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2019 (9) TMI 224

..... the respondent that the Appellant being the mortgagee and secured Creditor is entitled to recover amounts outstanding against Respondent no.4 from the sale of the Mortgaged Properties as it was never the case of the ED that the attached properties were purchased out of proceeds of crime. It has also come on record that the Appellant acted bonafidly while rendering the facilities and mortgage of the Properties was done for bonafide purposes. The Appellant is not involved in the schedule offence. There is also no criminal complaint under the schedule offence under PMLA is pending against the Appellant or any of its officials. Thus, the mortgaged properties are security to the loans and cannot be subject matter of attachment particularly when the same were purchased much prior to the commission of alleged offences. Respondent has failed to consider that it has attached all the properties without properly examining the case of the Appellant. The mortgaged properties of the Appellant cannot be attached or confiscated unless link and nexus directly or indirectly established and there is no illegality or unlawfulness in the title of the Appellant and there is no charge of money laundering .....

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..... after referred to as PMLA ), 2002 by the appellant against the order dated 28.05.2015 passed by the Adjudicating Authority, in the matter of O.C. No. 407 of 2015 wherein the Appellant was arrayed as Defendant no.4 on the basis of an application filed by the Appellant before the Ld. Adjudicating Authority. 2. It is revealed from the record that a complaint was received by MRA Marg Police Station, Mumbai from an investor. An FIR bearing no. 216/13 dated 30.09.2013 was registered by the local police for commission of offence under Sections 120-B, 409, 465, 467, 468, 471, 474, 477(A) of IPC. It was inter-alia alleged in the complaint that the Complainant had been induced into making investments by false representations and assurances given by the promoters and senior management of National Spot Exchange Limited (hereinafter referred to as NSEL) with a deliberate intention to dishonestly misappropriate his funds and had been cheated by NSEL. 3. As Sections 120-B, 467 and 471 of IPC are Scheduled Offences under PMLA, an ECIR bearing no. F.No. MZO/ECIR/14/2013 dated 14.10.2013 has been registered by Enforcement Directorate and investigation was undertaken under PMLA. Consequent to the inv .....

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..... r project which are nationalised banks and none of the alleged funds raised out of alleged money laundering were either raised or available with the accused at that point of time. As such all those assets were built out of the due and valid legal modes. These assets are under the charge of the Appellant as of now, as security for the Term Loan of ₹ 10,339 Lacs for setting up of Cogeneration project. c) The loan amount was disbursed and all the securities were obtained by the Appellant after carrying out due diligence and compliance of all KYC requirements. d) The land of the Company M/s. Naraingarh Sugar Mills (Respondent No.4) mortgaged with Appellant IREDA was purchased in the year 1995 i.e. much prior to the commission of the alleged offence of money laundering in the year 2013. e) The offence is alleged to have been committed/surfaced on or about 2013 whereas the Appellant herein had sanctioned the loan amount for ₹ 10,339 Lacs on 12.09.2012 and consequently disbursed ₹ 76.84 Crores for the co-generation power plant of M/s. Naraingarh Sugar Mills Ltd. Thus, at the time of disbursement of loan amount, which actually is public money, the Appellant herein was not .....

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..... out of the loan funds of the appellant and under no stretch of imagination these assets can be held as proceeds of crime. i) The Appellant is Government of India Company and not a party to any of the alleged money laundering activities. Any attachment of the aforesaid assets will result into the loss of the Public Exchequer. 7. That the role of the Appellant in the present matter is confined to the fact that in the year 2012 on the application of Respondent no.4 herein i.e. M/s. Naraingarh Sugar Mills Ltd. for grant of financial assistance for setting up the 25 MW Bagasse based Cogeneration project in their existing sugar mill capacity of 2500 TCD (to be expanded to 5500 TCD) at Village- Banondi, Taluka- Naraingarh, District- Ambala, Haryana, the Appellant vide sanction letter dated 12.09.2012 and Loan Agreement dated 07.03.2013 sanctioned the loan to the tune of ₹ 10,339 Lacs (₹ 6,709 Lacs main loan and ₹ 3,630 Lacs Additional/ bridge loan towards the Sugar Development Fund/SDF). 8. That the Appellant was shocked to receive the copy of the Provisional Attachment Order no. 24/2014 dated 31.12.2014 where it was stated that the plant of Respondent no. 4 comprising l .....

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..... in the attached plant by way of bank loan repayments, purchase of raw materials/ working capital requirement. (iv) In fact the loan sanctioned by the Appellant was for the purpose of the setting up of the Co-generation project of the Respondent no.4 and it is that loan amount only which has been used to expand the said project for purchase, installation and building of Co-generation project and therefore the attached land and plant machinery cannot be construed to be crime proceeds. (v) The title deeds of the aforementioned property are in the possession of the Appellant, since the attached property is mortgaged by way of equitable mortgage with the Appellant. All the charges have been created much prior to the impugned order and order of provisional attachment. It is submitted that the rights of the Appellant under the law of the land are superior and has priority, more particularly under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Securitization Asset reconstruction and Enforcement Act, 2002 as also under Companies Act, 1956/2013. (vi) The appellant did the requisite due diligence before sanctioning the loan and as there was no whisper of the said fra .....

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..... hat the subject land of the said property was purchased in the year 1995 and expansion of the project was done by the loan sanctioned by the Appellant, the ED has proceeded on basis of conjectures and surmises to attach the subject land along with the plant and machinery. 11. The Appellant has relied upon the following Judgments: (i) The Deputy Director, Directorate of Enforcement, Delhi v. Axis Bank & Ors. in CRL.A. 143/2018 & Crl.M.A. 2262/2018 and connected matters. Date of Judgment: 02.04.2019. (ii) Standard Chartered Bank v. Deputy Director of Enforcement: 2018 SCC Online ATPMLA 15. Date of Judgment: 02.08.2018. 12. This appeal was fixed for arguments on 22.08.2019. On the previous date, i.e. 18.07.2019 an adjournment was sought from the side of the Respondent ED to argue the matter and accordingly the appeal was adjourned to 22.08.2019 for arguments. None appeared from the side of the Enforcement Directorate even after passover on 22.08.2019. However, we have taken care of the case of the Respondent ED by going through the entire record. However, the Ld. Counsel for the appellant argued the matter. 13. We have gone through the Provisional Attachment Order and document .....

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..... ant is a Government Company which has lent public money to the Respondent no.4 against security. There is also no allegation that the Appellant knew about the involvement of the Respondent no.4 in any money laundering. It is the case of the Respondent ED that proceeds of crime have been used for repayment of Bank loans. Therefore, it appears that the properties attached herein are attached as value thereof. 17. It is seen from the materials available on record that the Appellant has bonafidely advanced the public money for setting-up of the Bagasse based Cogeneration Project after due diligence. 18. The Hon ble High Court of Delhi at New Delhi, in the matter of Deputy Director, Directorate of Enforcement, Delhi Vs. Axis Bank in CRL.A. 143/2018 & Crl.M.A. 2262 of 2018 dated 02nd April, 2019, has dealt with identical matter involving identical issues. 19. The rights of Appellant being the secured creditor would survive in spite of the order of the attachment under PMLA remains operative. Therefore, the Appellant being the lawful mortgagee/transferee of the interest in the Subject Properties are entitled to recover its dues with the sale of the Subject Properties as the Hon ble Hi .....

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..... (supra). 22. As already mentioned in the present case, it has come on record that the security interest in respect of the aforesaid properties were created before the date of registration of FIR. 23. The Hon ble Delhi High Court on the Axis Bank Judgment (supra) had observed that:- …the charge or encumbrance of third party in property attached under PMLA cannot be treated or declared void unless material is available to show that it was created to defeat the PMLA, such declaration rendering such properties available for attachment and confiscation under PMLA, free from encumbrance… The Hon ble Delhi High Court further observed that:- 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 complacent in, the offence of money laundering, and that it had made all compliances with the existing law including, if so required, by having said security interest registered 24. It is submitted on behalf of the Appellant that .....

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..... State Action would be restricted to such part of the value of the properties as it exceeds the claim of the bona-fide third party. 30. As such, in the present case once it has been showed by the Appellant that proper and due diligence was conducted before the properties were mortgaged to them, the properties thus cannot be attached, neither as a tainted property nor as alternative attachable property since it is nobody s case that the secured creditor had not done the due diligence and/or the transactions were not legitimate. 31. It is not possible to hold that the mortgaged properties claimed by the Appellant in anyway can be considered to be Proceeds of Crime under Section 2(u) of PMLA. The impugned order does not disclose any reasoning. There is no application of mind whatsoever and it is assumed that the properties in question are the proceeds of the crime. The Adjudicating Authority has not analysed the facts at all. The order suffers from a fundamental error. 32. The legal implication of a mortgage must be understood by both authorities. When a property is mortgaged, the only right which is left in the mortgagor is that of the equity of redemption. Otherwise, the entire corp .....

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