TMI Blog2019 (12) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... Directorate of Enforcement, Delhi Vs. Axis Bank Ors., reported in [2019 (4) TMI 250 - DELHI HIGH COURT] (hereinafter referred to as the Axis Bank Decision ) has rightly held that the interest of a third party in the property of an accused, acquired prior to the commission of the proscribed offence cannot be defeated or frustrated by attachment of such property under Section 8 of the Act - The Hon‟ble High Court further recognized the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property as exceeds the claim of the third party, if any. In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal U/s 26 of the Act and then before the Hon‟ble High Court U/s 42 of the Act against the order of this Tribunal - Accordingly, under the legislative and statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. on dated 01.11.2019 passed the following order; It is agreed between the parties that in view of the judgment passed by a coordinate bench of this court in the case of bearing Crl.A. 143/2018 in Deputy Director Directorate of Enforcement Delhi vs. Axis Bank and Ors. and other batch matters, the present case be remanded to Appellate Tribunal for PMLA and the tribunal shall restore the appeal and after hearing both the parties, decide the same within six weeks from the receipt of this order. The appeal is disposed of, accordingly. Pending application stands disposed of. 2. Since the matter is remanded to this Tribunal and since the appeal is restored, the present appeal has to be decided in the light of the order passed in CRL.A. 143/2018 Crl.M.A. 2262/2018 in the matter of The Deputy Director, Directorate of Enforcement, Delhi Versus Axis Bank Ors. and four other batch matters. In view of the above, the matter is heard afresh. 3. In FPA-PMLA-1974/DLI/2017 filed by State Bank of India, none appeared. However, the materials available on record in respect of both the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undernoted properties in favour of Syndicate Bank led consortium. i. Property bearing no B-230, admeasuring 707.99 sq mtr situated at Florence Elite Sushant Lok III, Gurgaon (Haryana) ii Residential flat bearing no. A-09/110 P-4, admeasuring 553.83 sq mts situated at 10th Floor Block A, Sahara Grace Gurgaon (Harayana). Iii Residential Flat bearing no. 312-A, admeasuring 244 sq mts situated at 12th Floor Hamilton Court, DLF City Phase-IV, Gurgaon (Haryanan). 6. Besides the above there had been one other property bearing i.e. Flat no. 601, Type Sovereign, 6th Floor, Sector-49, Vatika City, Sohna Road Gurgaon, Haryana title to which was acquired by M/s SSPL by way of Apartment Buyers Agreement dt. 25/02/2005 executed by Vatika Greenfield Projects Pvtl Ltd. , A Company registered under the Companies Act, 1956, having its registered office at 308, Vishal Bhawan, 95, Nehru Place New Delhi. In order to collaterally secure the aforesaid loan a Tripartite Agreement dt. 18/07/2007 entered between M/s SSPL and Vatika Greenfield Projects Pvt. Ltd. and Syndicate Bank. M/s SSPL agreed to create mortgage of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by the said Respondent No. 2 M/s SSPL as and when demanded by the said Builder. d) The Respondent No. 2 M/s SSPL and the Builder agree that the Appellant Syndicate Bank will have unrestricted right of entry and taking possession of the flat in question. e) The said Respondent No. 2 M/s SSPL agrees that in case of any default in paying the loan amount to Appellant Syndicate Bank by said Respondent No. 2, the Builder will accept the new person brought by the Appellant Syndicate Bank as the purchaser and accordingly execute the documents in their favour. 9. The Appellants above were the members of the Consortium of Banks. The Syndicate Bank was the lead Bank of the Consortium. In exercises it power under SARFAESI Act, the Syndicate Bank issued notices to M/s SSPL u/s 13(2) of the SARFAESI on 25.08.2009 and possession of three mortgaged properties mentioned below were taken on 16.02.2010 and on 23.03.2010. The Appellant Syndicate Bank, being the lead bank, sold said three properties of the Respondent No. 2 M/s Surhit Services Pvt. Ltd. (M/s. SSPL) and shared the proceeds with the other Appellant State Bank of India and a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is mentioned that the sum of ₹ 37,40,562/- remitted by the appellant to the Builder towards the cost of the property in question by liquidating the fixed deposits kept for the said purpose by the respondent no. 2 is much prior to 30.09.2008. 15. The Appellant Syndicate Bank filed O.A. No. 143/2011 on 26.09.2011 in Debt Recovery Tribunal-I, Delhi for recovery of ₹ 28.27 crores from the respondent no. 2 M/s SSPL. 16. The property in question was attached by CBI on 29.01.2013 in execution process under Sec. 83 of the Cr. P.C. in pursuance of the order of the Court of the learned Shri V.K. Gupta, Additional District Sessions Judge, CBI Court, Patiala House Courts, New Delhi. 17. The Appellant Syndicate Bank moved application dated 05.02.2013 before the CBI court of praying that the property in question be de-sealed so as enable them to sell the same under Sec. 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to the SARFAESI Act). 18. The CBI in its reply filed stated that the appellant Synd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remitted by applicant on behalf of D1 to D6. D1, D6 and the applicant has entered into tripartite agreement. D1 by an agreement to mortgage AW-1/19 dt. 29.03.2007 agreed to create mortgage of the property in favour of the applicant bank. The agreement with D6 executed by D1 on 25.02.2005, AW-1/20 was produced before the bank. The original of this document is seized by the CBI and copy is produced before court. Since the entire sale consideration on behalf of D1 is paid by the applicant to D6, the applicant is entitled to execute the sale deed in its favour and D6 is directed to execute the sale deed in favour of the applicant. The applicant shall be entitled to possession of the property and thereafter the sale of the property to recover the debt. 22. The Recovery Officer, on 27.11.2015 issued Demand Notice under Sec. 25 to Sec. 28 of the Recovery of Debts and Due to Bank and Financial Institutions Act, 1993 and rule 2 of the Second Schedule to the Income Tax Act, 1961 to the Respondent nos. 2, 5 and 6. 24. Sri Rajesh Kumar Jain, Deputy Director, Director of Enforcement, New Delhi passed Provisional Attachment Order No. 04/2017 dated 31.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Adjudicating Authority could not have in law attached the same. The proceeds of the crime could not have come into existence prior to 30.09.2008. 29. However, the Adjudication Authority has confirmed the provisional attachment order by passing the impugned order on 02.08.2017. 33. Admittedly, it is not the case of the Deputy Director that the property was purchased by the respondent no. 2 SSPL from the amount financed by the State Bank of India or Syndicate Bank. The case of the Appellant Banks are in much stronger footing than the case cited above. 34. Rather the respondent no. 1 Director, Enforcement has conceded that the property in question has not been purchased from the proceeds of the crime. The appellant Syndicate Bank in Para 3 (f) of the reply field by it before the Adjudicating Authority has shown that the property in question has not been purchased from the proceeds of the crime as loan was sanctioned only on 30.09.2008 whereas the cost of the property was paid much before the said date. The respondent no. 1 in his rejoinder has avoided replying to this contention of the appellant. 35. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs which were challenged before Hon‟ble High Court of Delhi at New Delhi in CRL.A. 143/2018 Crl.M.A. 2262/2018 and four others relying on the FPAPMLA- 1026/KOL/2015 and FPA-PMLA-1368/GOA/2016 on the basis of views taken therein. Being aggrieved with the orders passed in FPAPMLA- 1848/DLI/2017 filed by Axis Bank, FPA-PMLA-729/DLI/2014 and FPA-PMLA-1411/DLI/2014 filed by State Bank of India Ors., FPA- PMLA-2147/DLI/2018 filed by IDBI Bank Ltd., FPA-PMLA- 1958/DLI/2017 filed by Punjab National Bank, FPA-PMLA- 1616/DLI/2017 filed by Punjab National Bank and FPA-PMLA- 1618/DLI/2017 filed by DBS Bank Ltd., the Enforcement Directorate filed the CRL.A.143/2018 Crl.M.A.2262/2018; CRL.A.210/2018 Crl.M.A.3233/2018; CRL.A.623/2018 Crl.M.A.10886-87/2018, 48245/2018; CRL.A.764/2018 Crl.M.A.28500/2018, 199/2019, 202/2019 and CRL.A1076/2018 Crl.M.A.34565/2018, 34567/2018 respectively. 6. The Hon‟ble High Court, while deciding the aforesaid batch of matters in CRL.A. 143/2018 Crl.M.A. 2262/2018 and others, have made the following observations and summarized the conclusions which are reproduced below; 163. Having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA. 166. As already noted, the newly inserted provision contained in Sections 26-B to 26-E falling in Chapter (no. IV-A) on registration by secured creditors and other creditors of SARFEAESI Act are yet to be notified and brought into force. In the event of said statutory clauses coming into force, a creditor will not be entitled to exercise the right of enforcement, inter alia, of security interest over the property of borrower unless such security interest has been duly registered under the said law. Upon such amended law being enforced, a bona fide third party claimant seeking relief against an order of attachment under PMLA will also be obliged to show due compliance with such statutory requirements. 167. As has been highlighted earlier, the provisional order of attachment is subject to confirmation by the adjudicating authority. The order of the adjudicating authority, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d indulged in transaction after due inquiry about untainted status of the asset or legitimacy of its acquisition. SUMMARISING THE CONCLUSIONS 171. It will be advantageous to summarise the conclusions reached by the above discussion, as under :- (i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering. (ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation. (iii). The empowered enforcement officer has the authority of law in PMLA to attach not only a tainted property - that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undering (or his abettor), or it was involved in a transaction which had interconnection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends. (x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as void unless material is available to show that it was created to defeat the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance. (xi). A party in order to be considered as a bonafide third party claimant for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered. (xii). An order of attachment under PMLA is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party. (xvi). In the situations covered by the preceding two subparagraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the excess value of the property subjected to PMLA attachment. (xvii).If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court. DECISION ON THE APPEALS 172. In view of the above conclusions, the impugned decisions of the appellate tribunal will have to be set aside. There is a need for furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for further consideration by the appellate tribunal. The parties are directed to appear before the said forum on 15.04.2019. 177. The appeals, and the applications filed therewith, stand disposed of in above terms. 7. Heard the learned counsel for the Syndicate Bank and Shri Atul Tripathi, learned counsel for the respondent. None appeared for the State Bank of India. However, the materials available on records are perused. The appellant has placed the list of dates and events which are as below; Sr. No. Date List of Events 1. 25.02.2005 M/s. Surhit Services Pvt. Ltd. (SSPL) (Respondent no.2) entered into Apartment Buyers Agreement with the Builder M/s. Vatika Land Base Ltd. (VLBL) 2. 29.03.2007 Execution of agreement to mortgage the property in question by M/s. SSPL with appellant as security to the amount of ₹ 26.50 Crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. 2010 The appellant and SBI lodge complaint of cheating with CBI against M/s. SSPL. 9. 06.09.2011 The FD kept by M/s. SSPL having been exhausted, the appellant paid the last installment demanded by the builder amounting to ₹ 8,44,864/- by debiting Overdraft Account of M/s. SSPL. 10. 26.09.2011 The appellant filed O.A. No. 143/2011 before DRT, Delhi. 11. 29.01.2013 The property in question attached by CBI. 12. 07.11.2014 The Hon‟ble High Court Delhi ordered to deseal the property in question in favour of the appellant noting the submission of the appellant that it is a secured creditor and is entitled to recover its due in terms of Section 13(4) of SARFAESI Act, 2002. 8. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave released the property in favour of the Bank. 10. On the other hand the respondent has inter-alia submitted the following: a. That, Enforcement Directorate issued Provisional Attachment Order no. 04/2017 dated 31.03.2017 for property situated at address 601, type Sovereign, 6th Floor, Sector-49, Vatika City, Gurgaon, Sohna Road, Haryana . b. That, consequent to issuing of the Provisional Attachment Order, the Original Complainant vide no. 763/2017 was filed before the Hon‟ble Adjudicating Authority for adjudication. After hearing both the parties, the Ld. Adjudicating Authority has also confirmed the Provisional Attachment Order and allowed the Original Complaint filed by Enforcement Directorate vide its order dated 02.08.2017, confirming the provisional attachment of assets worth ₹ 80,50,549.80/-. c. That, the respondent Syndicate Bank preferred an appeal against the order dated 02.08.2017. The Hon‟ble Appellate Authority, Prevention of Money Laundering Act at New Delhi vide its Orders dated 15.03.2018 allowed the appeal of the respondent bank and set aside the confirmation of Provisional Att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim and in case bonafide third party proves its claim even then the attachment under PMLA would not be invalid. If order confirming the attachment has attained the finality or if the order of confiscation has been passed or if trial of a case under Section 4 of PMLA has commenced the claim of a party with regard to legitimate interest in the property will be inquired into and adjudicated upon only by the Special Court. h. In the instant case, as per Agreement to Mortgage dated 29.03.2007 between appellant bank and M/s. Surhit Services Pvt. Ltd., the property in dispute was actually never mortgaged to the appellant bank. The extract of the agreement in this regard is as below: The First party shall mortgage the said property in favour of the Bank immediately after the execution of the sale deed in their favour by M/s Vatika Greenfields Projects Pvt. Ltd. Further, from Tripartite Agreement which was signed between Appellant Bank, Builder and M/s. Surhit Services Pvt. Ltd. dated 18.07.2007 the aforesaid fact is again clear that the property in dispute was never mortgaged to the appellant Bank and the extract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annnexure A-2) v. The balance consideration amount of the property in question of ₹ 33,87,640/- was to be paid by the Respondent no.2 M/s. SSPL as and when demanded by M/s. VLBL. (Annnexure A-2) vi. M/s. SSPL agrees to create mortgage of the flat in question as soon as the sale deed is executed. (Annnexure A-2) vii. M/s. SSPL and M/s. VLBL agreed that the appellant bank will have unrestricted right of entry and taking possession of the flat in question. (Annnexure A-2) viii. M/s. SSPL agreed that in case of any default in payment of loan amount to appellant, the M/s. VLBL will accept the new person brought by the appellant as the purchaser and execute the document in their favour accordingly. (Annnexure A-2) ix. The said property is also security to ₹ 13 Crores sanctioned by SBI to the Respondent no.2 M/s.SSPL. x. On 17.09.2008, the appellant bank in 5 installments remitted a sum of ₹ 28,95,698/- between 03.05.2007 to 17.09.2008 toward the property in question. xi. On 30.09.2008, the loan of ₹ 13 Crores was sanctioned to M/s. SSPL by State B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 26.24 crore. CBI has filed a charge-sheet in the Hon ble Court in RC.BDI/2010/E/0005/CBI/BS FC/New Delhi related to loss of Syndicate Bank. Since Syndicate Bank suffered a loss as above therefore, it may be allowed to recover its loss incurred due to act of M/s. Surhit Services Pvt. Ltd. after proper valuation of the flat/property as on date. (Annexure A-3) 14. Annexure A-6 is the copy of the order passed by the Hon‟ble High Court of Delhi in CRL. REV.P. 299/2013 Crl. M.A. 8119/2013 filed by the Appellant against the order dated 04.03.2013 passed by the Ld. Special Judge, in complaint case no. 10/2011 filed by CBI. On the said Criminal Revision Petition the Hon‟ble High Court of Delhi has passed the following order: Counsel for the petitioner has put in appearance. Parties have addressed arguments. Submission of the learned counsel for the petitioner is that the order dated 04.3.2013 passed in Complaint Case No.10 of 2011 is patently illegal and in gross violation of Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A-14 are the copy of the documents showing that the appellant had filed recovery proceedings before the DRT-II, Delhi for recovery of the loan amount which was concluded vide order dated 23.09.2015 and issue of recovery certificate dated 27.11.2015. It is contended by the Appellant Bank that the recovery of the outstanding loan could not be made due to the present attachment proceedings. It is contended by the learned counsel for the appellant bank that the total outstanding amount is ₹ 28.27 Crores and there will be deficiency even after disposal of the property in question. The learned counsel for the appellant submits that the appellant bank is a victim and not an offender, the public money is stuck due to the proceedings under PMLA. 16. The appellant is a third party bonafide claimant of the property. The security interest has been created on the property in question and there are legitimate banking transactions. There is no allegation on the part of Enforcement Directorate that the appellant has not exercised due diligence in sanctioning loan. Such facilities were extended after conducting due diligence and the necessary checks and balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. 21. There is no force in the argument of learned counsel appearing on behalf of Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending. The Hon‟ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be inquired into by the Special Court only if the order confirming the attachment has attained finality . An order cannot be said to have attained finality until and unless all the remedies under the Act have been exhausted. The Tribunal has only to examine the impugned order and is empowered under Section 26 of the Act as to whether the attachment order has been passed as per law or not. This Tribunal has the exclusive jurisdiction on this issue. The Appellant Bank is otherwise if so may approach the Special Court for release of property even during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be allowed to dispose of the secured property and should wait for trial to be faced by these offenders and it would. The main reasons for disagreeing his arguments are that the secured property is secured much prior period from the date of offense. The banks are innocent and victims. The banks are not charge-sheeted. They are the secured creditors. Public Sectors Banks‟ money is the public money. 27. No doubt, this tribunal is clear in its mind that if the property was acquired from proceeds of crime and at the time of creating security, the bank is aware and still the loan is sanctioned, then said property can be attached even in lieu of value thereof if the borrowers has concealed or is concealing the proceeds of crime, but under those circumstances, there must be material or prima facie evidence on record before passing the provisional attachment orders. 28. This order is being passed in relation to secured property in favour of bank which is not purchased from proceeds of crime. The same was purchased and secured with the bank prior to the of crime period. 29. SARFAESI Act, 2002 measur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the present appears are the same. In the present case, attachment has not attained finality or any confiscation has been passed or any trial has commenced under the Section-4 of PMLA against the appellant. In fact, appellant is an innocent party and a victim also. The trial against accused parties may take number of years. Appellant‟s case is squarely covered under para-163 and 165 of the judgment. 35. In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal under Section 26 of the Act and then before the Hon‟ble High Court under Section 42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted its remedies in appeal right up to the Hon‟ble High Court, an order confirming the attachment cannot be said to have attained finality. This tribunal is only concerned with the validity of the impugned order and provisional attachment order which has been confirmed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06.12.2019 Crl.M.A.42109/2019 (Exemption) Allowed, subject to all just exceptions. This application is, accordingly, disposed of. Crl.M.A. 42108/2019 Vide the present application, the applicant/respondents seek clarification of the order dated 01.11.2019 as to whether the Tribunal shall proceed with the present matter. Vide order dated 01.11.2019, this court remanded the matter to the Appellate Tribunal for PMLA and directed the said Tribunal to restore the appeal and after hearing both the parties decide the same within six weeks from the receipt of this order. The said order was passed on the consent made by the parties and in view of the order passed by this court in Crl.A. 143/2018 in Deputy Director, Directorate of Enforcement, Delhi vs. Axix Bank Ors. and other batch matters. Learned counsel appearing on behalf of the non-applicants/ petitioner submits that the Hon ble Supreme Court has granted status quo qua the property in question, however, there is no status quo to proceed with the matter by any court including ..... X X X X Extracts X X X X X X X X Extracts X X X X
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