Allowed

FPA-PMLA-1411/DLI/2016 of State Bank of India v/s The Joint Director Directorate of Enforcement, Delhi

ATFP31 Aug 2017FPA-PMLA-1411/DLI/2016

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed the appeal of the State Bank of India, setting aside orders confirming provisional attachment of mortgaged properties under PMLA. The court held that SARFAESI Act overrides PMLA, protecting bona fide mortgagees holding property acquired prior to the alleged crime, especially post-amendment granting priority to secured creditors.

What did the court decide?

Impugned orders confirming provisional attachment under PMLA set aside; attached properties released forthwith; no order as to costs.

FPA-PMLA-1411/DLI/2016 of State Bank of India 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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Dated 31^st August, 2017

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1. MP-PMLA-1345/DLI/2014 (STAY) & FPA-PMLA-729/DLI/2014

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State Bank of India … Appellant/Applicant Versus The Deputy Director Directorate of Enforcement, Delhi … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Shri U. C. Mittal, Advocate Shri Abhay Gupta, Advocate For the respondent : Shri Atul Tripathi, Advocate AND 2. MP-PMLA-2643/DLI/2016 (Stay) & FPA-PMLA-1411/DLI/2016 State Bank of India … Appellant/Applicant Versus The Joint Director Directorate of Enforcement, Delhi … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant : Shri U. C. Mittal, Advocate Shri Abhay Gupta, Advocate For the respondent : Shri Atul Tripathi, Advocate

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 1 of 36

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CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN SHRI G.C. MISHRA : MEMBER SHRI B.K. BANSAL : MEMBER

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ORDER 28.07.2017

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JUDGMENT

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FPA-PMLA-729/DLI/2014 & FPA-PMLA-1411/DLI/2016

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State bank of India is the appellant in both the appeals. Enforcement Directorate Dr. Kewal Krishan Sood, Mrs. Mrs. Neeta Sood and M/s Raghubir Hospital are respondent nos. 1,2,3 & 4 respectively are common in both the appeals and one Shri Vinod Kumar Gupta is respondent no. 5 in appeal no.FPA-PMLA-1411/DLI/2016.

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The appeals are mostly against common respondents, arising out of same predicate offences, same ECIR. The facts and legal issues involve in the appeals are also same. Therefore, both the appeals are taken up together for a common Judgment & Order.

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The appeal at serial no. 1 i.e. FPA-PMLA-729/DLI/2014 is preferred against impugned order dated 29.09.2014 passed by Adjudicating Authority in O.C. 334 in PAO no. 8/2014 in ECIR/11/DZ/2011 dt. 28.11.2011.

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The appeal at serial no. 2 i.e. FPA-PMLA-1411/DLI/2016 is preferred against impugned order dt. 17.06.2016 passed in MA no.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 2 of 36

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2/2015 in O.C. 160/2012 in PAO no. 01/2012 in ECIR/11/DZ/2011 dt. 28.11.2011.

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The appellant bank in appeal at serial no. 1 has prayed for following reliefs:

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(i) Pass an order setting aside order dt. 29.09.2014 passed by Adjudicating Authority under Prevention of Money Laundering Act (PMLA)-2002, New Delhi in O.C. no. 334 of 2014 titled as RB Singh, Deputy Director Vs Dr. Dewal Krishan Sood and Others.

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(ii) Pass an order to award the costs of appeal in favor of the appellant bank and against the Respondents.

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(iii) Pass an order to grant any other relief which the Hon‟ble Appellate Tribunal may deem fit and proper in the interest of Justice.

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The appellant bank in appeal at serial no. 2 has prayed for following reliefs:

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(i) Pass an order setting aside order dt. 17/06/2016 passed by Adjudicating Authority under Prevention of Money Laundering Act 2002 New Delhi in Original Complaint no. 160 of 2012 titled as Arun Sharma Vs. Dr. Kewal krishan Sood and Others.

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Pass an order to award the costs of appeal in favor of the appellant bank and against the Respondents.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 3 of 36

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Pass an order to grant any other relief which this Hon‟ble Appellate Tribunal may deem fit and proper in the interest of justice.

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The common facts as emerged from the materials available in records are as follows:

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(i) The appellant bank sanctioned Term Loan of Rs. 6.50 crores in favour of M/s Raghubir Hospital P. Ltd.(RHPL), Respondent no. 4 (R-4). Dr. Kewal Krishan Sood was promoter of said RHPL. The term loan was sanction for the purpose of setting up of a 150 bedded hospital at 26^th 27^th Kms. Stone, Delhi Hapur Bypass, nea`r Village Dasna, Ghaziabad (UP) by submission of forged proforma invoices and receipts issued by M/s. Gaurav Medical Equipments (GME).

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(ii) During the year 2007, Term Loan aggregating Rs. 5.63 crores was disbursed by appellant bank to RHPL. A substantial loan amount was disbursed for purported purchase of 2 machines manufactured by Siemns Ltd. i.e. CT scan Systems-Rs. 1.19 crores and MRI System Rs. 2.44 crores. RHPL misrepresented to appellant bank that M/s GME was a supplier of seimens products and also submitted proforma invoices dt. 02.06.2007 and 13.06.2007 besides receipts dt. 06.06.2007 and 17.06.2007 of M/s GME for getting the said amounts disbursed in favour of M/s GME.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 4 of 36

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(iii) The appellant bank in August 2007 found the machines not installed. On subsequent inspections/inquires, Respondent no. 2, misrepresented to the bank.

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(iv) The Respondent no. 2 siphoned off the loan disbursed to RHPL through the accounts of M/s GME and M/s Anubhav Construction Co. Ltd. maintained with Nainital Bank, Ghaziabad.

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(v) After availing the above mentioned loan facilities M/s RHPL did not repay the loan. The account was classified as Non-Performing Asset (NPA) w.e.f. 30.04.2009. As on 07.09.2009, Rs. 6.44 crore was outstanding in the account of RHPL; such fraudulent acts of Respondent no 2, had thus caused wrongful loss of Rs. 6.44 crore to SBI.

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(vi) On 16.09.2009, the BS&FC branch of CBI, New Delhi received a written complaint from the General Manager of the appellant bank, inter-alia, alleging the commission of criminal offences by Respondent no. 2, promoter of M/s RHPL, Ghaziabad, R/o ll/C-218, Nehru Nagar, Ghaziabad & Ors, whereupon FIR No. BD1/2009/E/0019 dated 16.09.2009 was registered by CBI against various persons, including Dr Kewal Krishan Sood, M/s RHPL, Ghaziabad & Ors for commission of offences punishable u/s 120-B, r/w 420,468 & 471 of IPC, 1860 and the case was taken up for further investigation

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 5 of 36

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(vii) On 15.11.2010, after completion of the investigation, CBI filed Charge Sheet u/s 173 Cr. P.C., 1973, in the Court of Chief Metropolitian Magistrate Tis Hazari Courts, Delhi against the following accused for commission of offences punishable u/s 120-B, r/w 420, 467,468 & 471 of IPC, 1860:-

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(1) Dr. Kewal Krishan Sood, Promoter & Director of M/s Raghubir Hospital Pvt. Ltd. (Accused no. 1)

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(2) M/s Raghubir Hospital Pvt. Ltd. (No. UP85110DL2004PTC127589) through its Director Dr. Kewal Krishan Sood,(Accused no. 2);

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(3) Anubhav Sood s/o Dr. K.K. Sood, KF-41, Kavi Nagar, Ghaziabad (UP) (Accused no. 3);

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(4) Hemant Sharma s/o Sita Ram Sharma, V-324, Dispensarywali Gali, Arvind Nagar, Ghonda, Delhi-110053 (Accused no. 4)

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(viii) Commission of offences by the aforesaid suspected accused persons, punishable u/s 120-B, 420, 467 & 471of IPC, 1860, are the Scheduled Offences under the Prevention of Money Laundering Act,2002 (PMLA), therefore, on 28.11.2011 an ECIR No. ECIR/11/DZ/2011/AD(VM) was registered in the Delhi Zonal Office of Directorate of Enforcement, New Delhi, against the aforesaid Suspect/Accused persons for commission of offence under Section 3 of PML Act, 2002, punishable u/s 4 of PML Act, 2002 (as amended), and the case was taken up for further investigation under the said Act, accordingly.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 6 of 36

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The appellant bank, in exercise of its power under section 13(2) of SARFAESI Act issued notice to the borrowers and guarantors vide notice dated 11.08.2008 and published on 09/09/2008.

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The appellant bank, in exercise of power u/s 13 (4) of SARFAESI Act took over possession of the hypothecated securities/mortgaged properties vide possession notice and panchnama dt. 07/12/2008. This action of appellant came under challenge by respondent no. 2 herein, before the DRAT unsuccessfully with cost of Rs. 50,000/- in favour of the bank.

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The appellant bank, thereafter, filed O.A. no. 151/2011 before DRT, New Delhi for recovery certificate, pendent elite and future interest, sale of mortgaged properties and hypothecated securities.

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The details of mortgaged immovable properties sought for sale in the said O.A. 151/2011 were:

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a. Agricultural land bearing Khata No. 1362 (New Khata No. 00541) Khasra No. 3890-Ka, Measuring 0.025 hectate, Khasra No. 3901, measuring 1.0120 Hectate, Khasra No. 3917, Measuring 1.028 hectare, total measuring 2.065 hectares, out of which 1/6^th share equal to 0.344 hectare situated at Village Dasns, Pargana Dasna, Tehsil & District Ghaziabad (UP)

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b. Agricultural Land bearing Khata no. 948 (New Khata no. 01683) Khasra No. 3900, measuring 0.815 hectare, out of which 1/6^th

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 7 of 36

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share equal to 0.1385 hectare situated at Village Dasna, Pargana Dasna, Tehsil & district Ghaziabad (U.P.)

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c. Agricultural land bearing Khata no. 1362 (New Khasra no. 00541) Khasra No. 3890-Ka, measuring 0.025 hectare, khasra no. 3901, measuring 1.0120 hectare khasra no. 3917, measuring 1.028 hectare total measuring 2.065 hectares, bout of which 1/6^th share equal to 0.344 hectare situated at Village Dasna, Pargana Dasna, Tehsil & District Ghaziabad (U.P.)

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d. Agricultural land bearing khata no. 948, New Khata no. 01683) Khasra no. 3900 measuring 0.815 hectare, out of which 1/6^th share equal to 0.1358 hectare situated at village Dasna, pargana Dasna, Tehesil & District Ghaziabad (U.P.)

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e. Agricultural land bearing Khata no. 241 (New Khata no. 0339), Khata No. 776 measuring 2619 sq. yds. Equal to 2189 sq. mtrs. situated at village Dasna, Pargana Dasna, Tehsil & District Ghaziabad (U.P.)

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f. A built up immoveable property bearing plot No. II-C/218, Nehru Nagar, Ghaziabad, District Ghaziabad (U.P) measuring 468.22 Sq. Mtrs.

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The DRT allowed the OA on 15.02.2013

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As stated above the appellant bank is in possession of properties attached by Enforcement Directorate vide PAO nos. 1/2012 and 8/2014.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 8 of 36

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The Respondent no. -1 attached the following properties vide PAO no. 8/2014 confirmed by Adjudicating Authority in O.C. no. 334/2014:

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(i) House at no. 11-C/2018, Nehru Nagar, Ghaziabad (UP) in the name of R-2 to the extent of Rs. 2,07,20,398/- only.

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The R-1, attached the following properties vide PAO no. 1/2012 and confirmed by Adjudicating Authority in O.C. no. 16o/2012:

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(i) House at no. 11-C/2018, Nehru Nagar, Ghaziabad (UP) in the name of R-2 to the extent of Rs. 10,75,178/- only.

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(ii) Raghubir Hospital (P) Ltd. at 26^th & 27^th K.M. Stone, Delhi Hapur Byepass Rod, Dasna, Ghaziabad (UP) in the name of R-2 & R-3 together with equipments machines etc. installed therever.

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(iii) Immovable property at office no. 507, shakuntala Building, 59, Nehru Place, New Delhi in the name of Vindo Kumar Gupta (R5 in appeal no. 729/2014)

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(iv) A/c no. 629401139789 of Shri V.K. Gupta in ICICI Bank, Nehru Place having Rs. 1,15,688.79/-

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We have gone through the appeal papers and reply of the respondent in appeal no 729/2014 and we have heard both the parties.

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The appellant bank has challenged the impugned orders under appeal on identical grounds. The Most important legal issue raised before

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 9 of 36

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us is regarding over-ridding effect of PMLA-2002 and SARFAESI Act, 2002

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During the course of hearing the learned counsel for the appellant took us to section 31B of SARFAESI Act, 2002 which is recently inserted by way of amendment w.e.f. 01.09.2016 and this tribunal‟s judgment & order passed recently on 14.07.2017 on similar issue.

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Both parties have made their submissions and referred the relevant documents available on record. We have heard them and gone through the papers. Recently, this Tribunal dealt with a group of 12 appeals involving various banks having similar facts and legal issues involved herein in the present appeal and decided the said group appeals by a common judgment and order dated 14.07.2017 under the title State Bank of India Vs Enforcement Directorate in the matter of FPA-PMLA1026/KOL/2015 and 11 other appeals.

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It may be stated here that the legal issue of overriding effect of the two Acts i.e. SARFAESI Act, 2002 and the PMLA Act, 2002 has since been decided by this Tribunal. In the aforesaid common judgment, dated 14.07.2017 (supra) this Tribunal has held that SARFAESI Act, 2002 has over-riding effect over the PMLA Act, 2002 after discussing the said legal issues in details on the basis of the latest amendment of SARFAESI Act, 2002 in which section 31 (B) has been inserted in the year 2016 and judgment of Hon‟ble Supreme Court and the latest judgment of full bench of Madras High Court. We have also discussed several other judgments in the said common judgment dated 14.7.2017.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 10 of 36

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The relevant paras of our said judgment dated 14.7.2017 are reproduced below:-

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―30. 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 Solitaire 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 non-obstante 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; AllahabadBankv.Canara Bank and Ram Narain v. Simla Banking & Industrial Co. Ltd.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 11 of 36

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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

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 12 of 36

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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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31. The similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth

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Page 13 of 36

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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 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. 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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32. 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.

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33. 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 :

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― 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.

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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 :

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Page 14 of 36

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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 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. 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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34. 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.

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

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 15 of 36

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

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

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―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 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.‖

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38. 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

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¶136

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.‖

¶137

39. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras ― State Bank of India Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors. ‖, while upholding the Amendment Act, 2016 to Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same court in The Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) lifted the attachment entry and held that

¶138

―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.‖

¶139

40. 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:-

¶140

―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

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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¶143

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…‖

¶144

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

¶145

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.

¶146

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.

¶147

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.‖

¶148

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.

¶149

42. 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-

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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¶152

standing amount to the State Bank of India in order to clear their liabilities once the attached properties are sold and even otherwise.

¶153

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.

¶154

43. 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.

¶155

44. 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.

¶156

45. 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:-

¶157

―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

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¶160

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.

¶161

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

¶162

―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.‖

¶163

―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.‖

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¶166

―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.‖

¶167

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

¶168

46. 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 PMLA proceedings are pending except the complainant bank was arrayed as 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.

¶169

47. 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.

¶170

48. This Tribunal in the case of IPRS in appeal no. FPAPMLA-1302/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:-

¶171

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

¶172

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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¶175

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

¶176

(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 moneylaundering: 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 money-laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach"

¶177

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) MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been

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¶180

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

¶181

“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 money-laundering, he can show before the court that he is innocent and has not received any proceeds of crime.”

¶182

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

¶183

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¶185

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.

¶186

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 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.

¶187

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

¶188

“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.-

¶189

“(i) Firstly, if he-

¶190

(a) directly or indirectly 'attempts' to indulge,

¶191

(b) „knowingly‟ either assists or is a party, or (c) is „actually involved‟ in such activity; and

¶192

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

¶193

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

¶194

“A. RE: DIRECT OR INDIRECT ATTEMPT:

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¶197

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

¶198

“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 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."

¶199

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.

¶200

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

¶201

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

¶202

“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.”

¶203

The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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¶206

documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence.

¶207

C. Actually involved:

¶208

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

¶209

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."

¶210

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."

¶211

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

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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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.

¶215

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)

¶216

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

¶217

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

¶218

“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.

¶219

24. Burden of proof

¶220

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

¶221

(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

¶222

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

¶223

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

¶224

FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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¶226

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 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.

¶227

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.

¶228

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

¶229

FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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¶231

property in the hands of genuine legitimate bona fide purchaser without knowledge.

¶232

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

¶233

„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 moneylaundering. 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

¶234

and the money paid to the seller is also well explained.

¶235

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

¶236

FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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¶238

tainted could be subjected to Provisional Attachment Order.

¶239

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

¶240

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."

¶241

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

¶242

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.

¶243

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

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

¶247

49. 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.

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50.The ED……………………………………………………………….

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……………………………………………………from Union Bank of India.

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51. The mortgaged

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properties………………………………………. …………………………………………………………………criminal action.

¶252

52. 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.

¶253

53. 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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¶256

54. There is no………………………………………………… ……………………………………………….PML Act in the year 2002.

¶257

55. 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.

¶258

56. 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.

¶259

57. The Ld. Adjudicating Authority…………………… …………………………………………………………money laundering.

¶260

58. 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.

¶261

59. 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.

¶262

60. We also find that the Adjudicating Authority…………… …………………………………………………. proceeds of crime.

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¶265

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

¶266

61. 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.

¶267

62. 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.

¶268

The said properties 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 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.

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FPA-PMLA-729/DLI/2014 & FAP-PMLA 1411/DLI/2016

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Page 33 of 36

¶271

63. 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.

¶272

64. 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 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.

¶273

65. 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.

¶274

In the circumstances available in the present case, the allegation of money laundering prima facie found to be

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unsustainable for the purpose of attachment under the PMLA, 2002.

¶278

66. 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.‖

¶279

Admittedly, neither the banks nor employees of these appellants are accused in any criminal proceedings nor there is any allegations against them that they are involved in the commission of alleged crime or generating “proceeds of crime”. The amounts of loan sanctioned are public money and they are entitled to get back their money by selling the mortgaged property as a first charge.

¶280

The Parliament has amended the SARFAESI Act, 2002 by inserting the section 31 B in the said Act w.e.f. 01.09.2016. The effect of the said amendment has already been discussed in our judgment dated 14^th July, 2017 (Supra).

¶281

The facts and the legal issues involved in the present appeals are identical to the facts and the legal issues involved in the groups of matter which has been decided by this tribunal on 14.07.2017 (Supra).

¶282

Keeping in view, the facts and circumstances of the present appeals and the judgments cited herein above in the group of matters of State Bank of India and 11 other Banks (Supra) , we are of the considered view that the Impugned Orders dated 29.09.2014 and 17.06.2016 passed in O.C. no 334/2014 and M.A. no. 02/2015 (in O.C. no. 160/2012) respectively are not legally correct and liable to be set aside.

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¶285

Since we have decided the legal issue of overriding effect of SARFAESI Act over PML Act, 2002, in favour of the appellant, there is no necessity to examine other issues raised by the appellant and the contested respondent in the appeals.

¶286

26. Accordingly the appeal is allowed.

¶287

In view of above miscellaneous applications are accordingly disposed of.

¶288

In the circumstance, the allegation of money laundering prima facie found to be unsustainable for the purpose of attachment under the PMLA, 2002. The attached properties in O.C. nos. 334/2014 and 160/2012 are released from the attachment.

¶289