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TMI Blog2020 (12) TMI 1385X X X X Extracts X X X X X X X X Extracts X X X X ..... shekhar, General Manager, (MC-1), Mid Corporate Regional Office-I, State Bank of India, Chennai Region against M/s. Nathella Sampath Jewelry Private Limited, Chennai & Ors. for offences under Section 120B read with Section 409, 420, 467, 468 & 471 of Indian Penal Code, 1860 and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 in the said FIR. i. M/s. Nathella Sampath Jewelry Private Limited. (M/s. NSJPL) (D-1) ii. Shri N. Ranganath Gupta, Promoter cum Managing Director (D-2). iii. Shri N. Prasanna Kumar, Director (D-3). iv. Shri N. Prapanna Kumar, Director (D-4). v. Shri Sohun C.J. Partner of M/s. Jeeravla & Co., Chartered Accountant, Kilpauk Chennai & Statutory Auditor of D-1 and unknown Public Servants and unknown others. b. It is revealed that during the period 2009 to 2017 M/s. NSJPL was enjoying financial assistance in the form of working capital credit limits with IOB, ICICI, HDFC & Citi Bank to the tune of Rs.71 crores which was taken over by SBI during 2009 by sanctioning Rs.100 crores to M/s. NSJPL and that the exposure of SBI was reduced from Rs.100 crores to Rs.70 crores during January, 2010, with an overall limit of Rs.112 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores (outstanding as on 28.02.2018) plus accrued interest on 01.03.2018 to the above banks. f. Since there was misrepresentation/falsification of the book of account/financial statements of the company, the aforesaid banks suffered loss to the tune of Rs.379.75 crores as on 28.02.2018. g. That the account of M/s. NSJPL classified as NPA and recovery process initiated under SARFAESI. h. Since Sections 120-B, 420, 467 and 471 of IPC, 1860 and Section 13(2) read with 13(1)(d) of Prevention of Corruption Act, 1988 are scheduled offences under PMLA so the Enforcement Directorate registered ECIR on dated 09.04.2018. i. That there is allegation of round tripping in the investment in the shares of M/s. NSJPL by the Promoters and that utilization of crime proceeds viz., NSJPL loan funds for settlement of loans in the name of trust in which the directors and promoters are trustees, for settlement of personal home loans of Promoters/Directors. j. That during the course of the investigation by Enforcement Directorate into the allegations they have identified and attached 37 immoveable properties out of which following four properties are involved in the present appeal:- i. Land me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loan facility a security interest by way of equitable mortgage by deposit of Title Deeds of secured assets was created by the borrowers in favour of the Appellant by depositing title deeds and executing a Memorandum of Deposit of Title Deeds dated 28.04.2016. iii. That in terms of the Loan Agreement the Borrowers undertook not to part with possession of or create third party rights in the property or any part of it (whether by way of sale, exchange, lease, mortgage, agreement or option or otherwise. Adjunct to this, it was undertaken by the borrowers that they would not avail of or obtain any further loan or facility on the security of the property without the prior written consent of Appellant. Since Appellant Financial Institution is a secured creditor, the charge on the said mortgaged property was duly recorded in the favour of Objector Financial Institution before the relevant/appropriate Authority(ies). iv. That the borrowers after availing the Loan Facilities did not adhere to the financial commitments made under the agreement and committed defaults with regard to repayment plan and committed defaults in the repayment of the same. v. That consequently, the account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide RC 08/E/2018-BS & FC/BLR on 24.03.2018 by CBI, BS and FC, Bangalore against various persons including borrowers of the appellant. Further, as recorded in the impugned order at page no. 42 of appeal that ECIR for investigation under PMLA was registered on 09.04.2018. These facts unambiguously establish that the appellant had acquired interest in the mortgaged properties almost two years prior to alleged scheduled offences. Thus, as held by the Hon'ble Delhi High Court in Deputy Director Directorate of Enforcement Delhi and Ors. vs. Axis Bank, MANU/DE/1120/2019, interest of the appellant herein cannot be defeated or frustrated by attachment of such properties to such extent by the enforcement authority in exercise of its power under Section 8 of PMLA. ii. That admittedly there are no allegations of commissions of scheduled offences against the Appellant or any of the officials of the Appellant. That grant of loan to borrowers and creation of mortgage over aforesaid properties is also not disputed. It is further submitted that the alleged accused have cheated the banks and therefore, as held by this Hon'ble Tribunal in JM Financial Asset Reconstruction Company v. The Deputy Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 frustrated by attachment of such property to such extent by the enforcement authority in exercise of its power under Section 8 PMLA. ....... 165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in MANU/PH/0204/2020 has considered the judgment of the Hon'ble Delhi High Court in Deputy Director Directorate of Enforcement Delhi and Ors. vs. Axis Bank and Ors. MANU/DE/1120/2019 and has upheld the same in entirety except on a small issue where the Hon'ble Delhi High Court has declared/treated words "value of such property" and "property equivalent in value held within country" at par. iv. That the respondent in its reply at page no. 3 para 6(c) has wrongly stated that PMLA, 2002 is a criminal law as it provides for confiscation of proceeds of crime or value thereof and entails punishment and since therefore, the criminal proceedings will override civil proceedings. In this regard, reliance is again placed upon the judgment of Hon'ble Delhi High Court in Deputy Director Directorate of Enforcement Delhi and Ors. vs. Axis Bank and Ors. MANU/DE/1120/2019 at paragraph 171 (i) wherein it has been categorically held that the process of attachment (leading to confiscation) of proceeds of crime under PMLA is in nature of civil sanction which runs parallel to investigation and criminal action vis-à-vis the offence of money laundering. Further, it has also been held that attach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under PMLA. Reliance in this regard is placed upon the judgment of the Hon'ble Division Bench of the Punjab and Haryana High Court in Seema Garg & Ors. v. The Deputy Director, Directorate of Enforcement reported in MANU/PH/0204/2020 (para 17). iii. That this Hon'ble Tribunal in JM Financial Asset Reconstruction Company v. The Deputy Director, Directorate of Enforcement, Delhi & Ors. reported in MANU/ML/0094/2019 has also held that in absence of valid reasons the attachment notice and order are liable to be set aside. In the instant case the reason to believe as recorded by the Respondent fails to establish that the mortgaged properties qua Appellant was either proceeds of crime or was its by-product and same was likely to be transferred or dealt in any manner which may result in frustrating any proceeding under PMLA. iv. That the properties in question are already mortgaged with the Appellant and therefore the primary requirement of Section 5 that property is likely to be transferred by the alleged accused persons is absences since in terms of the SARFAESI Act, 2002, only the Appellant can take actions against those properties for enforcement of security interest in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by other High Courts as this Tribunal is situated and functioning within the territorial jurisdiction of the Hon'ble Delhi High Court. He has relied on the following judgment: a) J. Sekar v. Union of India & Ors. 2018 SCC OnLine Del 6523 Paras 38-41. b) Sita Ram Khemka v. K. K. Banerji & Ors. MANU/UP/0038/1958 Para 8 c) Astik Dyestuff (P) Limited v. Commissioner of Central Excise & Customs, MANU/GJ/1062/2013 Para 4 d) Income Tax Officer, Ward-8(4), Ahmedabad v. Upkar Retail Private Limited, 2018 SCC Online ITAT 12911Paras 3-5 3.4. Therefore, in light of the submissions made above, it is submitted by the learned counsel for the appellant that the impugned order dated 16.01.2019 passed by the Adjudicating Authority confirming the provisional attachment order dated 31.07.2018 be set aside and the mortgaged properties may be released with right to appellant to exercise its rights under SARFAESI Act, 2002. 4. The case of the respondent: On the other hand, the learned counsel for the respondent inter-alia submitted that the properties in question have been acquired out of proceeds of crime. The alleged period of offences committed by the borrowers of the appellant is dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountants. M/s. NSJPL did not co-operate for physical verification of the stocks by the Auditors and after sustained efforts by the Bank, M/s. NSJPL agreed for verification of stocks by the above said auditors and the process of audit was delayed and completed only on 30.09.2017 and during the course of the Audit, the nominated Auditors noticed sudden depletion of Stock, Stock and Work in Progress. The Auditors noticed a huge drop in the value of stocks between 31.03.2017 & 19.07.2017. The value of Stock as on 19.07.2017 was Rs.18.17 Crores, whereas the Stock shown in the Stock Statement submitted to the bankers as on 31.03.2017 was Rs.495.06 Crores. The Auditors on the basis of the information provided by M/s. NSJPL arrived that the physical stock as on 31.03.2017 was only Rs.60.17 Crores; that the decrease in the stocks to the extent of Rs.476.89 Crores was neither reflected in the form of cash flows nor reflected in the Debtors and that no proper explanation was forthcoming from the Company for the variation in the Stocks. Similar discrepancies were noticed with regard to the Sundry Debtors also. State Bank of India have opined that "the discrepancies in the stock and receiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and its promoters in concealing the fraud committed by them; that the actions of M/s. NSJPL and its promoters in submitting false information in the financial statements submitted to the lenders and the disposal of the stocks/inventory which were hypothecated to the lenders without the knowledge of the lenders and not crediting the proceeds to the liability with the lenders and siphoning of funds from the system amounts to falsification of accounts, Criminal Breach of Trust and Cheating with an intention to cause wrongful loss to the Banks and wrongful gain to themselves and that the customers of the Company who had invested in the deposit schemes of the M/s. NSJPL have already filed criminal complaints for cheating against M/s. NSJPL and its promoters. 4.1e. And that the account of M/s. NSJPL was classified as a Non Performing Asset (NPA) as per the extant guidelines of the RBI by all the lenders under the Consortium. The total loss caused to the Consortium of Banks due to the above fraud perpetrated/committed by NSJPL, its Directors, Promoters etc were alleged to be the tune of Rs.379.75 Crores (outstanding as on 28.02.2018) plus accrued interest from 01.03.2018. The lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilization of the crime proceeds for settlement of personal home loans of the Directors and for settlement of existing loans, re-organization of ownership of properties and accommodative transactions, multiple layering of the crime proceeds, funding to the guarantor to enable her acquire a property in her name etc. From the investigation under PMLA, 2002 it was thus noticed that M/s. NSJPL, the Appellant herein and its Promoters/Directors viz., S/Shri Ranganatha Gupta, Prapanna Kumar & Prasanna Kumar, Directors of M/s. NSJPL and also accused in the FIR of CBI, have committed the Scheduled Offences as alleged in the FIR No. RC 08/2018 dated 24.03.2018 registered by CBI, BS & FC, Bangalore, caused wrongful loss to the Banks in Consortium, which is estimated to the tune of Rs. Rs.379.75 Crores (Outstanding as on 28.02.2018) plus accrued interest from 01.03.2018 and derived corresponding wrongful gain to themselves, during the period between 2009 and 2017. The investigation also confirmed the deriving of the "proceeds of crime" out of the said criminal activity and the commission of the offence of money laundering by M/s. NSJPL and its promoters and others and in all 37 immovable pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the attachment of the property in the instant case, several depositors have also approached the Respondent authority seeking to cause investigation against the Appellant and also seeking refund. Thus, the investigation under PMLA, 2002 has been further extended to cover the above mentioned Scheduled Offence also. In other words, it is humbly submitted that M/s. NSJPL and its promoters has not only caused wrongful loss to the Consortium of Banks by indulging in criminal offences, but also cheated the General Public by collecting Deposits and failing to repay them. 4.7. It is submitted that 37 immovable properties (identified to be the proceeds of crime and involved in money laundering and attached vide PAO No.11/2018) includes the aforesaid four properties which are the subject matters concerned with the appellant and others. The appellant in respect of the above said four properties, challenging the attachments made and praying to set aside the PAO No.11/2018 dated 31.07.2018 on the ground that the said four properties have been offered to them as security in respect of a Home Loan offered to the borrowers viz., Defendant Nos. 1 to 6. 4.8. That the results of the investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian bank account number 417057932 of Shri Prasanna Kumar. DD No.598645 dated 18.07.2013 Indian Bank, South Usman Road, T.Nagar 5399852 DD No.598646 Dated 18.07.2013 Indian Bank, South Usman Road, T.Nagar 5011011 DD No.598647 Dated 18.07.2013 Indian Bank, South Usman Road, T.Nagar 24581754 DD No.598706 Dated 19.07.2013 Indian Bank, South Usman Road, T.Nagar 19665383 54658000 ii. That on perusal of the Statement of Account of A/c No.417057932 of Shri Prasanna Kumar with Indian Bank it is noticed that on 18.07.2013 there were two transfers viz., amount of Rs.1,15,36,000/- & Rs.5,48,58,000/- which have been transferred from Account No.858891046 of M/s. NSC & Co. with Indian Bank. Further perusal of the said account of M/s. NSC & Co., revealed that on the same day i.e. 18.07.2013, a total amount of Rs.22.05 Crores were transferred from the account of M/s NSJPL with State Bank of India and from the said funds, various transfers were made including the above referred transfer of Rs.1,15,36,000/- & 5,48,58,000/- to the Indian Bank account of Shri Prasanna Kumar. Thus, it is clearly evident that the funds from the loan account of M/s. NSJPL were utilized for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above diagrams clearly indicate the money trail that the funds from the loan account have been utilized for acquisition of the immovable properties at Mylapore in July 2013. 4.10. A further re-organisation in the ownership of the above mentioned properties were made through accommodative financial transactions in the year 2014 and is detailed below: i. That in September 2014, S/Shri Prapanna Kumar and Shri Prasanna Kumar reorganized the ownership of the Mylapore property by which documentations were made to indicate that a portion of the property acquired in the name of M/s. NSC & Co. were transferred by way of two sale Deeds viz., Document No.2680/2014 & 2681/2014 both dated 4.9.2014 in favour of Prappana Kumar & Radhika and Prasanna Kumar & Lakshmipriya respectively. ii. That as per the Sale Deed vide Document No.2681/2014 dated 4.9.2014 in favour of Prasanna Kumar & Radhika, the transaction value was shown as Rs.3,26,55,800/- and it was noticed from the Sale Deed that the consideration was reportedly paid through the following cheques for the under-mentioned amounts. Cheque No. Amount 379212 Dt.04.09.2014 4329242 379213 Dt.04.09.2014 7000000 379214 Dt.04.09.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the utilization of the proceeds of crime for acquisition of the property, the proceeds of crime were further utilized for settlement of the above said two loans. The results of the investigation have been detailed in Para 33.1 to 33.4 and reproduced below. During the investigation, Defendants 3, 4, 5, 6 had admitted utilisation of the fraudulent loan amount for acquisition of the property and also for the settlement of the loan obtained from Defendant 20. (iii). That Shri Nathella Prasanna Kumar availed a Housing Loan from Aditya Birla Home Finance Limited to the tune of Rs.9 Crores. Inasmuch as he had earlier availed a Housing loan from ICICI Bank, out of the total disbursement of Rs.88009276/- an amount of Rs.78009276/- was used for settlement of the ICICI Home loan account bearing number LBCHE00002372363. On perusal of the information provided by M/s. Adiya Birla Capital Limited, it is noticed that for the said Home Loan, Shri Nathella Prasanna Kumar had given an ECS Mandate for payment of the EMI in favour of his Indian Bank account number 417057932. During the period from 15.04.2016 to 04.07.2017 he had in all paid EMI totalling Rs.91,51,930/- as detailed below. Out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian Bank 15.07.2016 769183 Indian Bank 15.08.2016 769183 Indian Bank 15.09.2016 769183 Indian Bank 15.10.2016 769183 Indian Bank 15.11.2016 769183 Indian Bank 30.12.2016 769183 RBL 02.03.2017 769183 RBL 15.03.2017 769183 Indian Bank 31.03.2017 22748 Indian Bank 15.04.2017 769183 Indian Bank 29.04.2017 29229 Indian Bank 04.07.2017 769183 Indian Bank Total 9614288 (vi). That on perusal of each of the debit entry on the above mentioned dates, it is further noticed that the funds for the said ECS mandates were out of the credits from the Bank account of M/s. NSJPL. On many occasions, the credit was on the same date as that of the ECS mandate debits. Thus, it is clearly evident that the EMI's of the home loan of Shri Prapanna Kumar was utilised through the funds of M/s. NSJPL and that too from the consortium bank accounts of M/s. NSJPL. M/s. Aditya Birla Capital intimated that Shri Prapanna Kumar has defaulted payment of the Home Loans and legal action has been initiated by them for recovery including proceedings under SARFAESI Act. 4.12. (i). Thus the learned counsel for the respondent submitted that it is clear that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.4 of Schedule 1 in Para No.43 of OC 1015/2018 -Page 130), acquired vide Document No.2316/2013 dated 30.7.2013 in the name of Nathella Prasanna Kumar & Nathella Lakshmi. ii. Land measuring 1271 Sq.Feet forming part of the 6566 Sq.Feet in S.No.123 & 124 bearing Door No.110 and situated at Luz Church Road, Mylapore, Chennai 600 004 in RS No.1654/9 Block No.l34 Mylapore Division & belonging to Nathella Prasanna Kumar & Nathella Lakshmi Priya - Sl.No.7 of Schedule 1 in Para No.43 of OC 1015/2018 -Page 130) acquired vide acquired vide Document No.2681/2014 dated 4.9.2014 in the name of Nathella Prasanna Kumar and Nathella Lakshmi. 5.2.(iii). That the fact of mortgage of aforesaid four properties and symbolic possession of two properties out of the aforesaid properties has not been denied by the respondent. 5.3. This Tribunal is to see whether the impugned order is legally correct or not. In this regard, it is seen from the record that the borrowers of the appellant took various loans from different banks and Consortium of Bank led by State Bank of India during the period 2009-2017. There are serious allegations of falsification of records and diversion of funds etc. against the bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red out of proceeds of crime and prior to the loans granted by the appellant in the year 2016 and those properties have been mortgaged as a security for the loan from the appellant by the borrowers of the appellant. The appellant has referred and relied on para 163 and 165 of the judgment passed in the batch matters by Hon'ble Delhi High Court in the matter of Deputy Director, Directorate of Enforcement & Ors. Vs. Axis Bank & Ors.(supra) The judgment is not applicable, as in the present case, the proceeds of crime alleged to have travelled/utilized in acquiring the properties in question in the year 2013 and 2014. In other words, the alleged commission of offence was prior to the sanctioning of loans granted by the appellant. The second judgment relied on by the appellant is a judgment passed by this Tribunal in the matter of JM Financial Reconstruction Company Vs. Deputy Director, Directorate of Enforcement, Delhi & Ors.(supra). This judgment is also not applicable as the appellant has not acquired the properties involved herein by way of any assignment but in the present case there is a prima facie clear allegation of involvement of proceeds of crime in acquiring the question pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attachment cannot be set aside or modified due to the fact that prima facie allegation is that the proceeds of crime have been travelled to acquire the properties in question. Therefore, in view of above discussion, this legal submission is not acceptable. 5.3.(ii). The second legal submission made by the appellant that it is a secured creditor being a bona fide third party had initiated actions against mortgaged properties under SARFAESI Act, 2002, and rules framed thereunder prior to the order of attachments under PMLA. Much thrust has been given by the appellant that it has initiated action under SARFAESI Act and rules prior to the order of attachment under PMLA. While dealing with first legal submission, it is already held that the properties in question, prima facie appears to have been acquired out of the proceeds of crime and merely because the provisional attachment order was passed subsequent to the initiation of proceedings under SARFAESI Act that does not ipso facto create a right in favour of the appellant to claim priority of right over the properties in question particularly in the present facts and circumstances of the case where proceeds of crime has been used to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the proceeds of crime so this judgment is of no help to the appellant. Further, recently the Division Bench of Hon'ble High Court of Punjab & Haryana passed a judgment in the matter of CRS-S-4326-SB-2017(O&M) titled as Deputy Director Vs. PNB Housing Finance Ltd., CRA-S-3916-SB-2017 (O&M) titled as Deputy Director Vs. ICICI Bank Ltd. & Ors. wherein their lordship have held that PMLA would prevail over SARFAESI Act. This judgment is also binding on this Tribunal. The learned counsel for the appellant, during the course of argument submitted that this Tribunal is bound by the judgment of the Hon'ble High Court having territorial jurisdiction in the event any conflict in the judgment of two High Courts on the same issue. In my view, there is no conflict in the judgment passed by the Division Bench of the Hon'ble High Court (supra), PNB Housing Finance case and the judgment of Hon'ble High Court of Delhi passed by Single Bench in Axis Bank case (supra) so the jurisdictional question raised by the appellant does not apply to the present facts and circumstances of the case. 5.3.(iv). The fourth legal issue raised by the learned counsel for the appellant that the jurisdiction of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been passed or, further if the trial of a case for the offence under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest will have to be inquired into and adjudicated upon only by the special court. 170. But, the above exception cannot be applied to all cases of bona fide third party claimants so as to confer a general right to seek release of such property as last mentioned above from attachment even in cases where the encumbrance is created or interest acquired at a time around or after the date or period of criminal activity. In this category of cases, the third party will have the additional burden to prove that it had exercised due diligence having "taken all reasonable precautions" at the time of acquisition of such interest or creation of such charge, the jurisdiction to entertain and inquire into such claim and grant relief of release after order of attachment has attainted finality, or of restoration after order of confiscation, vesting only in the special court under Section 8(7) & (8) PMLA. The due diligence is to be tested amongst others, on the touchstone of questions as to whether the party had indulged ..... X X X X Extracts X X X X X X X X Extracts X X X X
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