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2019 (3) TMI 822

f the Impugned Order) - continuation of pending suits or proceedings against the corporate debtor - opinion based on “reason to believe” - proceeds of crime - HELD THAT:- A person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. Further, at the initial stage for believing the existence of a thing, condition or a statement of fact, one would collect information and then examine the information and come to a final conclusion on the basis of that information, that such a thing, condition or statement of a fact exists. All these ingredients are pre-requisite for forming an opinion based on “reason to believe”. - Thus, the provisional attachment order is legally erroneous and untenable and could not have been passed more particularly in view of the fact that the complainant was aware of the fact that there is an exclusive and paramount claim of the Appellant Bank, therefore, The Adjudicating Authority had no justification/jurisdiction for confirming attachment of the aforesaid hypothecated/Equitably Mortgaged Moveable and immovable properties. - As in India .....

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e to the extent the Order passed by the Adjudicating Authority confirming the Provisional Attachment Order with regard to properties mortgaged to the Appellant in the present case. - ED is entitled to recover entire proceeds of crime amount from the accused parties in India or from overseas countries from these assets except the mortgaged properties for which the banks are secured creditors. Thus, this tribunal is of view that the public money should come to the public but at the same time the mortgaged properties cannot be blocked. The banks money must come to the banks in the interest of public. All the actions which are pending against the accused parties, the same shall be proceeded further against as per law and without any influence of this order. - FPA-PMLA-2595/MUM/2018 - Dated:- 8-3-2019 - Justice Manmohan Singh Chairman For the Appellant : Shri Madhav Khurana, Advocate, Ms. Trisha Mittal, Advocate For the Respondent : Mohd. Faraz, Advocate JUDGEMENT FPA-PMLA-2595/MUM/2018 1. The above-named Appellant has filed the present Appeal under Section 26 of the Prevention of Money-Laundering Act, 2002, (hereinafter referred to as the Act ) against Order dated 16.08.2018 passe .....

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d Order against the properties which were already stand mortgaged in favour of the Appellant, (who is now seeking setting aside of the Impugned Order) on the various grounds: 4. The following facts are admitted as per material available on record:- 4.1 The Appellant is in no manner connected with any of the other persons arraigned as Defendants in the Complaint. Further, there is no charge of money laundering against the Appellant. 4.2. The Appellant and the other Consortium Lenders have entered into legitimate banking transactions by providing Working Capital ( WC )and External Commercial Banking ( ECB )facilities to GGL and GECL, details of which are specified in Paragraph No. 4 of the Appeal. Such credit facilities were enhanced from time to time for amounts as are mentioned in the respective revised Supplemental Working Capital Agreements and bilateral ECB Facility Agreement, annexed along with the Appeal. (Annexure Nos. A3(Colly) WC Agreement dated 26.12.2017, A4(Colly) WC Agreement dated 29.06.2011 and A5(Colly) ECB Facility Agreement @191, 288 and 401 have been filed respectively.) 4.3. In order to secure such credit facilities and avail enhanced limits thereon, guarantees b .....

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to the Appellant & the Consortium Lenders under inter-alia, the GECL and GGL WC Facilities. Further, an amount of USD 12,053,106.29 (United States Dollars Twelve Million Fifty Three Thousand One Hundred and Six and Twenty Nine Cents Only) as is outstanding on June 30, 2018 together with further interest and other charges is payable to the Appellant and the other Consortium Lenders under the GGL ECB Facility as alleged. 4.8. All the properties qua which the Appellant is seeking relief stand mortgaged as security with the Appellant and the Consortium Lenders. 5. Ingredients of S. 5(1) of the Act are not satisfied: 4.1 An order of attachment U/s 5(1) of the Act can only be passed upon satisfaction of the compulsory twin conditions found in sub clauses (a) and (b), i.e. Firstly, the Director must have reason to believe, on the basis of the material in possession, that any person is in possession of any proceeds of crime; and Secondly, that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relations to confiscation of such proceeds of crime. 6. The admitted case of the Respondent, is that the a .....

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d all its legal remedies to recover the amounts advanced by it to GGL and GECL. 10. The Appellant is a public listed company incorporated under the Companies Act, 1956 and a banking company within the meaning of the Banking Regulation Act, 1949, holding the money of the general public in trust. 11. Admittedly, none of the Properties in question are as a result of criminal activities and hence proceeds of crimes. Consequently, the first ingredient as prescribed under S. 5(1)(a) is not satisfied in the present case. 12. The properties were attached by invoking the second proviso of Section 5(1) of the Act without filing the charge-sheet. The same is read as under The 2nd proviso contained in S. 5(1) reads as under: PROVIDED FURTHER that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this .....

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he banks are the secured creditors. The same ought not have been attached merely on the grounds of non-cooperation of Mr. Mehul Choksi. It cannot give rise to an apprehension that in case the properties are not attached immediately, proceedings under the Act would be frustrated. This immediacy could have been inferred from an actual attempt to sell or alienate the properties by him or one of the group companies, which admittedly did not happen in the present case. 15. There was no likelihood of concealment, transfer or dealing of the Properties which are mortgaged with banks who are the secured creditors of Mr. Mehul Choksi or the group companies related as the same were and continue to remain hypothecated/mortgaged/pledged to the Appellant, which Deeds are binding and in force. This eliminates any possibility of the Properties being sold or alienated or dealt with in any manner whatsoever which would frustrate any proceedings under this Chapter. Therefore the ingredients as prescribed under S. 5(1)(b) as well as the 2nd Proviso of S. 5(1) of the Act are not satisfied. 16. The Constitutional bench of the Hon'ble Supreme Court in the case of Barium Chemicals Ltd. & Ors V/s T .....

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, GECL and their Corporate and Personal Guarantors. 20. It is an also admitted fact by the Respondent, which was accepted by the Adjudicating Authority that the properties are mortgaged with the Appellant and the Consortium Lenders for the purpose of availing credit facilities by GGL and GECL. The Respondent has no lien over the properties since they stand legally transferred to the Appellant Bank. 21. The Respondent-Deputy Director is relying upon the non-obstante clause in Section 71 of PMLA to claim priority over their debts due to the Appellant Bank. Section 71 of PMLA reads as under:- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. 22. The said arguments have no force as the amended provisions of Section 26E of the SAR-FAESI Act, 2002 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:- 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 cred .....

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Hon'ble Supreme Court in the said case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. has approved the decision of the Special Court rendered by the Hon'ble Mr. Justice Variava, as he was then of the Bombay High Court reported in (1997) 89 Comp cases 547 clarifying that the non-obstante clause in the later enactment will prevail over the non-obstante clause in the earlier enactment. 28. The following is the relevant portion of the decision of the Special Court, as appearing at Para 10 of the said Supreme Court Judgment:- 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. still confers the later enactment with a nonobstante 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 inthe later enactment that the provisions of the earlier enactment continue to apply. 29. The afore-stated principle laid down by the Hon'ble Supreme Cour .....

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officers due to irresponsible approach or connivance of the bank management….The pleas of the mortgagees, therefore cannot be granted at this stage of confirmation of the provisional attachment order, as such grant of the relief would interject with the scheme of the Act, deliberately provided. As aforesaid section 8(8) of the PMLA provides for rights of claimant with a legitimate interest with the property provisionally attached/confiscated, who may have suffered a quantifiable loss as a result of the offence of money laundering….In view of the legal provisions above referred and the object sought to be achieved by the PMLA, I humbly and with great respect cannot concur with the view expressed by the Appellate Tribunal, PMLA in the Judgments of the Appellate Tribunal cited by D-17 and D-18. 32. The Adjudicating Authority has erred in its finding that the pleas of the Appellant of being the secured creditor and having a superior claim over the Properties cannot be tackled at the stage of confirmation of the PAO and that the rights of the Appellate will be dealt with by the Special Court at the stage of Section 8(8) of the Act. The said view is contrary to the decision .....

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r, this Tribunal has held that as per the amended provisions of Section 26E of SARFAESI Act and 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, a secured creditor will have priority over all other debts and government dues, including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority and accordingly, set aside the Provisional Attachment Orders. 36. The following are the relevant Paragraphs of the said Judgment dated 14.07.2017 46. In the present case, it is undisputed fact that the attached property were purchased much prior to the period when the facility of loan was sanctioned to borrowers. The Bank while rendering the facilities were bona fide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgage of the properties were done as bona fide purposes. None of the bank is involved in the scheduled offence. 47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bona fide. Both banks are innocent parties. 58. Thus in the present case even though the Ld. Adjudicati .....

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uty Director ought to have been released by the Adjudicating Authority under Section 8(2) of PMLA. 38. The Adjudicating Authority did not appreciate that the afore mentioned moveable/Immoveable property cannot be said to have been acquired out of proceeds of crime as defined in section 2 (1) (u) of the Prevention of Money Laundering Act (PMLA), 2002 and therefore, the same (cannot be Attached under Section 5 of the PMLA by the Enforcement Directorate vide PAO No 03/2018 dated 28.03.2018. 39. The Adjudicating Authority did not appreciate the appellant's grievance against the order of provisional attachment, inter alia, since the same was not justified and tenable under the law as the same was passed in violation of Section 5 of the Act and there was no material on the basis of which the hypothecated/Equitably Mortgaged asset could be provisionally attached. 40. The Adjudicating Authority failed to appreciate that the provisions of the Prevention of The Money Laundering Act, 2002 do not override the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as also those of Recovery of Debts and Bankruptcy Act, 1993, wherei .....

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cisions of various High Courts and the Supreme Court which were referred by this Tribunal in number of judgments delivered by this Tribunal. 45. The provisions of The Prevention of Money-Laundering Act, 2002 cannot be construed and implemented to the detriment of third parties having no connection with and involvement in the scheduled offences which fall within the domain of the Act. The provisions of the Act can only entail penal consequences on those who are guilty of committing of scheduled offences. The rights of a third party having no involvement in the scheduled offences cannot be jeopardized and decimated by the operation of Act as the same would be violative of their legal right under bond fide contracts. 46. By virtue of conjoint effect of Sections 31B and 26E of The Recovery of Debts and Bankruptcy Act, 1993 and The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the secured creditor has priority to the secured asset to satisfy its respective dues which shall prevail over and supersede the other debts i.e. government dues, revenues, taxes, cesses and rates due to the Central Government, State Government and local auth .....

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ormation and then examine the information and come to a final conclusion on the basis of that information, that such a thing, condition or statement of a fact exists. All these ingredients are pre-requisite for forming an opinion based on reason to believe . 53. Thus, the provisional attachment order is legally erroneous and untenable and could not have been passed more particularly in view of the fact that the complainant was aware of the fact that there is an exclusive and paramount claim of the Appellant Bank, therefore, The Adjudicating Authority had no justification/jurisdiction for confirming attachment of the aforesaid hypothecated/Equitably Mortgaged Moveable and immovable properties. 54. The Hon ble Madras High Court in the decision of Indian Bank Vs. Government of India reported in (2012) 4 CTC 225 held that the PMLA does not provide for redressing grievances of victims of fraud such that the Enforcement Directorate cannot take away the right of Banks as security holder by provisionally attaching such property and seeking confirmation thereof. Accordingly, in the present case, the Appellant is the victim of the fraud played upon it by Mr. Mehul Choksi and the Gitanjali gr .....

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it is clarified that ED is entitled to recover entire proceeds of crime amount from the accused parties in India or from overseas countries from these assets except the mortgaged properties for which the banks are secured creditors. Thus, this tribunal is of view that the public money should come to the public but at the same time the mortgaged properties cannot be blocked. The banks money must come to the banks in the interest of public. 62. All the actions which are pending against the accused parties, the same shall be proceeded further against as per law and without any influence of this order. No one appears on behalf of the borrowers. The appellant is only pressing the relief for lifting of attachment orders only pertaining to mortgaged properties in the present appeal. 63. The period of continuation of proceedings before the Adjudicating Authority, PMLA and before this Tribunal till the passing of the present judgment and order, from the date of commencement of the moratorium order, be treated as excluded while calculating limitation of the period of completion of the Corporate Insolvency Resolution Process (CIRP). 64. The appeal is allowed. The impugned order is set-aside. .....

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