TMI Blog2019 (4) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... dering on account of illicit foreign exchange transactions (third appeal) or the case of cheating by use of fabricated defence supply orders (fourth appeal), both involving public servants, require closer scrutiny as to the claim of the respondent banks of bonafide action. Though there is no such element of complicity on part of any of the officials of the respondent banks in the case relating to fictitious hospital equipment (second appeal) or the one involving consortium of banks (fifth appeal), scrutiny respecting legitimacy and bonafide of the claim on the touchstone, inter alia, of the subsisting value of the secured interest and chronology of events leading to attachment would be necessary. It will be appropriate that such further scrutiny as is necessary on the touchstone of above principles is undertaken by the appellate tribunal after calling for further responses (and inputs) from each side. Ordered accordingly. Thus, the appeals are allowed. The impugned decisions of the appellate tribunal are set aside. The matters arising out of the appeals of the respondents stand revived and restored for further consideration by the appellate tribunal. - CRL.A. 143/2018 & Crl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls at hand relate to claims of entities other than the persons in whose name the attached properties are held to be referred hereinafter as third party such claims of the third party emanating from charge, lien or encumbrances legitimately created. To put it simply, the conflict meriting resolve here concerns the sovereign authority of the State to take away and confiscate the property which has been acquired by a person through criminal activity as against the lawful claim of a third party to reach out to such property to recover, in accordance with law, what is due by attachment and sale of same very property. 4. Bearing in mind the above, the learned counsel on both sides of the divide in these matters repeatedly submitted that the issues presently brought for adjudication are not adversarial in nature, in that both sides concededly have been given certain authority by law to reach out to the properties in question for their respective purposes, the challenge essentially being to prioritize the claims of one over the other. The appellate tribunal (as constituted under PMLA), by its impugned orders, has taken the view that the relevant statutory provisions of PMLA take a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intercepted in the area of police station Kashmere Gate, their search revealing unaccounted and unauthorized possession of four bags containing demonetized currency notes of the face value of ₹ 1,000/- each, totaling worth ₹ 3.70 Crores. In the wake of revelations made, first information report (FIR) no.416/2016 was registered initially for offences punishable under Sections 420, 120B IPC to which, on the basis of evidence gathered in due course, other offences were added, they including those punishable under Sections 409, 467, 468, 471, IPC and Sections 7 and 13(1)(d) of the Prevention of Corruption Act, 1988. 9. It is stated that the investigation carried out has brought to light evidence showing involvement of, amongst others, Vineet Gupta and Shobhit Sinha, Branch Manager and Operations Manager of Axis Bank, Kashmere Gate, Delhi, besides Rajeev Singh Kushwaha in whose name the Audi car was purchased and stands registered. It is further stated that the evidence has been collected to show that Rajeev Singh Kushwaha had floated certain fictitious companies, one of his associates (Mohit Garg) providing services of an entry operator. It is also stated that the evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to dispose it of to recover the balance amount due to it under the loan contract as per law, pointing out, inter alia, that the loan facility pre-dated the allegations of money-laundering, the finance used for its acquisitions not representing proceeds of crime , the lender (the bank) having first priority/charge over the hypothecated property, the objective of PMLA not detracting or derogating from the protection of legitimate transaction and financial assets as afforded by legislation such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 ( SARFAESI Act , for short). 14. When this appeal came up before the Court on 06.02.2018, in light of the submissions made, the bank was permitted to sell the Audi car, by open auction, in terms of the relevant guidelines and the proceeds of such sale directed to be deposited with the Registrar General in the form of interest bearing fixed deposit receipt (FDR). Crl.Appeal no. 210/2018 (the case of hospital equipment ) 15. The second captioned matter (Crl.Appeal no. 210/2018) relates to the conflict arising out of attachment under PMLA of certain immovable prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h registered it as RC no.BDI/2009/E/0019. The investigation into the said FIR culminated in charge-sheet being presented seeking, inter alia, prosecution of the second and third respondents for offences under Sections 420/467/468/471 and 120 B IPC. It is stated that the investigation has also brought out evidence to show that the second respondent had siphoned off the money received from SBI as loan to RHPL through certain bank accounts maintained with Nainital Bank, Ghaziabad. 20. Against the above backdrop, information was conveyed to the directorate of enforcement which registered a case vide no. ECIR/11/DZ/2011/AD (VM) under PMLA. On the basis of reasons for belief recorded in writing, the enforcement officer found it a case of money-laundering and attached certain assets of the borrowers and guarantors (private party respondents herein) by two separate orders, the property thus attached (under PMLA) including the assets which are subject to mortgage with SBI. 21. The attachment orders having been confirmed by the adjudicating authority, the same were challenged by SBI before the appellate tribunal by two appeals (FPA-PMLA-729/DLI/2014 and FPA-PMLA-1411/DLI/2016), both of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. On the complaint of BoB, the CBI registered FIR (no. RC.BD.F1/2015) on 09.10.2015 against 59 current account holders, it statedly including the borrower in the present case, and certain bank officials, the case involving offences punishable under Sections 420 read with Section 120 B IPC and Section 13 (2) read with section 13 (1) (d) of Prevention of Corruption Act, 1988. 26. Upon information from CBI, finding it to be a case of money-laundering, the enforcement directorate registered a case (ECIR no. DLZO/20/2015) on 09.10.2015. On the basis of reasons to believe reduced to writing, the enforcement authority issued an attachment order on 28.07.2017 in respect of certain properties, including the above-mentioned two shops. The adjudicating authority confirmed the said attachment by its order dated 27.11.2017. 27. On the appeal (FPA-MLA-2147/DLI/2018) of IDBI, the appellate tribunal, by its decision dated 10.05.2018, set aside the said attachment of the two properties under PMLA upholding the contention that the said assets had not been acquired by money-laundering and thus could not be described as proceeds of crime , it being noted that the two shops had been purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 29.75 crores. 30. The inquiries by PNB revealed that the supply orders from defence authorities which was the basis of drawals were fictitious claims based on forged and fabricated documents, the amounts received against the credit facility having been diverted to the accounts of certain dummy firms and companies set up by Shambhu Prasad Singh in the name of his employees showing them as directors or proprietors. 31. The PNB invoked Section 13 (2) of SARFAESI Act to take the symbolic possession of the mortgaged properties of DSIPL and moved DRT, by original application no. 84/2013, for recovery of debts and also lodged a complaint with CBI which registered FIR no.RCBDI 2014/E/0003 involving offences under Sections 120 B/420/468/471 IPC and Section 13 (2) read with Section 13 (1) (d) of Prevention of Corruption Act, 1988. 32. It is stated that investigation has confirmed that fictitious supply orders had been used to seek release of funds from PNB against the above-mentioned credit facility and the funds received in the account of DSIPL were diverted by Shambhu Prasad Singh and his abovementioned associates to the accounts of fictitious firms and companies. The CBI has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 06.12.2018, confirmed the appointment of Mr. Nilesh Sharma as the Resolution Professional ( RP ) of DSIPL. 37. The abovesaid RP, appointed by NCLT under the Insolvency Code, has approached this court by interlocutory applications (Crl.M.A. 199 and 202 of 2019), inter alia, seeking impleadment and for clarification of the restraint order dated 25.07.2018. At the time of hearing on the said applications of RP (intervenor) it was submitted on his behalf that he would feel satisfied if he was given audience in opposition to the appeal, he not pressing for any further directions at that stage. The applications were accordingly allowed, to that extent, by order dated 30.01.2019. Crl.Appeal no. 1076/2018 (the claim of consortium of Banks ) 38. The last captioned appeal (Crl. Appeal no. 1076/2018) also involves Punjab National Bank (PNB) as the prime respondent, though in its capacity as the lead bank of consortium of almost twenty banks. Similar to the factual matrix of the preceding cases, this case involves credit facilities having been taken, in the name of Surya Vinayak Industries Ltd. (SVIL), from various banks, by its directors Sanjay Jain and Rajiv Jain, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t facilities were obtained were false and fabricated. 41. Eventually, the matter was reported to CBI which registered FIR (no. RCBDI/2014/E/0001) involving offence under Section 120 B read with Section 420 IPC. 42. It is stated that the CBI brought the above facts to the notice of enforcement directorate which, for reasons reduced to writing, found it to be a case of money-laundering and, thus, registered its own case [ECIR No. DLZO/01/2015/AD (VM)], under PMLA. 43. While the consortium of banks led by PNB has proceeded to take steps for recovery of outstanding dues under SARFAESI Act and RDBA, the enforcement directorate, for reasons to believe reduced to writing, proceeded to attach the above-mentioned properties on 31.03.2016 which order was confirmed by the adjudicating authority on 22.09.2016. 44. The respondents i.e. PNB and DBS Bank Ltd. (members of the consortium) approached the appellate tribunal by appeals (FPAPMLA-1616/DLI/2017 and FPA-PMLA-1618/DLI/2017). The appellate tribunal, by its common judgment dated 28.06.2018, has allowed the said appeals and set aside the attachment order under PMLA, the reasons for such decision being similar (if not identical) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponding debt. 47. It is argued that if the contentions of the respondent banks were to be upheld and the view taken by the appellate tribunal endorsed, the law under PMLA would stand defeated, not only because the sovereign authority to take away the property of the money-launderer free from all encumbrances would stand frustrated, but also because the wrong-doer (the borrower who has indulged in money-laundering) would derive illegitimate pecuniary advantage by getting a discharge for the debt by using an asset the right to hold which had been forfeited. 48. Conversely, it is argued that the legislative intent and command is that the RDDBFI Act (or RDBA ) and SARFAESI Act (as also the Insolvency Code) must prevail over PMLA, the authority of enforcement agency taking a back-seat. At the same time, it was urged that a harmonious construction of PMLA and the legislations (RDBA and SARFAESI Act) under which the respondent banks ( secured creditors ) seek remedy has to be achieved such that the objective of each is sub-served, none defeated. SANCTIONS AGAINST MONEY-LAUNDERING 49. The malaise of money laundering has been a challenge faced by various members of the glo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party, calls for prevention of laundering of proceeds of drug crimes and other connected activities and confiscation of proceeds derived from such offence. (b) the Basle Statement of Principles, enunciated in 1989, outlined basic policies and procedures that banks should follow in order to assist the law enforcement agencies in tackling the problem of money-laundering. (c) the Financial Action Task Force established at the summit of seven major industrial nations, held in Paris from 14th to 16th July, 1989, to examine the problem of money-laundering has made forty recommendations, which provide the foundation material for comprehensive legislation to combat the problem of money-laundering. The recommendations were classified under various heads. Some of the important heads are- (i) declaration of laundering of monies carried through serious crimes a criminal offence; (ii) to work out modalities of disclosure by financial institutions regarding reportable transactions; (iii) confiscation of the proceeds of crime; (iv) declaring money-laundering to be an extraditable off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed to be untainted property being what forms the essential part of actus reus, the intent to so conceal, possess, acquire or use, or guilty knowledge, being the requisite mens rea. It is inherent in this that prior to coming in possession, acquisition, concealment or use of tainted property (the claim being to the contrary that it is untainted property) there must have been some other offence committed, the property perceived or alleged to be tainted being the product of such criminal activity. 54. It is in the above sense that the expression proceeds of crime is defined in PMLA, by Section 2 (1) (u). It is not any or every crime, the fruits whereof would be treated as proceeds of crime for initiation of action under PMLA. The enactment restricts it to the result of criminal activity relating to a scheduled offence . The expression scheduled offence is defined by Section 2 (1) (y) as under:- scheduled offence means- (i) the offences specified under Part A of the Schedule; or (ii) the offences specified under Part B of the Schedule if the total value involved in such offences is one crore rupees or more; or (iii) the offences specified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch process beginning with provisional attachment , such provisional attachment being subject to confirmation by adjudicating authority (constituted under Section 6), the order of the adjudicating authority being amenable to challenge by appeal (under Section 26) to the appellate tribunal (as constituted in terms of Section 25). For such properties other than those covered by reciprocal arrangement for assistance with other sovereign States (9th Chapter), as are tainted, the same representing proceeds of crime available in India, the process of attachment is to follow the prescription under Section 5, this being subject to adjudication (and eventual confiscation) in accord with Section 8. 59. For purposes of answering the questions raised in these appeals, it is essential to take note of the said provisions of PMLA (3rd Chapter) in extenso. The main provision as the law presently stands reads thus:- 5. Attachment of property involved in money-laundering.-( 1)Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) Every order of attachment made under subsection (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under sub-section (3) of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation .-For the purposes of this subsection, person interested , in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under subsection (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority . 60. As in the case of power of survey, search and seizure, search of persons, retention of property and power to arrest, for enforcing provisional attachment , it is sine qua non for the empowered officer, acting under Section 5 (1), to record in writing his reason to believe that grounds are made out to direct such provisional attachment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmation of the attachment order. The procedure to be followed by the adjudicating authority and its powers leading eventually to release or confiscation are prescribed by the following provision :- 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 sub-section (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, it 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-laundering and confiscated by the Central Government: Provided that where a notice under this subsection specifies any property as being held by a person on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1A) of section 17, the order of confiscation shall have the same effect as if the property had been taken possession of. (5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government. (6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of section 8, pass appropriate orders regarding con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicating authority is also given to such third parties as may be holding the property in question on behalf of any other person (whether jointly or otherwise), the adjudicating authority also being obliged by the proviso to sub-Section (2) of Section 8 to give opportunity of being heard and prove that the property is not involved in money-laundering even to such third parties as to whom notice may not have been issued but may have claimed the same. Such third parties may include a benamidar, transferee, lessee, mortgagee, hypothecatee, manager, agent, trustee, etc. 67. In the context of present appeals, it is also necessary to take note of the provision contained in Section 9 PMLA inasmuch as it prescribes the consequences that flow from the eventual order of confiscation. The provision reads thus:- 9. Vesting of property in Central Government.- Where an order of confiscation has been made under subsection (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60 in respect of any property of a person, all the rights and title in such property shall vest absolutely in the Central Government free from all encumbrances: Provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 8 (5) and (7) entails all the rights and title in such property vesting absolutely in the Central Government free from all encumbrances . The further provision in Section 10 conferring upon the Central Government the power to take over and manage such property as has been confiscated even by disposing it of leaves no doubt that the vesting of the property in the government is absolute. As is clear from the provisos to Section 9, the liability under the encumbrance subsists in favour of such third party as had acted in good faith but if the creation of such encumbrance was with the objective of managing escape of such property from such attachment or confiscation, the law empowers the special court, or the adjudicating authority, to declare such encumbrance to be void , this also leading to confiscation of the property in favour of the State. 70. The eventual touchstone, even for the special court, dealing with the offence of money-laundering (and connected offences) remains that the property attached, or to be confiscated, must be such as was involved in or used for the commission of the offence of money-laundering. 71. The law recognizes that there may be third parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e articulated views. The said observations reflect reliance, inter alia, on decisions of the Supreme Court in Solidaire India Ltd. Vs. Fairgrowth Financial Services Ltd. and Ors., (2001) 3 SCC 71 and United Bank of India vs. Satyavati Tandon, (2010) 8 SCC 110; decision of a learned single Judge of this court in Sanjay Bhandari Vs. CBI, 2015 SCC Online Del 10079; (2015) 222 DLT (CN) 5; three decisions of the Madras High Court, they being V.M. Ganesan vs. Joint Director, Directorate of Enforcement, 2014 SCC Online Mad 10702; C. Chellamuthu vs. Deputy Director, Prevention of Money Laundering Act, Manu/TN/4087/2015, decided on 14.10.2015; and Assistant Commissioner vs. Indian Overseas Bank, AIR 2017 Mad 67 (FB); 2016 SCC Online Mad 10030; besides one decision each of Bombay High Court and Andhra Pradesh High Court, they being Bhoruka Steel Ltd. vs. Fairgrowth Financial Services Ltd., 1996 SCC Online Bom 717 and B. Rama Raju vs. Union of India, 2011 SCCOnline AP 152. The decision of the appellate tribunal shows that it has treated the other enactments like SARFAESI Act and RDDBFI Act (since rechristened as RDBA) to be prevailing over the PMLA on account of amendments b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the reply furnished by a noticee in response to a notice issued 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. A further opportunity of establishing bona fide acquisition of property or that the property in question is not proceeds of crime involved in money-laundering is available and mandated, prior to the adjudicating authority passing an order of confiscation, under Section 8(6). 78. Clearly, B Rama Raju (supra) has not much relevance here since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian Penal Code, 1860 (IPC), by Section 53 (Fifthly), provides for forfeiture of property as one of the permissible punishments . Though in IPC, as initially enforced, a number of offences attracted such punishment, prescription of this nature in some of them (e.g. Sections 121 122 IPC) having since been omitted, a few (e.g. Section 126 127 IPC) still retain forfeiture of property as one of the possible punishments, this giving it a flavour of criminal sanction. Interestingly, the act of unlawful purchase of, or bidding for, property by a public servant, under certain circumstances, is not only punishable offence under Section 169 IPC but also entails such property, if purchased, to be confiscated . 83. The Code of Criminal Procedure, 1973 (Cr. PC) replaced the then existing procedural law governing criminal investigations and trials, it being the Code of Criminal Procedure, 1898 (old Cr. PC). Both the said laws have carried provisions for attachment of property of an accused, the objective whereof, however, has been to compel appearance. In case the criminal court has reasons to believe that a person against whom warrant (of arrest) issued by it has absconded or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance focuses on money or other property believed to have been procured by means of an offence under the said law, the persons claiming an interest in the subject property or any portion thereof having been given (by Section 4) the right to object and be heard against such sanction. As in the case of certain other enactments (e.g. SAFEMA), the property to be attached or forfeited must have nexus with the corrupt practice constituting the offence. 87. In State of West Bengal vs. S.K. Ghosh (supra), as referred to in Gunwant Lal (supra), in the context of Section 13(3) of the 1944 Ordinance, it had been observed thus :- 15. The argument for the respondent is apparently based on the use of the word forfeited in Section 13(3) and also on the use of the word forfeiture in Section 53 of the Indian Penal Code. There is no doubt that forfeiture in Section 53 of the Indian Penal code is a penalty but when Section 13(3) speaks of forfeiting ... the amount of money or value of the other property procured by the accused by means of the offence, it in effect provides for recovery by the Government of the property belonging to it, which the accused might have procured by emb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as the present holder) of any property which was at any time previously held by a person referred to in clause (a) or clause (b) unless the present holder or, as the case may be, any one who held such property after such person and before the present holder, is or was a transferee in good faith for adequate consideration . The definition of the expression illegally acquired property under SAFEMA required a clear nexus between the prohibited activities and acquisition of such asset as indeed the means (including the consideration paid) employed in that regard and, in the event of the third party being the holder, carved out an exception if he had acquired it in good faith and for adequate consideration , the onus to prove such elements obviously being on him. 89. The case of Biswanath Bhattacharya (supra) arose out of SAFEMA. The Supreme Court dealing with similar issue referred to the regime of forfeiture of property prevalent in this country at least from 1944 and accepted the argument that the forfeiture contemplated under the said law was not a penalty within the meaning of Article 20 of the Constitution of India but only a deprivation of property of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undering. This view is in sync with the rulings in the cases of S.K. Ghosh (supra) and Biswanath Bhattacharya (supra) in context of Ordinance of 1944 and SAFEMA quoted above. FORFEITURE (CONFISCATION) : CERTAIN OTHER LAWS 94. As was brought out at the hearing, similar provisions for attachment and forfeiture of property are also made in certain other enactments including Unlawful Activities (Prevention) Act, 1967 ( UAPA , for short), Narcotic Drugs and Psychotropic Substances Act, 1985 ( the NDPS Act , for short), the Prohibition of Benami Property Transactions Act, 2002 ( the Benami Property Act , for short) and the Fugitive Economic Offenders Act, 2018 ( the Fugitive Economic Offenders Act , for short). It would be of advantage to have a brief look at the same to ascertain the safeguards against unjust effect of such power vis- -vis third party claimants. 95. The UAPA was amended by Act no.29 of 2004 simultaneous to the repeal of the Prevention of Terrorism Act, 2002 ( POTA , for short). The amendment brought on the statute book (by insertion of fifth Chapter), provisions for forfeiture of proceeds of terrorism , a later amendment (by Act no.3 of 2013) adding to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith to order forfeiture, it being implicit that the statutory elements of reason to believe and recording of reasons must be premised on materials available and though upholding the clause (Section 68-J) placing the burden of proving that the property sought to be forfeited was not illegally acquired property on the person so claiming, it was held that formation of belief as to a link or nexus traceable between the holder of the property proceeded against and an illegal activity was essential. 98. The objective of Benami Property Act has been to prohibit benami transactions and the right to recover property held benami . It devotes fourth Chapter to the subject of attachment, adjudication and confiscation . As noted earlier, the expression confiscation is to be construed similarly as forfeiture . By the provision contained in Section 27, a property found to be held benami may be confiscated by the adjudicating authority, subject to remedy of appeal before the appellate tribunal. The detailed procedure for such action requires due notice to the interested parties that include any person who has made a claim in respect of the property (Section 26). The actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein exceeds the minimum threshold (Rs.100 Crore), the focus of attachment leading to confiscation, upon declaration of a person as fugitive economic offender being on the proceeds of crime . The definition of the expression proceeds of crime under this law is similar to that of identical clause in PMLA. A person is declared fugitive economic offender if the special court finds that a warrant for his arrest in relation to a scheduled offence having been issued by any court in India he has left India so as to avoid criminal prosecution or being abroad refuses to return to India to face criminal prosecution . The property which can be attached and confiscated under this law would be the one acquired by the proceeds of crime or the value thereof, it including benami property held in India or abroad, even if such property were to be not owned by the fugitive economic offender . 101. Section 5 (4) protects the continuation of enjoyment of the immovable property by a person interested if he had a claim or title to any interest in the property . Similarly, in terms of Section 12(7), a property may be held exempt from confiscation if a third party ( any other perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcement authority embarks upon a probe. The crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude. The total wrongful gain from the criminal activity cannot be computed till the investigation is completed. The authority for provisional attachment of suspect assets is to ensure that the same remain within the reach of the law. 106. Among the three kinds of attachable properties mentioned above, the first may be referred to, for sake of convenience, as tainted property in as much as there would assumably be evidence to prima facie show that the source of (or consideration for) its acquisition is the product of specified crime, the essence of money-laundering being its projection as untainted property (Section 3). This would include such property as may have been obtained or acquired by using the tainted property as the consideration (directly or indirectly). To illustrate, bribe or illegal gratification received by a public servant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriety of the procedure followed. Dispute may also arise in such context if the property has been transferred to another person, after it had been acquired by the transaction relatable to money-laundering and before its attachment under PMLA. The third party may have a claim to agitate that it had been acquired by it bonafide and for lawful and adequate consideration. 109. The inclusive definition of proceeds of crime respecting property of the second above-mentioned nature - i.e. the value of any such property - gives rise (as it has done so in these five appeals) to potential multi-layered conflicts between the person suspected of money-laundering (the accused), a third party (with whom such accused may have entered into some transaction vis-a-vis the property in question) and the enforcement authority (the State). Since the second of the above species of proceeds of crime uses the expression such property , the qualifying word being such , it is vivid that the property referred to here is equivalent to the one indicated by the first kind. The only difference is that it is not the same property as of the first kind, it having been picked up from among other prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code being the latest legislation enforced in 2016. These laws, enacted for different objects and reasons, have come with provisions declaring each of them to have the overriding effect . 113. The RDBA was enacted for the establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto, the objective of insolvency resolution and bankruptcy of individuals and partnership firms having been added, by an amendment in 2016, against the backdrop of considerable difficulties experienced by the banks and financial institutions in recovering loans and enforcement of securities charged with them. 114. The RDBA established tribunals Debt Recovery Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT) as a special mechanism through which the banks and financial institutions specified by the legislation could seek recovery of debts as may be due to them, it being the requirement of law that the amount of debt so claimed to be due should be above the minimum threshold thereby prescribed for cases which are governed by the said law, the jurisdiction of the civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Section 2(1)(zc) SARFAESI Act, the expression secured asset means the property on which security interest is created. For purposes of this special law, banks and financial institutions , defined in Section 2(1)(c) and (m) respectively, qualify, as per Section 2(1)(zd), to be treated as secured creditor . 26. Section 13 of the SARFAESI Act is conceived as the code prescribed for enforcement of security interest by the secured creditors, inter alia, for whose purposes the law was enacted. It opens with non-obstante clause and declares upfront that the provision herein is made, over and above, what is available under the general law through Section 69 and 69A of Transfer of Property Act. 28. Section 13 of SARFAESI Act vests in the secured creditor, the power to enforce the security interest without the intervention of the Court or Tribunal . It may be noted, at the outset, that the rights thus conferred on the secured creditor are exercisable, by virtue of Section 13(12) through officers duly authorized in such behalf. For such purposes, the legislation sets out an elaborate procedure that begins with a notice under Section 13(2) issued by the secured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc.) commences. The test to which the process undertaken by the secured creditor is subjected by DRT is indicated in Section 17(2) as under:- 17(2). The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. 120. It is thus clear that prime objective of SARFAESI Act is to facilitate enforcement of security interest . Section 37 of SARFAESI Act makes it further clear that the provisions of this law, or rules made thereunder, have been enacted in addition to, and not in derogation of other laws including the RDBA. 121. The SARFAESI Act contains Section 35 which reads thus :- 35. The provisions of this Act to override other laws - The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. 122. As in the case of RDBA, the above clause of SARFAESI Act would not render PMLA subservient to it because of the different obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty rights; (ii) conferment of powers upon the Reserve Bank of India to regulate asset reconstruction companies in a changing business environment; (iii) exemption from stamp duty on assignment of loans by banks and financial institutions in favour of asset reconstruction companies; (iv) enabling non-institutional investors to invest in security receipts; (v) debenture trustees as secured creditors; (vi) specific timeline for taking possession of secured assets; and (vii) priority to secured creditors in repayment of debts. 125. By the above-mentioned amendment of 2016, the following provision has been inserted in RDBA :- 31B. Priority to secured creditors - Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise 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 and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority. Explanation - for the purposes of this section, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act by the amendment of 2016 renders the said laws to have an overriding effect over PMLA. Though the issue raised by the Resolution Professional (RP) in the fourth captioned appeal with reference to the Insolvency Code was not urged before the appellate tribunal, similar argument is pressed to seek primacy for the Insolvency Code over PMLA on account of Section 238 of the former. 129. At the hearing, however, it was noted that some of the amendments made to the SARFEAESI Act by second chapter of Act No.44 of 2016 are yet to come into force and this includes the chapter (no.IV-A) on the subject of registration by secured creditors and other creditors . Section 26-E (priority to secured creditors) with reference, inter alia, to which the aforementioned view has been taken by the Appellate Tribunal falls in said Chapter (no. IV-A) by virtue of Section 18 of the Act No.44 of 2016. Strictly speaking, therefore, a view to the effect taken by the tribunal by reference to Section 26-E (which is yet to come into effect) was impermissible. Be that as it may, since the said Chapter (no.IV-A) has been inserted in SARFEAESI Act by the legislature, and is likely to come into force in futur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous, the object and purpose of a legislation assumes greater relevance and quoted the following views of the Supreme Court in Sarwan Singh vs. Kasturi Lal, (1977) 1 SCC 750 :- When two or more laws operate in the same field and each contains a non-obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration. 134. In Solidaire India Ltd.(supra), the Supreme Court was dealing with similar issues concerning the conflict between SICA and the Special Courts Act of 1992 and quoted with approval the above decision in Bhoruka, observing thus : ...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 enactme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statutemaker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. 137. It was further clarified that : 49. The term not in derogation clearly expresses the intention of Parliament not to detract from or abrogate the provisions of SICA in any way. This, in effect must mean that Parliament intended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process. 140. The purpose, purport and import of Section 31-B inserted in RDBA, and Section 26-E inserted in SARFAESI Act, has to be understood in above light. The marginal heads of both the provisions are identically worded - Priority to secured creditors . Though Section 26-E of SARFAESI Act requires, as a condition precedent, the registration of security interest , which is not requisite for Section 31-B of RDBA to operate, both provisions give precedence to realization of debts due to the secured creditor , the clause in RDBA also clarifying it by additional words payable to them by sale of assets over which security interest is created . Each of these provisions renders secondary all other debts and revenues, taxes, cesses and rates enforced by the Central Government, State Government or local authority . Section 31- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of India under the Government of India (Allocation of Business) Rules, 1961 is misplaced. The use of the expression for accounting purposes to take care of receipts flowing into the Consolidated Fund cannot give to the value of proceeds of crime realised by sale of properties confiscated under PMLA the colour of taxation. 144. The respondents have referred to the following observations of the Supreme Court in order dated 10.08.2018 in Special Leave to Appeal (Civil) No.6483/2018, Principal Commissioner of Income Tax vs. Monnet Ispat and Energy Limited :- Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act. We may also refer in this connection to Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. Ors. (2000) 5 SCC 694 and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons. 145. Noticeably, the effect of Insolvency Code on PMLA was not in issue before the Supreme Court in the aforesaid case, the prime concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt under PMLA, if it meets with the statutory pre-requisites, is as lawful as an action initiated by a bank or financial institution, or a secured creditor, for recovery of dues legitimately claimed or for enforcement of secured interest in accordance with RDBA or SARFAESI Act. An order of attachment under PMLA is not rendered illegal only because a secured creditor has a prior secured interest (charge) in the subject property. Conversely, mere issuance of an order of attachment under PMLA cannot, by itself, render illegal the prior charge or encumbrance of a secured creditor, this subject to such claim of the third party (secured creditor) being bonafide. In these conflicting claims, a balance has to be struck. On account of exercise of the prerogative of the State under PMLA, the lawful interest of a third party which may have acted bonafide, and with due diligence, cannot be put in jeopardy. The claim of bonafide third party claimant cannot be sacrificed or defeated. A contrary view would be unfair and unjust and, consequently, not the intention of the legislature. The legislative scheme itself justifies this view. To illustrate, reference may be made to sub-section (8) of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participants in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the scheme of the Act whereby bona fide person without having any direct / indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mens rea or knowledge is missing... 152. The appellate tribunal has referred to the decision in V. M. Ganesan (supra). The issues relating to the attachment order under PMLA involved in that case concerned the claims not only of the person accused of money-laundering and also of predicate offences, they including those punishable under Sections 294(b), 406, 420, 465, 468, 471, 197, 419, 506 (ii) of IPC and Section 19 of Transplantation of Human Organs Act, 1994, it involving illegal kidney trade, but also of a financial institution (LIC Housing Finance Ltd.) which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp since the claim of third party (secured creditor) was yet to be inquired into or adjudicated upon. This court generally accepts the spirit behind the earlier quoted thoughts articulated by the tribunal, but finds it difficult to accept that a property may be allowed escape from civil sanction under PMLA only on the plea of the third party claiming to be at no fault or to have acted without notice of the criminal activity engaged in by the person from whom interest is acquired. As would be elaborated hereinafter, the burden to prove facts to rebut the statutory presumptions necessitates more than mere ignorance to be shown. 154. Generally speaking, the third party whose interest in a property may be adversely affected on account of it being attached under PMLA would be one who may have acquired such interest, right or title by a transaction involving, directly or indirectly, the person who is accused of, or charged with, the offence of money-laundering. Such acquisition of interest, right or title may be by transactions in the nature of sale / purchase, gift, lease, mortgage, pledge, hypothecation, etc. In the present cases, the respondent banks cried foul by objecting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest in an immovable property for the purpose of securing repayment of a loan, the mortgagee's interest lasting only as long as the mortgage has not been paid off [ All Indian Film Corporation Ltd. vs. Raja Gyan Nath, 2(1969) 3 SCC 79]. 158. A hypothecatee or a mortgagee, thus, has a limited interest in the property, the right restricted to have the debt realized by putting the hypothecated goods or mortgaged property to sale. There is no ownership, or right to possess, vesting in either. At the same time, it must be added that the charge or encumbrance of a third party in a property attached under PMLA can be treated as void if there is material to show that it had been created to defeat the law, such declaration rendering the property liable to attachment and confiscation in favour of the Government vesting it free from all encumbrances . 159. As noted earlier, there are three parts of the definition of the expression proceeds of crime , the first clearly referring to a property respecting which there is material to show the same to have been derived or obtained , directly or indirectly, by a person as a result of criminal activity (of specified nature) . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, even if bona fide, for lawful and adequate consideration, cannot result in the same being released from attachment, or escaping confiscation, since the law intends it to vest absolutely in the Central Government free from all encumbrances , the right of such third party being restricted to sue the wrong-doer for damages, the encumbrance, if created with the objective of defeating the law, being treated as void (Section 9). 162. But, in case an otherwise untainted asset (i.e. deemed tainted property) is targeted by the enforcement authority for attachment under the second or third part of the definition of proceeds of crime , for the reason that such asset is equivalent in value to the tainted asset that was derived or obtained by criminal activity but which cannot be traced, the third party having a legitimate interest may approach the adjudicating authority to seek its release by showing that the interest in such property was acquired bona fide and for lawful (and adequate) consideration, there being no intent, while acquiring such interest or charge, to defeat or frustrate the law, neither the said property nor the person claiming such interest having any connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA. 166. As already noted, the newly inserted provision contained in Sections 26-B to 26-E falling in Chapter (no. IV-A) on registration by secured creditors and other creditors of SARFEAESI Act are yet to be notified and brought into force. In the event of said statutory clauses coming into force, a creditor will not be entitled to exercise the right of enforcement, inter alia, of security interest over the property of borrower unless such security interest has been duly registered under the said law. Upon such amended law being enforced, a bona fide third party claimant seeking relief against an order of attachment under PMLA will also be obliged to show due compliance with such statutory requirements. 167. As has been highlighted earlier, the provisional order of attachment is subject to confirmation by the adjudicating authority. The order of the adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiry about untainted status of the asset or legitimacy of its acquisition. SUMMARISING THE CONCLUSIONS 171. It will be advantageous to summarise the conclusions reached by the above discussion, as under :- (i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering. (ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation. (iii). The empowered enforcement officer has the authority of law in PMLA to attach not only a tainted property - that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property of equivalent value of the offender of money-laundering, the latter not bearing any taint but being alternativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k release of such property from attachment is on the person who so contends. (x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as void unless material is available to show that it was created to defeat the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance. (xi). A party in order to be considered as a bonafide third party claimant for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered. (xii). An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the property as is in excess of the claim of the said third party. (xvi). In the situations covered by the preceding two subparagraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the excess value of the property subjected to PMLA attachment. (xvii). If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court. DECISION ON THE APPEALS 172. In view of the above conclusions, the impugned decisions of the appellate tribunal will have to be set aside. There is a need for further scrutiny particularly on facts, of the claims of the respondents, in their appeals which were presented before the said forum to challenge the orders of attachment, as confirmed by the adjudicating authority in the five cases. This may be illustrated hereinbelow. 173. It does appear that the assets which have been the subject matter of attachm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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