TMI Blog2018 (7) TMI 1800X X X X Extracts X X X X X X X X Extracts X X X X ..... where it was found that the 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. Thus in case the Special Court passes the order to release the property of the victim and innocent party is mortgaged property could be disposed of for the purpose of adjustment of the amount due from the borrowers. 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 q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Renu Residency (P) Ltd. 2. Land ₹ 10,00,000/- Village-Nanadana Ward, West M/s Renu Residency (P) Ltd. 3. Land + Building ₹ 10,00,000/- House No. 64, Nanadana Ward East, Barhaj, Deoria M/s Renu Residency (P) Ltd. 4. Building ₹ 18,18,41,028/- School building and others situate at MaujaRamnagar, Khajarha Patra Pargana Haveli, Tehsil-Chauri Chaura, District- Gorakhpur (value as on 31-03-2011) M/s Renu Residency (P) Ltd. 4. The case of the appellant bank is that :- The appellant bank is a financial institution duly constituted under the banking Companies Act, 1970 (acquisition Transfer of Undertaking Act) having is Head Office at 7, Bhikaji Cama Place, New Delhi and one of its branches at Bank Road, Gorakhpur, U.P. 5. The loan of ₹ 15 Crores was sanctioned by the appellant bank on the request of Renu Residency Pvt. Ltd. 6. Initially the incorporation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement dated 08.09.2011 duly executed by the loanees wherein the hostel building measuring 10.3975 acres is mortgaged with the appellant bank in pursuance to the term loan agreement dated 25.09.2010 and agreement of guarantee dated 25.09.2010 duly executed by the loanees in favour of the appellant bank. 14. It is submitted on behalf of the appellant that land measuring 10.3975 acres at Ram Nagar Khajara Patra, Pargana Haveli, Tehsil Chauri Chaura, Distt. Gorakhpur in the name of the loanee as well as the hostel building were mortgaged and charged with the appellant bankby M/s Renu Residency Pvt. Ltd. on 25.09.2010 along with school building at Mauja Ramnagar, Khajra Patra, Pargana Haveli, Tehsil Chauri Chaura, Distt. Gorakhpur, U.P. and the said properties were confiscated and attached after the Enforcement Directorate started investigations and inquiries with respect to the said NHRM scam as mentioned above and the construction work was left incomplete in between and thereafter vide impugned order dated 26.09.2013 was passed by Adjudicating Authority whereby the provisional attachment order dated 30.3.2013 was confirmed and upheld by the Adjudicating Authority and the result t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 8 of the PMLA does not deprived the appellant bank or any other financial institution from getting notice of the action of the respondent and as the respondent was aware of the fact that the appellant bank has lend huge amount of money for construction of the building the same ought not to have been attached without prior notice being serve upon the appellant bank. The appellant is an interested party in view of being mortgagee. The action of the Enforcement Directorate negates and is against the principles of natural justice. No mandatory notice was given, the bank was not heard. Infact the bank was the necessary parties whose stakes were involved but despite of knowledge the procedure prescribed under Section 8 has not been followed for the best reasons known to both authorities. Merely vague explanation is given during hearing of the appeal. 23. One is failed to understand without hearing the interested party, how the order could have been passed and confirmed. The appellant bank had proceeded under the provision of SARFAESI Act, after the account of the loanee become NPA and that to after the requisite service of the proper notice and after complying with the laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, Directorate of Enforcement, Delhi in FPA-PMLA-2147/DLI/2018 on 10.05.2018. 28. 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 ExchangeRegulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature 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 institutions. The time and manner of distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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-obstante clause. If the Legislature stil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall 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, 1993after 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 creditor, get a priority over the rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Limited, which has advanced money to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et 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. SatyawatiTondon 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 provision for ensuring that defaulting borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlement, 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 decrees an application for discharge was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is doubtful in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority 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 be the properties involved in money-launderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 involved in money laundering, the Adjudicating Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; 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 commission of such offence with such intention to commit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rime' 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 purchaser without notice, the said purchaser who is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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 categorically stated that they possess agricultural lands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing 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 considerationand 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. 29. It is not denied that the monies have been given for the purchase of the property by the Appellant Bank and not from any tainted source. The money have gone directly from the Bank accounts to the seller and thereafter the mortgage has been created. It is also not disputed that the monies released by the Banks was sanctioned for the said purpose and were part of the financing program. 30. On account of Amendment in SARFAESI Act by way of addition of Section 26(E) to the said Act and in Recovery of Debt Due to Banks and Financial Institutions Act by Section 31B of the Amended Act, the Appellant Bank would have superior right of recovery of debt dues and the debt due to the Secured Creditors shall be paid in priority of all other debts and other reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks‟/Appellant which are public monies and have been disbursed to the Borrowers are under done under proper sanction, thus under no circumstances, the same can be made to fall within the ambit of section 3 of the PML Act. 35. The amendment made in the SARFAESI Act in 2016, clearly states out the priority which the Secured Creditor shall have over the other dues and Charges. 36. In view of the above made submissions and the above-mentioned case laws passed by this Tribunal which has duly considered the view of various High Courts and the Apex Court on the issue involved wherein it has been held that the Secured Creditor (Bank) are the victims of Conspiracies which have been hatched by the Promoters Borrowers/individuals and cannot be termed or construed as culprit or offender. The interest of the Secured Creditor being an institution cannot be prejudiced due to the acts of the individuals thereby allowing public money to be painted as tainted money. 37. 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 anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowers. 41. I am also of the view that 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. 42. In the fact and circumstances and material available in the present case, the allegation of money laundering, 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. The appeal is allowed. 43. In view of the amendment of sub section 8 of Section 8 proviso (1) and (2), the bank is at liberty to move its claim before the Special Court for disposing of the said property in accordance with the law. The present appeals are accordingly disposed of in view of aforesaid directions. Till that time, all parties to the appeals shall not sell and dispose of the property as per details mention in para 3 of earlier part of my order in any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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