Allowed

FPA-PMLA-2206/MUM/2018 of Punjab National Bank &Ors. v/s The JointDirector Directorate of Enforcement,Mumbai

ATFP22 Oct 2018FPA-PMLA-2206/MUM/2018

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed an appeal by Punjab National Bank against a money laundering attachment order. The court held that properties mortgaged to the appellant bank before the alleged crime and purchased from clean funds could not be attached as proceeds of crime.

What did the court decide?

The impugned order dated 04.12.2017 confirming the Provisional Attachment Order is set aside, and the PAO regarding the mortgaged property is quashed.

FPA-PMLA-2206/MUM/2018 of Punjab National Bank &Ors. v/s The… — Banking and Recovery | ATFP (2018)

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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Date of Decision:- 22.10.2018

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MP-PMLA-4304/MUM/2018(COD) MP-PMLA-4305/MUM/2018(A.D.) FPA-PMLA-2206/MUM/2018

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Punjab National Bank &Ors. … Appellant/Applicant

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Versus

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The JointDirector Directorate of Enforcement,Mumbai … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Shri Rajesh Kumar Gautam, Advocate
		& Shri Aakash Sehrawat,Advocate
For the respondent	:	Mohd. Faraz, Advocate

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CORAM

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JUSTICE MANMOHAN SINGH : CHAIRMAN

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JUDGEMENT

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MP-PMLA-4304/MUM/2018(COD), MP-PMLA-4305/MUM/2018(A.D.) & FPA-PMLA-2206/MUM/2018

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By this Order, I propose to decide the present appeal filed by Punjab National Bank, which was filed against the Order dated 04.12.2017 passed by the Adjudicating Authority in O.C. No. 792 in Provisional Attachment Order (PAO) no. 07/2017 dated 16.06.2017 in ECIR No. ECIR/05/MBZO/2016 dated 11.5.2016.

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M/s Polestar Traders Pvt. Ltd. was sanctioned a Cash Credit Limit of Rs. 8 crores and Non Fund Based – ILC/FLC Credit Limit of Rs. 1.5 crores against Hypothecation of Stock and Book-Debts by the Appellant Bank on 24.6.2013. The Borrower viz., M/s Polestar Traders Pvt. Ltd. mortgaged a land situated at SE No. 588 (Part) Plot No. B-1, Netaji Apparel Park, NH-47 Main Road, BettiveeramPalayam Village, Tirupur, Andhra Pradesh, owned by Mr. Manish Babel, the Director of M/s Polestar Traders Pvt. Ltd.

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The brief facts as per the pleadings of the appellant mentioned in para -

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2.1 to 2.18 are reproduced hereunder:-

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2.1 IndusInd Bank, Mumbai filed a Complaint with D.B. Marg Police Station, Mumbai against M/s Yogeshwar Diamonds Pvt. Ltd., M/s. Shree Charbhuja Diamonds Pvt.Ltd. and their Directors viz. Shri Anil Kumar MulchandToshniwal, Shri Sunil Kumar Chokhara and Shri Anil Chokhara.

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2.2 That it was alleged in the complaint that the bank account holders of IndusInd Bank viz. M/s. Yogeshwar Diamonds Pvt. Ltd., M/s. Shree Charbhuja Diamonds Pvt. Ltd., M/s. Kanika Gems Pvt. Ltd. and their directors viz. Shri Anil Kumar MulchandToshniwal, Shri Sunil Kumar Chokhara and Shri Anil Chokhara had illegally remitted Indian Currency to the tune of Rs. 3,04,35,77,609/- (US$ 4,90,11,147.07) to abroad by submitting forged Bills of Entry to the IndusInd Bank Ltd. branches of Opera House & Fort in the form of import remittances.

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2.3 That pursuant to which D.B. Marg Police Station, Mumbai registered an thereto an FIR No.365/2015, P.S. Crime Branch, under Sections 420, 465, 467, 468 &120(B) of IPC, 1860 was registered on 24.12.2015.

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2.4 That the case was subsequently transferred to the Economic Offence Wing, Unit-I, Mumbai Police which has registered C.R. No. 93/2015 and is currently investigating the case.

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2.5 That in view thereof, the Contesting Respondent No.1 opened ECIR/05/MZO/2016 dated 11.05.2016 under the provision of PMLA and investigation was commenced in the said ECIR.

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2.6 That the respondent No.1 has alleged that huge sum was transferred to/from the accused companies. The fund received in the above companies namely M/s Kanika Gems Pvt. Ltd., M/s. Yogeshwar Diamonds Pvt. Ltd. and M/s. Shree Charbhuja Diamonds Pvt. Ltd. and the same has been remitted to overseas accounts in the guise of import advance and post import payments by submitting fake Bills of Entry.

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2.7 That during the course of investigation, it alleged by Contesting Respondent No. 1 that Shri Manish Babel one of the accused has played key role in the scheduled offence and actively involved and knowingly assisted in dealing with huge amounts of proceeds of crime (POC) which was subsequently laundered and siphoned off and has indulged in money laundering activities in terms of Section 3 of Money Laundering.

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2.8 That the Contesting Respondent No. 1 during the course of investigation identified S.E. No.588(part), Plot No. B-1, Netaji Apparel Park, NH-47, Main Road, EttiveeramPalayam Village, Tirupur, Andhra Pradesh, purchased by Contesting Respondent No.2 in the year 2013 for Rs.4,50,00,000/- alongwith other properties purchased by other accused as proceeds of crime and held the same liable to be attached in terms of “value thereof such property”.

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2.9 That it is pertinent to mention here that the above mentioned property purchased by Contesting Respondent No.2 was already mortgaged with the Appellant Bank as on 13.07.2013 for the account of M/s. Polestar Traders (P) Ltd. and that the account turned Non Performing Asset (NPA) on 31.03.2017 and proceedings under SARFESI Act was

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initiated issuing notice under Section 13(2) of the Act on 01.04.2017. Thereafter symbolic possession of the scheduled property was taken over by bank on 14.07.2017 and an application bearing no. 32/SA/2017 under Section14 of the Act for seeking physical possession of the scheduled property was filed before the DM, Tirupur by the Appellant Bank on 15.07.2017. A copy of loan sanction letter dated 24.06.2013 issued by the Appellant Bank to M/s. Polestar Traders Pvt. Ltd is enclosed as Annexure-.

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2.10 That vide the Provisional Attachment Order No. 07/2017 dated 16.06.2017 in ECIR/05/MBZO/2016 under Section 5(1) of Prevention of Money Laundering Act, 2002 was passed by the Deputy Director, Enforcement Directorate, New Delhi, inter alia, attaching the above mentioned property purchased by Contesting Respondent No. 2 along with other properties of the accused.

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2.11 That the Appellant Bank herein was made a party in Provisional Attachment Order No. 07/2017 dated 16.06.2017. It is pertinent to mention that the Appellant Bank was neither named in FIR as accused neither even charge sheeted nor any officials of the bank are involved either the scheduled offence or offence committed under the provision of Prevention Money Laundering Act. Therefore, the only reason Appellant Bank was arrayed as Defendant No. 12 in PAO No. 07/2017 dated 16.06.2017 is because the scheduled property in question in the present appeal was secured against loan with the Appellant Bank.

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2.12 That after passing PAO No. 07/2017, the Deputy Director filed a complaint dated 13.07.2017 under the provision of Section 5(5) of PMLA Act before the Adjudicating Authority, New Delhi. It is humbly submitted that in the present proceedings the Appellant herein failed to appear before the Adjudicating Authority and therefore no submission of the Appellant was recorded.

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2.13 That it is pertinent to note that Contesting Respondent No. 2 herein being Defendant No. 12 in the captioned proceedings appeared and stated that the property so attached by the authority stands in the name of M/s Polestar Traders (P) Ltd. It was further stated that even though he having admitted to have received Rs. 1,00,000/- as commission for transferring the proceed of crime. The Company M/s Polestar Traders (P) Ltd has nothing to do with the alleged transaction and nor the Adjudicating Authority arrayed the company as party involved in the alleged offence. Furthermore it was submitted by Contesting Respondent No. 2 that the acquisition of the attached property was acquired by him at a sale consideration of Rs. 2 crores. All the relevant deeds and document was produced which were entered into for the said acquisition. Also it was shown by and him as to how the amount of Rs. 2 crores was paid by cheque dated 05.06.2013 & 06.06.2013 drawn on the appellant bank.

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2.14 That it was further submitted by Contesting Respondent No. 2 and the same was recorded by the Adjudicating Authority in its order that the company M/s. Polestar Traders (P) Ltd. obtained credit facility and ILC and FLC credit by mortgaging the attached property as a collateral security to the Appellant Bank. It was clearly stated that the attached property was purchased from clean fund and has nothing to do with proceeds of crime. It was also stated that the property was purchased in the year 2013 whereas the alleged funds which were considered in alleged offence were transferred by the accused companies in the accounts of one M/s Top Nice International Ltd. much after the date of acquisition of the property.

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2.15 That it is the case of the Appellant Bank that Adjudicating Authority erred in blindly considering the attached property of Contesting

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Respondent No. 2 as property purchased out of proceeds of crime without considering the simple fact that the attached property was purchased in the year 2013 and the alleged transaction of funds took place thereafter.

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2.16 That it is stated in the impugned order that even though Contesting Respondent No. 2 admitted to have participated in the alleged offence of money laundering the money trail has not been traced and found/retrieved. It is with this reason the Enforcement Directorate has attached the only asset that was available in the name of Contesting Respondent No. 2. It was humbly submitted that the Adjudicating Authority was wrong in attaching the property without ascertaining the fact whether the attached property was purchased out of the proceeds of crime.

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2.17 That the Appellant Bank vide letter dated 19.08.2017 informed Deputy Director, Enforcement Directorate that the scheduled property was already mortgaged with PNB for the account of M/s. Polestar Traders(P) Ltd. It was that the account has turned NPA on 31.03.2017 and an application bearing no. 32/SA/2017 under Section14 of the Act for seeking physical possession of the scheduled property has been filed before the DM, Tirpur by the Appellant Bank.

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2.18. That the Adjudicating Authority based on the above stated reason confirmed the provisional attachment order in PAO No.07/2017 passed under Section 5(1) of the PMLA Act,2002 and the order of confiscation passed under Section 5(5) or Section 8(7) passed by the special court vide order dated 14.12.2017.

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The Respondent No.1 (E.D.) registered ECIR /05/MBZO/2016 on 11.5.2016 and P.A.O. No.7/2017 dated 16.6.2017 was also issued with respect to the afore-mentioned property in issue.The borrower i.e. M/s Polestar Traders Pvt. Ltd. failed to repay the loan taken from the Appellant Bank. Hence, the Appellant Bank issued a Notice dated 1.4.2017 under Section 13(2) of the SARFAESI Act, 2002.

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The Appellant Bank also filed an Application dated 15.7.2017 under Section 14 of the SARFAESI Act, 2002 before D.M. Tirupur for taking physical possession of the aforementioned land (property in issue).

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The Adjudicating Authority confirmed the Provisional Attachment Order No. 7/2017 by the impugned order dated 4.12.2017, among others, with regard to the aforementioned property in issue which has been mortgaged to the Appellant Bank, for the following reasons :-

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“Of the properties provisionally attached and described in the schedule of properties, property at serial no. 9 stands in the name of D-12. The investigation has revealed that an amount of Rs. 212987051 has been fraudulently remitted to the Hong Kong based company M/s Top Nice international trading limited by submission of forged Bills of Entry and other import documents to the Induslnd Bank limited by M/s Kanika

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Gems Pvt Ltd., M/s Shree Charbhuja Diamonds Pvt Ltd and M/s Yogeshwar Diamonds Pvt Ltd. One HarakchandMalmal shah is the director of M/s top nice international Pvt Ltd. He was apprehended at Mumbai Airport on 22.05.2017 pursuant to an LOC and was handed over to the Enforcement Directorate. He admitted of having opened the firm and account in Hong Kong on the advice of Sh. Manish Babel (D-12) for undertaking transaction in Hong Kong, so that Harakchand would get loan facility in Hong Kong. However on opening the bank account with HSBC bank, Hong Kong he got a device from the banks through which he can operate his account from anywhere in the world. He stated that he handed over the device to sh. Manish Babel (D-12). The investigation revealed that it was Mr. Manish Babel who was operating the account of the Hong Kong based company M/s Top Nice International Trading Limited with the help of device handed over by Sh. Harakchand, Director of the said company. Manish Babel has also accepted that he operated the account of M/s Top Nice International Trading Limited and funds remitted by the accused companies were further transferred to other local companies based in Hong Kong. Thus Manish Babel has played a vary prominent and significant role in the commission of the criminal activities relating to the scheduled offences. He has handled the laundered proceeds of crime to the huge extent of Rs. 212987051. As against the said activities it is noticed that Manish Babel (D-12) has purchased one plot of land at Tripur, Andhra Pradesh in the year 2013 for a total consideration of Rs. 4.50 crores.

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D-12 has taken a stand that he came to Mumbai in the year 1998 and till 2011 he did petty services in various firms and thereafter he started doing business of brokerage like cheque, RTGS and discounting. He opened a company named M/s Polestar traders Pvt Ltd in 2013, trading in metals. He stated of knowing the said Harakchand shah, as he was also in the business of cheque/ RTGS and discounting and as they were both operating from Opera House. The property attached stands in the name of M/s Pole Star Traders Pvt Ltd. It is his contention that the department has suppressed the fact that activities carried out by him regarding dealing with the proceeds of crime was on commission basis and that D-12 was paid total commission of Rs. 10000 for transfer of every USD 100000 and through this means he earned his 3.5 lakhs, out of which he paid Rs. 2.5 lakhs to the said Harakchand. It is submitted that as against earning of Rs. 100000 only his property worth crores of rupees is illogically and illegally attached by the Enforcement Directorate. It is submitted by him that the only allegations against him is that he facilitated the transfer of funds for which he was paid commission. It Is his submissions that he did not participate in any way in the commission of the scheduled offence. It is submitted by him that M/s Polestare Traders Pvt Limited is a company incorporated under the companies Act and he is one of the directors of the same. The company as such has nothing to do with the alleged transaction and/ or transfer of money. He has explained the acquisition of the property attached by M/s Polestar Traders Pvt Limited at sale consideration of Rs. 2 crores. He has referred to several deeds and documents entered into for the said acquisition. He has shown as to how the amount of Rs. 2 corres was paid by cheques drawn on Punjab National Bank, Mumbai dated 05.06.13 and 05.06.2013. It is submitted that M/s Pole star obtained cash credit facility and ILC and FLC credit by mortgaging the attached property, as 3 collateral security to PNB. It is stated by D-12 that the sum of Rs. 2 crores was arranged by obtaining advanced/ unsecured loans from third party, which were repaid after obtaining of the loan from PNB. It is contended by him that ED has placed blind reliance on the statement of Harakchand Shah recorded under section 50 of PMLA. However the statement of D-12 was not properly considered. It is contended that the

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statements were inappropriately appreciated. The D-12 had asked for opportunity of cross examining the said Harakchand Shah with regard to his statement. D-12 also asked for opportunity of cross examining the Deputy Director. It is his contention that the property is purchased from clean fund and has nothing to do with the proceeds of crime. The property is purchased in the year 2013 whereas the funds were transferred by the accused companies in the account of Top Nice International Limited much after the date of acquisition of the property.

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It is clearly emerging from the reply of D-12 that he admits of having dealt with the funds received in the account of M/s Top Nice International Trading Limited. It is beyond doubt that the said funds were remitted by the accused companies M/s Kanika gems, Yogeshwar diamonds and M/s charbhuja diamonds. The said companies are the accused companies in relation to the scheduled offences. The funds of Rs. 212987051 remitted to M/s Top Nice International Trading limited is beyond doubt the proceeds of crime. D-12, Manish Babel has thus admittedly dealt with such huge proceeds of crime and was admittedly instrumental in transferring the proceeds of crime so received by M/s Top Nice International Trading Limited to several local companies in hongkong. It is thus an admitted position that D-12 has dealt with the proceeds of crime to the extent of Rs. 212987051 and has played significant part in laundering of the said proceeds of crime further. The D-12 is thus a participant in relation to the criminal activities relating to the scheduled offence, as well a participant in the offence of money laundering. Having dealt with proceeds of crime to the extent of Rs. 212987051, which are yet not traced and found/ retrieve, the liability of J )-12 to the extent as a recipient of proceeds of crime subsists. As against the said proceeds of crime the ED could so far lay hands on the only asset in the hand of D-12 to the extent of Rs. 4.50 crores being the market value of the plot no. B-1, Netaji Apparel Park, Tripur, Andhra Pradesh, which was acquired by D- 12 at Rs. 2 crore. The liability of the attachment of the value of the proceeds of crime in the absence of actual proceeds of crime being available is well spelt out in the definition of the proceeds of crime under section 2(1)(u) of the PMLA. The provisional attachment of the property is thus well justified and proper. The same is liable to be confirmed and is hereby confirmed, the same being proceeds of crime involved in money laundering.”

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Counsel for the appellants clarifies that in the present appeal, his client is only pressing for relief against the respondent and challenging the impugned order stating that it is not sustainable on facts and law.

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The issue involved in the present appeal has already been dealt by the Full Bench of this Tribunal in the case of “ State Bank of India Vs. Joint Director, Directorate of Enforcement, Kolkata’ decided on 14.07.2016 on similar facts. The relevant paras of the said Judgement are reproduced here below:-

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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

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

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

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"8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under subsection (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in moneylaundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

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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

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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"

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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) 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 :-

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"26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in the Money Laundering Act was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of 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 Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents) MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:-

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

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"(i) Firstly, if he-

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

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(b) 'knowingly’ either assists or is a party, or

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(c) is 'actually involved⁹ 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, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Honble 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 Joti Parshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows"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 to a scheduled offence, would be utmost necessary, which however is lacking in the instant case."

¶88

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

¶89

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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.

¶91

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

¶92

20. The said sections read as follows:--

¶93

"23. Presumption in inter-connected transactions Where moneylaundering 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.

¶94

24. Burden of proof

¶95

In any proceeding relating to proceeds of crime under this Act, (a) in the case of a person charged with the offence of moneylaundering 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

¶96

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

¶97

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 no legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any

¶98

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¶99

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.

¶100

22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate Gloriosa Superba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the Gloriosa Superba 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.

¶101

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.

¶102

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.

¶103

'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 120B, 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

¶104

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¶105

offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale consideration and the money paid to the seller is also well explained.

¶106

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.

¶107

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.

¶108

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."

¶109

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

¶110

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.

¶111

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.

¶112

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¶113

Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground thatAppellantshave 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."

¶114

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.

¶115

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.

¶116

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.

¶117

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

¶118

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

¶119

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Court in relation to schedule offences and the complaint under this Act. These matters are to be considered as per law.

¶121

54. There is no money laundering in the present case as far as the banks are concerned. Due to the attachment proceedings by the ED the Appellant banks are not able to recover the public money by way of selling the properties. The proceedings for recovery have been initiated back in the year 2009. The ED in its provisional order as well as in the complaint filed before the Ld. Adjudicating Authority has admitted and acknowledged that the Properties which are mortgaged with the Banks were acquired and possessed by the respective owners much before the Respondents availed the loan from the Appellant Banks and therefore no proceeds of crime are invested in these properties. These properties have been purchased even prior to the coming in force of the PML Act in the year 2002.

¶122

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

¶123

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

¶124

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

¶125

58. Thus, in the present case, even though the Ld. Adjudicating Authority had all the reasons to believe that the abovementioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/five properties; still the Ld. Adjudicating Authority

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confirmed the provisional attachment order of the Respondent No. 1 and thus causing huge loss to the Appellant/SBI.

¶128

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

¶129

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

¶130

The meaning of money laundering as mentioned in the objects of the Act will have to be read as part of the statute because as per Supreme Court of India in Vishaka and others Vs. State of Rajasthan reported in AIR1997SC3011 lays down at para 40 that the International Conventions and Norms are to be read into them in the absence of enacted Domestic Law occupying the field when there is no inconsistency between them.

¶131

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

¶132

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

¶133

The said properties are already in the possession of the appellant bank under the SARFAESI Act. The Hon'ble Supreme Court of India in the case of Attorney-General of India and others reported in AIR 1994 SC 2179 while dealing with the matter under Conservation of Foreign Exchange and

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Prevention of Smuggling Activities Act has defined the illegally acquired properties and has held that the illegally acquired properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, the state is deprived of legitimate revenue to that extent hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant Bank it is liable to be recovered by the Appellants Banks.

¶136

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

¶137

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

¶138

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

¶139

This Tribunal has gone through the Order passed by the Adjudicating

¶140

Authority. It is very clear that despite of the Order having been passed by the Full Bench of this Tribunal, the same has been ignored by the Adjudicating Authority, who has failed to appreciate the interpretation of the Section 31-B

¶141

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of Recovery of Debt Due to Bank and Financial Institution Act, 1993, which has come into force w.e.f. 1.09.2016, notwithstanding contained in any other law for the time being inforce, the right of the 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 revenue, taxes, cesses and rates due to the Central Government, State Government or Local Authority.

¶143

The Adjudicating Authority also did not correctly deal with the provisions under Section 26-E of the SARFAESI Act, 2002, notwithstanding contained in any other law for the time being in force, after the registration of security interest, the Debts Due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority.

¶144

In the impugned order, the Adjudicating Authority has failed to consider the admitted position which was recorded by the Deputy Director of Enforcement Directorate Mumbai by letter dated 19.08.2017, that the property in issue already stands mortgaged with the Appellant Bank by M/s Polestar Traders (P) Ltd and the account has been declared NPA as on 31.03.2017 and SARFAESI action has been initiated and Symbolic possession of the property in issue has been taken by the Appellant Bank under Section 13(4) on 14.07.2017.

¶145

In the impugned order, the Adjudicating Authority has failed to consider the submissions of Contesting Respondent No.2 that the property in issue was purchased out of the clean funds and the consideration in respect of the property in issue was paid through cheque dated 5.6.2013 and 6.6.2013 drawn on Punjab National Bank, Mumbai.

¶146

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It is wrongly recorded by the Adjudicating Authority that the scheduled property as property purchased out of proceeds of crime under Section 2(1)(u). It is the settled position of law that under Section of the PMLA Act, 2002 before attaching any property it has to be ascertained by the Ld. Authority that the property was purchased out of proceeds of crime. That only after such satisfaction of the Authority such attachment order can be passed.

¶148

The Adjudicating Authority has failed to appreciate that even under Section 20(4), before authorizing retention beyond the period specified under Sub-section (1) of Section 20, shall satisfy itself that the property is prima facie involved in money laundering. The said requirement of Section 20(4) for authorizing retention beyond 180 days has to be read into Section 17(4) for allowing retention of records and property seized during search.

¶149

In the nutshell, the Adjudicating Authority has not applied his mind and did not appreciate that by virtue of Section 4A Recovery of Debts due to Banks & Financial Institution Act, 1993 as amended by Enforcement of Security Interest & Recovery of Debts Laws & Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016) dated 16.08.2016 the borrowers/mortgagors/guarantors become custodial egis on the institution of Original Application for recovery under the Act and summons upon the defendants.

¶150

The Adjudicating Authority has failed to ignore that Recovery of Debts due to Banks & Financial Institution Act, 1993 as amended by Enforcement of Security Interest & Recovery of Debts Laws & Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016) dated 16.08.2016 is contemporary and certainly much subsequent to the enactment of PMLA Act, 2002. Therefore, the properties which are mortgaged to the Appellant bank or any other financial institution and are subjected to special enactments viz. Recovery of Debts due to Banks & Financial Institution Act, 1993, Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002, the provisions

¶151

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of the PMLA Act, 2002 would not be applicable to the detriment of such secured creditors.

¶153

The impugned order is totally perverse and against the law and without application of mind that as per Section 19 (20) (A) and Section 19 (20) (B) of Recovery of Debt due to Banks & Financial Institution Act, 1993 being a Nonobstinate clause will have an over ridding effect over the PMLA Act, 2002, which states that the proceeds from sale of secured assets shall be appropriated first toward the recovery of costs and thereafter towards the debt owed to the Banks or financial institutions.

¶154

The correct interpretation of Section 31B of Recovery of Debt due to Banks & Financial Institution Act, 1993 being non obstinate clause will have an over ridding effect over the PMLA Act, 2002, which states that the rights of the 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 due to the Central Government, State Government or Local Authority.

¶155

The Respondent no. 1 has relied on the judgment of the Hon'ble Supreme Court passed in the matter of KSL & Industries Ltd. vs. ArihantThreades Ltd. & Others passed in the matter of Civil Appeal no. 5225 of 2008. The Hon'ble Three judges Bench of Hon'ble Supreme Court has discussed various decision of the Hon'ble Supreme Court, the RDDB Act and SICA. It is important to refer/quote the relevant paras of the Judgment delivered by the Hon'ble Supreme court in KSL & Industries Ltd. vs. Arihant Threaders Ltd. &Ors. (supra).

¶156

“47. In a subsequent decision in Allahabad Bank Vs. Canara Bank, this Court held that with reference to the Companies Act, the RDDB Act should be considered as a “special law” though both laws could be treated as “special laws” in respect of recovery of dues by banks and financial institutions. In a later case the question arose in the context of Special Court (Trial of offences Relating to Transactions in Securities) Act, 1992 and SICA. It was contended that in view of the special provisions contained in SICA F P A - P M L A - 2 2 0 6 / M U M / 2 0 1 8 P a g e 20 | 29

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no proceedings could have been initiated under the Special Court Act. The Court observed that though Section 32 of the SICA contained a non-obstante clause, there was a similar non-obstante clause in Section 13 of the Special Court Act. The Court observed:-

¶158

“9… This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail.”

¶159

48. This Court approved the observations of the Special Court to the effect that if the legislature confers a non-obstante clause on a later enactment, it means that the legislature intends that the later enactment should prevail. Further, it is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction two Acts can be harmoniously construed, then the latter must be adopted.

¶160

49. In view of the observations of this Court in the decisions referred to and relied on by the learned counsel for the parties we find that, the purpose of the two enactments is entirely different. As observed earlier, the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of the other is to provide for speedy recovery of debts of banks and financial institutions. Both the Acts are “special” in this sense. However, with reference to the specific purpose of reconstruction of sick companies, the SICA must be held to be a special law, though it may be considered to be a general law in relation to the recovery of debts. Whereas, the RDDB Act may be considered to be a special law in relation to the recovery of debts and the SICA may be considered to be a general law in this regard. For this purpose we rely on the decision in LIC Vs. Vijay Bahadur (supra). Normally the latter of the two would prevail on the principle that the Legislature was aware that it had enacted the earlier Act and yet chose to enact the subsequent Act with a non- obstante clause. In this case,however, the express intendment of Parliament in the non-obstante clause of the RDDB Act does not permit us to take that view. Though the RDDB Act is the later enactment, sub-section (2) of Section 34 specifically provides that the provisions of the Act or the rules thereunder shall be in addition to, and not in derogation of, the other laws mentioned therein including SICA.

¶161

50. The term “not in derogation” clearly expresses the intention of Parliament not to detract from or abrogate the provisions of SICA in any way. This, in effect must mean that Parliament intended the proceedings under SICA for reconstruction of a sick company to go on and for that purpose further intended that all other proceedings against the company and its properties should be stayed pending the process of reconstruction. While the term “proceedings” under Section 22 did not originally include the RDDB Act, which was not there in existence. Section 22 covers proceedings under the RDDB Act.

¶162

51. The purpose of the two Acts is entirely different and where actions under the two laws may seem to be in conflict, Parliament has wisely preserved the proceedings under the SICA, by specifically providing for sub- section (2), which lays down that the later Act RDDB shall be in addition to and not in derogation of the SICA.

¶163

52. We might add that this conclusion has been guided by what is considered to be one of the most crucial principles of interpretation viz. giving effect to the intention of the Legislature. The difficulty arose in this case mainly due to the absence of specific words denoting the intention of Parliament to cover applications for

¶164

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recovery of debts under the RDDB Act while enacting Section 22 of the SICA. As observed earlier, the obvious reason for this absence is the fact that the SICA was enacted earlier. It is the duty of this Court to consider SICA, after the enactment of the RDDB Act to ascertain the true intent and purpose of providing that no proceedings for execution or distraints or suits shall lie or be proceeded with. Undoubtedly, in the narrower sense an application for recovery of debt can be giving a restricted meaning i.e. a proceeding which commences on filing and terminates at the judgment. However, there is no need to give such a restricted meaning, since the true purpose of an application for recovery is to proceed to the logical end of execution and recovery itself, that is by way of execution and distraint. We thus have no hesitation in coming to the conclusion that Section 22 clearly covers and interdicts such an application for recovery made under the provisions of the RDB Act. We might remind ourselves of the oftquoted statement of the principles of contextual construction laid down by this Court in Reserve Bank of India Versus Peerless General Finance and Investment Co. Ltd. &Ors.[6], where this Court has observed:-

¶166

“33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place.”

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53. Moreover, we have found nothing contrary in the intention of the SICA to exclude a recovery application from the purview of Section 22, indeed there could be no reason for such exclusion since the purpose of the provision is to protect the properties of a sick company, so that they may be dealt with in the best possible way for the purpose of its revival by the BIFR. In State of Punjab Vs. The Okara Grain Buyers Syndicate Ltd. [7], the Court articulated the importance of preserving the beneficent purpose of the statute and observed:-

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“14. …….. We shall therefore proceed to examine the provisions of the Act on the footing that the test for determining whether the Government is bound by a statute is whether it is expressly named in the provision which it is contended binds it, or whether it “is manifest that from the terms of the statute, that it was the intention of the legislature that it shall be bound”, and that the intention to bind would be clearly made out if the beneficent purpose of the statute would be wholly frustrated unless the Government were bound.”

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54. Having answered the reference, we hold that the provisions of SICA, in particular Section 22, shall prevail over the provision for the recovery of debts in the RDDB Act. In these circumstances, as

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already directed by the two-Judge Bench of this Court, the Judgment and Order dated 23.02.06 of the High Court of Delhi is set aside. As far as the writ petitions are concerned, whether on the ground that Section 22 of the SICA acts as a bar to the recovery proceedings under the RDDB Act or whether the protection of SICA is not available to the appellant company since the recovery proceedings under the RDDB Act had been concluded, the writ petitions would have to be dismissed and are accordingly dismissed. The present appeal is allowed.”

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From the above i.e. the principle enunciated in the judgments discussed by us and the observations made by Hon'ble Supreme Court in the matter of KSL & Industries ltd. (supra).The same donot help the case of the respondent as when two special Acts have non-obstante clauses, the later statue will prevail over the earlier statute. At the same time the aim and object of both the special Acts are to be looked into to decide such issue in the manner and harmoniousconstruction has to be arrived.

¶173

In the present case, the SARFAESI Act, RDDB Act and PMLA are special Acts. The SARFAESI Act and RDDB Act are enacted earlier to PMLA. The RDDB Act and PMLA have non-obstante clause. Recently, the parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993 (after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from 01.09.2016. The Parliament in its wisdom has not excluded the application of the amended provisions to the proceedings under PMLA. In other words, had the Parliament intended to exclude the application of non-obstante clause of SARFAESI Act and RDDB Act to PMLA then it would have done so expressly as has been specifically prescribed in the amended provisions. It may also be noted here that the judgment of Hon'ble Supreme Court in the matter of KSL & Industries Ltd (supra) has been delivered in the year 2014 whereas the amendment in aforesaid two Acts have been brought in the year 2016.

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One more important thing to be noted that the Hon'ble Supreme Court in the aforesaid case KSL & Industries Ltd. (supra) matter has held that the provisions of SICA, in particular section 22, shall prevail over the provisions for the recovery of debts in the RDDB Act because of the fact that the non-obstante provision of RDDB Act has specifically excluded SICA from its application.

¶176

The conflict of non-obstante clause arising in respect of two or more enactments then the same have to be resolved by taking into consideration of policy underlying the enactment and the language used in them. The Prevention of Money Laundering Act has been enacted for forfeiture of crime involved in the money laundering which was considered necessary to deprive persons engaged in serious illegal activities and have thereby been increasing their resources for operating in clandestine manner. the Act was created to forfeit illegal properties and to prevent the money laundering activities which are threat to financial system of the country and its integrity and sovereignty. Further the question of prevalence of a subsequent legislation will only come into picture when there is a conflict between the two statutes. The Securitization Act has been enacted for the purpose of establishing a expeditious system for recovery of debts due to Banks and for matters connected therewith or incidental thereto. It only lays down a procedure for recovery of debts due to Banks. The Prevention of Money Laundering act vests the statutory authorities with a power to forfeit proceeds of crime involved in money laundering to the State. There is thus no apparent conflict between the two statues. The two statues operate in their exclusive fields. The question is only who will have his first claim on any property where the claim of the State concur with the claim of any other person. In the light of above a harmonious construction has to be arrived that keeping in view the facts of the case vis. a vis the statues involved.

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In the present case the aforesaid principle suggest that the amendments carried out in SARFAESI Act and RDDB Act in 2016 will prevail over PML Act, 2002 because the properties involved in the present appeal were untainted when the same were acquired. Even when the properties were mortgaged with the appellant Bank the same were not tainted. The allegation of commission money laundering is after the mortgage of the said properties with the appellant Bank. After the mortgage of the aforesaid properties a legal right has been accrued in favour of the appellant Bank over the said properties which cannot be taken away in the given facts and circumstance of the case. As far as borrowers are concerned (who are the accused parties) even we stress that as per law, they must face the trail in the complaint filedagainst them.

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The Respondent has also heavily relied on the judgment or order passed by this Tribunal in the matter of Chief Manager, Syndicate Bank

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Vs. Dy. Director , PMLA in Appeal no. FPA-PMLA-A-34/CAL/2009 . We

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have gone through the said order from which it appears that the facts of that appeal are quite different from the facts of the present appeal. In the said appeal proceeds of crime were used to acquired properties and those acquired properties were mortgaged with the Bank. Para 2 of the said order of this Tribunal which reflects the brief facts of the case is reproduced below to clear the cloud:-

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"2. Brief facts: M/s Hindustan International, Kolkata proprietor Sh. Gopinath Das operated and maintained current a/c 01000051007 and 03921011000797 with State Bank of India, Overseas Branch, Kolkata (in short SBI) and Oriental Bank of Commerce, Stand Road Branch, Kolkata (in short OBC) respectively with the intention to defraud the bank and submitted fake and forged documents for export of goods such as Invoice, Packing List, Quality and Quantify Certificate, SDF Declaration, Undertaking, Origin of Good Certificate, Shipping Bill, Bill of lading etc. to the bank and god these bills discounted against L/C(s) and obtained an amount of Rs. 12,28,22,463/- and Rs. 1,30,43,433/- from State Bank of India and Rs. 6,76,65,000/- from Oriental Bank of Commerce. The funds which were credited to the above current accounts, were withdrawn from bank for personal gain of ShriGopinath Das and companies owned and managed by him. Out of these funds, Sh. GopinathDas has acquired several immovable properties as detailed in the impugned order and mortgaged them with Syndicate Bank, Salt Lake Branch, Kolkata, the present appellant for availing credit facilities to the extent of Rs. 10 crores and got Rs. 4.5 crores fraudulently released from

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the appellant against fake and forged documents. As the amount of loan given by the appellant was not repaid the account became Non Performing Asset (NPA) and the appellant proceeded u/s 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short Securitisation Act) for recovery of its dues and claimed to have taken possession of the properties on 30.11.2006.

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Neither of the aforesaid judgments relied on by the Respondent no. 1 is of any help to their case in the given facts and circumstances of the case. The facts in the referred cases are not similar.

¶186

It is an admitted fact that the properties herein are mortgaged with the appellant Bank. It is also a fact that the mortgaged properties are not acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime.

¶187

The aforesaid conclusion has not be elucidated by the Adjudicating Authority in his order. It appears that the only thing was in his mind that section 71 of PMLA has an overriding effect. The provisions of PMLA shall have effect and prevail over provisions of any other Act or its provisions. To this we are not in agreement with the Adjudicating Authority because of the amendment of 2016 made in SARFAESI Act RDDB Act. The IDBI Bank is the rightful claimants of the said property which are already in its possession under SARFAESI Act. Even recovery certificate has been issued by DRT.

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The Hon‟ble Supreme Court of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) while dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, hence these properties must justly go back where they belong, the state. In the present case as they money belongs to

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the IDBI Bank it is public money. The IDBI Bank has the right to property under the Constitution of India. The property of the IDBI Bank cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the appellant. The mortgaged of property is the transfer under the Transfer of Property Act. Even the respondent is not denying the fact that the Bank is a victim party who is also innocent and is entitled to recover the loan amount. It is also not disputed by the respondent that the properties in dispute are mortgaged with Bank and it has to go to Bank ultimately. The only submission of the respondent that u/s 8(8) of PMLA, the possession be given to Bank after the trail and final outcome of criminal matters against the barrowers. We do not agree with the argument in this regard in view of amendment in the two statutes. Even otherwise the trial would take number of years. The public money cannot be stalled otherwise Banking system would be collapsed. Even otherwise, as per amendment of this provision, the proviso has been incorporated that if the victim party who is also likely to suffer, the properties attached could be disposed of before the completion of trial against the borrowers.

¶191

That the definition of “proceeds of crime” as per Section 2(u) of the PML Act comprises of the property which is derived or obtained as a result of criminal activity. In the present case, admitted position is that banks are not involved in the criminal activity nor any case is pending against them. In fact, they are the complainants and victim parties.

¶192

The Adjudicating Authority has failed to consider that the ED has attached the properties without examining the case of the bank. The evidence on record suggests that the properties were acquired by the borrowers much before the alleged date of crime. No money disbursed by the Bank from its loan account, has been invested in acquiring these properties. Furthermore, the Appellant Bank had created charge over the property prior to the date of the crime. The Bank has already filed the suit F P A - P M L A - 2 2 0 6 / M U M / 2 0 1 8 P a g e 27 | 29

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for recovery and has also taken the action under SARFAESI Act. The Adjudicating Authority failed to appreciate that depriving the Appellant Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be legally unjustified.

¶194

The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are likely to be concealed, transferred or dealt with in any manner. In this case there was absence of such requirement. The said properties are already in the possession of the Appellant Bank under the SARFAESI Act.

¶195

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

¶196

From the discussion made above, we are of the view that there is no nexus whatsoever between the alleged crime and the Bank who is mortgagee of the properties in question which were purchased before sanctioning the loan. Thus, no case of money-laundering is made out against Bank who has sanctioned the amount which is untainted and pure money. They have priority right to recover the loan amount/debts by F P A - P M L A - 2 2 0 6 / M U M / 2 0 1 8 P a g e 28 | 29

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sale of assets over which security interest is created, which remains unpaid. The Adjudicating Authority has not appreciated the facts and law involved in the matter and the primary objective of section 8 of PMLA is that the Adjudicating Authority to take a prima facie view on available material and facts produced.

¶198

In the present appeal, this Tribunal is concerned with only mortgaged property in favour of the appellant bank. As far as the criminal proceedings and complaint under PMLA, 2002 are concerned against the borrower, the same have to be decided by the Special Court in accordance with the law.

¶199

With regard to impugned order is concerned where this Tribunal is only to examine as to whether the PAO has been rightly passed as per law or not. In view of settled law on this aspect, the respondent no. 1 and adjudicating authority has not considered the Judgement of Supreme Court, High Courts and final orders passed by this Tribunal.

¶200

Considering the facts of this case as well as settled law on the subject, the impugned order dated 4.12.2017 is liable to be set aside. Consequently, the PAO dated 11.5.2016 is also quashed with regard to the mortgaged property of the appellant. The borrowers are restrained not to deal with the said properties directly or indirectly.

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