FPA-PMLA-384/BNG/2012 of Smt. Zareena Taj v/s The Deputy Director Directorate of Enforcement, Bangalore & The Manager, Syndicate Bank & Shri Asadullah Khan & Smt. Ayesha Najam & Smt. Nasreen Najam

APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

Date of Decision: 18.09.2017

(1) MP-PMLA-227/BNG/2012 (SP) FPA-PMLA-382/BNG/2012 Smt. Nasreen Taj … Appellant/Applicant Versus The Deputy Director Directorate of Enforcement, Bangalore … Respondent No. 1 The Manager, Syndicate Bank … Respondent No. 2 Advocates/Authorized Representatives who appeared For the appellant : Ms. Nikita C. Jain, Advocate For the Respondent No. 1 : Shri Vikas Garg, Advocate For the Respondent No. 2 : None (2) MP-PMLA-228/BNG/2012 (SP) FPA-PMLA-383/BNG/2012 Shri Asadulla Khan … Appellant/Applicant Versus The Deputy Director Directorate of Enforcement, Bangalore … Respondent No. 1 The Manager, Syndicate Bank … Respondent No. 2 Advocates/Authorized Representatives who appeared For the appellant : Ms. Nikita C. Jain, Advocate For the Respondent No. 1 : Shri Vikas Garg, Advocate For the Respondent No. 2 : None (3) MP-PMLA-229/BNG/2012 (STAY) & FPA-PMLA-384/BNG/2012 Smt. Zareena Taj … Appellant/Applicant Versus The Deputy Director Directorate of Enforcement, Bangalore … Respondent No. 1 FPA-PMLA-382-383-384-385/BNG/2012 Page 1 of 43

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The Manager, Syndicate Bank	…	Respondent No. 2
Shri Asadullah Khan	…	Respondent No. 3
Smt. Ayesha Najam	…	Respondent No. 4
Smt. Nasreen Najam	…	Respondent No. 5

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Advocates/Authorized Representatives who appeared

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For the appellant	: Ms. Nikita C. Jain, Advocate
For the Respondent No. 1	: Shri Vikas Garg, Advocate
For the Respondent No. 2	: None

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(4) MP-PMLA-230/BNG/2012 (SP) & FPA-PMLA-385/BNG/2012
Smt. Ayesha Najam	…	Appellant/Applicant
Versus
The Deputy Director Directorate of Enforcement, Bangalore	…	Respondent No. 1
The Manager, Syndicate Bank	…	Respondent No. 2
Shri Asadullah Khan	…	Respondent No. 3
Smt. Nasreen Najam	…	Respondent No. 4
Smt. Zareen Taj	…	Respondent No. 5

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Advocates/Authorized Representatives who appeared

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For the appellant	: Ms. Nikita C. Jain, Advocate
For the Respondent No. 1	: Shri Vikas Garg, Advocate
For the Respondent No. 2	: Mr. Adarsh Dayal, Sr. Advocate with Shri Kunal Anand, Advocate, For Syndicate Bank
CORAM
JUSTICE MAN MOHAN SINGH SHRI G.C. MISHRA	: CHAIRMAN : MEMBER

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FPA-PMLA-382-383-384-385/BNG/2012

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JUDGEMENT

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FPA-PMLA-382/BNG/2012, FPA-PMLA-383/BNG/2012, FPA-PMLA384/BNG/2012 & FPA-PMLA-385/BNG/2012

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By this common order, we propose to decide above-mentioned four appeals filed by the appellants.

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Syndicate Bank is one of the respondent in the appeals. The bank was not served with any notice which is mandatory u/s 8(2) of the Act despite of being aggrieved party.

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The brief facts are that on complaint of Chief Vigilance Officer; Syndicate Bank, Corporate Office, Gandhi Nagar, Bangalore, regarding fraudulent transactions in the sanction and dispersal of Synd Jaikisan Loan and other credit facility, CBI registered a case on 15.04.2009 against Shri H.M. Swamy, the then Branch Manager of Syndicate Bank, Mandya Branch, Distt. Mandya, Shri Asdulla Khan, of Gandhi Nagar, Mandya and others for the offences punishable under sections 120-B read with 409, 420, 467, 471 IPC and section 13(2) read with section 13(1) (d) of the PC Act 1988

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3.1. On completion of the investigation CBI, BS&FC Bangalore, filed a charge sheet under section 173 Cr. PC against Shri H.M. Swamy, Ashadulla Khan, P.K. Vitthaldas, Shri Ayub Pasha, Shri Najamodeen, Smt. Ayesha Najam, Smt Naseemunnissa, and Smt. Nasreen Taj, for the offences punishable under section 120B read with 420 and section 13(2) read with 13(1) (d) of the PC Act and substantive offence under section 420 IPC against Shri Ashadulla Khan and others.

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FPA-PMLA-382-383-384-385/BNG/2012

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3.2 The case was based on the allegation that Sh. H.M. Swamy, the then Branch Manager, Syndicate Bank, Mandya Branch, Mandya, and Sh. P.K. Vitthal Das, the then Manager, Syndicate Bank, Mandya Branch, Mandya has conspired with Asadulla Khan of Gandhi Nagar District Mandaya and others in the matter of disbursal of temporary overdrafts (TOD), sanctions/disbursal of loans and other credit facilities in favour of Sh. Ashdulla Khan. They had acted in gross violation of procedures and in excess of their delegated financial powers while extending temporarily over draft and other credit facilities to Sh. Ashdulla Khan and others. Sh. Ashdulla Khan and others defaulted in making payment resulting in a loss of Rs. 12,63,65,210/- to Syndicate Bank, Mandya Branch, Mandya. The properties offered as collateral security against the loans were not found sufficient to meet the outstanding liabilities as per the case of the bank.

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3.3. On the basis of the charge sheet filed by the CBI, BS&FC Bangalore, the Enforcement Department registered the ECIR and started, its own investigation under the Prevention of Money- Laundering Act, 2002. During investigation the “Assistant Director (PMLA) recorded the statement of Sh. Ashdulla Khan on 12.01.2012 and 27.02.2012, Smt. Ayesha Najam wife of Sh. Ashdulla Khan on 23.02.2012, Nasreen Taj, wife of Ashdulla Khan, on 27.02.2012.

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3.4. Shri Asadulla Khan, the appellant in appeal no. FPA-PMLABNG-383/2012 who was the defendant No. 1 in OC, in his statement recorded on 12-01-2012 has admitted the facts that he received money from Syndicate Bank, Mandya Branch, 1st Cross, Ashoknagar, Mandya - 571401 and had invested the said money so derived from the said syndicate bank for construction of his house and industry at Mandya and the cost of investment towards construction of his house was

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FPA-PMLA-382-383-384-385/BNG/2012

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approximately Rs. 90 lakhs and investment in M/s Farah Industry was approximately Rs. 80 lakhs. He has further stated that he utilized the said money to buy some agricultural land both wet land and dry land at Mandya. In his further statement dated 03-02-2012 (while accepting the facts) stated in his earlier statement dated 12-01-2012 as true and correct, also stated that he had invested a sum of Rs. 1 crore and above towards the construction of the house at plot measuring 37X60 ft at No. D-4/132, 5^th Cross, Gandhinagar, Mandya City, Mandya held in the name of Smt. Ayesha Najam and had also stated that he had incurred a sum of Rs. 1 crore and above in Construction of the factory M/s Faraha Industries and have spent a sum of Rs. 18 lakhs towards purchase of machinery from out of the money received from Syndicate Bank, Ashok Nagar, Mandya.

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3.5 In his further statement dated 27.02.2012 it is further stated that, in addition to the investments made towards construction of house in the name of Smt. Ayesha Najam and jnvestments towards construction of M/s Faraah Industry in the name of Smt. Ayesha Najam and purchase of dry and wet land in the name of Smt Nasreen Taj at Pandavapura, he had made 'investment of Rs. 35 Lakhs in M/s GAD Industries, No. 50-D, KIADB Industrial Area, Tubinakere, Mandya from the money so derived from Syndicate Bank, Mandya towards construction of the said M/s GAD Industries held in the name of his mother-in-law Smt. Zareen Taj. He has further stated that he has made all the payments in cash only towards civil construction of the factory and the investment in the said factory is from out of the money derived from Syndicate bank, Ashoknagar Branch, Mandya and has also informed that the market-value for M/s GAD industries excluding the land value is not less than Rs. 50 lakhs. Further Smt. Zareen Taj, Proprietor of M/s GAD Industries, vide her letter dated 28-02-2012, has confirmed to the fact stated by Mr. Asadulla Khan that she is the plot FPA-PMLA-382-383-384-385/BNG/2012 Page 5 of 43

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owner of KIADB Industrial plot No. 50-D, KIADB Industrial Area, Tubinakere, Mandya allotted to her during the year 1999 on lease cum sale agreement and her son in law Mr. Asadulla Khan has invested a sum of Rs. 35 lakhs towards the working capital, purchase of raw material and towards construction of factory shed of M/s GAD industries.

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3.6 Further a statement of Smt. Ayesha Najam who is the appellant in appeal no. FPA-PMLA-385/BNG/2012, defendant No. 2 W/o Shri. Asadulla Khan was recorded on 23-02-2012 wherein she has stated that it is a fact that CBl has booked a case against her under IPC 120B r/w 420 for cheating an amount of Rs. 12,63,65,210/- to Syndicate Bank, Mandya Branch, 1st Cross, Ashoknagar, Mandya - 571 401. She has also confirmed that, the facts stated by her husband in his statement dated 12-01-2012 and 03-02-2012 given before the Assistant Director (PMLA) are correct and true and also stated that all the financial matters were handled by her husband Mr. Asadulla Khan and she was aware about all the transactions/loan and default that had been done to Syndicate Bank, Mandya. Further she has also confirmed the fact that a palatial house and one Industry in the name of M/s Faraah Industry was constructed by her husband Mr. Asadulla Khan from out of the money derived, from Syndicate Bank, and the cost of construction of house was about Rs. 1 crore, and the cost of construction of industry was also about 1 crore.

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3.7 Further a statement of Smt. Nasreen Taj appellant in appeal no. FPA-PMLA-382/BNG/2012, Defendant No. 3 was recorded on 27-022012. In her statement dated 27-02-2012 Smt. Nasreen Taj has stated that it is a fact that CBl has booked a case; against her and others under IPC 120 B r/w 420 for cheating an amount of Rs. 12,63,65,210/- to Syndicate Bank, Mandya Branch, 1st Cross, Ashoknagar, Mandya - 571 401. She has also confirmed that the facts stated by her husband in his

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FPA-PMLA-382-383-384-385/BNG/2012

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statement dated 12-01-2012 and 03-02-2012 given before the Assistant Director (PMLA) are correct and true, and also stated that all the financial matters were handled by her husband Mr. Asadulla Khan and she was aware about all the transactions/loan availed and defaultment that had been done to Syndicate Bank, Mandya. Further she has confirmed to the fact that Properties at Sl. No. 51/7, 51/6, 51/9, 51/2, 51/8 & 52/1; at Panduvapura taluk, Kasab Hobli Doddabyadrahalli, Mandya District was bought by-her husband Shri. Asadulla Khan in her name from out of the money derived from Syndicate Bank.

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It is evident from the various statements recorded u/s 50 of PML Act, 2002 that Shri Asadulla Khan and his wives have defaulted in making repayment to the Syndicate Bank and thereby resulted in the loss to the Bank. Shri Asadulla Khan himself and his wives have confirmed to the fact that the properties were purchased from out of the money so derived from Syndicate Bank and also failed to submit the detail of his source of income in purchasing the properties from any other source. Shri Asadulla Khan and others have failed to produce any legitimate source of income till date having given several. opportunities for production of source of income.

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It is not denied by the appellants as well as the respondent no. 1 as all these witnesses admitted the facts that Defendant No. 1 has received a bank loan from Syndicate Bank, Mandya Branch, Mandya and invested the said money for construction of house and industry at Mandya for which there is charge sheet filed against him by CBI Bangalore. The borrowers themselves have admitted that the cost of investment towards construction of his house was approximately Rs. 90 lacs and investment to M/s Farah Industry was approximately Rs. 80 lacs he further stated that he utilized the said money to buy some

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FPA-PMLA-382-383-384-385/BNG/2012

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agricultural land both wet and dry at Mandya, Shri Ashdulla Khan, also furnished the zerox copy of the sale deed of his residential plot where he had constructed his house and also stated that he had invested a sum of Rs. 1 Cr. and above towards the construction of the house on plot No. D-4/132, 5^th Cross Gandhi Nagar, Mandya held in the name of Ayesha Najam and her also stated that he had incurred a sum of Rs. 1 Cr. in construction of the factory, M/s Farah Industry and had spent of Rs. 18 lacs towards purchase of machinery out of money received from Syndicate Bank, Ashok Nagar, Mandya. In other Defendants are recorded under section 50 of PMLA whose statement were admitted the case of the bank in their statement.

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In the reply filed on behalf of all the appellant, it was stated that the respondent no. 1 raised the whole investigation carried out by the CBI (BS&FC) Bangalore that there was no cheating committed by them and the Directorate of Enforcement conclusion was on the basis of CBI‟s investigation is bad and without application of mind.

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The appellants have also stated in their reply that the Special Judge for the CBI cases without appreciating correctly the CBI material framed the charges against 1^st defendant and others. Aggrieved by the order of framing of the charges by the CBI, Special Judge on the appellant had approached the Hon‟ble High Court of the Karnataka at Bangalore by way of Criminal Revision Petition. The Hon‟ble High Court has granted interim order as prayed for and stayed all further proceedings on the file of Ld. XXXII Additional City Civil and Session Judge and Special Judge for CBI cases. They have also placed the copy of the said order.

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FPA-PMLA-382-383-384-385/BNG/2012

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Details of attached properties of respective appellant which are mortgaged to Syndicate Bank, the details of which are supplied by the counsel for the bank are re-produced under:-

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Sl. No.	Particulars of the Property & Date of Acquisition	Name of the Holder of the Property	Value
1.	A house constructed by	Smt. Ayesha Najam	Rs.
	Shri Asadulla Khan at the cost of Rs. 1 crore during the year 2009 at the house site/plot measuring 37ft X 60ft property municipal	Wife of Mr. Asadulla Khan	1,00,00,000/-
	Khata No. D4/418/2481 at 5^thCross, Gandhinagar,
	Mandya City, Mandya purchased vide Registration No. 5047 registered at Sub-registrar, Mandya dated 08-08-2006.
2.	A factory M/s Faara	Smt. Ayesha Najam,	Rs.
	Industries constructed by	wife of Mr. Asadulla	1,00,00,000/-
	Shri Asadull Khan at No.	Khan
	163, 5^th Cross,
	Gandhinagar, Mandya.
	The factory plot was
	allotted by KIADB (The
	Karnataka Industrial Areas Development Board) vide
	Possession Certificate No.
	IADB/MYS/941/1846/99-

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FPA-PMLA-382-383-384-385/BNG/2012

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	2000 dated 8-11-1999 measuring 53.75 Mts X 150.00 Mtrs. Industrial Property bearing
	site No. 916, „F‟ Block, Vivekananda Nagar Layout, Mandya City
3.	Agricultural land	Smt. Nasreen Taj	Rs. 42,000/- as
	measuring 12 Guntas at	Wife of Mr. Asadulla	per sale deed
	Sy. No. 51/7, and 1 acre at	Khan	registered at
	Sy. No. 51/6 at		sub-registrar
	Panduvapura taluk, Kasab		office
	Hobli, Doddabyadrahalli,		Pandavapura on
	Mandya District with		22-01-2008
	property registration of sub-registrar Pandavapura No. 4584/07-08 dated 22- 01-2008 held in the name of Smt. Nasreen Taj D/o
	Najamudeen
4.	Agricultural land	Smt. Nasreen Taj	Rs. 1,13,000/-
	measuring 1.3 acre at Sy.	Wife of Mr. Asadulla	as per the saled
	No. 51/9, and 1.31 acres	Khan	deed registered
	at Sy. No. 51/2 at		at Sub-registrar
	Panduvapura taluk, Kasab		office
	Hobli, Doddabyadrahalli,		Pandavapura on
	Mandya District with		22-01-2008.
	property registration of
	sub-registrar,
	Pandavapura No.

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FPA-PMLA-382-383-384-385/BNG/2012

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	4580/07-08 dated 22-01- 2008 held in the name of
	Smt. Nasreen Taj D/o
	Najamudeen
5.	Agricultural land	Smt. Nasreen Taj	Rs. 44,000/- as
	measuring 1.40 acres at	Wife of Mr. Asadulla	per the sale
	Sy. No. 51/8, at	Khan	deed registered
	Panduvapura taluk, Kasab		at sub-registrar
	Hobli, Doddabyadrahalli,		office
	Mandya District with		pandavapura on
	property registration of		22-01-2008
	sub-registratrar,
	Pandavapura No. 4583 /07-08 dated 22-01-2008 held in the name of Smt.
	Nasreen Taj D/o
	Najamudeen
6.	Agricultural land	Smt. Nasreen Taj	Rs. 2,98,000/-
	measuring 2.19 acres at	Wife of Mr. Asadulla	as per the sale
	Sy. No. 52/1P-1 at	Khan	deed registered
	Panduvapura taluk, Kasab		at sub-registrar
	Hobli Doddabyadrahalli,		office
	Mandya District with		pandavapura on
	property registration of		27-05-2008
	sub-registrar,
	Pandavapura No. 371/07-
	08 dated 27-05-2008 held
	in the name of Smt.
	Nasreen Taj D/o
	Najamudeen

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FPA-PMLA-382-383-384-385/BNG/2012

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7.	A factory M/s GAD	Smt. Zareen Taj	Rs. 35 lakhs
	Industries constructed by	Mother-in-law of
	Shri Asadulla Khan at No.	Mr. Asadulla Khan
	50-D, KIADB Industrial	and Mother of Smt.
	Area, Tubinakere, Mandya	Nasreen Taj
	The factory plot was
	allotted by KIADB (The
	Karnataka Industrial Areas
	Development Board) vide
	Possession Certificate No.
	IADB/MYS/949/1657/99-
	2000 dated 08-10-1999
	measuring 84.50 Mts X
	25.00 Mtrs.

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Replies on behalf of the Syndicate Bank, as one of the respondent in the appeals, were filed who stated that the Syndicate Bank was not a party in the proceedings before the Adjudicating Authority. No notice was issued by the Adjudicating Authority to the Syndicate Bank to appear before it and make its submissions or reply to the notice. The impugned proceedings have been taken against seven properties which have been listed in para 1 of the impugned order dated 27.07.2012. These properties belong to one Asadulla Khan, his two wives Smt. Nasreen Taj, Ayesha Najam and mother of Smt. Nasreen Taj namely Smt. Zareen Taj.

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The details with respect to these 7 properties are as follows:

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(i) House bearing Municipal Khata No. D4/418/2481, 5^th Cross, Gandhinagar, Mandya City, Mandya.

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FPA-PMLA-382-383-384-385/BNG/2012

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The site of this property was purchased by Smt. Ayesha Najam under registered sale deed dated 08.08.2006, prior to construction. Thereafter Smt. Ayesha Najam was granted a loan of Rs. 25 lacs on 25.08.2006 against the security of the site and the proposed construction. In this respect Ayesha Najam created a mortgage with the Syndicate Bank on 25.08.2006 before availing the loan. Thereafter another loan of Rs. 60 lacs was granted to Ayesha Najam on 23.01.2007 after she created/continued the mortgage security in favour of the Syndicate Bank on 23.10.2007. The construction was completed in 2009.

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The land having been purchased prior to the grant of the loan by the Syndicate Bank, and having been mortgaged with the Bank thereafter the assumption that the subject property is the proceeds of a crime is misconceived and wrong. In respect of this property that since the borrower and guarantor failed to pay the loan amount to the Bank, the Bank in exercise in its rights under the Securitisation Act issued a demand notice under S. 13(2) thereof and a possession notice dated 12.03.2010. Subsequently the symbolic possession of the property was taken over by the authorized officer of the Bank. The Bank could not proceed further in taking physical possession and sale of mortgaged property in view of one Mr. Ishath Ali has brought a stay order from a local Court, Mandya against the issue of SARFAESI notices and tenancy. However, the Bank has filed Civil Revision petition at High Court of Karnataka, Bangalore in this regard.

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The Bank has also filed a recovery application OA no. 807 of 2010 in the Debt Recovery Tribunal, Bangalore against the borrower and guarantor for recovery of the amount due on the security of this property. This OA is at the stage of final arguments

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FPA-PMLA-382-383-384-385/BNG/2012

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and is likely to be decided soon. The proceedings of the recovery application is stayed by the Writ Petition filed by the defendants, for which the Bank has filed its objections opposing the writ petition and also application to vacate stay on 04.01.2014. The Hon‟ble High Court of Karnataka, Bangalore adjourned the Writ Petition to 17.01.2014 for considering the objection and application to vacate the stay, while recording the objections filed by the Bank.

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(ii). Industrial Property situated at S. No. 23, Plot no. 3-B-1, Somanahalli Industrial Area, Somanahalli, Kasaba Hobli Maddur Taluk,

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Mandya and Industrial Property bearing site No. 916, „F‟ Block, Vivkenanda Nagar Layout, Mandya City.

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The site Industrial Property situated at S.No. 23, Plot No. 3-B-1 was allotted in favour of M/s Faara Industries represent by its proprietrix, Mrs. Ayesha Nazam on 10.03.1999. The Industrial Property bearing site No. 916, „F‟ Block, Vivekananda Nagar Layout, Mandya City was purchased by Ms. Ayesha Nazam vide registered sale deed dated 16.10.2003.

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M/s Faara Industries through its proprietor availed a loan of Rs. 18 lacs on 06.12.2006 from Syndicate Bank for purchase of concrete block making machinery. Said M/s Faara Industries also availed another loan of Rs. 32 lacs on 21.09.2007 from Syndicate Bank for setting up of Hollow Brick Manufacturing Unit.

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The Industrial Property situated at S.No. 23, Plot no. 3-B-1 was mortgaged by way of collateral security to the Bank on 06.12.2006 against the loan of Rs. 18 lacs granted to M/s Faara Industries.

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The other property i.e. Industrial Property bearing site No. 916, „F‟ Block, Vivekananda Nagar Layout, Mandya City was mortgaged by way of

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FPA-PMLA-382-383-384-385/BNG/2012

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collateral security with the Syndicate Bank by M/s Faara Industries on 21.09.2007 against the loan of Rs. 32 lacs mentioned above.

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Both the properties were acquired by Ms. Ayesa Nazam in 1999 and 2003 having been acquired prior to the grant of the loan by the Syndicate Bank, and having been mortgaged to the Bank thereafter the assumption that the properties are from the proceeds of a crime is misconceived and wrong. Both the above loan accounts were rendered NPAs on 30.06.2009. Therefore, the Authorised Officer of the Bank in exercise in its rights under the Securitisation Act issued demand notice dated 05.08.2009 under S. 13 (2) thereof demanding the amount due. Thereafter, the Authorised Officer of the Bank issued possession notice dated 12.03.2010 in respect of both the industrial properties compositely mentioned as item no. 8(ii) above.

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The borrowers M/s Faara Industries filed application under S. 17(1) of the Securitisation Act before the DRT Bangalore against the possession notice of the Bank, wherein by order dated 28.04.2010 the DRT stayed the possession notice.

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As per the order by DRT, Bangalore the Bank issued fresh Demand Notice on 08.04.2011 and Possession Notice on 04.08.2011 and taken physical possession of properties on 14.10.2011 under SARFAESI Act. The Bank could not put for sale in view of the stay order given by local court at Maddur, Mandya District against initiation of SARFAESI proceedings by the Bank. Further, the Bank has filed a civil revision petition at Hon‟ble High Court of Karnataka, Bangalore and the stay order is set aside on 06.12.2012 and the Bank is in the process of Sale of the property.

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The Bank has also filed a recovery application at Debt Recovery Tribunal, Bangalore in OA. No. 509/2010 against the borrower and the guarantor for recovery of amount due on the security of this property. This OA is at the stage of final arguments and is likely to be decided soon. But the proceedings of the recovery application is stayed by the Writ Petition and for which the Bank has filed its objections opposing the writ petition and also application to stay on 04.01.2014. The Hon‟ble High Court of Karnataka, Bangalore adjourned the Writ Petition to 17.01.2014 for considering the objection and application for vacate the stay, while recording the objections filed by the Bank.

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Agricultural lands Survey No. 51/7, Dodda Byadarahalli Village, Kasaba Hobli, Pandavapura Taluk Mandya District and agricultural land bearing Survey No. 51/6, Dodda Byadarahalli Village, Kasaba Hobli, Pandavapura Taluk Mandya District.

¶82

The above agricultural lands were purchased by Nasreen Taj w/o Mr. Asadulla Khan under sale deed dated 10.01.2008/22.01.2008. Mrs. Nasreen Taj availed a farm development loan of Rs. 40 lacs on 23.06.2008 and another farm loan Rs. 15 lacs on 23.06.2008. Both the above loans were granted by the Syndicate Bank against the mortgage of the properties described as item no. 8(iii) above. Both the properties were acquired by Ms. Nasreen Taj in January, 2008 by the Syndicate Bank, and having been mortgaged with the Bank thereafter the assumption that the properties are from the proceeds of a crime is misconceived and wrong.

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Agricultural lands Survey No. 51/9, Dodda Byadarahalli Village, Kasaba Hobli, Pandavapura Taluk Mandya and portion of agricultural land bearing Survey No. 51/2, at Pandavapura Taluk, Kasaba Hobli, Dodda Byadarahalli Village, Mandya District were acquired by Nasreen Taj on 10.01.2008/22.01.2008.

¶86

Mrs. Nasreen Taj availed a farm development loan of Rs. 40 lacs on 23.06.2008 and another farm loan Rs. 15 lacs on 23.06.2008. Both the above loans were granted by the Syndicate Bank against the mortgage of the properties described as item no. 8(iv) above. Both the properties were acquired by Ms. Nasreen Taj in January 2008 having been acquired prior to the grant of the loan on 23.06.2008 by the Syndicate Bank, and having been mortgaged with the Bank thereafter the assumption that the properties are from the proceeds of a crime is misconceived and wrong.

¶87

Agricultural land Survey No. 51/8, Dodda Byadarshalli Village, Kasaba Hobli, Pandavapura Taluk Mandya District was acquired by Nasreen Taj on 10.01.2008/22.01.2008.

¶88

Mrs. Nasreen Taj availed a farm development loan of Rs. 40 lacs on 23.06.2008 and another farm loan Rs. 15 lacs on 23.06.2008. Both the above loans were granted by the Syndicate Bank against the mortgage of the property described as item no. 8(v) above. Both the properties were acquired by Ms. Nasreen Taj in January 2008 having been acquired prior to the grant of the loan on 23.06.2008 by the Syndicate Bank, and having been mortgaged with the Bank thereafter the assumption that the properties are from the proceeds of a crime is misconceived and wrong.

¶89

Agricultural lands Survey No. 52/1-P-1, Dodda Byadarahalli Village, Kasaba Hobli, Pandavapura Taluk Mandya District was acquired by Nasreen Taj and is not included in the loan obtained by Nasreen Taj.

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The Bank has also filed a recovery application at DRT, Bangalore in O.A. No. 1418/2012 against the borrower and the guarantor for recovery of the amount due on the security of this property described at item no. 8(vi) above. Now it is posted to 21.01.2014 for the defendants evidence.

¶93

Property bearing site No. 50-D, Survey No. 172, Thubinakere Industrial Area, Mandya District

¶94

The above property was allotted by KIADB to M/s GAD Industries on 08.10.1999 through its proprietor. The said property was owned by Zareen Taj. M/s GAD Industries through its proprietor availed a loan of Rs. 40 lacs on 29.06.2005 from the Syndicate Bank for the purpose of manufacture of cattle feed. M/s GAD Industries created a mortgage in respect of above property described as item no. 8(vii) above with the Syndicate Bank by way of collateral security against the said loan of Rs. 40 lacs on 29.06.2005. The above said property was having been acquired by M/s GAD Industries in 1999 prior to the grant of loan in 2005 by the Syndicate Bank. Therefore, the assumption that the property is from the proceeds of crime is misconceived and wrong.

¶95

13.1. The Bank has initiated action under SARFAESI Act by issuing a demand notice on 04.08.2009 and a possession notice on 12.03.2010 and taken physical possession of property on 14.10.2011. The Bank could not put the property for sale in view of one Mr. Zaniullah Shariff has brought a stay order against the SARFAESI proceedings.

¶96

13.2. The Bank has also filed a recovery application in O.A. No. 686/2010 in the Debt Recovery Tribunal Bangalore against the borrower and the guarantor for recovery of amount due on the security of this FPA-PMLA-382-383-384-385/BNG/2012 Page 18 of 43

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property. This OA is at the stage of final arguments and is likely to be decided soon. But the proceedings of the recovery application is stayed by the Writ Petition and for which the Bank has filed its objections opposing the writ petition and also application to vacate stay on 04.01.2014. The Hon‟ble High Court of Karnataka, Bangalore adjourned the Writ Petition to 17.01.2014 for considering the objection and application for vacate the stay, while recording the objection filed by the Bank.

¶98

It is stated on behalf of Syndicate Bank that the impugned order shows that the Adjudicating Authority has come to a prima face conclusion that all the above properties are proceeds of money laundering subject to action under the Prevention of Money Laundering Act. The authority appears to have proceeded on the basis that the CBI has registered a case of criminal conspiracy and under the Prevention of Corruption Act against two Bank officials of Syndicate Bank and Asadulla Khan and his family members alleging that the Bank Officials have conspired with Asadulla Khan and others in the matter of disbursal of various loans from the Syndicate Bank, in excess of their powers and in violation of the procedures, resulting in a loss to the Syndicate Bank. It is also alleged that the properties offered as collateral security against the land have not been found sufficient. On these allegations the authority has held that the above properties have been acquired out of proceeds of crime as defined under Section 2(u) of the Act and the same are involved in the offence of “Money Laundering” and liable for confiscation of the property by the Central Government. It is submitted that the impugned order is entirely misconceived and against the provisions of the Money Laundering Act.

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Mr. Adarsh B. Dayal, learned Sr. Counsel for Syndicate Bank, respondent argued that the entire proceedings under the PMLA in the case are without jurisdiction, because in these cases a criminal case was registered on 15.04.2009 against a Manager of Syndicate Bank and the four appellants herein, on a written complaint by the Chief Vigilance Officer, Syndicate Bank. The ED registered a case on the basis of this FIR vide F. No. ECIR/87/BZ/2010(AD-MNT) dated 14.03.2012 wherein the impugned orders of attachment have been passed. At the time of last hearing a chart was handed over giving the details of the properties attached and their being mortgaged to the Syndicate Bank. The period of the alleged offences was prior to 1st June 2009 when the offences of criminal conspiracy and cheating (Sections 120B and 420 IPC) were added in the schedule to the PMLA. Further the chart submitted last time also shows that all the properties were acquired much prior to the alleged offences. The Bank has already filed proceedings under SARFAESI Act etc. and has taken symbolic or physical possession. The property already stands transferred to the Bank by way of mortgage and in fact the borrowers do not have any right in the mortgaged property except the equity of redemption. Hence the Act does not apply the transaction in question at all. All these issues are covered by the Judgment of this Tribunal dated 14.07.2017 in State Bank of India Vs. Joint Director, and connected appeals being appeals nos. FPA-PMLA1026 and 1072/KOL/2015 (Union Bank of India).

¶102

19. The relevant paras of the case referred as under:-

¶103

We may point out that the aspect of overriding effect between the two special Act i.e. PMLA, 2002 and SARFAESI Act has been widely discussed by the Supreme Court in the case of Solidaire India Ltd. V/s. Fair Growth Financial Services Ltd. &

¶104

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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:-

¶107

―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:

¶108

―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.‖

¶109

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:

¶110

―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.‖

¶111

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

¶112

10. We may notice that the Special Court had in another case dealt withasimilar 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:

¶113

―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

¶114

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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.

¶117

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.

¶118

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

¶119

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

¶120

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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.

¶123

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.‖

¶124

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.‖

¶125

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

¶126

15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a nonobstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment 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.‖

¶127

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

¶131

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

¶132

―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:-

¶133

―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.‖

¶134

―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‖

¶135

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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.‖

¶138

―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.‖

¶139

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

¶140

“ For instance, if LIC Housing Finance Limited, which has advanced money to the petitioner in the first writ petition and which consequently has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the provisional order of attachment to lapse. Otherwise, a financial institution will be seriously prejudiced. I do not think that the Directorate of Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime. Today, if the Adjudicating Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Limited will also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This cannot be purport of the Act. ”

¶141

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

¶142

―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.‖

¶143

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:-

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“ 103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2) process…‖

¶147

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:-

¶148

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.

¶149

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.

¶150

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

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allowed and the impugned order is set aside. Since the respondent has not appeared to contest the appeal, the costs are made easy.‖

¶154

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

¶155

―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.‖

¶156

―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.‖

¶157

―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.‖

¶158

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

¶159

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

¶163

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.

¶164

“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 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.

¶165

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

¶166

56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating

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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 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 :-

¶170

“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.”

¶171

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.

¶172

57. This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are FPA-PMLA-382-383-384-385/BNG/2012 Page 29 of 43

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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.

¶175

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:-

¶176

“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.-

¶177

“(i) Firstly, if he-

¶178

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

¶179

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

¶180

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

¶181

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

¶182

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

¶183

“A. RE: DIRECT OR INDIRECT ATTEMPT:

¶184

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

¶185

“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

¶186

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but must be an act during the course of committing that offence."

¶189

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.

¶190

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

¶191

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

¶192

“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.”

¶193

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.

¶194

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

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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.”

¶200

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."

¶201

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.

¶202

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

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

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

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

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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 moneylaundering; 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.

¶213

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.

¶214

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

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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.

¶218

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

¶219

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.

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„21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R. Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M. Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants, particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were purchased by these defendants without

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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

¶224

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

¶225

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.

¶226

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.

¶227

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.”

¶228

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

¶229

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."

¶233

We having examined the entire gamut of the case, we are of view that our concerned only at present in the appeals is as to whether mortgaged properties with the bank should have been attached or not. We are also not concerned as to whether the bank has suffered any loss due to non-payment of loan amount. The said issues are to be determined by the Adjudicating Authority where the recovery proceedings are pending against the borrowers, and the same are to be decided as per its own merit to what extent the amount is due towards the loan. We are passing the order for mortgaged properties by the appellants with the bank.

¶234

It has come on record that the manager of the Bank and the borrowers entered into a conspiracy to cheat the bank in the sense that the Bank is induced to advance a loan to the borrowers which was in violation of procedure of the Bank and in excess of delegated powers of the charged manager. The Bank as an institution is not a part of the conspiracy. The loan advanced are from the funds of the bank. The

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source of funds of the bank is not illegal and it is not tainted money. The contract of loan is between the Bank and the borrowers/guarantors and not between the manager and the borrower/guarantors. The money advanced is not the money of the manager. The Bank has become the victim in the matter. The contract of loan is a legal contract which is enforceable in law. There is no connection between contract of loan between the bank and borrower and the conspiracy. The fact that the bank was induced into entering into a contract of loan with the borrower. The bank is entitled to recover the amount. Thus, right in so that the bank has taken the necessary steps thereof if borrower conspiring in the matter cannot impact the validity of the loan contract.

¶238

The impugned confirmation order purports to consider the entire case in one paragraph of the order. After narrating the facts, in para 16 of the order the Adjudicating Authority (AA) simply records that the material on record is sufficient to conclude that properties attached vide provisional attachment order have been acquired out of the proceeds of crime by the appellants. The impugned order does not disclose any reasoning. There is no reasoning to show as to how the attached properties are the proceeds of crime. The impugned order suffers from a fundamental error. There is no understanding by the Adjudicating Authority of the contents of the statute, much less its application to the facts of the case.

¶239

In view of the facts as mentioned above it cannot be said that the loan proceeds and investment made from the loan proceeds are the “proceeds of crime” under Section 2(u) of the Act? Is the property in question derived by the borrower as a result of any criminal activity? Is

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the contract of loan between bank and borrower a criminal activity? The bank is a bona fide party who is victim and at the time of sanctioning loan, the bank was not aware about the conduct of the appellant. It is a public money. No action against the bank under the schedule offences are pending so as under the PMLA, 2002.

¶243

In the present case, the Adjudicating Authority has not complied with the statutory provisions contained in S. 8. It was on record of the Adjudicating Authority that all the properties in question were mortgaged by the borrowers with the Syndicate Bank. In response to letter dated 12.08.2011 of the Assistant Director PMLA to the Syndicate Bank, the Bank had given full details and documents to the Assistant Director under the cover of its letterdated03.10.2011.(See page 163-165). The facts regarding mortgage and claim of the Syndicate Bank were also stated in the statement of the borrowers.(See page 159-161). Two of the properties in question at Sr. No. 2 and 7 of the impugned order were in actual physical possession of the Syndicate Bank under the Securitisation Act since 14.10.2011. However, no notice was issued by the Adjudicating Authority to the Syndicate Bank in terms of Section 8(1)proviso and 8 (2) proviso to Syndicate Bank of being heard to prove that property is not involved in money laundering. On this ground alone the impugned order is bad because of violation of mandatory provisions of the statute.

¶244

The criminal activity was only in the manner in which the Bank was induced to grant the loan. The grant of loan itself by the Bank cannot be termed criminal activity in respect of a scheduled offence.

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In the present case it is implicit that the borrower may have given some consideration to the charged manager for facilitating the loan. The facts of this case do not come within the mischief of S. 2(u) of the Act and therefore, the entire proceedings against the properties in question are without jurisdiction.

¶248

The Adjudicating Authority has not applied its mind to the requirements of Sections 5 and 8 of the Act. Under Section 5(1) for provisional attachment the Director must have reason to believe, which reason he has to record in writing, on the basis of material that (a) any person is in possession of any proceeds of crime and (b) proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime.

¶249

At the stage of confirmation, of the provisional attachment, on receipt of any complaint etc. If the Adjudicating Authority has reason to believe that any person committed any offence under S. 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, 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.

¶250

For determining what property can be confiscated under the Act, Sections 2(u), 3, 5(1) and 8 have to be read together. Section 2(u) defines proceeds of crime to mean any property derived or obtained by any FPA-PMLA-382-383-384-385/BNG/2012 Page 39 of 43

¶251

person as a result of “criminal activity relating to a scheduled offence”. This means that there must be a connection between the property in question and the criminal activity relating to a scheduled offence. S.3 defines the offence of money laundering. Perusal of S.3 indicates that only a person who is knowingly a party to any activity or is involved in such activity connected with proceeds of crime and projects or claims it as untainted property can be guilty of the offence.

¶252

In other words it means that a person who is in possession of any proceeds of crime but has no connection or involvement whatsoever or knowledge that any property is proceeds of crime cannot be guilty of the said offence. S.5(1) shows that before any property can be provisionally attached there must be material prima facie to show any person is in possession of any proceeds of crime which are likely to be concealed, transferred or dealt with in a manner which may frustrate the confiscation proceedings thereof.

¶253

The primary requirement for invoking S.5(1) is that there must be material to show that some proceeds of crime are in possession of any person. The requirement is that material must indicate that any property of whatever description in possession of any known person is “proceeds of crime” as defined in S. 2 (u). Finally adjudication proceedings are under S.8. Perusal of S.8 (1) shows that if any person committed an offence under S. 3 or is in possession of proceeds of crime he may be served notice to indicate the sources of his income etc. out of which or by means of which he has acquired the attached property. This obviously means that if in response to the notice, the person in possession discloses legitimate means for having acquired the property in question, the property cannot deemed to be involved in

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money laundering. Therefore, the attachment thereof cannot be confirmed.

¶257

„Proceeds of crime‟ has to be implicitly read in a logical manner. Certain amount of money may be proceeds of crime with one person but good money qua another person. Suppose a robber loots a bank vault and is caught with the loot. In such a case the loot has to be restored to the bank. This should be so as the money in the Bank vault is not tainted or illicit money. To confiscate it under the Act and to vest it in Central Government would be absurd.

¶258

There is no force in the argument of respondent no. 1 that the bank has not challenged the impugned order by filing the separate appeal. Such argument is unacceptable as the Adjudicating Authority not issued and heard the bank despite of having knowledge. Even, the respondent no. 1 cannot deny the factual position of the merit of the case of the bank. The plea raised by the respondent no. 1 is without any force. Even if the case of the appellants are examined the impugned order is liable to be set-aside.

¶259

In the present cases, it is clear that in order to treat the loan proceeds obtained by the borrower from the Syndicate Bank as the proceeds of crime, as done by the ED and the Adjudicating Authority is not correct. The said money is not illicit or tainted money, nor is the Bank a party to the criminal conspiracy hatched between the manager of the Bank and the borrower. The Bank is an innocent third party who is to be treated as a victim of the crime, if at all. The money received by the appellants were pure and untainted. It was a public money. It is wholly

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immaterial if one of the employee is mixed up with the appellant and helped them in order to obtain the loan by virtue of mis-presentation because the fact of the matter is that the money has gone to the appellants from the pocket of the bank and it was public money. The same cannot blocked till the trial in the prosecution complaint before the Special Court is over as it may take number of years. The said proceedings are to be continued even otherwise.

¶263

The complainant in the criminal case is the Bank who is victim. Had the Bank not filed a criminal complaint, perhaps the conspiracy might not have been discovered. Further if in a case like the present if the security of the Bank, is treated as proceeds of crime and is confiscated under the Act, in future, no Bank in such circumstances would make a complaint to the authorities. The trial in the prosecution complaint would take number of years. The victim cannot wait for such a long period of time, although after trial and final determination, the victim is entitled to recover the amount by selling immovable properties u/s 8(8) of the Act.

¶264

The intention of the Act could not have been to affect a third person or an innocent person as is sought to be done in the instant case. If the impugned order is correct, it would be a patently absurd situation that the only substantial securities of the bank are not available for the benefit of Bank but are vested in the Central Government as proceeds of crime. Such a result does not advance the objects of the Act.

¶265

There seems to be no decision in which the matter has been considered in the manner as sought to be explained here. The Bank FPA-PMLA-382-383-384-385/BNG/2012 Page 42 of 43

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partly relies on the case of Indian Bank Vs. Government of India and M/s Palpap Ichinichi Software International Ltd. , decided by Madras High Court on 11.07.2012, wherein it was held in similar circumstances that Sections 5, 8 and 9 of the Act cannot be used by the authorities to inflict injury of the victim on the crime i.e. the Bank (para 33). The Court also held that in such a case it was the duty of the ED/Adjudicating Authority to give notice to the Bank in such a case and hear the Bank and that without having done so the order would be vitiated.

¶268

For the above said reasons as mentioned above, the impugned order is set-aside, consequently the provisional attachment also does not survive. The same is quashed. However, it is clarified that this judgement and order is limited to the legality of attachment of properties noted above under the PMLA, 2002. This judgement & order is without prejudice to the matters pending against the appellants in criminal cases before the Special Court.

¶269