Quashed

FPA-PMLA-1154/KOL/2015 of Yamini Agencies Ltd. v/s The Joint Director Directorate of Enforcement, Kolkata

ATFP14 Jul 2017FPA-PMLA-1154/KOL/2015

Case brief

AI extract

What is this about?

The Appellate Tribunal quashed an Adjudicating Authority order confirming the Enforcement Directorate's provisional attachment of eight immovable properties. The Tribunal held that banks, as innocent secured creditors who acquired mortgage charges prior to the alleged offence, could not be subjected to money laundering proceedings regarding properties not derived from criminal proceeds.

What did the court decide?

Impugned order dated 02.07.2015 and Provisional Attachment Order dated 04.02.2015 set aside; all eight properties released from attachment forthwith.

FPA-PMLA-1154/KOL/2015 of Yamini Agencies Ltd. v/s The Joint… — Money Laundering | ATFP (2017)

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APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision: 14.07.2017

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(1) FPA-PMLA-1026/KOL/2015

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State Bank of India … Appellant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared For the appellant : Shri S.L. Gupta, Advocate For the respondent : Shri N.K. Matta, Advocate (2) MP-PMLA-2020/KOL/2015 (U.A.) MP-PMLA-2021/KOL/2015 (Misc.) FPA-PMLA-1072/KOL/2015 Union Bank of India … Appellant/Applicant Versus The Deputy Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Shri Rajeev Sagar, Advocate For the respondent : Shri N.K. Matta, Advocate (3) MP-PMLA-2693/KOL/2016 (Stay) MP-PMLA-2298/KOL/2016 (Stay) & FPA-PMLA-1153/KOL/2015 Bharat Jain … Appellant/Applicant Versus FPA-PMLA-1148,1149,1150,1152,1153,1154,1155, 1156,1026 & 1072/KOL/2015 Page 1 of 56

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The Joint Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant :	Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate
For the respondent :	Shri N.K. Matta, Advocate
(4) MP-PMLA-2687/KOL/2016 (Stay) MP-PMLA-2293/KOL/2016 (Stay) & FPA-PMLA-1148/KOL/2015
Bansilal Credit Ltd.	… Appellant/Applicant
Versus
The Joint Director Directorate of Enforcement, Kolkata	… Respondent
Advocates/Authorized Representative	s who appeared
For the appellant :	Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate
For the respondent :	Shri N.K. Matta, Advocate
(5) MP-PMLA-2294/KOL/2016 (Stay) & FPA-PMLA-1149/KOL/2015
Pradip Kumar Hirawat	… Appellant/Applicant
Versus
The Joint Director Directorate of Enforcement, Kolkata	… Respondent
Advocates/Authorized Representative	s who appeared
For the appellant :	Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate
For the respondent :	Shri N.K. Matta, Advocate
(6) MP-PMLA-2689/KOL/2016 (Stay) MP-PMLA-2295/KOL/2016 (Stay) & FPA-PMLA-1150/KOL/2015
FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015	Page 2 of 56

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MSB Mercantile Pvt. Ltd. … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate
For the respondent	:	Shri N.K. Matta, Advocate

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(7) MP-PMLA-2691/KOL/2016 (Stay) MP-PMLA-2296/KOL/2016 (Stay) & FPA-PMLA-1151/KOL/2015 Midvale System Pvt. Ltd … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate
For the respondent	:	Shri N.K. Matta, Advocate

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(8) MP-PMLA-2297/KOL/2016 (Stay) & FPA-PMLA-1152/KOL/2015 Pawan Kumar Jain … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate For the respondent : Shri N.K. Matta, Advocate

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(9) MP-PMLA-2299/KOL/2016 (Stay) & FPA-PMLA-1154/KOL/2015

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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Page 3 of 56

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Yamini Agencies Ltd. … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate For the respondent : Shri N.K. Matta, Advocate (10) MP-PMLA-2695/KOL/2016 (Stay) MP-PMLA-2300/KOL/2016 (Stay) & FPA-PMLA-1155/KOL/2015 Eela Jain … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent Advocates/Authorized Representatives who appeared For the appellant : Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate For the respondent : Shri N.K. Matta, Advocate (11) MP-PMLA-2697/KOL/2016 (Stay) MP-PMLA-2301/KOL/2016 (Stay) & FPA-PMLA-1156/KOL/2015 M/s. Akhil Orchards Pvt. Ltd. … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Kolkata … Respondent Advocates/Authorized Representatives who appeared For the appellant : Dr. Shamsuddin, Advocate Shri Rudro Chatterjee, Advocate For the respondent : Shri N.K. Matta, Advocate CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN SHRI G.C. MISHRA : MEMBER SHRI B.K. BANSAL : MEMBER FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015 Page 4 of 56

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Page 4 of 56

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JUDGEMENT

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FPA-PMLA-1026/KO 1153/KOL/2015,	L/2015, FPA-PMLA-1072/KOL/2015, FPA-PMLA-1148/KOL/2015,	FPA-PMLA- FPA-PMLA-
1149/KOL/2015,	FPA-PMLA-1150/KOL/2015,	FPA-PMLA-
1151/KOL/2015,	FPA-PMLA-1152/KOL/2015,	FPA-PMLA-
1154/KOL/2015,	FPA-PMLA-1155/KOL/2015 &	FPA-PMLA-
1156/KOL/2015,

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By this common single Judgement we propose to decide the abovementioned appeals as the facts and legal issues in all the appeals are connected with each other.

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The brief relevant facts are that:-

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(a) on the basis of written complaint filed by Chief Vigilance Officer. Union Bank of India, Central Office, Union Bank of India, Union Bank Bhawan, 239, Vidhan Bhawan Marg, Mumbai-400021 vide reference no. VIG/NKA/RCEZ-PC-94/937 dated 1^st September, 2009, Central Bureau of Investigation, BS&FC, Kolkata registered FIR No. RCBSK2009E008 against the following accused persons under section 120B read with Section 420, 409 of IPC Section 13(2) read with 13(1)(c ) & (d) of Prevention of Corruption Act.

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(i) Shri S. Govindan, the then Dy. GM, Nodal Regional Office, Union Bank of India, Kolkata, Presently Retd. (ii) Shri Bharat Jain, Director, M/s Nik Nish Retail Ltd., 11 Middleton Street, 1^st Floor, Kolkata and also Director of M/s Bansilal Leisure Park, Kolkata.

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(iii) Shri Pradip Kumar Hirawat, Director, M/s Vishi Commercial Pvt. Ltd., 14/2, Old China Bazar Street, Room No. 54, Kolkata-700001.

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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(iv) Shri Pawan Kumar Jain, Director, M/s Vishi Commercial Pvt. Ltd., 14/2, Old China Bazar Street, Room No. 54, Kolkata-700001.

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(v) Smt. Neera Bhojnagarwala, Propritrix & Authorized signatory of M/s N.B. Services E.Com, P-10, Howrah Bridge Approach Road, Kolkat-700001.

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(vi) Shri Gopal Bhojnagarwala, Authorized signatory of M/s N.B Services E. Com, P-10, Howrah Bridge Approach Road, Kolkata-700001.

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(b) Subsequently, Central Bureau of Investigation, BS&FC, Kolkata forwarded the copy of the Charge Sheet No. GR-2406/2011 dated 13.07.2011 in FIR No. RCBSK2009 E0008 dated, 11/09/09 issued against the following accused persons and Companies/Firms vide letter No. DPBSK2012/3277/RC.BSK.2009E.0009 dated 14.06.2012.

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(i)	Shri Bharat Jain, Director, M/s Nik Nish Retail Ltd., Residential Address: Paramount Building, Flat No. 9D, 25, Ballygunge Circular Road, Kolkata-700019
(ii)	Smt. Eela Jain, Director, M/s Nik Nish Retail Ltd., Residential Address: Paramount Building, Flat No. 9D, 25, Ballygunge Circular Road, Kolkata-700019
(iii)	Shri Pradip Kumar Hirawat, Director, M/s Vishi Commercial Pvt. Ltd. Residential Address: 33, Bondel Road, 1^stFloor, Flat No. 1B, Kolkata-700019, P.S. Karaya
(iv)	Shri Pawan Kumar Jain, Director, M/s Vishi Commercial Pvt. Ltd. Residential Address: 53B, Arabinda Sarani, 2^ndFloor, P.O. Hathkhola, PS-Shyampukur, Kolkata-700005
(v)	Smt. Neera Bhojnagarwala, Propritrix, M/s N.B. Services E.Com Residential Address: 70-C, Hindustan Park, Ground Floor, Kolkata-700029.

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The CBI investigated the case and found the subject accused persons guilty of cheating the Union Bank of India and State Bank of

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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India to the tune of Rs. 14.15 crores and Rs. 185.44 crores as on 30.09.2014 respectively, and issued Charge Sheet against the 05 (five) Nos. accused persons Charge sheet No. GR-2406/2011 dated 3.07.2011. Shri Govindan, then G.M., Union Bank of Indi was not charge sheeted since necessary approval was not given by the Union Bank of India.

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The Enforcement Directorate registered a case ECIR/41/2009/Kol/PMLA dt. 23.12.2009 on the basis of CBI‟s FIR, under PMLA, 2002 since the offence under Section 420 & 120B of IPC are Scheduled offences as mentioned in section 2(1)(y) of PMLA, 2002 (as amended).

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The ED investigated the case and issued Provisional Attachment Order (PAO) dt. 04.02.2015 with the attachment of 08 (eight) Nos. of immovable properties concluding that these properties are involved in money laundering.

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The Respondent/Department, based on the material collected and with reasonable belief recorded in writing, has issued the Provisional Attachment Order on 04.02.2015 under sub-Section (1) of Section 5 of the PMLA in respect of the immovable properties, as detailed below, to the tune of Rs. 10.82 Crore.

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Immoveable Properties

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S. No.	Name of Property		Year possession	of	Atta the c	ched ompany	with	Value
1.	Flat No. 9C, Building, 25, Circular Road, Kolk	Paramount Ballygunge ata- 700 019	2000		Flat Shri Dire Nik Ltd. comp	owned Bharat ctor of Nish and anies	by Jain, M/s. Retail other	Rs. 56 lakhs
2.	Flat No. 9D, Building, 25, Circular Road,Kolk	Paramount Ballygunge ata- 700 019	2000		Flat Smt. Dire	owned Eela ctor of	by Jain, M/s.	Rs. 2.30 Crores

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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	(Area: 3215 Sq. ft.)		Nik Nish Retail Ltd. and other companies & W/o ofShri BharatJain
3.	Flat No. 4B, Puspa Aparment, 4^thFloor, 63A, Bright Street, Kolkata- 700 019. (Area: 919.25 Sq. ft. + 32.30 Sq. ft. ServantQtr.)	2000	Flat owned by M/s. Midvale Systems Pvt. Ltd., owned by Shri Bharat Jain	Rs. 35 lakhs
4.	Flat No. 4C, Puspa Apartment, 4^thFloor, 63A, Bright Street, Kolkata- 700 019 (Area: 1566.70 Sq. ft. + open terrace 896.70 Sq. ft. + 131 Sq. ft. Servant Qtr. + 134.55 Parking area)	2000	Flat owned by M/s. Midvale Systems Pvt. Ltd, owned by Shri Bharat Jain	Rs. 74 lakhs
5.	Flat No. 4D & roof on the sixth floor, Puspa Apartment, 63A, Bright Street, Kolkata- 700 019 (Area: 1205 Sq. ft.)	2000	Flat owned by M/s. Midvale Systems Pvt. Ltd, owned by Shri Bharat Jain	Rs. 15 lakhs
6.	Flat No. 3, 3^rdFloor, 3A, Abanindra Nath Thakur sarani, Kolkata- 700 016 (Area: 1080 Sq. ft.)	2003	Flat owned by M/s. MSB Mercantile Pvt. Ltd. Group company owned by Shri Bharat Jain	Rs. 1.03 crores
7.	Unit No. 312, Vardaan Market, 3^rdFloor, 25A, Abanindra Nath Thakur Sarani, Kolkata- 700 016	2007	M/s. Akhil Orchards Pvt. Ltd., owned by Shri Bharat Jain	Rs. 1.25 crores
8.	Unit No. 302, 2^nd Floor, Dreamplex, City Centre, Durgapur, Dist: Burdwan, Pin- 713 216, PS- Faridpur, JL No. 74, Touzi No. 20, Ward No. 22, Durgapur Municipal Corporation(Area: 4765 Sq. ft.)	2008	M/s. Bansilal Credit Ltd. owned by Shri Bharat Jain Total:	Rs. 4.44 crores Rs. 10.82 crores

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The O.C. No. 421/2015 dated 02.03.2015 was filed before the Ld. Adjudicating Authority with the prayer for confirmation of the aforesaid Provisional Attachment Order Dt. 04.02.2015 under sub section (3) of Section 8 of the PMLA, 2002.

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In the said PAO dt. 04.02.2015 as far as Union Bank of India is concerned with the immovable properties attached at serial nos. 6, 7 & 8, which are valued for Rs. 6.68 crores, whereas the bank has lost Rs.

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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14.15 Crores as on 30.02.2009.The immovable properties shown at serial no. 1 to 5 were attached which were mortgaged with the State Bank of India own by the borrower.

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Both the banks have filed the detailed reply to show cause notice issued by the Enforcement Directorate.

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The ED in its provisional order as well as in the complaint before the Ld. Adjudicating Authority has admitted and acknowledged that the properties at Serial No. 1 to 5 which are mortgaged with the appellant bank i.e. State Bank of India were acquired and possessed by the respective owners since 2000 which is much before the respondents availed the loan from Union Bank of India and therefore no proceeds of crime are invested in these properties and even prior to the coming in force of the Act of 2002. Serial no. 6-8 are mortgaged with Union Bank of India.

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The provisional attachment orders were confirmed by the impugned order dated 02.07.2015. The order is challenged by banks as well as the borrowers on various grounds by filing of above-referred relevant appeals. The borrowers are also arrayed as respondents in the appeals filed by the two banks as mentioned in serial no. 1 and 2. The appeals at serial no. 2 to 11 are independently filed by the borrowers challenging the impugned orders.

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11. State Bank of India

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The appellant at serial no. 1 i.e. State Bank of India has filed the above appeal u/s 26 of the Money Laundering Act, 2002 against the

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155

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1156,1026 & 1072/KOL/2015

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order dated 22^nd July, 2015 in OC No. 421/2015 passed by the Adjudicating Authority confirming the Provisional Attachment Order dated 04.02.2015 in the case filed No. ECIR/41/2009/KOL/PMLA of the Joint Director Enforcement Directorate interalia on various grounds.

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The facts as per the appeal filed by State Bank of India are:-

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(i) The appellant Bank has one of its Branch known as IFB Branch at Kolkata-700071. In the year 2006, M/s Nik Nish Retial Ltd. applied to the bank for the credit facilities to the tune of Rs. 35 Crores and offered the personal guarantee and mortgage of properties by Shri Bharat Jani and Smt. Ela Jain.

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(ii) In the year 2007, credit limits worth Rs. 24 Crores were availed from State Bank of India, SSI Branch, Kolkata in the name of M/s Bansilal leisure Parks Ltd. and of Rs. 21 Crores were availed from State Bank of India, Commercial Branch, Ballygune, Kolkata in the name of M/s Benison Impex Ltd.

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(iii) The appellant bank had also taken over the Loan/Credit facilities availed in the name of M/s Bansilal Leisure Park Ltd. from Central Bank of India and M/s Nik Nish Retails Ltd. from Syndicate Bank on 11.05.2005 and 16.10.2006 respectively.

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(iv) The loans/credit facilities sanctioned and granted by the appellant bank were secured with the mortgage of the properties which were acquired by the respective owners much earlier. The credit facilities taken over by the appellant bank from Central Bank of India and Syndicate Bank were

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155

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1156,1026 & 1072/KOL/2015

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also secured with the mortgage of properties which are subject matter of the present appeal.

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(v) The Appellant Bank is to recover more than Rs. 185 Crores in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties.

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(vi) The properties stood transferred by way of mortgage to the Appellant Bank much before the alleged criminal action. (vii) It is the case of appellant bank that the alleged proceeds of crime has not been used for acquiring the mortgage properties. It is even not the allegation that the accused has acquired the mortgage properties with the proceeds of crime.

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(viii) It is also a matter of fact that in the year 2008, certain concerns allegedly associated with Shri Bharat Jain and Smt. Ela Jain has availed the loans/credit facilities/overdrafts from Union Bank of India and the dues payable to Union Bank of India are to the tune of Rs. 14.15 Crores.

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(ix) The Union Bank of India filed the complaint with the Central Bureau of Investigation against Shri Bharat Jain, Shri Pradeep Kumar Hirawat, Shri Pawan Kumar Jain, Smt. Neera Bhojnagarwala and the officer of the Union Bank, Shri S. Govindan. In the complaint the allegations were that the accused persons had availed various credit facilities/overdrafts from Union Bank of India in the names of their various concerns. The loan amount was withdrawn on transferred to the accounts maintained with the

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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Appellant/State Bank of India; the amounts diverted to the accounts of the Sister concerns; the limits sanctioned to M/s Nik Nish Retails Ltd., M/s Vishi Commercial Pvt. Ltd. and M/s NB Services E.com to the benefit of Shri Bharat Jain of M/s Nik Nish Retail Ltd. have all turned NPA and from the investigation that Shri Bharat Jain in active connivance with Shri S. Govindam, diverted the bank‟s funds through his connected accounts and outstanding in the accounts, where credit facilities are sanctioned as on 23.07.2009 was claimed as Rs. 1428.24 lacs.

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(x) On the registration of the FIR by CBI and further investigations the Respondent no. 1 also recorded Enforcement Case Information Report (ECIR) and observed that there was a prima facie case for commission of offence under Section 3 of the PMLA.

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13. The details of following properties which are mortgaged with State Bank

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of India are given as under:

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Sr. No.	Name of Property	Date of Purchase	Owner of Property	Date of Mortgage	Value	Proceedings under SARFESI Act
1.	Flat No. 9C, Paramount Building, 25, Ballygunge Circular Road, Kolkata- 700019	04.12.2001	Flat owned & mortgaged by Shri. Bharat Jain.	11.05.2005 (Mortgaged in the Loan a/c of M/s. Bansilal Leisure Park Ltd.)	Rs. 56 Lakhs	Notice u/s 13(2) on 14.08.2009 Possession on 22.11.2011
2.	Flat No. 9D, Paramount Building, 25, Ballygunge Circular Road, Kolkata- 700019	23.04.1986	Flat owned & mortgaged by Smt. Eela Jain.	16.10.2006 (Mortgaged in the Loan Account of M/s. Nik Nish Retails Ltd.)	Rs. 2.30 Crores	Notice u/s 13(2) on 17.12.2008 Possession on 11.02.2010
3.	FlatNo.	15.05.2000	Flat owned	2007	Rs.35	Notice u/s

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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	4B, Pushpa Apartment, 4^thFloor, 63A, Bright Street, Kolkata- 700019		by M/s. Midvale Systems Pvt. Ltd.	(Mortgaged in the Loan Account of M/s. Benison Impex Ltd.)	Lakhs	13(2) on 05.08.2009 Possession on 11.03.2010
4.	Flat No. 4C, Pushpa Apartment, 4^thFloor, 63A, Bright Street, Kolkata- 700019	15.05.2000	Flat owned by M/s. Midvale Systems Pvt. Ltd.	2007 (Mortgaged in the Loan Account of M/s. Bension Impex Ltd.)	Rs. 74 Lakhs	Notice u/s 13(2) on 05.08.2009 Possession on 11.03.2010
5.	Flat roof on the Sixth Floor, Pushpa Apartment, 63A, Bright Street, Kolkata- 700019	15.05.2000	Flat owned by M/s. Midvale Systems Pvt. Ltd.	2007 (Mortgaged in the Loan Account of M/s. Bension Impex Ltd.)	Rs. 15 Lakhs	Notice u/s 13(2) on 05.08.2009 Possession on 11.03.2010

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In the nut shell, the case of State Bank of India is that M/s Benison Impex Pvt. Ltd.; M/s Nik Nish Retail Ltd. and M/s Bansilal Leisure Park Ltd. had been availing the credit facilities/loans from various Branches of the Bank since 2005/2006. The account of M/s Bansilal Leisure Park Ltd. was transferred from Central Bank of India on 11.05.2005. In order to secure the loan, the mortgage of the properties has been created in favour of the Bank. The ED has attached the property at Serial No. 1 owned by Sh. Bharat Jain. This property is mortgaged with the Bank in the Loan Account of M/s Bansilal Leisure Park Ltd. M/s Bansilal Leisure Park Ltd. was availing the loan/credit facility from Central Bank of India. They approached the Appellant/State Bank of India for sanctioning of the credit facilities and take over the Loan/ Credit facilities from State Bank of India. The Appellant/State Bank of India on 11.05.2005 has sanctioned the limits. The

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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question of money-laundering or any amount paid by it as proceeds of crime does not arise within the meaning of Section 3 of the Act.

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15. Union Bank of India

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The above mentioned appeal in serial no. 2 has been filed by the Union Bank of India under section 26 of Prevention of Money Laundering Act, 2002 against the order dated 2^nd July, 2015 in O.C. No. 421/2015 passed by the Adjudicating Authority thereby upholding the Provisional Attached Order dated 4^th February, 2015.

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The Appellant Bank i.e. Union Bank of India who is appellant in appeal no. 1072/2015 provided the following loan facilities in the year 2008 to its borrowers against the mortgage over the properties mentioned below:

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Account No. with the UBI	Name of the account holder	Loan facility as availed	Amount of loan	Outstanding as on 31.03.2015
301501010995780. Loan sanctioned by Ezra Street Branch, Kolkata.	M/s. Vishi Commercial (P) Ltd. The company has two directors namely Shri Pawan Kumar Jain and Shri Pradip Kumar Jain.	Short Term Loan of On 29.01.2008 and Temporary Overdraft on 22.02.2008	2.00 Cr.& 1.00 Cr. Total loan facility granted was Rs. 3 Cr.	Rs. 17849683.87
301506310008018. Loan sanctioned by Ezra Street Branch, Kolkata.	M/s. N.B. Services E. Com a proprietorship of Ms. Neera Bhojnagarwala.	Short Term working capital Term Loan on 11.01.2008	1.50 Cr.	Rs. 26718787.70
301505060000103. Loan sanctioned by Ezra Street Branch, Kolkata	M/s Nik Nish Retail Ltd. Represented by its director Shri Bharat Jain	Credit Limit Sanctioned 24.03.2008	15.0 Cr.	Rs. 183399806.90

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(i) Flat situated at 3A, Camac Street (now known as 3A, Abanindra

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Nath Thakur Sarani) 3^rd Floor, Kolkata-16 (built up area 1080 sq. ft.),

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015

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sub-lesee: M/s MSB Mercantile Pvt. Ltd. in the account Mortgagor and guarantor of borrower M/s N.B. Services E.Com.

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(ii) Unit No. 312 on the 3^rd Floor of “Vardaan Market” situated at 25A, Camac Street (now known as Abanindra Nath Thakur Sarani) P.S./Shakespeare Sarani, Kolkata-16 (super built up area 904 sq. ft.) Assignee/Sub Lesee: Mortgagor and guarantor M/s Akhil Orchards Pvt. Ltd. in the account M/s Nik Nish Retail Ltd.

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(iii)Unit No. 302, 2^nd Floor, Dreamplex, Air Conditioned Mall, City Centre, Durgapur, Distt.: Burdwan, Pin-713216 (Super built area 4765 sq. ft.) Lessee (99 years): Mortgagor and guarantor M/s Bansilal Credit Pvt. Ltd. in the account of M/s Nik Nish Retail Ltd.

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It is the case of Union Bank of India that the owners of properties acquired possession and ownership of various properties as per Para no. 2 of the impugned order dated 2/7/2015 between the years 2000 to 2008. Properties at serial no. 1-5 were acquired in the year 2000, property at serial no. 6 was acquired in the year 2003, property at serial no. 7 was acquired in the year 2007 and the property at serial no. 8 was acquired in the year 2008. All these properties are subject matter of attachment before this authority. That the appellant is concerned with properties at serial no. 6-7 attached vide provisional attachment orders on which it claims mortgage.

¶106

In view of default in repayment of loan, the said appellant bank issued two different notices under section 13(2) of the SARFAESI Act, 2002.

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18.1 The first notice under section 13(2) of the SARFAESI Act, 2002 dated 26.02.2009 bearing reference no. NRO:KOL:CRLD:2266-A was issued to M/s MSB Mercantiles Pvt. Ltd. and M/s N.B. Services E.Com through its proprietor Ms. Neera Bhojnagarwala in reference to A/c No. 301506310008018 whereby the appellant bank demanded an amount of Rs. 1,56,66,812.00 together with interest till the date of realization from the respondents and their companies within 60 days failing which it was apprised that the appellant shall take steps under section 13(4) of the SARFAESI act including taking of possession of the mortgaged properties.

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18.2. The second notice under 13(2) of the SARFAESI Act, 2002 dated 09.10.2009 bearing reference no. adv:erza:506103:09 was issued to M/s Nick Nish Retail Ltd. as well as M/s Akhil Orchards Pvt. Ltd. and M/s Bansilal Credits Pvt. Ltd. whereby the appellant bank demanded an amount of Rs. 10,28,74,036.24.00 together with interest till the date of realization from the respondents and their companies within 60 days failing which it was apprised that the appellant shall take steps under section 13(4) of the SARFAESI Act including taking of possession of the mortgaged properties.

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18.3. As the borrowers did not make any payment as per demand of the appellant, the appellant bank took possession of all the mortgaged properties on 20.05.2013 and 21.05.2013. The appellant observed that the respondents were diverting funds taken under loan for some other means and purposes other than for which the same were taken hence a complaint was made on 01/09/2009 by the appellant in the year 2008 that certain concerns allegedly associated with Shri Bharat Jain and

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FPA-PMLA-1148,1149,1150,1152,1153,1154,1155

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Smt. Ela Jain who had availed the loans/credit facilities/overdrafts from Union Bank of India, the dues payable to Union Bank of India are to the tune of Rs. 14.15 Crores. The appellant bank filed the complaint with the Central Bureau of Investigation against Respondent no. 2, Respondent no. 3, Respondent no. 4 & one Smt. Neera Bhojnagarwala with the allegation that the accused persons had availed various credit facilities/overdrafts from Union Bank of India in the names of their various concerns. Investigation proved that Shri Bharat Jain diverted the bank‟s funds through his connected accounts and outstanding in the accounts, where credit facilities sanctioned as on 23.07.2009 was claimed as Rs. 1428.24 Lacs. That on the registration of the FIR by CBI and further investigations, the respondent no. 1 recorded Enforcement Case Information Report (ECIR) and passed the provisional attachment order dated 04.02.2015 provisionally attaching the properties as described in the orders.

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18.4. In between the two notices, the complaint dated, 1^st September, 2009 was filed by Sri N.K. Agarwal, Chief Vigilance Officer, Union Bank of India, Mumbai-400021 before CBI, BS&FC, Kolkata, the said agency registered FIR No. RCBSK2009E0008 u/s 120B r/w 420, 409 of IPC and u/s 13(2) r/w 13(1)(e) & (d) of PCA against Shri S. Govindan, the then Dy. GM, Nodal Regional Office, Union Bank of India, Kolkata (now retired), Shri Bharat Jain, Director of M/s. Nik-Nish Retail Ltd. and other group of companies, Kolkata and other 4 (Four) Nos accused persons, who hatched a criminal conspiracy to cheat Union Bank of India by taking loan and other credit facilities and laundered a huge sum of money.

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19. Case of borrowers

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The main case of the borrowers in appeals no. FPA-PMLA-

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1026/KOL/2015,	FPA-PMLA-1072/KOL/2015,	FPA-PMLA-
1153/KOL/2015,	FPA-PMLA-1148/KOL/2015,	FPA-PMLA-
1149/KOL/2015,	FPA-PMLA-1150/KOL/2015,	FPA-PMLA-
1151/KOL/2015,	FPA-PMLA-1152/KOL/2015,	, FPA-PMLA-
1154/KOL/2015,	FPA-PMLA-1155/KOL/2015,	FPA-PMLA-

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1156/KOL/2015, (who were also the respondents in the appeal filed by the banks i.e. State Bank of India and Union Bank of India) is that they obtained the loan from the two banks i.e. appellants at Sr. No. 1 & 2 and however as far as the attached properties Sr. No. 1 to 5 are concerned they admit that they were mortgage to the State Bank of India (SBI) towards loan provided by the SBI. These properties were not part of the collateral securities towards loan given by the Union Bank of India. With regard to properties at serial no. 6 to 8 it is stated that the property at serial no. 6 is a Flat which was given as a collateral security by M/s NB Services to the Union Bank of India. Properties at Serial no. 7 & 8 were given as collateral securities to the Union Bank of India against the loan obtained by M/s NikNish Retail Ltd. Infact the borrower are not disputing the facts stated by two banks.

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19.1. It is submitted that the Provisional Attachment Order dated 04.02.2015 has been confirmed by the learned Adjudicating Authority by its order dated 02.07.2015 in a mechanical manner. All the attached properties were acquired/purchased by the Appellants much prior to the Prevention of Money Laundering Act, 2002 (PMLA) coming into force and even before availment of the loan, which is an admitted and undisputed position. Therefore, the attached properties, by no stretch of imagination,

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cannot be the „proceeds of crime‟ involved in money laundering. It was admitted that the attached properties were mortgaged as collateral securities to State Bank of India and Union Bank of India as referred by the bank respectively against the loan. However, there is no allegation that the attached properties have been derived or obtained directly or indirectly as a result of criminal activity relating to scheduled offences (sections 420 & 120B of IPC) or any part of „proceeds of crime‟ has been used or invested in these properties.

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19.2. It is submitted that three entities namely (i) M/s Vishi Commercial (P) Ltd. and (ii) M/s N.B Services and (iii) M/s NikNish Retail Ltd. obtained loan from UBI , a brief explanation of which is as under:

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i. M/s Vishi Commercial (P) Ltd.:

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An amount of Rs. 3 crore was sanctioned as Short Term Loan out of which Rs.2.99 crore was availed. However, entire principal amount was repaid along with some interest and only an interest of Rs. 26 lacs approx. was to be paid as on 10.10.2012. Since the amount withdrawn was repaid, it cannot be alleged that there was any default or the funds were diverted or laundered.

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ii. M/s NB Services :

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An amount of Rs. 1.50 crore was requested to be sanctioned as Short Term Loan for the specific purpose of making payments to M/s NikNish Retail Ltd. against supply of goods. M/s NB Services is a distributor ofM/s NikNish Retail Ltd. The UBI itself has taken note of the said purpose while processing the Loan Application of the Appellant as well as in its Processing Note. This fact was misrepresented by CVO, UBI in his Complaint to the CBI (Page 30 of PAO). However, it is an admitted position that an amount of Rs. 1.45 crore obtained by M/s NB Services was paid to M/s NikNish Retail Ltd. against supply of goods. Therefore, the question of the said amount being laundered does not arise.

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iii. M/s NikNish Retail Ltd. :

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An amount of Rs. 10 crore and Rs. 5 crore was obtained as CC and LC respectively. The allegations of the respondent that an amount of Rs. 9crore approx. was laundered stand fully nullified for the following reasons:

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a. It is a matter of record that an amount of Rs. 3.61 crore was paid to unsecured creditors who are neither family members nor relatives of the appellants in any manner. These transactions are normal business transactions;

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b. The unsecured loans at the time of sanction was Rs. 5.15 crore as on 31.03.2007 which increased to Rs. 7.16 crore on 31.03.2008. This shows that money has actually been infused and not withdrawn and allegations of the respondent to this effect do not survive. Infusion of the funds is duly reflected in the respective Balance sheets. It is pertinent to note that the Short Term loans / Inter corporate loans were obtained as and when required in order to meet the additional fund requirements of the appellants;

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c. As regards payments to M/s Bansilal Credit Ltd. / Eco Orchards, it is submitted that the payments were made towards purchase of goods. For instance, Rs.1.40 crore was paid to Bansilal Leisure Parks Ltd. towards payment of outstanding dues against purchase of goods. The purchase transactions are reflected in the Balance Sheet for the Assessment Year 2007 – 2008 which clearly establishes the fact that such payments were regular business transactions and cannot be termed as diversion of funds as alleged ;

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d. The allegation of the respondent that an amount of Rs.1.40 crore was diverted towards repayment of loan liability of the SBI is based on mere surmises and conjectures as bank to bank transaction can never be construed as money laundering; and

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e. Even the SBI refuted the allegations of the respondent while clearly asserting that the allegations of the UBI about diversion of funds is totally incorrect. The disbursement from the account are allowed by the Bank against the drawing power. The Union Bank of India cannot claim that the funds from the accounts were utilized by the borrower without their knowledge. In fact, the loan obtained from SBI has neither been the subject matter of the complaint filed by the UBI/CBI nor did the SBI file any complaint relating to loan obtained from them. However, the respondent is trying to mislead this Tribunal by repeatedly referring to the commercial arrangement between the Appellant and the SBI which are not of any concern or relevance for the purpose of the present case. Therefore, it can be rightly inferred that the appellants had fulfilled the required parameters for the drawing power based on which the withdrawals had been allowed.

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19.3. It is further submitted that during the pendency of appeal, the Appellant has entered into One Time Settlement (OTS) with the UBI, and substantial payments to the tune of more than Rs. 2.5 crores have already been made in compliance thereof. Accordingly, the DRT, Kolkata has accepted the Compromise Petition and the Recovery Proceedings shall be dropped upon satisfaction of the total settlement amount. Copy of the compromise-order recorded has been filed.

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19.4 It is submitted that the judgment in the case of Radha Mohan Lakothia rendered by the Hon‟ble High Court of Bombay relied upon by the respondent is not applicable to the facts of the present case. The said Judgment relates to NDPS Act, 1985 wherein recovery of 200 kg of cocaine and its implications outside India were the major issues for consideration before the Court.

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19.5. It is also submitted that the alleged period of commission of scheduled offence is January- August 2008 as is evident from the FIR/Charge sheet filed by the CBI. Even the date of acquisition and possession of the attached properties is admittedly prior to 01.06.2009 i.e. date of inclusion of section 420 and 120B of IPC as scheduled offences. It is settled legal position that the provisions of PMLA cannot be given retrospective effect. Hence, the impugned order is also liable to be quashed and set aside on this ground alone.

¶151

It is stated by the counsel appearing on behalf of borrowers that since the account became irregular and was classified as NPA on 30.11.2008. These properties of Sh. Bharat Jain are mortgaged with the Bank since 11.05.2005 and even before this date, It was mortgaged with State Bank of India. This property has been acquired by Sh. Bharat Jain on 04.12.2001 i.e. much-much before the alleged date of crime. No money disbursed by the Union Bank of India from its Loan Accounts, has been invested in acquiring his property. Furthermore, the Appellant/State Bank of India had mortgaged charge over the property prior to the date of the crime.

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It is admitted by the borrowers that the Bank had already filed the Suit for recovery and has also taken the action under SARFAESI Act. Notice under Section 13(2) was served on 14.08.2009 and 17.12.2009 and possession was taken over on 22.11.2011, however, the mortgagor approached the DRT and because of the same, any further action could not be taken. The Notice of the Bank cannot interfered by the Court/Tribunal.

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Admittedly the ED has attached the property at Serial No. 2 owned by Smt. Ela Jain. This property is mortgaged with the Bank in the Loan Account of M/s Nik Nish Retails Ltd. M/s Nik Nish Retails Ltd. was availing the loan/credit facility from the Syndicate Bank. They approached the Appellant/State Bank of India for sanctioning of the credit facilities and take over the Loan/Credit facilities from Syndicate Bank. The Appellant/State Bank of India on 16.10.2006 has sanctioned the limits. The account became irregular and was classified as NPA on 30.9.2008. This property of Smt. Ela Jain is mortgaged with the Bank since 16.10.2006 and even before this date, it was mortgaged with Syndicate Bank. Subsequent to the Union Bank of India sanctioning the limits to these companies, the Appellant/State Bank of India has shared the charge with Union Bank of India and now both the State Bank of India and Union Bank of India had the charge over this property. This property has been acquired by Smt. Ela Jain on 23.4.1986 i.e. much-much before the alleged date of crime. No money disbursed by the Union Bank of India from its Loan Account, has been invested in acquiring his property. Furthermore, the Appellant/State Bank of India had mortgaged charge over the property prior to the date of the crime. The Bank has already filed the Suit for recovery and has also had taken the action under SARFAESI Act. Notice under Section 13(2) was served on 17.12.2008 and possession was taken on 11.2.2010 and 26.11.2010, however, the mortgagor has approached the DRT and because of the same, the further action could not be taken. The Notice of the Bank is not interfered by the Court.

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The ED has sought the attachment of the properties at sr. no. 3, 4 & 5 at Table 1 of the Complaint. All these three flats owned by M/s Midvale Systems Pvt. Ltd. were acquired in the year 2000. The ED has also filed the copies of the FPA-PMLA-1148,1149,1150,1152,1153,1154,1155

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sale deeds/title deeds of the properties which shows about the date of acquisition. The alleged date of alleged if any is of subsequent dates, hence, it cannot be said that the claim in any manner that these properties has been acquired out of the funds/loans availed from Union Bank of India. There is no allegation even of diversion of funds to this Company. At para 6C of the Complaint, the ED has given a Chart of Diversion of Funds and the name of M/s Midvale Systems Pvt. Ltd. is not appearing therein. These properties, hence, cannot be attached. Even before the date of occurrence of crime, the Defendant State Bank of India already has charge over the properties.

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In the case of properties of M/s Midvale Systems Pvt. Ltd., the mortgage charge in favor of the Bank is also duly recorded with the Registrar of Companies. The Bank obtained the Search Report of the records of the Registrar of Companies which duly shows the Registration of Charge in favor of the appellants. The documents showing the creation of the mortgage of the property, much prior to the date of the crime, as alleged. The original title deeds of all the 5 properties are lying with the Bank.

¶160

Admittedly the banks had taken action under SARFAESI Act, 2002 prior to the registering of complaint by the PMLA authorities, be that as it may even before attachment the said aspect of nature in which the security was acquired and mortgaged to the banks.

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Mr. Matta learned counsel appearing on behalf of department admits that both appellant bank have not been charge sheeted and they are also not involved in the criminal complaint of schedule offence and FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015 Page 24 of 56

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under complaint filed u/s 3 of this Act. However submits that it is the Union Bank of India has made allegation in the complaint filed against the official of bank for corruption and conspiracy. But the official could not be proceeded with in the absence of sanction to prosecute him. The State Bank of India has also filed the documents in order to show that all the five attached properties were mortgaged with the bank and the said properties were acquired by the borrower to sanction of loan. The proceeding for recovery of loan amount are pending before DRT filed by the Union Bank of India. The possession of most of the properties is with the banks. We may clarify that there are no allegations whatsoever against the official of the bank and no complaint was even filed against its officials.

¶163

Mr. Matta submitted that all the documents pertaining to the mortgage of the properties were not submitted by the banks nor there were any proper pleading, therefore, the impugned order is correctly passed. He says that PMLA 2002 has overriding effect being the prior Act.

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Mr. Matta has referred to various provisions of the PMLA, 2002 as well as referred the decisions in support of his argument. He also referred the pleadings and documents placed before Adjudicating Authority. He argued that PMLA, 2002 is a Special Act. The proceedings against the attachment can continue despite of mortgaging the properties with the bank against the loan or even no complaint against bank under the schedule offence or complaint under Section 3 is filed.

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Both parties have made their submissions, they have also referred large number of documents. The written-submissions have also been filed.

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We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. & Ors. Wherein after discussion in para 7-11 it was held that later enactment would prevail with a nonobstante clause. Paras 7-11 reads as under:-

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―7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows:

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―32. Effect of the Act on other laws. —(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act.‖

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8. The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows:

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―13. 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 or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority.‖

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9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: „Maharashtra Tubes Ltd. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal; AllahabadBank v. Canara Bank and Ram Narain v. Simla Banking & Industrial Co. Ltd.

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10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of the said decision is as follows:

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―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.

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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 intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act.

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Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law including those of the Sick Industrial Companies (Special Provisions) Act, 1985.

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It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Acy 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments.

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There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned."

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11. We are in agreement with the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act.‖

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The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd. The judgment rendered on 09.02.2016 reported in 1997 (89) company cases 547 (BOM) para 15 of the said judgment read as under:

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15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, 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 nonobstante 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

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continue to apply. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the legislature wanted to provide otherwise, they would have specifically so provided.‖

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Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016.

¶192

The amended provisions give overriding effect over any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned.

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The amended provisions are reproduced as under:

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(i) Section 26E of the SARFAESI Act, 2002 :

¶195

― 26E. Priority to secured creditors – Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.

¶196

Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 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.‖

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(ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 :

¶198

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

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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 other rates due to the Central Government, State Government or local authority.

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¶203

In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 after the words "the date of the application", " and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or ;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid.

¶204

Thus, it is very clear from above that the secured creditor, get a priority over the rights of Central or State Government or any other Local Authority. The amendment has been introduced to facilitate the rights of the secured creditors which are being hampered by way of attachments of properties, belonging to the financial institutions/secured creditors, done by/in favour of the government institutions.

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The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case “ The Assistant

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Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian

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Overseas bank and Ors. ” that “

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“ There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending .”

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The Assistant Commissioner (CT) Vs. The Indian Overseas Bank, Madras High Court, WP No. 2675 of 2011 (Full Bench)

¶213

―2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principle Act, Which reads as under:-

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―31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize 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.‖

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―3 There is, thus, no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assets over which security interest is created, would have

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priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ―notwithstanding‖ clause and has come into force from 01.09.2016‖

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―4 The law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.‖

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―5 The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property.‖

¶221

In another Madras High Court judgment in the case of “ Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement ” has explained the grievances faced by the financial institutions while holding that

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“ 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 crime. Today, if the Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act. ”

¶223

In a case contested by one of the branches of the Appellant Bank,

¶224

the High Court of Madras “ State Bank of India Vs. The Assistant

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Commissioner, Commercial Tax, Puraswalkam Assistant Circle and

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Ors. ”, while upholding the Amendment Act, 2016 to Section 26E of the

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SARFAESI Act and reaffirming the view of the Full Bench of the same court in The Assistant Commissioner (CT), Anna Salai-III Assessment

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Circle ( supra ) lifted the attachment entry and held that

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―In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realise the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold good qua 2002 Act as well.‖

¶233

B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition of property in para 103. The same read as under:-

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“ 103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and 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 issue 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…‖

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The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of India

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V/s. Satyawati Tondon and Ors. In paras no. 6, 55 & 56 has held as under:-

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6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of the civil courts for frustrating the proceedings initiated by the banks and other financial institutions.

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55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.

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56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy.‖

¶243

In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter.

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It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant – i.e. Union of India in order to pay the remaining out-standing amount. The undertaking in this regard is recorded in Court. It is written agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to pay the remaining out-standing amount to the State Bank of India in order to clear their liabilities once the attached properties are sold and even otherwise.

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Copy of the settlement of the borrowers and the complainant Bank of India was filed before us. As far as the schedule offence is concerned, we do not wish to make any comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High Court u/s 482 Cr. P.C. could be filed.

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It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED.

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It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr. P.C. at the joint request of the parties.

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Three Judge Bench in Narendra Lal Jain & Ors., (supra) held that during the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed which was rejected by the trial court but eventually was allowed by the High Court. The charges in the matter were framed under Section 120-B/420 IPC by the learned trial Judge against the private parties. As far as bank officials are concerned, charges were framed under different provisions of the Prevention of Corruption of Act, 1988. Being dissatisfied with the said order,, the CBI had preferred an appeal by obtaining special leave and in that context the court observed that the accused respondent had been charged under Section 120-B/420 IPC and the civil liability of the respondent to pay the amount had already been settled and further there was no grievance on the part of the bank. Taking note of the fact that offence under Section 420 of IPC is compoundable and Section 120-B is not compoundable, the Court eventually opined thus:-

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―11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been mutually settled between the parties and the accused had accepted the liability in this regard, the High Court had thought it fit to invoke its power under Section 482 Cr.P.C. We do not see how such exercise of power can be faulted or held to be erroneous. Section 482 of the Code inheres in the High Court the power to make such order as may be considered necessary to, inter alia, prevent the abuse of the process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard to the contours of the power available under Section 482 CR.P.C.it must be remembered that continuance of a criminal proceeding which is likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power under Section 482 Cr. P.C.

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In Sanjay Bhandari V/s. CBI, Crl. M.C. M.C. 5798/2014, Delhi High Court, dated 29.06.2015

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―69….. By consent the parties have settled all disputes in the recovery suit, the consent decree of DRT stood to be disposed off as duly satisfied. There is hence no force in the submission of respondents that the complainant bank has not exonerated the petitioners, first being the Civil Procedure Code, and the second being the OTS Scheme of the Reserve Bank of India, which the petitioners have extensively referred to in the original petition. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. The complainant bank in choosing to enter into such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues.‖

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―70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues. The present petition is maintainable as the same has been filed also on additional grounds and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the mind of the Court in whose favour it would be decided.‖

¶259

―71. In view of above mentioned reasons, this Court is inclined to quash the proceedings pending against the petitioners, arising out of R.C. No. 4A/94/SIU(X) dated 23^rd May, 1994, titled ‗CBI vs. N. Bhojraj Shetty & Ors.‘, being C.C. No.65/11, pending in the Court of Spl. Judge (CBI), Tis Hazari Courts, Delhi.‖

¶260

The said decision has been upheld by the Hon‘ble Supreme Court.

¶261

In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence. No

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PMLA proceedings are pending except the complainant bank was arrayed as FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015 Page 37 of 56

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Column;-11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded.

¶264

In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly did so but their contention was rejected as appeared from the impugned order.

¶265

This Tribunal in the case of IPRS in appeal no. FPA-PMLA1302/MUM/2016 decided on 22.06.2017 had dealt with the similar issue as to whether the innocent party whose immovable properties are attached by the ED can approach the Adjudicating Authority for release of the same in para no. 55 to 60 the same read as under:-

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―55. Whether innocent party whose properties i.e. movable or immovable are attached can approach the Adjudicating Authority for release of attached property.

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The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the Adjudicating Authority for the purposes of release of properties which have been attached in terms of the provisions of Section 5 of the Act. This can be seen by reading Section 8(1) and the proviso to Section 8(2) of the Act whereby Adjudicating Authority has to rule whether all or any of the properties referred to in the notice are involved in money laundering or not.

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“8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications

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made under sub-section (4) of section 17 or under subsection (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, he 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 cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

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(2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in moneylaundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach"

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56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI and Ors. (Respondents)

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MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so that

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the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below :-

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“26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laundering Act was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of moneylaundering, he can show before the court that he is innocent and has not received any proceeds of crime.”

¶280

It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party.

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57. This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are involved in money laundering which means as to whether FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015 Page 40 of 56

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properties attached are involved in money laundering or not is a pre-condition prior to confirming or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to release the said property out of the properties by holding that the said property is not involved in money laundering.

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58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of Gujarat High Court in the case of Jafar

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Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:-

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“37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive 'and', makes it luminous that any persons concerned in any process or activity connected with such "proceeds of crime" relating to a "scheduled offence" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two prerequisites are satisfied i.e.-

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“(i) Firstly, if he-

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(a) directly or indirectly 'attempts' to indulge, (b) „knowingly‟ either assists or is a party, or

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(c) is „actually involved‟ in such activity; and

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(ii) Secondly, if he also projects or claims it as untainted property;"

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38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients-

¶292

“A. RE: DIRECT OR INDIRECT ATTEMPT:

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In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that-

¶294

“13. Well then, what is an “attempt”? ...In sum, a person commits the offence of "attempt to commit a particular offence" when (i) he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the

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offence, does an act towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the course of committing that offence."

¶298

Thus, an “attempt to indulge” would necessarily require not only a positive "intention" to commit the offence, but also preparation for the same coupled with doing of an act towards commission of such offence with such intention to commit the offence. Respondent failed to produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and 'attempt' on the part of any of the petitioners.

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B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY:

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In JotiParshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows-

¶301

“5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of "intention" or "knowledge" or "reason to believe". We are now concerned with the expressions “knowledge” and "reason to believe". “Knowledge” is an awareness on the part of the person concerned indicating his state of mind. “Reason to believe” is another facet of the state of mind. "Reason to believe" is not the same thing as “suspicion” or “doubt” and mere seeing also cannot be equated to believing. “Reason to believe” is a higher level of state of mind. Likewise “knowledge” will be slightly on a higher plane than “reason to believe”. A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to believe if he has sufficient cause to believe the same.”

¶302

The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence.

¶303

C. Actually involved:

¶304

Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled offence, including its concealment, possession, acquisition

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or use. There is absolutely no material or circumstantial evidence whatsoever, oral or documentary, to substantiate any such allegation qua the petitioners,

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D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or indirect involvement, abetment, conspiracy or common intention, nor is any such case made out even on prima facie basis against any of them."

¶309

39. The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence, would be utmost necessary, which however is lacking in the instant case."

¶310

59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot 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.

¶311

60. Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director, Prevention of Money Laundering Act, Directorate of Enforcement (Respondent)

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MANU/TN/4087/2015 decided on 14.10.2015, relevant portion of which are reproduced below:-

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“ 20. The said sections read as follows:--

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“23. Presumption in inter-connected transactions Where money-laundering involves two or more interconnected transactions and one or more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction.

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24. Burden of proof

¶318

In any proceeding relating to proceeds of crime under this Act,

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(a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and

¶320

(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.

¶321

21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies. One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not

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legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime.

¶326

22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor.

¶327

23. Considering the materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164 Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge.

¶328

24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties.

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Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation.

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„21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration and the money paid to the seller is also well explained.

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22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA, Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order.

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23. In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any knowledge that properties have been acquired directly or

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indirectly through scheduled offence could be subject matter of provisional attachment order.

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24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA."

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Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case.

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25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case, Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence. All the persons involved in that case were close relatives.

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26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appellate

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authority failed to give any finding on merits after verifying with the concerned Bank."

¶348

From the scheme of the Prevention of Money Laundering Act, 2002 and its object, it is clear that the intention of the legislation was not to apply the Act to the transaction subject matter of the present case.

¶349

The ED in its provisional order as well as in the complaint before the Ld. Adjudicating Authority admitted that the properties which are subject matter are mortgaged with the appellants banks. The borrowers acquired and possessed by the respective owners since 2000, much before the borrowers availed the loan from the appellants banks and therefore no proceeds of crime were invested in these properties and even prior to the coming in force of the act of 2002. The copies of the sale deed/title deed of the properties show the date of acquisition to be prior to dates of alleged fraud committed in 2008-2009 as per the case of the respondent no. 1. Hence, it cannot be said the claim in any manner that these properties have been acquired out of the funds/loans availed from Union Bank of India.

¶350

The mortgaged properties are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to the events of funds diversion and frauds committed by the respondents. The appellants Banks have to recover huge amounts in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the appellant bank much before the alleged criminal action.

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The appellant banks is the rightful claimants of the said properties which are already in the possession of the appellant bank under the SARFAESI Act. The Hon‟ble Supreme Court of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant bank it is public money. The appellant bank has the right to property under the Constitution of India. The property of the appellant bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgage of property is the transfer under the transfer of property act.

¶355

The objective of Prevention of Money Laundering Act, 2005 has a greater relation to crimes connected with reference to Illicit Traffic in Narcotic Drugs and Psychotropic Substances, drug crimes and other connected activities. None of the provisions are applicable in the facts of the present case. As far as the borrowers are concerned, we are not expressing any opinion with regard to matters pending before the Special Court in relation to schedule offences and the complaint under this Act. These matters are to be considered as per law.

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54 . There is no money laundering in the present case as far as the banks are concerned. Due to the attachment proceedings by the ED the Appellant banks are not able to recover the public money by way of FPA-PMLA-1148,1149,1150,1152,1153,1154,1155 1156,1026 & 1072/KOL/2015 Page 49 of 56

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selling the properties. The proceedings for recovery have been initiated back in the year 2009. The ED in its provisional order as well as in the complaint filed before the Ld. Adjudicating Authority has admitted and acknowledged that the Properties which are mortgaged with the Banks were acquired and possessed by the respective owners much before the Respondents availed the loan from the Appellant Banks and therefore no proceeds of crime are invested in these properties. These properties have been purchased even prior to the coming in force of the PML Act in the year 2002.

¶358

The ED has also filed the copies of the sale deeds/ title deeds of the properties which shows the date of acquisition of all the properties. The original title deeds of all the properties are lying with the Appellant Bank. The Appellant Banks are having the mortgage charge over the properties.

¶359

That the definition of “ proceeds of crime ” as per Section 2(u) of the PML Act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, all the properties have been purchased by the Respondents and have been mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in the obtention of these properties and hence the same cannot be attached by the ED because the same would result in hampering the interest of the Appellant Bank.

¶360

The Ld. Adjudicating Authority has failed to understand that Appellant Banks have heavy stakes in the properties as they have lent its valuable money to the borrowers. The property is mortgaged to the

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Appellant Bank. If tomorrow any borrower fails to repay the loan, the Bank has a legal right to bring the properties to sale and recover its dues. Valuable right will be lost for the Appellant, by order of attachment and eventual confiscation. As a matter of fact, the borrowers may not be interested in repaying the loan, since they are not going to enjoy the property. Therefore, ultimately, the action of the ED/Respondent No. 1 would make the Appellant, a much greater victim than even the accused/Respondents. Though in the present case, the borrowers have a settled their disputes with the Union Bank of India. Terms of settlement have already been recorded by the Court. Those terms are binding upon the parties. On behalf of borrowers, the statement has been made that they are also ready to resolve their disputes with the State Bank of India on reasonable terms. As and when these properties are sold, the banks would be able to receive the public money. The banks in the present case are just victim and not accused. If the attachment would continue against the mortgage property of the banks in this matter, the economy of the country would suffer. The banks in the present case has proceeded with the matter in good faith and are not involved in the offence of money laundering

¶365

Thus, in the present case, even though the Ld. Adjudicating Authority had all the reasons to believe that the abovementioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/five properties; still the Ld. Adjudicating Authority confirmed the provisional attachment order of the Respondent No. 1 and thus causing huge loss to the Appellant/SBI.

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The Adjudicating Authority did not understand that the alleged illegal money received by the Respondents from the Union Bank of India cannot overshadow the huge amount of credit facilities which were taken by the Respondents from the appellant bank in lieu of the properties kept as security with the Appellant Bank. Thus, making the Appellant Bank the rightful owner of the said properties which are already in the possession of the Appellant Bank under the SARFAESI Act. The origin of the funds is not illegal or unlawful in any manner. The funds were only deposited in the accounts with the Appellant Bank against the drawings already availed or availed subsequently.

¶369

We also find that the Adjudicating Authority has not examined the law on mortgage and securities. The Appellants Banks are liable to recover huge amounts in the above loan accounts and the appellant bank being the mortgagee/transferee of the interest in the properties is entitled to recover its dues with the sale of the properties. The properties stood transferred by way of mortgage to the Appellant Bank much before the alleged criminal action. The alleged proceeds of crime has not been used for acquiring the mortgage properties. It is even not the allegation of respondent no. 1 that the accused has acquired the mortgage properties with the proceeds of crime.

¶370

The meaning of money laundering as mentioned in the objects of the Act will have to be read as part of the statute because as per Supreme Court of India in Vishaka and others Vs. State of Rajasthan reported in AIR1997SC3011 lays down at para 40 that the International Conventions and Norms are to be read into them in the absence of

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enacted Domestic Law occupying the field when there is no inconsistency between them.

¶374

The Ld. Adjudicating Authority has failed to considered that the ED has attached all the properties without examining the case of the banks. The evidence on record suggested that all the properties were acquired by the accused much-much before the alleged date of crime. No money disbursed by the Union Bank of India from its Loan Account, has been invested in acquiring his property. Furthermore, the Appellants Banks had mortgaged charge over the property prior to the date of the crime. The Bank has already filed the Suit for recovery and has also had taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be unjustified.

¶375

The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case it is clear by the order of the Adjudicating Authority that the funds were transferred for the satisfaction of the bigger credit facilities taken by the respondents from the appellant bank which they could not pay due to the losses suffered by the companies.

¶376

The said properties are already in the possession of the appellant bank under the SARFAESI Act. The Hon‟ble Supreme Court of India in

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the case of Attorney-General of India and others reported in AIR 1994 SC 2179 while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and has held that the illegally acquired properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, the state is deprived of legitimate revenue to that extent hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant Bank it is liable to be recovered by the Appellants Banks.

¶381

The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the Appellant and there is no charge of money laundering against the Appellant. The mortgage of property is the transfer under the transfer of property act as there is no dispute as regards the origin of funds or the title of the properties. As far as the bank is concerned, the bank had to recover its outstanding dues by taking over the possession of the mortgaged properties in case the Respondents are not able to pay back the credit facilities availed by the Respondents and by way of the SARFAESI provisions these properties are being taken in possession by the appellant bank so that recovery can be made from the accounts which have become NPA.

¶382

The respondent has no lien over the said properties as the Appellants banks are now the Legal transferee of said properties. Even in the criminal jurisprudence the stolen property when it is in the hands of unauthorized person that person cannot claim title to the property. The

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said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners because the both banks are victims and even after trial, they are to receive-back the said properties being victim party in normal types of cases u/s 8(8) of the Act. However in the present cases, the banks are innocent parties. They are not involved in any criminal proceedings. If they are asked to await till the trial is over, the systems in these types of cases, the economy would collapse. In the case, of Union Bank of India, no sanction against the employee was granted who is also not involved in any criminal proceedings.

¶387

From the entire gamut of the matter we are of the view that there is no nexus whatsoever between the alleged crime and the two bank who are mortgagee of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against banks who have sanctioned the amount which is untainted and pure money. They have priority to the secured creditors to recover the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced. All the contentions raised by Mr. Matta has no substance. The provisional attachment in the present matter is bad and against the law.

¶388

In the circumstances available in the present case, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002.

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In view of aforesaid facts and circumstances in the present case and for reasons referred above, we set aside the Impugned Order dated 02.07.2015 and the provisional attachment order dated 04.02.2015. All the eight properties are released from attachment forthwith.

¶392