Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2019 (4) TMI 250

rty”, the same having been seemingly acquired prior to the criminal activity giving rise to accusations of money-laundering. But, they are sought to be attached and subjected to eventual confiscation on account of they being the alternative attachable properties or deemed tainted properties, which is permissible in law. - The audi car (subject matter of first appeal) was acquired by a transaction which has no direct connection with the case of money-laundering. There is no clarity as to the value of proceeds of crime which are to be confiscated as against value of the attached property as indeed the extent of the debt yet to be recovered by the secured creditor. - The monetary gains made by the transactions which are subject matter of the accusations of money-laundering 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 hospi .....

X X X X X X X

Full Text of the Document

X X X X X X X

dering , it essentially representing proceeds of crime (as defined in law), is provided to ensure that the ultimate objective of confiscation of such ill-gotten property be not frustrated, the power and jurisdiction to order confiscation being vested in the Special Court. As would be seen at length in later part of this judgment, the provisions for attachment (followed by adjudication) leading to confiscation are sanctions in addition to the criminal sanction rendering the act of money laundering a penal offence (by virtue of section 4). The order of confiscation of property attached under PMLA takes away the right and title of its owner and vests it absolutely in the Central Government free from all encumbrances (Section 9). 3. The appeals 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 activi .....

X X X X X X X

Full Text of the Document

X X X X X X X

ng remained unpaid. The bank, it appears, had taken certain steps, through its separate legal entity (Axis Asset Management Company Ltd.), to take over the control/possession of the said asset and recover its dues by its sale, the liability, as on 12.07.2017, being ₹ 12,08,949/-. 8. The Government of India had announced demonetization policy on 08.11.2016, in terms of which the then existing Indian currency notes of the denomination of ₹ 1,000/- and ₹ 500/- ceased to be legal tender, a window having been provided for exchange of demonetized notes, with the new currency introduced, by deposit in the bank accounts. On 29.11.2016, three persons (including one Mohit Garg) travelling in a car were 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 we .....

X X X X X X X

Full Text of the Document

X X X X X X X

8377; 3.40 Crores were attached on 27.01.2017. These include the Audi car. The adjudicating authority, by its order dated 31.05.2017, confirmed the attachment order. Before confirmation, the adjudicating authority had issued a notice (under Section 8) to the bank to show cause as to why the properties, including the Audi Car, be not attached. The request of its asset management company for suspending the provisional attachment was, however, rejected. 13. The appellate tribunal by its decision dated 25.10.2017 in appeal (FPA-PMLA-1848/DLI/2017) of the bank set aside the order of the adjudicating authority confirming the attachment order directing the vehicle to be returned to the bank holding it 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 legisla .....

X X X X X X X

Full Text of the Document

X X X X X X X

ereafter, moved Debt Recovery Tribunal (DRT), by OA no. 151/2011, for issuance of recovery certificate by sale of the mortgaged properties and hypothecated securities. The request was granted by the DRT on 15.02.2013, the amount outstanding as on 07.09.2009 being ₹ 6.44 crore. 18. The inquiries statedly brought out that the performa invoices and receipts presented in support of the claim of purchase of diagnostic machinery were fabricated documents, no such machinery having actually being purchased, the communications to this effect to the bank being in the nature of mis-representation. 19. The bank lodged FIR with Central Bureau of Investigation (CBI) which 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 wa .....

X X X X X X X

Full Text of the Document

X X X X X X X

1.2013, a receiver having been appointed by the Chief Metropolitan Magistrate (CMM), by order dated 07.06.2017, to take possession of one of the mortgaged properties. The IDBI also moved DRT for recovery of its dues (by OA no. 582/2014), the amount outstanding at that stage being ₹ 11,19,81,600.44. 25. Meanwhile, certain serious irregularities involving foreign exchange transactions in the current accounts of various firms/companies of the borrowers, and those connected to him, came to the notice of the Bank of Baroda (BoB), its internal audit report showing the value of such illicit transactions being to the tune of ₹ 3600 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

ngh Bhatter having title over the other two properties, in one as a coowner. 29. It is stated that, on 10.12.2009, DSIPL had approached the PNB to take over the then existing liabilities from Syndicate Bank. The PNB sanctioned credit facilities to the tune of ₹ 2010.50 lakhs on 18.02.2010 on the request of Shambhu Prasad Singh. The credit facility was enhanced from then ₹ 650 lakhs to 1800 lakhs, in the context of certain supply orders to the tune of ₹ 2170.90 lakhs statedly received from armed forces. The enhanced credit facility was availed by DSIPL but with no adjustment, putting PNB to a loss of about ₹ 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 origin .....

X X X X X X X

Full Text of the Document

X X X X X X X

isdiction of the National Company Law Tribunal (NCLT), it being the adjudicating authority under the recently enacted Insolvency and Bankruptcy Code, 2016 ( Insolvency Code , for short), by filing a company petition, it being no. (IB)-718(PB)/2018, seeking initiation of Corporate Insolvency Resolution Process ( CIRP ) against DSIPL. The NCLT, by its order dated 27.09.2018, admitted the said petition and appointed Mr. Nilesh Sharma as the Interim Resolution Professional ( IRP ) of DSIPL for carrying out the CIRP . In the wake of developments that took place pursuant to the said appointment the NCLT, by its 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 direc .....

X X X X X X X

Full Text of the Document

X X X X X X X

hemicals. The loans were taken and the mortgage contracts created during 2005 and 2007, the properties which were placed under mortgage having been acquired during 1994 to 2005. 40. All the loans became NPA after 2011. A forensic audit of the borrowers was carried out by the consortium (led by PNB) in the wake of resolution of December, 2013. The audit report brought out serious financial irregularities including mis-representation of value of stock in book debts. It is stated evidence was gathered in due course that the statement of stock as well as debtors and receivables on the basis of which credit 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

r the concerned bank nor any of its agents or employees have had any connection whatsoever with any act of commission or omission relating to the money-laundering of which the borrowers are accused in these cases. It is also well conceded by the State (the appellant) that the banks in these matters may be entitled to and may have been pursuing lawful remedies where-under these very properties can be legitimately attached and sold, by public auction, to satisfy their respective claims, such satisfaction, in turn, concededly giving a lawful discharge to the borrowers for the corresponding 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 in .....

X X X X X X X

Full Text of the Document

X X X X X X X

Special Session of the United Nations General Assembly on 8-10 of June, 1998, the global view, which India shares, being that money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty . As is noted in the statement of objects and reasons for this law to be enacted, in the run up to the above-mentioned political declarations by the United Nations, the international community had taken certain initiatives that include the following:- (a) the United Nations Convention Against 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

-laundering and any scheduled offence connected thereto, also making it the court of cognizance vis-à-vis the offence of money-laundering (under Section 3). 53. For comprehensive understanding of the law on money-laundering (under PMLA), it may also be noted here that the expression proceeds of crime constitutes the core of the offence of money-laundering, the concealment, possession, acquisition or use of proceeds of crime in a manner where the same are projected or are 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 o .....

X X X X X X X

Full Text of the Document

X X X X X X X

same are not inconsistent with the provisions of PMLA (Section 75). Similar is the application of Cr.P.C. to the proceedings before special court by virtue of Section 46. 58. For dealing generally with the matters relating to attachment leading to confiscation of proceeds of crime (as defined by PMLA), the statute prescribes elaborately the procedure conferring powers on enforcement authorities thereby established, such 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 essenti .....

X X X X X X X

Full Text of the Document

X X X X X X X

eputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (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 Authori .....

X X X X X X X

Full Text of the Document

X X X X X X X

tion. The law mandatorily requires its scrutiny by independent entity called adjudicating authority which is vested with quasi judicial powers. As noted above, the complaint under Section 5(5) of PMLA by the enforcement officer comes before the adjudicating authority for confirmation 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

under section 5 or frozen under sub-section (1A) of section 17, in such manner as may be prescribed: Provided that if it is not practicable to take possession of a property frozen under sub-section (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 Directo .....

X X X X X X X

Full Text of the Document

X X X X X X X

here that in terms of the provisos to subSection (1) of Section 8, the right to be heard in opposition to the prayer for confirmation of attachment by the adjudicating 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 perso .....

X X X X X X X

Full Text of the Document

X X X X X X X

f transfer, conversion, dispossession or movement of such property, the confiscation in terms of Section 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 commissi .....

X X X X X X X

Full Text of the Document

X X X X X X X

), the tribunal having chosen to quote verbatim the 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

evidence 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 mat .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 is concealing himself, subject to certain other conditions being ful .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 embezzlement etc. The mere use of the word forfeited would not necessarily make it a penalty. The word forfe .....

X X X X X X X

Full Text of the Document

X X X X X X X

lause (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 legislatively identified class of persons - in the event of their inability to explain (to the satisfaction of the State) that they had legitimat .....

X X X X X X X

Full Text of the Document

X X X X X X X

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-à-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 such measures the forfeiture of any property intended to be used for terrorism . The expression, property is defined to include property or asset of every possible description. The exp .....

X X X X X X X

Full Text of the Document

X X X X X X X

roving 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 action is initiated on the basis of reason to believe that the holder of the property is a benamidar which expression is defined by Section 2 (10) to mean a person or a fictitious person, as the case may be, in whose name the benami property is transferred o .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 person, other than the fugitive economic offender ) has an interest which was acquired bonafide and without knowledge of the fact that the property was proceeds of crime . 102. Generally speaking, the civil sanction of forfeiture (for confiscation) of property is thus directed by all the above-mentio .....

X X X X X X X

Full Text of the Document

X X X X X X X

rongful 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 form of money (cash) being undue advantage and dishonestly gained, is tainted property acquired directly by a scheduled offence and consequently proceeds of crime . Any other property acquired using such bribe as consideration is also proceeds of crime , it having been obtained indirectly from a prohibited criminal activity within the meaning of first limb of t .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 properties of the accused, the intent of the legislature being that it must be of the same value as the former. The third kind does use the qualifying words equivalent in value . Though these words are not used in the second category, it is clear that the said kind also has to be understood in the same sense. 110. Thus, it must be observed that, in the opinion of this court, if the enforcement a .....

X X X X X X X

Full Text of the Document

X X X X X X X

ve 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 courts being ousted, the law in that sense to have the overriding effect. 115. Section 34 of RDBA (as originally enacted in 1993), after amendment brought about with retrospective effect from 17.01.2000, reads as under :- 34. Act to have over-riding effect - (1). Save as provided under sub-Section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for .....

X X X X X X X

Full Text of the Document

X X X X X X X

oses 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 creditor (giving requisite details of the amount due and the secured assets in which respect the enforcement is intended) and addressed to the borrower-in-default requiring him to discharge in full his liabilities within 60 days. On the expiry of the said period of 60 days calculated from the date of notice if the default continues, the secured creditor acquires the title to proceed further. 29. Upon being served with a notice under Section 13(2), the borrower is given the liberty, by Section 1 .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 objects and reasons of both enactments. Thus, the PMLA, enacted in 2002 (but enforced in 2005), continued to prevail, particularly in the matter of attachment and confiscation, by virtue of Section 71 which reads thus :- 71. Act to have overriding effect - The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. 123. But, some confusion has come about, as is the subject matter of the discourse in the impugned decisions of the appellate tribunal, on account of .....

X X X X X X X

Full Text of the Document

X X X X X X X

ing 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 is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code. 126. Similarly, by the above-mentioned amendment of 2016, while inserting a new chapter (no.IVA) relating to registration by secured creditors and other creditors in SARFAESI Act, conferring (by Section 26-D) right of enforcement of securities, a new provision - Section 26 E - was added (in the same chapter), reading thus :- 26E. Priori .....

X X X X X X X

Full Text of the Document

X X X X X X X

ured 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 future, its effect on the issues being addressed in these matters may be considered also on the assumption that it is part of the law. 130. For comprehensive understanding of the subject, before proceeding further, it may be noted here that the existing provisions in SARFEAESI Act, particularly the Chapter (no. IV) captioned Central Registry envisage, inter alia, registration of … creation of security interest (as indeed of its modification), through a central registry established under Section 20 by the Central Government, its database required to be integrated with other registration systems by virtue of Section 20-A, the mandate in terms of notification issued under proviso to Sect .....

X X X X X X X

Full Text of the Document

X X X X X X X

92 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 enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature inte .....

X X X X X X X

Full Text of the Document

X X X X X X X

e 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 the proceedings under SICA for reconstruction of a sick company to go on and for that purpose further intended that all the other proceedings against the company and its properties should be stayed pending the process of reconstruction. While the term proceedings under Section 22 of SICA did not originally include the RDDB Act, which was not there in existence. Section 22 covers proceedings under the RDDB Act. 50. The purpose of the two Acts is entirely different and where actions under the two laws may seem to be in conflict, Parliament has wisely preserved the proceedings under SICA, by specifically providing for sub-section (2), which lays down that the later Act, RDDB shall be in addition to and not in derogation of SICA. 138. In Assistant Commissioner vs. Indian Overse .....

X X X X X X X

Full Text of the Document

X X X X X X X

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- B of RDBA uses the expression due to while Section 26-E of SARFAESI Act uses the words payable to in relation to such debts, revenues, taxes, etc., the meaning being similar. 141. This court finds it difficult to accept the proposition that the jurisdiction conferred on the State by PMLA to confiscate the proceeds of crime concerns a property the value whereof is debt due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of illgotten assets so as to be perceived to be sha .....

X X X X X X X

Full Text of the Document

X X X X X X X

d 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 concern being the conflict arising out of claims of revenue under Income Tax Act, 1961 vis-à-vis proceedings under the Insolvency Code. For the same reasons, the ruling of the full bench of the Madras High Court in Indian Overseas Bank (supra) also would have no effect here. 146. A Resolution Professional appointed under the Insolvency Code does not have any personal stake. He only represents the interest of creditors, their committee having appointed and tasked him with certain responsibility under the said law. The moratorium enforced in terms of Section 14 of Insolvency Code cannot come in the way of the statutory authority conferred by PMLA on the enforcement officers for depriving a person (may be also a debtor) of the proceeds of crime. A view to the contrary, if taken, would defeat the objective of PMLA by opening an escape route. After all, .....

X X X X X X X

Full Text of the Document

X X X X X X X

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 Section 8 PMLA where-under a power is conferred on the special court to direct the Central Government to restore a property to the claimant with a legitimate interest even after an order of confiscation has been passed. 150. The legislation on money-laundering, as is the case of similarly placed other legislations providing for forfeiture or confiscation of illegally acquired assets, contains sufficient safeguards to protect the interest of such third parties as may have acted bonafide. Such safeguards and rights to secure their lawful interest in the property subjected to attachment (with intent to take it to confiscation) have already been noticed at length with reference to the statutory provisions. To recapitulate, and by way of illustration, reference may be made to the opportunity afforded by law (Section 8) to a person claiming a legitimate interest to approach the a .....

X X X X X X X

Full Text of the Document

X X X X X X X

dicate 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 had advanced money to the said accused. The learned single judge of Madras High Court held thus :- 47. For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crim .....

X X X X X X X

Full Text of the Document

X X X X X X X

d 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 the attachment orders respecting properties which were subject matter of mortgage or hypothecation with them. 155. It is well settled that by hypothecation, no interest or property is transferred to the hypothecatee, the latter acquiring nothing more than an equitable and notional charge to have his claim realized by sale of goods hypothecated [Paramatha Nath Talukdar v. Maharaja Probirendra M. Tagore, AIR 1966 Calcutta 405]. The possession remains with the hypothecator, the hypothecatee having the right to take possession of the hypothecated property, in the event of default, and to sell it for realization of the debt secured by hypothecation [Syndicate Bank vs. Official Liquidator, AIR 1985 Delhi 256]. 156. Section 58 of the Transfer of Property Act, 1882 ( TPA ) defines the expression mortgage as the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to b .....

X X X X X X X

Full Text of the Document

X X X X X X X

irst 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) . In case such property is held by the person who is charged with the offence of money-laundering , there is a statutory presumption under Section 24(a) PMLA, using the expression shall presume , about it being proceeds of crime involved in such money-laundering. It is a rebuttable presumption, the onus to prove facts to the contrary being on the person accused of such offence. If the acquisition of such property by such accused has involved more than one inter-connected transactions , one of such transactions being proved to be involving money-laundering, a statutory presumption is raised under Section 23 PMLA that the other transactions form part of the former, the burden to prove facts to the contrary being again on the person claiming otherwise. 160. But, in cases where the enforcement authority seeks to attach other properties, suspecting them to be proceeds of crime , not on the basis of fact that they are actually derived or obtained from criminal activity but bec .....

X X X X X X X

Full Text of the Document

X X X X X X X

ion, 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 or being privy to the offence of money-laundering. 163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-off. From this, it naturally follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration, acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or .....

X X X X X X X

Full Text of the Document

X X X X X X X

uirements. 167. As has been highlighted earlier, the provisional order of attachment is subject to confirmation by the adjudicating authority. The order of the adjudicating authority, in turn, is amenable to appeal to the appellate tribunal. The said forum (i.e. the appellate tribunal) may pass such orders as it thinks fit confirming, modifying or setting aside the order appealed against [Section 26(4)]. Undoubtedly, an aggrieved party is entitled in law to invoke the said jurisdiction of the appellate tribunal to bring a challenge to the orders of attachment (as confirmed) but, the law in PMLA, at the same time, also confers jurisdiction on the special court to entertain such claim for purposes of restoration of the property during the trial of the case [Section 8]. The jurisdiction to entertain objections to attachment conferred on the appellate tribunal on one hand and, on the special court, on the other, thus, may be co-ordinate, to an extent. 168. An argument, however, was raised, by the appellants that the respondents herein should have approached the special court, instead of the appellate tribunal, for consideration of their respective claims. 169. In view of above-noted le .....

X X X X X X X

Full Text of the Document

X X X X X X X

lso any other asset or property of equivalent value of the offender of money-laundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering. (iv). If the tainted property respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset ( the alternative attachable property or deemed tainted property ) of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime. (v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of suc .....

X X X X X X X

Full Text of the Document

X X X X X X X

FAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides. (xiii). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken due diligence (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest. (xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to .....

X X X X X X X

Full Text of the Document

X X X X X X X

been the subject matter of attachment in the appeals at hand are not tainted property , the same having been seemingly acquired prior to the criminal activity giving rise to accusations of money-laundering. But, they are sought to be attached and subjected to eventual confiscation on account of they being the alternative attachable properties or deemed tainted properties, which is permissible in law. The audi car (subject matter of first appeal) was acquired by a transaction which has no direct connection with the case of money-laundering. However, there is no clarity as to the value of proceeds of crime which are to be confiscated as against value of the attached property as indeed the extent of the debt yet to be recovered by the secured creditor. The monetary gains made by the transactions which are subject matter of the accusations of money-laundering 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 t .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||