FPA-PMLA-1756/KOL/2017 of Aditya Birla Finance Ltd. v/s The Deputy Director Directorate of Enforcement, Kolkata

ATFP9 Nov 2017FPA-PMLA-1756/KOL/2017

Case brief

AI extract

What is this about?

The Tribunal allowed the appellant mortgagee bank to operate escrow accounts and withdraw legitimate loan repayments deposited by tenants. The attached properties, acquired and mortgaged prior to the alleged offence, were deemed to have no nexus with the proceeds of crime, permitting the bank to recover dues while the attachment on the properties continues.

What did the court decide?

Appellant permitted to operate escrow accounts and withdraw amounts owed for loan EMIs; attachment on properties continued pending resolution of borrowers' appeals.

FPA-PMLA-1756/KOL/2017 of Aditya Birla Finance Ltd. v/s The… — 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: 9^th November, 2017

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FPA-PMLA-1756/KOL/2017

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Aditya Birla Finance Ltd. … Appellant

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Versus

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The Deputy Director Directorate of Enforcement, Kolkata

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… Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Shri Rajiv Nayar, Sr. Advocate Shri Jaiveer Shergill, Advocate Shri Gaurav Gupta, Advocate Shri Lalit Katariya, Advocate
For the respondent	:	Ms. Shilpi Satyapriya Satyam, Advocate
CORAM
JUSTICE MANMOHAN SINGH	:	CHAIRMAN
SHRI G.C. MISHRA	:	MEMBER

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JUDGEMENT

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FPA-PMLA-1756/KOL/2017

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The present appeal has been filed by Aditya Birla Finance Ltd. against the Impugned Order dated 21.03.2017 passed by the Adjudicating Authority in O.C. No. 651/2016 filed on 25.10.2016 confirming the Provisional Attachment Order dated 29.06.2016 passed by Enforcement Directorate, Kolkata in File No. ECIR/KLZO/05/2014.

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Complaints were received from UCO Bank, Kolkata, pursuant to which C.B.I filed three F.I.R.s alleging that Tayal Group of Companies has defrauded UCO Bank, by availing of huge amounts of loans and siphoning off the said funds in their group companies and transferring

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them to unknown locations. On that basis, a combined ECIR for all the three F.I.Rs was filed.

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The entire case of the Respondent‟s case is that Tayal group of Companies wrongly and fraudulently availed loan facilities from UCO Bank during the period 2007-2013 and siphoned off the funds through certain entities for various purposes, including but not limited to Bank of Rajasthan. The Respondent has sought to explain the entire matrix of transactions by identifying the borrowers of such loan amounts, the entities through which such alleged funneling and siphoning off the funds took place. The names of the appellant or its borrower/coborrowers or the tenant, M/s Multi Media Pvt. Ltd. do not feature in this route of siphoning off and funneling of funds.

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Admittedly on 28.10.2014, the appellant sanctioned three separate loans, totaling to Rs. 46 Crores to three Companies, i.e.: (i) M/s Oak Leasing and Infotech [Loan of Rs. 15 crores] -against property No. 301, Building no. 7, Link Road, Mumbai (ii) M/s Rosette Leasing and Infotech [Loan of Rs. 15 crores] -against property no. 201, Building No. 7, Link Road, Mumbai (iii) M/s Upright Leasing and Infotech [Loan of Rs. 16 crores] -against property no. 401, Building no. 7, Link Road, Mumbai

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It is not denied by the respondent no. 1 that the three immovable properties [which are the subject matter of the present attachment-by which the appellant herein is aggrieved] which are mortgaged to the appellant have been acquired the rights of the loan by Defendants No. 4, 5 and 6 in the year 2005, i.e. much prior to the sanctioning and disbursement of the Term Loan by UCO, Bank to the alleged accused persons against whom the 3 F.I.Rs in question have been lodged by C.B.I upon the Complaints of UCO Bank.

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The date and time of the suspected offence, even as per the Complaint‟s version recorded by C.B.I. in the F.I.R. is between 2007 to 2013. The properties in question which are the subject matter of attachment, were acquired much earlier by Defendants No. 4, 5 and 6 in the year 2005.

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The following properties (hereinafter referred to as “attached properties”) were attached:

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a) Unit No. 301, 3^rd Floor, Building No. 7, Interface, Link Road, Malad (W), Tal-Borivali, Mumbai-owned by M/s Oak Leasing and Infotech Pvt. Ld. And mortgaged to the Appellant.

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b) Unit No. 201, 2^nd Floor, Building No. 7, Interface, Link Road, Malad (W), Tal-Borivali, Mumbai-owned by M/s Rosette Leasing and Infotech Pvt. Ld. and mortgaged to the Appellant.

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c) Unit No. 401, 4^th Floor, Building No. 7, Interface, Link Road, Malad (W), Tal-Borivali, Mumbai-owned by M/s Upright Leasing and Infotech Pvt. Ld. and mortgaged to the Appellant.

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d) Escrow Accounts, being Accounts No. 200999779905 and 200999779912, Induslnd Bank, Lower Parel Branch, Mumbai out of which rents were being received by the appellant.

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By Show Cause Notice dated 28.10.2016, the Appellant was called upon in the matter of the Provisional Attachment Order (hereinafter “PAO”) dated 24.09.2016 regarding the following immovable properties which were owned by Defendants No. 4, 5 and 6.

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In the said Show Cause Notice, the appellant was called upon to show that the aforesaid properties are not involved in any money

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laundering. The appellant also to show cause as to why the aforesaid properties should not be confiscated and the attachment order be confirmed.

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All three immovable properties have been acquired or purchased in the year 2005 (much prior to the sanctioning and disbursement of loans by UCO Bank which are the offending transactions).

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The above properties were purchased in 2005 by the three companies by taking a loan from DHFCL. Later in 2014, this loan was assigned to the appellant as alleged by the counsel for the appellant.

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Three separate tripartite Escrow Agreements dated 31.10.2014 were executed between the appellant, the three companies and IndusInd Bank Ltd. whereby the rent from the three mortgaged properties was to be deposited in escrow accounts and to be appropriated by the appellant for repayment of loan.

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Before the sanctioning of all the three Terms Loans to these Borrowers and its disbursement, the appellant has followed the due process of law and exercised all possible diligence by asking for and receiving the following documents before approval of loan:

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a) Acceptance of sanction letter by borrower and co-borrower

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b) Execution of loan agreement by borrower and co-borrower

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c) Demand promissory note alongwith letter of continuity by borrower

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and co-borrower

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d) Board resolution by borrower and co-borrower

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e) 7 UDCs of not more than 3 Crores in favour of Aditya Birla Finance

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Ltd. alongwith an undertaking letter

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f) Recent net worth statement documentary proof for the borrower, authorized signatories and guarantors

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h) Original signature verification of the authorized signatories from

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the banker

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i) Certified true copy of memorandum and articles of association for borrower and co-borrower

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j) Undertaking for making interest payment by electronic mode on due date.

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k) Any other document as may be required by Aditya Birla

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In addition thereto, the appellant also obtained the following security documents in respect of each of the properties:

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a) Title search by Lawyer approved by Aditya Birla

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b) Title search by Valuer approved by Aditya Birla

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c) Legal opinion report by Aditya Birla approved Lawyer

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d) Irrevocable POA

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e) Confirmation of list of documents from existing lender

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f) Authority letter for collecting original documents

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g) Specific power of attorney for balance transfer

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h) Original property papers as per legal opinion report

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i) Registered deed of mortgage

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j) Registration of charge with ROC

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k) Addition of security interest with CERSAI within 7 from security

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perfection

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It is alleged by the appellant that it for all the three loan agreements, followed the guidelines for disbursement and also imposed various stringent pre-disbursement and post disbursement conditions upon Defendants No. 4, 5 and 6 and the Co-Borrower.

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The impugned order has been challenged by the appellant and Transaction between appellant and (i) M/s Oak Leasing and Infotech [appellant in appeal no. 1722/2017]; (ii) M/s Rosette Leasing and Infotech [appellant in appeal in 1721/2017]; and (iii) M/s Upright Leasing and Infotech [appellant in appeal no. 1723/2017].

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The rent in the escrow accounts neither comes from any accused in the FIRs, nor from the owners of the properties. Rather, all the three properties are leased to M/s MSM Pvt. Ltd. which is depositing rent directly in the escrow accounts and is being appropriated by appellant towards the three loans.

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Admittedly, neither the appellant nor the tenant – M/s MSM Pvt. Ltd. are accused in the FIR/ECIR, nor is it the case of the respondent that the rents being received in these three escrow accounts are „proceeds of crime‟.

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The Appellant, vide Applications No. (i) MP-PMLA-3407/KOL/2017 (Misc); and (ii) MP-PMLA-3493/KOL/2017 (Misc.) in the present Appeal had prayed for the following reliefs:

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i. M/s MSM Pvt. Ltd. To deposit the rent for the two immoveable properties in question to the account of the Appellant, which till now is being deposited in the Escrow Accounts, being Escrow Accounts No. 200999779905 and 200999779912, Induslnd Bank, Lower Parel Branch, Mumbai.

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ii. The Appellant permitted to operate the Escrow Accounts, being Escrow Accounts No. 200999779905 and 200999779912, Induslnd Bank, Lower Parel Branch, Mumbai and withdraw the amounts lying in the Escrow Account, which comprises only of the instalments that were legitimately owed to the Appellant by the borrowers for the loans advanced to them.

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Vide para 17 of the Order dated 27.07.2017, this Tribunal had granted the following reliefs to the Appellant:

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“(a) M/s Multi Screen Media Pvt. Ltd. To deposit the rent for the two immoveable properties in question to the below mentioned accounts of the appellant, which till now were being deposited

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in the Escrow Accounts, being account No. 200999779905 and 200999779912, Induslnd Bank, Lower Parel Branch, Mumbai:

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Rentals from Oak Leasing and Infotech Pvt. Ltd. Presently deposited in Escrow A/c No. 200999779905 with Induslnd Bank can in future be deposited with Account No. 02321300001205 with DCB Bank Limited, Nariman Point Branch, Mumbai.

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Rentals from Rosette Leasing and Infotech Pvt. Ltd. Presently deposited in Escrow A/c No. 200999779912 with Induslnd Bank can in future be deposited with Account No. 02321300001236 with DCB Bank Limited, Nariman Point Branch, Mumbai.”

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The Appellant seeking relief that the Appellant be allowed to withdraw the sum lying in the attached Escrow Accounts [Escrow Accounts No. 200999779905 and 200999779912, Induslnd Bank, Lower Parel Branch, Mumbai] and the future rent and the amenities charges also be allowed to be deposited by the tenant (i.e., M/s MSM Pvt. Ltd.) in the new designated accounts of the Appellant, as specified in order dated 27.07.2017 passed by this Hon‟ble Tribunal.

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Despite sufficient placing on record the documents informing that the attached properties are mortgaged with the appellant by virtue of assignment of loan, the learned Adjudicating Authority has passed the impugned order dated 21.03.2017 and proceeded to confirm the P.A.O. dated 29.06.2016.

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We have heard learned counsel for the parties. Mr. Rajiv Nayar, learned Sr. Counsel has argued that till the disposal of remaining three appeals, the amount lying in the earlier escrow account be transferred to the appellant which in the nature of rent deposited by the tenants for the same attached property which are mortgaged with the appellant.

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Mr. Nayar, learned Sr. Counsel says that the appellant are only concerned with the amount due and once the amount is recovered, the appellant would have no concerned with the attached property although, the appellant is entitled to recovered the amount as per agreement by disposing of the attached properties. All the three parties have no objection if the rent is received by the appellant from the tenant directly in order disburse the loan amount and in the meanwhile the attachment order may be continued. He says that the appellant has no link and nexus with any party who is allegedly involved in the crime or proceed of any tainted money if any. The appellant is simply a finance company, who cannot be debarred to recover its money if the properties are mortgaged w.e.f. 2005 which is prior to date of alleged offence and FIRs are registered against Tayal Group of Companies.

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Rule 8 of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013 reads as:

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“Where the confirmed attached property is hypothecated or mortgaged or pledged to any bank, financial institution, etc., the authorised officer shall direct such bank, financial institution, etc. that such property and any interest or dividend payable thereon shall be retained subject to further orders of the authorised officer”.

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In view of the above provision, this Hon‟ble Tribunal has the power to direct that the Mortgagee Bank [Appellant herein] may be allowed to access and retain the funds till the recovery of their dues or final determination by the Special Court whichever is earlier. The said position is not disputed by the appellant.

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The case of the Appellant is closely similar to the case decided by this Tribunal on dated 14.07.2017 in State Bank of India and Ors. Vs. The Joint Director, Directorate of Enforcement, Kolkata . In Paragraphs 46 and 51 of the Judgment, this Tribunal found that the

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attached property was purchased much prior to the period when the facility of offending loans were sanctioned to the borrowers. Further, the Bank was not involved in the schedule offence. It was further observed that 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. A completely same scenario exists in the present case also where the Appellant is a bona fide lender and the properties in question have been originally purchased, much before the offending transactions took place. The contents of said properties 46 to 51 are reproduced:-

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“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.

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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.

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48. 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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“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

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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) 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 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

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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.”

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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 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) 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,

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(b) „knowingly‟ either assists or is a party, or (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-

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“A. RE: DIRECT OR INDIRECT ATTEMPT:

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

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“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."

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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, 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows-

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“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.”

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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.

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C. Actually involved:

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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,

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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."

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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

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to a scheduled offence, would be utmost necessary, which however is lacking in the instant case."

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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.

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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) 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

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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

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

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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 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.

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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

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fraud and Money Laundering. The respondent does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor.

¶151

23. Considering the materials on record and judgments reported in 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.

¶152

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.

¶153

„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

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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.

¶157

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.

¶158

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.

¶159

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."

¶160

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

¶161

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

¶165

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.

¶166

50. 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.

¶167

51. 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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It is also important to quote the observations of the Madras High Court in the case of Dr. V. M. Ganesan Vs. The Joint Director, 2014

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SCC Online Mad 10702 in this regard, which held that:

¶172

“………….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 purpose of the Act.”

¶173

In the present case, as per the above three Escrow Agreements dated 31.10.2014, between the Appellant, the three Companies and IndusInd Bank Ltd., the borrowers agreed to deposit the receivables, i.e. the rentals to be received from the mortgaged property in the designated escrow account and to be appropriated for repayment of the loan by the Appellant.

¶174

The rent in the escrow accounts neither comes from any accused in the FIRs, nor from the owners of the properties. Rather, all the 3 properties are leased to M/s. MSM Pvt. Ltd. which is depositing rent directly in the escrow accounts and is being appropriated by Appellant towards the 3 loans. It is not even the case of the Respondent that the rents being received in these 3 escrow accounts are „proceeds of crime‟.

¶175

The above three immovable properties and two of the Escrow Accounts (out of three), i.e. Escrow Accounts No. 200999779905 and 200999779912, IndusInd Bank, Lower Parel Branch, Mumbai are the subject matter of attachment by the Respondent in the present case. Induslnd Bank has no objection if the said rent be deposited with the appellant bank by the tenants. The similar is stand of the borrowers. This arrangement is acceptable to all three parties to the agreements above the two Escrow accounts. Copy of the letter dated 13^th July, 2017 by Induslnd bank is reproduced herebelow:-

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“Ref No: CBG/ABFL/2017-18/125

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July 13, 2017

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Aditya Birla Finance Limited One India Bulls Centre, Tower-1, 18^th Floor, Jupiter Mill Compound, 841, Senapati Bapat Marg, Elphinstone Road, Mumbai- 400 013

¶181

Sub: Letter of No-Objection

¶182

Please refer to the tripartite Escrow Agreements dated 31.10.2014 executed between Aditya Birla Finance Limited ( ABFL) , Induslnd Bank Ltd. and the Borrowers. Under the said Agreements we have opened two Escrow Accounts 200999779905 and 200999779912 in the name of Oak Leasing & Infotech Pvt. Ltd- Escrow A/c ABFL and Rossette Leasing & Infotech Pvt. Ltd- Escrow A/c ABFL and Rossette Leasing & Infotech Pvt. Ltd- Escrow A/c ABFL respectively.

¶183

Induslnd Bank Ltd, as Escrow Account Bank, have no objection if the future rentals are routed through a separate account of ABFL. We are the Account Bank for benefit of Lender i.e. Aditya Birla Finance Ltd. as per the said Escrow Agreements.

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Yours Sincerely,

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For Induslnd Bank Ltd.

¶186

Authorised Signatory”

¶187

It is argued by the counsel for the appellant herein and counsel for the borrowers that the source of acquisition of the attached properties and the source of income from such attached properties, therefore cannot possibly have any connection whatsoever with the alleged criminal activities for it to be liable for attachment by the Respondent. Thus, the Loans advanced by Appellant can neither be said to be reflective of “proceeds of crime” nor “value thereof”.

¶188

They argued that neither the Appellant, nor any of its borrowers – Oak Leasing, Rosette Leasing and Upfront Leasing have been named in the F.I.R.s/Chargesheets/E.C.I.R.s. Further, there is not a single statement given by any person under Section 50 of the Act wherein any wrongdoing has been alleged against Appellant or any of the three

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borrowers. The said arguments are disputed by the learned counsel for respondent no. 1.

¶192

As per the Respondent‟s own case, vide the Chart attached to the P.A.O. showing the allegedly clandestine and offending transaction and transfers made to various entities, the names of any of the above entities, as argued by the counsel appearing on behalf of the Appellant and the three borrowers do not even figure in the said charts/trails. It is undisputed fact that the appellant in the above said matter is a victim and innocent party and even after trial, the appellant would be entitled to recover said amount.

¶193

It is submitted by the Respondent that monies have allegedly been siphoned off by the Accused persons to “unknown destinations” and which have not been disclosed by the Accused persons during investigation. However, in order to somehow get rid of its responsibility, the Respondent has proceeded to attach the properties in question.

¶194

The borrowers in their appeals have also filed the application seeking relief from this Tribunal to permit them for making statutory payments such as maintenance charges/outgoings/property tax/service tax from the account which is under attachment. The appellant in the present has agreed to release the said amount once the past rental amount (deposited by the tenants) is credited to the account of the appellant.

¶195

The rental amount which are being received in the account of the appellant is its only source of income and out of this income of the borrowers as alleged and who wish to pay all the statutory dues/compliances. The details of statutory dues/compliances required to be paid are follows:-

¶196

a. Maintenance charges to Ferani Developers

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b. Property Tax to Brihan Mumbai Mahanagar Palika

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c. Service Tax to Service Tax Department, Govt. of India.

¶201

It is alleged by the borrowers that after passing of the provisional attachment order by the respondent they are not able to pay the above mentioned statutory dues to the authorities, who is now receiving default notices from the Office of Assistant Commissioner of Service Tax, Mumbai, Assistant Assessor & Collector, Brihan Mumbai Mahanagar Palika and from the office of Ferani Developers. True copies of notices received from the office of Assistant Commissioner of Service Tax, Mumbai, Assistant Assessor & Collector, Brihan Mumbai Mahanagar Palika and from the office of Ferani Developers have been filed alongwith applications filed in their respective appeals.

¶202

It is submitted that the appellants in the said appeals are not able to deposit service tax for the period April-September, 2016-17 for which it has received a notice from the office of Assistant Commissioner, Service Tax, Mumbai and it is directed to file the return within two days showing its self assessed tax and payment particulars. The appellants have also received a letter from Brihan Mahanagar Palika for payment of arrears of outstanding towards the property tax amounting to Rs. 16,60,400/- for the period 01.04.2016 to 31.03.2017. They have also received a letter from Ferani Developers for payment of maintenance charges of the property. The details of calculations required to be paid per month are given in the application.

¶203

As the appellant in the present appeal has agreed to release the said amount due and undertake to pay the borrowers on regular basis once the past rent is released as deposited by the tenant.

¶204

The impugned Order records that although the interest of the appellant herein needs to be protected, but in the larger national interest, the properties are being attached. Even otherwise if the Special Court trying the offences under Section 3 comes to the conclusion that

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the properties are not liable to be confiscated, then the same shall stand released the appellant in terms of Section 8(8) of the Act. It is thus sought to canvassed that the interest of the appellant is secured. When the properties do not even remotely or prima facie bear a link with the proceeds of crime or the criminal activity, then the said properties are not liable to be attached under the false pretext of „national security.‟

¶207

This Tribunal by order dated 27.07.2017 had directed the tenant to deposit the rent in the new designated accounts of the Appellant in terms of para 17 of the Order.

¶208

The Appellant undertakes that after recovering the EMI due, from the attached Escrow accounts, the Appellant shall release the necessary amounts due, towards the „amenities charges‟ to its borrowers so that the premises are maintained. The said undertaking is accepted. The appellant is also agreeable that the appellant would not take any steps to dispose the properties in question without the permission of this Tribunal. Counsel for the borrowers have also agreed that the attachment should continue till further orders.

¶209

This Tribunal in its order dated 27.07.2017 had recorded the Appellant‟s undertaking to the extent that, in the event Appellant loses the present appeal then the Appellant shall pay back/restitute all the withdrawn amounts to the concerned authority. The Appellant seeks to clarify that the Appellant shall be liable only to restitute the amounts withdrawn towards repayment of EMIs and not the amenities charges as they are actual expenses payable on behalf of the borrowers and not retained by the Appellant Bank. There is a force in the submission of the appellant. The clarification sought by the appellant is allowed.

¶210

The appellant is now permitted to operate the Escrow Accounts, being Accounts No. 200999779905 and 200999779912, IndusInd Bank, FPA-PMLA-1756/KOL/2017 Page 23 of 24

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Lower Parel Branch, Mumbai and withdraw the amounts lying in such Escrow Accounts, which comprises only of the instalments that were legitimately owed to the appellant by the borrowers for the loans advanced to them. The past amount deposited by the tenants be released to the appellant forthwith.

¶213

The prayer present appeal as well as stay applications are allowed. The impugned order against the present appellant is modified. The appellant is granted the liberty to move application in the appeals filed by the borrowers appeals in case the appellant is not to recover the loan amount against the three-mortgaged properties. Till the decision of the said appeals of the borrowers the attachment of immovable properties shall continue. The impugned order is modified accordingly.

¶214