl. M.C. M.C. 5798/2014, Delhi High Court, dated 29.06.2015 69 ..By consent the parties have settled all disputes in the recovery suit, the consent decree of DRT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 did so but their contention was rejected as appeared from the impugned order. 48. This Tribunal in the case of IPRS in appeal no. FPA-PMLA- 1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach 56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents) MANU/UP/0777/2016decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below:- 26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are involved in money laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money laundering. 58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:- 37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive 'and', makes it l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as suspicion or doubt and mere seeing also cannot be equated to believing. Reason to believe is a higher level of state of mind. Likewise knowledge will be slightly on a higher plane than reason to believe . A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same. The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence. C. Actually involved: Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to substantiate any such allegation qua the petitioners, D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or indirect involveme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low:- 20. The said sections read as follows:-- 23. Presumption in inter-connected transactions Where money-laundering involves two or more interconnected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction. 24. Burden of proof In any proceeding relating to proceeds of crime under this Act, (a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and (b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering. 21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of ₹ 15,00,00,000/- by producing bogus and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164 Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge. 24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties. Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation. 21. The CBIBS FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA. Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case. 25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives. 26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 35. 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. 36. There is thus no apparent conflict between the two stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant Bank which is public money. The Appellant Bank has the right to property under the Constitution of India. 41. The property of the Appellant Bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent is not denying the fact that the Bank is a victim party who is also innocent and is entitled to recover the loan amount. It is also not disputed by the respondent that the properties in dispute are mortgaged with Bank and it has to go to the Bank ultimately. I do not agree with the argument in this regard in view of amendments in the two statutes. Even otherwise the trial would take number of years. The public money cannot be stalled otherwise Banking system would collapse. 42. That the definition of proceeds of crime as per Section 2(u) of the PML Act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, all the properties have been mortgaged with the Appellant Bank much prior to the date of alleged offence which shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were purchased before sanctioning the loan. Thus, no case of money-laundering is made out against Appellant Bank who has sanctioned the amount which is untainted and pure money. They have priority right to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. 49. The Adjudicating Authority has not appreciated the facts and law involved in the matter. 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. The contentions raised by the Respondent's Advocate have no substance. The provisional attachment in the present matter is bad in law hence liable to be set aside. 50. Recently there are amendments in the Prevention of Money Laundering Act, 2002 (15 of 2003) as amended by Finance Act, 2018 (13 of 2018) including in the proviso of Sub-section 8 of Section 8 of PMLA, 2002 by adding another proviso which is read as under:- Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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