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2019 (10) TMI 376

..... 2016 - whether the properties sought to attached were acquired from proceeds of crime? - priority to secured creditors - Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993 - appellant contended that the properties of Corporate Debtor cannot be attached on the ground that it is equivalent to the value of money involved in the money laundering. HELD THAT:- This Application filed under Section 60(5) of IBC, questioning the attachment in respect of assets held by Corporate Debtor. The NCLT alone has jurisdiction to decide the same. Thus, attachment is liable to be raised since the properties attached were not acquired with tainted money and that they were acquired long prior to the alleged offence and there is already security created in favour of the Banks in respect of the assets attached. Hon’ble Apex Court also held in the decision of ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA & ORS. [2018 (10) TMI 312 - SUPREME COURT] wherein Hon’ble Apex Court held by virtue of Section 60(5) of IBC, the NCLT is having jurisdiction to entertain or dispose of any Application by or against Corporate Debtor. Hon’ble Apex Court f .....

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..... d Order states that the persons named as accused in the Final Report in FIR RC No. 4(E)/2016 filed by CBI have committed various Scheduled Offences under the PMLA. The Respondent No.1 alleges in the Impugned Order that the attached properties belonging to Corporate Debtor are derived out of the proceeds of crime by commission of Scheduled Offences under the PMLA. (4) Despite Moratorium in force and Enforcement Directorate being aware about initiation of CIRP against Corporate Debtor, it took action of attaching the properties of the Corporate Debtor. It is further averred the said Moratorium would cease to have effect only upon approval of Resolution Plan as per Section 31(3) of the IBC. This means that the moratorium shall continue till the Resolution Plan is either approved or rejected by this Tribunal, which is pending for approval. 5. It is the case of Applicant that the proceedings under PMLA are civil in nature as the same are meant for recovery of crime proceeds and as such, the moratorium declared by this Tribunal would be applicable to Impugned Proceedings initiated by Respondent No.1 against the properties of Corporate Debtor. Further the Applicant relied on the judgment .....

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..... to Banks and Financial Institutions Act, 1993 as amended in the year 2016. It is averred even under Section 53 of the IBC, the debts of secured financial creditors are given priority over unsecured creditors and Government dues at the time of distribution of sale proceeds of liquidation assets. It is the CoC and this Tribunal who would decide on the issues pertaining to distribution of assets of a Company under CIRP or Liquidation but not Respondent No.1 and that Respondent No.1 does not have any right or power to interfere with the affairs of the properties of the Corporate Debtor during the subsistence of CIRP. The Applicant also relied on the judgment of Hon ble Supreme Court in the case of Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [2001] 30 SCL 59 wherein Apex Court held that if non-obstante clause is contained in two enactments, the non-obstante clause in the later enactment shall prevail over the non-obstante clause in the earlier enactment. It is needless to emphasize that the above referred amendments brought in SARFAESI Act, 2002 and RDDBFI Act, 1993 and also enactment of IBC are latter enactments than PMLA and hence they would prevail over the provisions .....

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..... as a result of criminal activity relating to Scheduled Offence or the value of any such property. In the instant case, the Respondent No.1 clearly admits that attached properties are actually not the properties derived as a result of criminal activity relating to a scheduled offence because the same were acquired prior to alleged commission of Scheduled Offences. Further, Impugned Order also states that the whereabouts of crime proceeds (i.e. money routed from BCEPL to Mahal Hotels and then to Corporate Debtor) could not be ascertained by the Authority as no satisfactory explanation of utilization of funds was rendered by any of the accused. Therefore, the Respondent No.1 has attached the Secured Assets considering them to be of equivalent value of proceeds of crime. (8) It is also the case of Applicant that the attached properties were acquired by Corporate Debtor way back in the year 2005 whereas alleged Scheduled Offences were committed by the concerned persons and derived crime proceeds as a result thereof during the period 2011-2013 as per the contents of the Impugned Order. The Applicant relied on the decision of the Hon ble Andhra Pradesh High Court in the case of B. Rama Ra .....

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..... ,, which held that attachment made under PMLA, 2002 is a nullity and non est in law in view of Sections 14(1)(a), 63 and 238 of IBC and that the said attachment can be set aside by the Hon ble NCLT under Section 60(5) of the IBC. (10) It is the case of Applicant, the Respondent No.1 instead of attaching the properties of BCEPL or Mahal Hotels Ltd. or other group companies of Sujana Group who are alleged to have been involved in the commission of Schedule Offences as per the relevant Final reports filed by CBI and derived the proceeds of crimes, attached the properties of Corporate Debtor that were acquired much prior to alleged commission of schedule offences and that this action of Respondent No.1 halted the entire CIRP process and brought the same to a stand-still. The efforts put by RP and CoC for almost a year in reviving the Corporate Debtor so as to achieve the objects of the Code (IBC) would go in vain in the event the Impugned Order is not set aside. IA 287/2019 The averments in IA 287/2019 in brief are: (11) That this Tribunal admitted the Petition filed under Section 7 of IBC against the Corporate Debtor on 12.03.2018 and appointed the Applicant as Interim Resolution Prof .....

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..... he Code which stipulates that the provisions of the Code shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force. As the IBC, 2016 is the later piece of legislation the provisions of IBC has overriding effect over the provisions of the PMLA Act which is enumerated in 2002 much prior to the enactment of IBC and that during CIRP, the Resolution Professional should decide how the properties and assets of the Corporate Debtor can be appropriated and as such the attachment under the PMLA Act is impermissible. (18) The Applicant avers the properties that were attached were purchased in the year 2005 which is very much prior to the loan taken by Corporate Debtor from M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial Corporation and Bhagyanagar Investment & Trading Private Limited and that the properties sought to be attached by the Enforcement Directorate are secured assets which were mortgaged to State Bank of India on 31-10-2008 towards the loan disbursed by the State Bank of India from time to time in favour of the corporate debtor. The records reveal that originally the Canara Bank sanctioned credit limits by letter dated 28-12-20 .....

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..... e civil in nature and not criminal as such the provisions of IBC would prevail and since, the attachment order passed under the PMLA would be hit by the provisions of Section 14 of the Code and considering the overriding effect of IBC under Section 238 of the Code, this Tribunal to exercise the power and authority to declare that the attachment order under PMLA Act is a null and non est in law. The said position is reiterated in SREI Infrastructure Finance Ltd. v. Sterling International Enterprises Ltd. by NCLT, Mumbai in CP 402 of 2018 by order dated 12.02.2018. As such the Applicant prayed this Tribunal to set aside the impugned order of attachment of Enforcement Directorate and the attachment is liable to be raised/lifted. It was further held that in case the Corporate Debtor is under CIRP/Liquidation, Enforcement Directorate is entitled to make necessary claims before RP/Liquidator. (22) It is contended the attachment erodes the very title and value of the properties of the Corporate Debtor and that the Resolution Applicant would not be entitled to claim a higher right on the basis of approval of resolution plan by NCLT. Further, it is also stated that the Hon ble Appellate Tri .....

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..... e IBC provides that, no Civil Court or Authority shall have jurisdiction to entertain any suit or proceeding in respect of any matter on which NCLT or NCLAT has jurisdiction under IBC, in view of the ruling by the Appellate Authority under PMLA in Bank of India s case (supra), that the proceedings before Adjudicating Authority under PMLA in respect of attached properties is a civil proceeding, the Adjudicating Authority under PMLA does not have jurisdiction to attach the properties of the Corporate Debtor undergoing Corporate Insolvency Resolution Process. (26) It is the case of Applicant that Viceroy Hotels Ltd. (VHL) started construction of J.W. Marriott Hotel Project, Chennai, in the year 2007. The project could not be completed due to shortage of funds and it approached Mahal Hotels Pvt. Ltd., for the sale of Chennai Hotel in the year 2011. Viceroy Hotels Ltd. entered into Business Transfer Agreement (BTA) with Mahal Hotels Ltd. on 02.04.2011. Enforcement Directorate (ED) attachment order extensively quotes the fact of entering into BTA and about the same being produced in NCLT, Hyderabad, by Mahal Hotels Pvt. Ltd., to establish their claims etc. Nowhere in the order of ED any .....

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..... l the relevant papers including VHL Ledger copies pertaining to Mahal Hotels Ltd. and all the documents submitted in NCLT by VHL and Mahal Hotels Ltd. VHL has nothing to do with M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial Corporation and Bhagyanagar Investment & Trading Private Limited or their associated companies and their source of funding. The relation between VHL and Mahal Hotels Ltd. is, one that of Seller and Purchaser. There is nothing more about the transaction to show by any agency. ED in its entire order is stated to have never attributed any role to VHL in the various transactions of Mahal Hotels Ltd. (28) The details of 23 properties attached are mentioned at para 25 of the Application. It can be seen that all the properties are purchased in the year 2005 during which time the corporate debtor/VHL had no connection or relation whatsoever with M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial corporation and Bhagyanagar Investment & Trading Private Limited and that Enforcement Directorate order to attach VHL properties is uncalled for and unwarranted. All the properties of VHL mentioned in the ED s Order in Schedule-I are the properties purchased by VHL in the yea .....

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..... u) of the PML Act as the same are not obtained as a result of criminal activity for the reason the properties were purchased way back in the year 2005 and the alleged amounts received from M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial corporation and Bhagyanagar Investment & Trading Private Limited and its sister concerns are in the year 2011-2013. That, the properties were acquired much before the alleged crime and that the properties attached are secured assets of the nationalized banks which were duly mortgaged in the years 2008 and 2009 towards disbursement of loans for the corporate debtor. Hence the properties can t be treated as properties falling under section 2(u) of the PML Act which deals with the properties purchased with proceeds of crime. The courtyard hotel was constructed and developed in the years 2007 and 2008 from the loans taken from the nationalized banks and not from any proceeds of crime. Further it is averred the banks have created charge over the property prior to the date of the alleged crime. The attachment of the properties mortgaged to the banks without any involvement of the CDR or the banks in the alleged fraud would be legally unjustified. It is .....

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..... he said money was used by M/s. Viceroy Hotels Ltd. The Board got dissolved pursuant to initiation of CIRP and the Ex-MD did not co-operate with the investigation. (4) Since Resolution Professional is managing the affairs of Corporate Debtor and running the business of Corporate Debtor as a going concern, a copy of the Provisional Attachment Order No. 04/2019 dated 26.03.2019 was furnished to Resolution Professional to bring to his notice that the properties of Corporate Debtor are involved in money laundering. (5) Respondent No.1 denies the contentions raised by Applicant that moratorium is imposed under Section 14 of the Code prohibiting any proceedings against the Corporate Debtor and the same is in force. Offence of money laundering was committed by Corporate Debtor along with its promoters and Directors much before the Application and attachment order was passed as per law under the provisions of Section 5(1) of PMLA, 2002 and that the act of Corporate Debtor in approaching this Tribunal after committing the offence of money laundering under Section 3 of PMLA, 2002 is clearly within the ambit of law provided under Section 5(1) of PMLA, 2002. Further Respondent No.2 avers that M .....

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..... ith contained in any other law for the time being in force. Like IBC, PMLA is an Act independent by itself and not an Act to consolidate or amend any existing laws in the country and thus, the provisions of PMLA, 2002 also have an over-riding effect over IBC, 2016. (10) Further under the provisions of PMLA, 2002, only the Special Court has power under Section 8(5) of PMLA, 2002 to either confiscate the attached property or under Section 8(6) of PMLA to release the attached property to the person entitled to receive it. (11) Respondent No.1 contended that it is neither a Financial Creditor nor a Corporate Debtor to be impleaded as a party in the present proceedings. It is only investigating the offence of money laundering under the provisions of PMLA, 2002 in order to identify the proceeds of crime involved in money laundering and also to identify the offenders of money laundering and also contended that the Corporate Debtor is indirectly being benefitted who committed the offence of money laundering and releasing the proceeds of crime to the benefit of the person accused of deriving the same. Further decision with regard to the attached properties lies with the Hon ble Adjudicating .....

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..... outside the Country, then the property equivalent in value held within the country . (15) Thus, Respondent No.1 prayed that the Provisional Attachment Order in PAO No. 04/2019, dated 26.03.2019 passed by Directorate of Enforcement against the Defendants of OC No. 118/2019 pending adjudication before Hon ble Adjudicating Authority, PMLA, 2002 from alienating the proceeds of crime in the form of movable and immovable properties which are involved in the money laundering and the non-attachment would seriously affect and frustrate the proceedings under PMLA, 2002 and that the PAO is valid in law. 3. I have heard the Counsel for Applicant and also the Counsel for Enforcement Directorate. This Application is filed under Section 60(5) of IBC, 2016. The reliefs sought by Applicant are to set aside the impugned Provisional Attachment Order (PAO) No. 04/2019 in File No. ECIR/CEZO/05/2016, dated 26.03.2019 as it is illegal null and void. 4. The Learned Counsel for Applicant in IA 413/2019 filed written submissions besides submitting oral arguments. The contention of Learned Counsel that 1st Respondent/Dy. Director, Enforcement Directorate cannot attach the properties shown in the attachment o .....

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..... ovisions of IBC and SARFAESI Act have over-riding effect over PMLA. In this connection, Learned Counsel relied on Section 26E of SARFAESI Act, 2002 and Section 31B of Recovery of debts due to Banks and Financial Institutions Act, 1993. The Counsel contended, when two statutes contain non-obstante clause, then the clause in the latter Act will prevail over the earlier Act. So, in this connection, Learned Counsel relied on the decision of Hon ble Apex Court in Solidaire India Ltd. s case (supra). In this connection Learned Counsel has also relied on the decision of Hon ble Delhi High Court in the matter of Dy Director, Directorate of Enforcement v. Axis Bank and also the decision of Appellate Tribunal under PLMA in the matter of Punjab National Bank (supra) dated 02.01.2019 cited supra. 6. The main contention of the Learned Counsel, the properties over which PAO was passed were acquired by the Corporate Debtor long prior to the alleged commission of offence under PMLA by the accused concerned. The contention of the Learned Counsel, the properties were mortgaged to the Banks in the years 2008 & 2009, whereas the money is stated to have laundered through Mahal Hotels during the yea .....

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..... Counsel, the properties attached were originally in the name of Minerva Enterprises Private Limited and they were transferred in favour of Viceroy Hotels Limited/Corporate Debtor. The Counsel contended Section 2(1)(u) of PMLA defines proceeds of crime which is as follows :- Proceeds of Crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a Scheduled Offence or the value of any such property or where such property is taken or held outside the Country, then the property equivalent in value held within the country . Section 2(1)(5) defines property. The contention of the Learned Counsel, the Enforcement Directorate under the provisions of PMLA can attach property equivalent to the value derived through proceeds of crime. The Counsel contended it is the case of M/s. Mahal Hotels Private Limited that the Corporate Debtor was to pay ₹ 401 crores and therefore property of Corporate Debtor worth equivalent to the value of amount received through laundering was attached. 9. It is stated that a complaint was filed before the Adjudicating Authority, PMLA for confirmation of PAO under Section 8 of PMLA. In the me .....

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..... dicating Authority in OC No. 1118/2019 Therefore, it is prayed to dismiss the Application. 10. One more Application is filed by Resolution Professional. He is also seeking same relief to raise the PAO passed by the Respondent/Dy. Director (Enforcement Directorate). Same issue is also involved in the Application filed by Resolution Professional in IA 287/2019. The question is whether this Tribunal can give direction to the Dy. Director, Enforcement Directorate to raise the attachment of the assets of Corporate debtor which are admittedly mortgaged to Canara Bank and Andhra Bank. It is also the case of Resolution Professional that the properties attached belonged to the Corporate Debtor were not acquired with the proceeds of crime within the meaning of Section 2(1)(u) of PMLA. Since common points are involved in both the Applications, as such both applications are decided by a common order as the averments are similar to IA 413/2019. The averments in IA 287 in brief are as stated supra. 11. The main contention of Applicant in IA 413/2019 that it is a Financial Creditor/ARCIL. It has filed main petition bearing CP (IB) No. 219/7/HDB/2017 under Section 7 of IBC against the Corporate De .....

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..... ersons involved in the crime. Thus, Learned Counsel for Enforcement Directorate contended that any other properties held by the Corporate Debtor can be attached. In that connection Counsel for Enforcement Directorate relied on Section 2(u) of PMLA. 14. On the other hand, Counsel for Applicant/Financial Creditor contended that attachment is only with reference to the property acquired with the proceeds of crime and not any other property. It is therefore necessary to refer to Section 2(1)(u) which is as follows- Proceeds of Crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a Scheduled Offence or the value of any such property or where such property is taken or held outside the Country, then the property equivalent in value held within the country . The proceeds of crime referred to above means any property derived or obtained directly or indirectly by any other person as a result of criminal activity relating to a Scheduled Offence or the value of any such property or where such property is taken or held outside the Country, then the property equivalent in value held within the country can be treated as p .....

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..... ended the properties attached were not acquired by the proceeds of crime. Therefore the attachment is illegal and null and void. The Counsel contended there is absolutely no material from the side of Enforcement Directorate that the Corporate Debtor acquired the properties with the help of alleged money received through Mahal Hotel Private Limited. The contention of the Learned Counsel, it must be shown proceeds of crime means property acquired or obtained as a result of criminal activity relating to Scheduled Offence. The contention of the Learned Counsel that the properties were acquired long prior to commission of scheduled offence. So, there is no nexus between acquisition of properties and alleged commission of the scheduled offence under PMLA. 17. It is true, the properties attached were acquired long prior to the alleged commission of Scheduled Offence under PMLA. The Learned Counsel contended, that properties of Corporate Debtor cannot be attached on the ground that it is equivalent to the value of money involved in the money laundering. In this connection, Learned Counsel relied on the decision of Hon ble Andhra Pradesh High Court wherein Hon ble High Court clearly held th .....

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..... 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 . The undisputed fact the properties were acquired and were mortgaged to the bank much prior to the alleged date of offence. So it can be held that proceeds of crime are not involved in the attached properties. The same therefore cannot be attached. So there must be material to show that proceeds of crime are utilized for acquisition of the properties under attachment. Then only the attachment can be continued. So, it is also not the case of Dy. Director (Enforcement Directorate), attached property were acquired with the money involved in the laundering. Therefore, the Provisional Attachment order passed by Dy. Director, Enforcement Directorate is liable to be raised. The second ground urged that when moratorium was pending, the Dy. Director (Enforcement Directorate) cannot attach the properties of .....

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..... therefore, the properties equivalent to the value of money can be attached. Already I have discussed, relying on the decision of Hon ble High Court of Andhra Pradesh wherein it is clearly held that there must be evidence to show that property acquired with the proceeds of crime, otherwise attachment cannot be continued. No civil court will entertain the matters dealt by NCLT under Section 63 of IBC. The attachment is made when proceedings are pending before this Tribunal. The Resolution Plan is before the Tribunal for approval. Pending decision on the Resolution Plan, the Enforcement Directorate has attached the assets. 21. The contention of the Learned Counsel for Applicant/Financial Creditor that provisions of IBC are having over-riding effect over PMLA. In this connection, Learned Counsel relied on Section 26(E) of SARFAESI Act and Section 31B of RDBFI, 1993. In this connection, Learned Counsel further relied on the decision of Hon ble Apex Court in Solidaire India Ltd. s case (supra) for the preposition if non-obstante clause is contained in two enactments, the non-obstante clause in the later enactment shall prevail over the non-obstante clause in the earlier enactment. The c .....

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..... Bank much prior to the alleged date of offence which shows that no fraud of crime is involved in acquiring of these properties and the same cannot be attached by Enforcement Directorate because the same would result in hampering the interest of the bank. Thus, Appellate Tribunal under PMLA in the case of Punjab National Bank (supra) held if properties were acquired prior to the offence then properties cannot be attached. I have already discussed the decision of Hon ble NCLT Mumbai Bench. So, I am of the opinion that the assets which are attached were acquired long prior to the commission of offence. Therefore, attachment cannot be continued and the same is to be raised. 23. Regarding jurisdiction, it is only NCLT which is empowered to decide all the disputes. In this connection, Learned Counsel for Applicant/Financial Creditor relied on Section 60(5) which reads as follows: 60(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of- (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against t .....

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