TMI Blog2018 (11) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. With regard to impugned order is concerned where this Tribunal is only to examine as to whether the PAO has been rightly passed as per law or not. In view of settled law on this aspect, the respondent no. 1 and adjudicating authority has not considered the Judgement of Supreme Court, High Courts and final orders passed by this Tribunal. Considering the facts of this case as well as settled law on the subject,the impugned order dated 4.12.2017 is liable to be set aside. Consequently,the PAO dated 11.5.2016 is also quashed with regard to the mortgaged property of the appellant. The borrowers are restrained not to deal with thes aid properties directly or indirectly. - MP-PMLA-4304/MUM/2018(COD), MP-PMLA-4305/MUM/2018(A.D.), FPA-PMLA-2206/MUM/2018 - - - Dated:- 22-10-2018 - Justice Manmohan Singh Chairman For the Appellant : Shri Rajesh Kumar Gautam, Advocate Shri Aakash Sehrawat,Advocate For the Respondent : Mohd. Faraz, Advocate JUDGEMENT MP-PMLA-4304/MUM/2018(COD), MP-PMLA-4305/MUM/2018(A.D.) FPA-PMLA-2206/MUM/2018 1. By this Order, I propose to decide the present appeal filed by PunjabNational Bank, which was filed against the Order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Shree Charbhuja Diamonds Pvt. Ltd.and the same has been remitted to overseas accounts in the guise ofimport advance and post import payments by submitting fake Bills ofEntry. 2.7 That during the course of investigation, it alleged by ContestingRespondent No. 1 that Shri Manish Babel one of the accused hasplayed key role in the scheduled offence and actively involved andknowingly assisted in dealing with huge amounts of proceeds ofcrime (POC) which was subsequently laundered and siphoned off andhas indulged in money laundering activities in terms of Section 3 ofMoney Laundering. 2.8 That the Contesting Respondent No. 1 during the course ofinvestigation identified S.E. No.588(part), Plot No. B-1, Netaji ApparelPark, NH-47, Main Road, EttiveeramPalayam Village, Tirupur, AndhraPradesh, purchased by Contesting Respondent No.2 in the year 2013for ₹ 4,50,00,000/- alongwith other properties purchased by otheraccused as proceeds of crime and held the same liable to be attachedin terms of value thereof such property . 2.9 That it is pertinent to mention here that the above mentioned propertypurchased by Contesting Respondent No.2 was already mortgagedwith the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed of crime. The Company M/sPolestar Traders (P) Ltd has nothing to do with the allegedtransaction and nor the Adjudicating Authority arrayed the companyas party involved in the alleged offence. Furthermore it wassubmitted by Contesting Respondent No. 2 that the acquisition of theattached property was acquired by him at a sale consideration ofRs. 2 crores. All the relevant deeds and document was producedwhich were entered into for the said acquisition. Also it was shownby and him as to how the amount of ₹ 2 crores was paid bycheque dated 05.06.2013 06.06.2013 drawn on the appellantbank. 2.14 That it was further submitted by Contesting Respondent No. 2 andthe same was recorded by the Adjudicating Authority in its orderthat the company M/s. Polestar Traders (P) Ltd. obtained creditfacility and ILC and FLC credit by mortgaging the attached propertyas a collateral security to the Appellant Bank. It was clearly statedthat the attached property was purchased from clean fund and hasnothing to do with proceeds of crime. It was also stated that theproperty was purchased in the year 2013 whereas the allegedfunds which were considered in alleged offence were transferred byth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The Adjudicating Authority confirmed the Provisional Attachment OrderNo. 7/2017 by the impugned order dated 4.12.2017, among others, with regardto the aforementioned property in issue which has been mortgaged to theAppellant Bank, for the following reasons :- Of the properties provisionally attached and described in the scheduleof properties, property at serial no. 9 stands in the name of D-12. Theinvestigation has revealed that an amount of ₹ 212987051 has beenfraudulently remitted to the Hong Kong based company M/s Top Niceinternational trading limited by submission of forged Bills of Entry andother import documents to the Induslnd Bank limited by M/s KanikaGems Pvt Ltd., M/s Shree Charbhuja Diamonds Pvt Ltd and M/s YogeshwarDiamonds Pvt Ltd. One HarakchandMalmal shah is the director of M/stop nice international Pvt Ltd. He was apprehended at Mumbai Airport on22.05.2017 pursuant to an LOC and was handed over to the EnforcementDirectorate. He admitted of having opened the firm and account in HongKong on the advice of Sh. Manish Babel (D-12) for undertakingtransaction in Hong Kong, so that Harakchand would get loan facility inHong Kong. However on opening the bank a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by him thatM/s Polestare Traders Pvt Limited is a company incorporated under thecompanies Act and he is one of the directors of the same. The companyas such has nothing to do with the alleged transaction and/ or transferof money. He has explained the acquisition of the property attached byM/s Polestar Traders Pvt Limited at sale consideration of ₹ 2 crores. Hehas referred to several deeds and documents entered into for the saidacquisition. He has shown as to how the amount of ₹ 2 corres was paidby cheques drawn on Punjab National Bank, Mumbai dated 05.06.13 and05.06.2013. It is submitted that M/s Pole star obtained cash creditfacility and ILC and FLC credit by mortgaging the attached property, as 3 collateral security to PNB. It is stated by D-12 that the sum of ₹ 2crores was arranged by obtaining advanced/ unsecured loans from thirdparty, which were repaid after obtaining of the loan from PNB. It iscontended by him that ED has placed blind reliance on the statement ofHarakchand Shah recorded under section 50 of PMLA. However thestatement of D-12 was not properly considered. It is contended that thestatements were inappropriately appreciated. The D-12 had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be confirmed and is hereby confirmed, the same being proceeds of crime involved inmoney laundering. 7. Counsel for the appellants clarifies that in the present appeal, his client isonly pressing for relief against the respondent and challenging the impugnedorder stating that it is not sustainable on facts and law. 8. The issue involved in the present appeal has already been dealt by theFull Bench of this Tribunal in the case of State Bank of India Vs. Joint Director,Directorate of Enforcement, Kolkata decided on 14.07.2016 on similar facts. The relevant paras of the said Judgement are reproduced here below:- 46. In the present case, it is undisputed facts that the attached propertywere purchased much prior to the period when the facility of loansanctioned to the borrowers. The banks while rendering the facilities wereboanfide parties. It is not the case of the respondent that the attachedproperties were purchased after the loan was obtained. The mortgaged ofthe properties were done as bonafide purposes. None of the bank isinvolved in the schedule offence. No PMLA proceedings are pending exceptthe complainant bank was arrayed as Column;-11 at the time of fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant information andparticulars, and to show cause why all or any of such propertiesshould not be declared to be the properties involved in moneylaunderingand confiscated by the Central Government: Providedthat where a notice under this sub-section specifies any property asbeing held by a person on behalf of any other person, a copy ofsuch notice shall also be served upon such other person: Providedfurther that where such property is held jointly by more than oneperson, such notice shall be served to all persons holding suchproperty. (2) The Adjudicating Authority shall, after- (a) considering the reply,if any, to the notice issued under subsection (1); (b) hearing theaggrieved person and the Director or any other officer authorised byhim in this behalf, and (c)taking into account all relevant materialsplaced on record before him, by an order, record a finding whetherall or any of the properties referred to in the notice issued undersub-section (1) are involved in money-laundering: Provided that ifthe property is claimed by a person, other than a person to whomthe notice had been issued, such person shall also be given anopportunity of being heard to prove that the property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties provided under notice issued u/S 8(1) are involved inmoney laundering, the Adjudicating Authority can take intoconsideration the plea of innocence raised by any person and alsothe fact as to whether the property which has been attached hasany nexus whatsoever with that of money laundering or not if theperson before the Tribunal/ Adjudicating Authority is able todemonstrate that he neither directly nor indirectly has attempted toindulge nor with knowledge or ever assisted any process or activityin connection with proceeds or crime and the question of hisinvolvement does not arise as he is third party, then the Tribunal/Adjudicating Authority can consider the said plea depending uponwhether there exist bona fide in the said plea or not and proceed toadjudicate the plea of innocence of the said party. 57. This is due to the reason that Section 8 allows the AdjudicatingAuthority to only retain the properties which are involved in moneylaundering which means as to whether properties attached areinvolved in money laundering or not is a pre-condition prior toconfirming or attachment by Adjudicating Authority. Therefore, atthat time, if the plea is raised that the party whose p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an act towards commission of suchoffence with such intention to commit the offence. Respondent failedto produce any material or circumstantial evidence whatsoever, oralor documentary, to show any such 'intention' and 'attempt' on thepart of any of the petitioners. B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY: In Joti Parshad v. State of Haryana, MANU/SC/0161/1993 : 1993Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows- 5. Under the Indian penal law, guilt in respect of almost all theoffences is fastened either on the ground of intention or knowledge or reason to believe . We are now concerned with theexpressions knowledge and reason to believe . Knowledge is anawareness on the part of the person concerned indicating his stateof mind. Reason to believe is another facet of the state of mind. Reason to believe is not the same thing as suspicion or doubt and mere seeing also cannot be equated to believing. Reason tobelieve is a higher level of state of mind. Likewise knowledge willbe slightly on a higher plane than reason to believe . A person canbe supposed to know where there is a direct appeal to his sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out notice, the said purchaser who is not having anyknowledge about the involvement of the said property with theproceeds of the crime nor being the participant in the saidtransaction ever, cannot be penalized for no fault of his. Therefore, itcannot be the Scheme of the Act whereby bona fide person withouthaving any direct/ indirect involvement in the proceeds of the crimeor its dealings can be made to suffer by mere attachment of theproperty at the initial stage and later on its confirmation on thebasis of mere suspicion when the element of mens rea or knowledgeis missing. 60. Similar principle has been laid down by Chennai High Courtin the case of C. Chellamuthu (Appellants) Vs The Deputy Director,Prevention of Money Laundering Act, Directorate of Enforcement(Respondent) MANU/TN/4087/2015 decided on 14.10.2015,relevant portion of which are reproduced below:- 20. The said sections read as follows:-- 23. Presumption in inter-connected transactions Where moneylaunderinginvolves two or more interconnected transactions andone or more such transactions is or are proved to be involved inmoney-laundering, then for the purposes of adjudication orconfiscation (under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa Superba seeds and sell thesame and derive considerable income. They have named thepersons to whom they have sold theGloriosa Superba seeds and produced Bankstatements. Some of the Appellants have stated that they sold theirlands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verifiedthese statements. Especially, the respondent hasnot verified the Bank statement produced by the Appellants toascertain the genuineness of the same and whether the moneydeposited came from genuine purchasers or from the personsinvolved in fraud and Money Laundering. The respondent does notallege that Appellants are Benamies of G. Srinivasan or no saleconsideration passed to the vendor. 23. Considering the materials on record and judgments reportedin MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and :[2011] 164 Comp Cas 146(AP) [supra], I hold that appellants haverebutted the presumption that the property in question is proceedsof crime. The respondent failed to prove any nexus or link ofAppellants with G. Srinivasanand his benamies. Once a personproves that his purchase is genuine and the property in his hand isuntainted p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the property bought without the knowledgethat the same is tainted could be subjected to ProvisionalAttachment Order. 23. In the instant case the only point to be decided is whetherthe properties bought by any person against clean money andwithout any knowledge that properties have been acquired directlyor indirectly through scheduled offence could be subject matterof provisional attachment order. 24. It is an admitted position that the Defendants (D-2 to D-8)had no knowledge that the properties in the hands of the vendorwas proceeds of crime. They have also verified the papers relatingto these properties before the deal. No point has been raised withregard to the financial capability of these Defendants to buy theseproperties. However, the Bombay High Court decision in RadhaMohan Lakhotia has been pressed into service to make out a pleathat the properties could be attached in such circumstances underthe PMLA. Provisional attachment was sought to be continued only based onthe judgment of Bombay High Court in Radha Mohan Lakhotia'scase. 25. A reading of paragraphs 21 to 24 clearly reveals that boththe Adjudicating Authority as well as Appellate Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent no. 1. Hence, it cannot be said the claim in any manner that these propertieshave been acquired out of the funds/loans availed from Union Bank ofIndia. 51. The mortgaged properties are security to the loans and cannot besubject matter of attachment particularly when the same were purchasedand mortgaged prior to the events of funds diversion and frauds committedby the respondents. The appellants Banks have to recover huge amountsin the above loan accounts and the appellant bank being themortgagee/transferee of the interest in the properties is entitled to recoverits dues with the sale of the properties. The properties stood transferred byway of mortgage to the appellant bank much before the alleged criminalaction. 52. The appellant banks is the rightful claimants of the said propertieswhich are already in the possession of the appellant bank under theSARFAESI Act. The Honble Supreme Court of India in the case of AttorneyGeneral of India and Ors. (AIR 1994 SC 2179) while dealing with thematter under Conservation of Foreign Exchange and Prevention ofSmuggling Activities Act has defined the illegally acquired properties andheld that such properties are earned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, all the properties have beenpurchased by the Respondents and have been mortgaged with theAppellant Bank much prior to the date of alleged offence which shows thatno proceeds of crime are involved in the obtention of these properties andhence the same cannot be attached by the ED because the same wouldresult in hampering the interest of the Appellant Bank. 57. The Ld. Adjudicating Authority has failed to understand thatAppellant Banks have heavy stakes in the properties as they have lent itsvaluable money to the borrowers. The property is mortgaged to theAppellant Bank. If tomorrow any borrower fails to repay the loan, the Bankhas 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 andeventual confiscation. As a matter of fact, the borrowers may not beinterested in repaying the loan, since they are not going to enjoy theproperty. Therefore, ultimately, the action of the ED/Respondent No. 1would make the Appellant, a much greater victim than even theaccused/Respondents. Though in the present case, the borrowers have asettled their disputes with the Union Bank of India. Terms of settlementh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of money laundering as mentioned in the objects of theAct will have to be read as part of the statute because as per SupremeCourt of India in Vishaka and others Vs. State of Rajasthan reported inAIR1997SC3011 lays down at para 40 that the International Conventionsand Norms are to be read into them in the absence of enacted DomesticLaw occupying the field when there is no inconsistency between them. 61. The Ld. Adjudicating Authority has failed to considered that the EDhas attached all the properties without examining the case of the banks. The evidence on record suggested that all the properties were acquired bythe accused much-much before the alleged date of crime. No moneydisbursed by the Union Bank of India from its Loan Account, has beeninvested in acquiring his property. Furthermore, the Appellants Banks hadmortgaged charge over the property prior to the date of the crime. TheBank has already filed the Suit for recovery and has also had taken theaction under SARFAESI Act. The Ld. Adjudicating Authority failed toappreciate that depriving the Appellant Bank from its funds/property,without any allegations or involvement of the Bank in the alleged fraudwould be unjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson cannot claim title to the property. The said recipientcannot retain the property over which he has no legal title and the propertyshould be returned to the lawful owners because the both banks arevictims and even after trial, they are to receive-back the said propertiesbeing victim party in normal types of cases u/s 8(8) of the Act. However inthe present cases, the banks are innocent parties. They are not involved inany 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 thecase, of Union Bank of India, no sanction against the employee wasgranted 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 nonexus whatsoever between the alleged crime and the two bank who aremortgagee of all the properties which were purchased before sanctioningthe loan. Thus no case of money-laundering is made out against bankswho have sanctioned the amount which is untainted and pure money. They have priority to the secured creditors to recover the loanamount/debts by sale of assets over which security interest is created,which rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heproperty in issue was paid through cheque dated 5.6.2013 and 6.6.2013 drawnon Punjab National Bank, Mumbai. 13. It is wrongly recorded by the Adjudicating Authority that the scheduledproperty as property purchased out of proceeds of crime under Section 2(1)(u). It is the settled position of law that under Section of the PMLA Act, 2002 beforeattaching any property it has to be ascertained by the Ld. Authority that theproperty was purchased out of proceeds of crime. That only after suchsatisfaction of the Authority such attachment order can be passed. 14. The Adjudicating Authority has failed to appreciate that even underSection 20(4), before authorizing retention beyond the period specified underSub-section (1) of Section 20, shall satisfy itself that the property is prima facieinvolved in money laundering. The said requirement of Section 20(4) forauthorizing retention beyond 180 days has to be read into Section 17(4) forallowing retention of records and property seized during search. 15. In the nutshell, the Adjudicating Authority has not applied his mind anddid not appreciate that by virtue of Section 4A Recovery of Debts due to Banks Financial Institution Act, 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court, the RDDBAct and SICA. It is important to refer/quote the relevant paras of theJudgment delivered by the Hon'ble Supreme court in KSL IndustriesLtd. vs. Arihant Threaders Ltd. Ors. (supra). 47. In a subsequent decision in Allahabad Bank Vs. CanaraBank, this Court held that with reference to the Companies Act , theRDDB Act should be considered as a special law though bothlaws could be treated as special laws in respect of recovery ofdues by banks and financial institutions. In a later case thequestion arose in the context of Special Court (Trial of offencesRelating to Transactions in Securities) Act , 1992 and SICA. It wascontended that in view of the special provisions contained in SICAno proceedings could have been initiated under the Special CourtAct . The Court observed that though Section 32 of the SICAcontained a non-obstante clause, there was a similar non-obstanteclause in Section 13 of the Special Court Act. The Court observed:- 9 This Court has laid down in no uncertain terms that in suchan event it is the later Act which must prevail. 48. This Court approved the observations of the Special Court tothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there in existence. Section 22 covers proceedings underthe RDDB Act. 51. The purpose of the two Acts is entirely different and whereactions under the two laws may seem to be in conflict, Parliamenthas wisely preserved the proceedings under the SICA, byspecifically providing for sub- section (2), which lays down that thelater Act RDDB shall be in addition to and not in derogation of theSICA. 52. We might add that this conclusion has been guided by what isconsidered to be one of the most crucial principles of interpretationviz. giving effect to the intention of the Legislature. The difficultyarose in this case mainly due to the absence of specific wordsdenoting the intention of Parliament to cover applications forrecovery of debts under the RDDB Act while enacting Section 22 ofthe SICA. As observed earlier, the obvious reason for this absenceis the fact that the SICA was enacted earlier. It is the duty of thisCourt to consider SICA, after the enactment of the RDDB Act toascertain the true intent and purpose of providing that noproceedings for execution or distraints or suits shall lie or beproceeded with. Undoubtedly, in the narrower sense anapplication for recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportance of preserving the beneficent purpose ofthe statute and observed:- 14. .. We shall therefore proceed to examine the provisions ofthe Act on the footing that the test for determining whether theGovernment is bound by a statute is whether it is expressly namedin the provision which it is contended binds it, or whether it ismanifest that from the terms of the statute, that it was theintention of the legislature that it shall be bound , and that theintention to bind would be clearly made out if the beneficentpurpose of the statute would be wholly frustrated unless theGovernment were bound. 54. Having answered the reference, we hold that the provisions ofSICA, in particular Section 22 , shall prevail over the provision forthe recovery of debts in the RDDB Act. In these circumstances, asalready directed by the two-Judge Bench of this Court, theJudgment and Order dated 23.02.06 of the High Court of Delhi isset aside. As far as the writ petitions are concerned, whether onthe ground that Section 22 of the SICA acts as a bar to the recoveryproceedings under the RDDB Act or whether the protection of SICAis not available to the appellant company since the recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prevention of Money Laundering Act has been enacted for forfeiture ofcrime involved in the money laundering which was considered necessaryto deprive persons engaged in serious illegal activities and have therebybeen increasing their resources for operating in clandestine manner. theAct was created to forfeit illegal properties and to prevent the moneylaundering activities which are threat to financial system of the countryand its integrity and sovereignty. Further the question of prevalence of asubsequent legislation will only come into picture when there is a conflictbetween the two statutes. The Securitization Act has been enacted for thepurpose of establishing a expeditious system for recovery of debts due toBanks and for matters connected therewith or incidental thereto. It onlylays down a procedure for recovery of debts due to Banks. The Preventionof Money Laundering act vests the statutory authorities with a power toforfeit proceeds of crime involved in money laundering to the State. Thereis thus no apparent conflict between the two statues. The two statuesoperate in their exclusive fields. The question is only who will have his firstclaim on any property where the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e credited to the above current accounts,were withdrawn from bank for personal gain of ShriGopinath Das andcompanies owned and managed by him. Out of these funds, Sh.GopinathDas has acquired several immovable properties as detailed inthe impugned order and mortgaged them with Syndicate Bank, Salt LakeBranch, Kolkata, the present appellant for availing credit facilities to theextent of ₹ 10 crores and got ₹ 4.5 crores fraudulently released fromthe appellant against fake and forged documents. As the amount of loangiven by the appellant was not repaid the account became NonPerforming Asset (NPA) and the appellant proceeded u/s 13 of theSecuritization and Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act, 2002 (in short Securitisation Act) for recovery of itsdues and claimed to have taken possession of the properties on30.11.2006. 26. Neither of the aforesaid judgments relied on by the Respondent no. 1is of any help to their case in the given facts and circumstances of thecase. The facts in the referred cases are not similar. 27. It is an admitted fact that the properties herein are mortgaged withthe appellant Bank. It is also a fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctim party who isalso likely to suffer, the properties attached could be disposed of before thecompletion of trial against the borrowers. 30. That the definition of proceeds of crime as per Section 2(u) of thePML Act comprises of the property which is derived or obtained as a resultof criminal activity. In the present case, admitted position is that banksare not involved in the criminal activity nor any case is pending againstthem. In fact, they are the complainants and victim parties. 31. The Adjudicating Authority has failed to consider that the ED hasattached the properties without examining the case of the bank. Theevidence on record suggests that the properties were acquired by theborrowers much before the alleged date of crime. No money disbursed bythe Bank from its loan account, has been invested in acquiring theseproperties. Furthermore, the Appellant Bank had created charge over theproperty prior to the date of the crime. The Bank has already filed the suitfor recovery and has also taken the action under SARFAESI Act. TheAdjudicating Authority failed to appreciate that depriving the AppellantBank from its funds/property, without any allegations or involvement ofthe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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