FPA-PMLA-2570/MUM/2018 of Punjab National Bank v/s The Deputy Director, Directorate of Enforcement, Mumbai, Nirav Modi, Ami Nirav Modi, Firestar Diamond International Pvt. Ltd., Firestar International Ltd., Bentley Properties Pvt. Ltd., Nirav Modi Trust, Trustee Nirav Modi, Firestone Trading Pvt. Ltd., Mak Business Enterprises Pvt. Ltd. & Radhashir Jewellery Co. Pvt. Ltd.

ATFP5 Oct 2018FPA-PMLA-2570/MUM/2018

Case brief

AI extract

What is this about?

The Tribunal issued an interim order maintaining the status quo on 21 immovable properties attached by the Enforcement Directorate. It restrained the defendants from disposing of or creating third-party interests in these assets until the appeal against the money laundering proceedings is finally disposed of on merit.

What did the court decide?

Respondent ordered to maintain status quo on 21 immovable properties; restriction imposed on respondents from disposing of or creating third-party interests in said properties.

FPA-PMLA-2570/MUM/2018 of Punjab National Bank v/s The Deputy… — Money Laundering | ATFP (2018)

¶1

APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

¶2

MP-PMLA-5012/MUM/2018 (Stay) FPA-PMLA-2570/MUM/2018

¶3

Punjab National Bank … Appellant Versus 1. The Deputy Director, Directorate of Enforcement, Mumbai … Respondent 2. Nirav Modi ... Pro-forma Respondent No. 2 3. Ami Nirav Modi ... Pro-forma Respondent No. 3 4. Firestar Diamond International Pvt. Ltd. ... Pro-forma Respondent No. 4 5. Firestar International Ltd. ... Pro-forma Respondent No. 5 6. Bentley Properties Pvt. Ltd. ... Pro-forma Respondent No. 6 7. Nirav Modi Trust, Trustee Nirav Modi ... Pro-forma Respondent No. 7 8. Firestone Trading Pvt. Ltd. ... Pro-forma Respondent No. 8 9. MAK Business Enterprises Pvt. Ltd. ... Pro-forma Respondent No. 9 10. Radhashir Jewellery Co. Pvt. Ltd. ... Pro-forma Respondent No.10

¶4

Advocates/Authorized Representatives who appeared

¶5

For the appellant : Shri Sudhir Nandrajog, Sr. Advocate with Shri Nishant Joshi, Advocate

¶6

For the respondent : Mohd. Faraz, Advocate

¶7

CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN

¶8

ORDER

¶9

05.10.2018

¶10

FPA-PMLA-2570/MUM/2018

¶11

Fresh appeal has been filed under Section 26 of PMLA Act, 2002 against the order dated 6^th August, 2018. Issue notice to the respondent. Mr. Faraz, accepts the notice. Let the reply be filed within six weeks with

¶12

FPA-PMLA-2570/MUM/2018

¶13

Page 1 of 12

¶14

an advance copy to the counsel for the appellant who may file the rejoinder by the next date.

¶15

List the appeal for final disposal on 10^th December, 2018.

¶16

As far as the interim order press by the counsel for the appellant is concerned. The separate application has been filed. Counsel for the appellant has argued the said interim application. Counsel for the appellant is pressing for interim order. As per the case of the respondent no.1, the facts of the case inter-alia as under:

¶17

i) On 16^th January, 2018 officials of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds (Partners:-Shri Nirav Modi, Shri Nishal Modi, Smt. Ami Nirav Modi and Shri Mehul Chinubhai Choksi) approached the branch office of the Punjab National Bank at Mid Corporate Branch, Brady House, Mumbai and presented a set of import documents to the branch with request to allow buyers credit for making payment to the overseas suppliers. Since there was no sanctioned limit in the name of the above firms, the bank officials requested the firms to furnish at least 100% cash margin for issuing letter of Undertakings (LOU) for raising buyer‟s credit. At this, the firms contested that they have been availing this facility in the past also but the branch records did not reveal details of any such facility having been granted to the said firms.

¶18

ii) The complainant bank further stated that on preliminary checking of records, it was observed that Shri Gokulnath Shetty, the Dy. Manager (PF No. 107272, since retired 31.05.2017), who was posted at the said branch (Mid Corporate Branch, Brady House, Mumbai) since 31.03.2010 and was working in the Foreign Exchange Department looking after the import section and Shri Manoj Hanumant Kharat, Single Window Operator, Punjab National Bank had fraudulently issued LOUs without following prescribed procedure by obtaining required request applications, documents and approval of the authorities thereto and without making entries in the Bannk system avoiding detection of the transactions, so made, transmitted SWIFT instructions to the overseas branches of Indian Banks for raising Buyers Credit & funding the Nostro Accounts of PNB. The funds so raised for payment of Import Bills have not been utilized for such purposes in many cases.

¶19

iii) The complainant bank also stated that on scrutiny of the records of SWIFT messages, it was revealed that the above named accused Shri Gokulnath Shetty and Shri Manoj Hanumant Kharat on 09.02.2017 issued 2 LOUs for & on behalf of M/s Diamond R US M/s Solar exports for USD 4415791.96 and USD 4335391.38 respectively, having due date of payment on 25.01.2018 favouring Allahabad bank at Hong Kong. The accused again on 10.02.2017 had issued 3 LOUs for & on behalf of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamond for USD 5942017.70, USD 5843161.93 and USD 6093321.10 respectively having due date of

¶20

FPA-PMLA-2570/MUM/2018 Page 2 of 12

¶21

payment thereof on 25.01.2018 favouring Allahabad Bank at Hong Kong. Shri Gokulnath Shetty and Shri Manoj Hanumant Kharat further on 14.02.2017 had issued 3 LOUs for & on behalf of /s Diamond R US, M/s Solar Exports and M/s Stellar Diamond for USD 5856885.00 USD 5862251.03 and USD 5877064.00 respectively having due date of payment thereof on 25.01.2018 favouring Axis Bank at Hong Kong. They had thereby, fraudulently issued 8 LOUs total amounting to USD 44225812.10 equivalent to Rs. 28,70,12,293.98 at the national exchange rate of a Dollar @ Rs. 63.47 per USD.

¶22

iv) Thus, the above facts and circumstances prima facie disclose that Shri Nirav Modi, Shri Nishal Modi, Smt. Ami Nirav Modi, Shri Mehul Chinubhai Choksi, all partners of M/s /s Diamond R US, M/s Solar Exports and M/s Stellar Diamond in conspiracy with Sri Gokulnath Shetty, Deputy manager (retd.,) Punjab National Bank , Manoj Hanumant Kharat, Single Window Operator, Punjab National Bank and other unknown persons committed the offence of cheating against Punjab National Bank and caused a huge wrongful loss. The public servants committed abuse of official position to cause pecuniary advantage to /s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds and wrongful loss of Rs. 280.70 crore to Punjab National Bank.

¶23

v) In view of the above, the FIR had been registered under Section 120-B r/w 420 of IPC, 1860 read with section 13(2) read with 13(1)(d) of PC Act, 1988 against following persons/individuals/entities:(a) Shri Nirav Modi, Partner of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamond. (b) Shri Nishal Modi, Partner of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds. (c) Smt. Ami Nirav Modi, partner of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds. (d) Shri Mehul Chinubhai Choksi, Partner of M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds. (e) Shri Gokulnath Sheddy, Dy. Manager (retd.), Punjab National Bank. (f) Shri Manoj Hanumant Kharat, Single Window Operator, Punjab National Bank, & ors.

¶24

3.1 Since some of the offences are scheduled offence under PMLA, an

¶25

ECIR dated 14.02.2018 was recorded for investigation under the provisions of PMLA against the above named accused persons/entities mentioned in the FIR and also against following persons/entities:-

¶26

a) Aura Gem Company Ltd., Hong Kong b) Sino Traders Limited, Hong Kong c) Tri Colour gems FZE, UAE d) Unity Trading FZE, UAE e) Sunshine Gems ltd. f) Pacific Diamonds FZE, UAE

¶27

FPA-PMLA-2570/MUM/2018

¶28

Page 3 of 12

¶29

3.2 Investigations are being carried out by the Directorate of Enforcement, Mumbai Zonal Office under the provisions of the PMLA. During the course of investigation in the matter, the PNB, vide letter dated 13.02.2018 written in continuance of its earlier complaint dated 29.01.2018 (on the basis of which the subject FIR has been registered), has informed that the above said partnership firms i.e. M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamond have got fraudulently issued a total of 150 LOUs, which are outstanding, aggregating to USD 1015.35 million equivalent to Rs. 6498.20 crores during the period from Feb, 2017 to May, 2017 by using the above modus operandi, as mentioned in the FIR. The said amount includes the LOUs amount mentioned in the subject FIR. The firm/entities wise breakup of the above mentioned LOUs amount is as under:-

¶30

Sr. No.	Name of the firs/entity	Total amount of LOUs issued (Rs. In crores)
1.	M/sDiamondRUS	2210.61
2.	M/s Solar Export	2152.88	Feb, 2017 to
3.	M/s Stellar Diamond	2134.71	May, 2017
	Total	6498.20

¶31

The total proceeds of crime in the matter arrived at Rs. 2210.61 crore in respect of M/s Diamond R US Rs. 2215.88 crores in respect of M/s Solar Export, Rs. 2134.71 crore in respect of M/s Stellar Diamond as said funds were obtained by these firms/entities by cheating the PNB bank to fraudulently obtain LOUs as mentioned in the subject FIR dated 31.01.2018 registered by the CBI. The total proceeds of crime in respect of all the said three Nirav Modi firms/entities arrived at Rs. 6498.20 crore.

¶32

Punjab National Bank (“ PNB ”) in its individual capacity and also on behalf of member banks of PNB Consortium and UBI

¶33

FPA-PMLA-2570/MUM/2018

¶34

Page 4 of 12

¶35

Consortium (collectively referred to as the “ Appellant ”). The member banks of PNB Consortium and UBI Consortium have duly authorized PNB to act on behalf of all the member banks of the two consortiums. The member banks of PNB Consortium and UBI Consortium have duly issued on authority letter in favour of PNB in this regard.

¶36

PNB, a nationalized bank, has suffered huge losses on account of fraud perpetrated by Nirav Modi and firms/companies promoted by him. Similarly, member banks of PNB Consortium and UBI Consortium have suffered huge losses on account of credit facilities which were extended by them to Pro-forma Respondent No. 4 and Pro-forma Respondent No. 5 and accordingly PNB filed a complaint with the Police authorities as it was a victim and if in these facts and circumstances the Appellant are not allowed to sell off the properties, huge loss would not only occur to Appellant but the entire economy of this country would suffer.

¶37

Ten (10) out of twenty-one (21) properties so attached by the Respondent were mortgaged by Respondent No. 4 and Respondent No. 5 (as borrowers) and Respondent No. 2 (as guarantor), Respondent No. 6 (as guarantor), Respondent No. 8 (as guarantor), Respondent No. 9 (as guarantor) and Respondent NO. 10 (as mortgagor) in favour of Appellant i.e. PNB, PNB Consortium and UBI Consortium.

¶38

FPA-PMLA-2570/MUM/2018

¶39

Page 5 of 12

¶40

Appellant had also initiated proceedings under the SARFAESI Act, 2002 and the said fact was duly pleaded before the Ld. Adjudicating Authority. It is alleged that the Adjudicating Authority however has failed to consider that in terms of Section 26E of the SARFAESI Act, 2002, secured creditor has to be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.

¶41

The Appellant has also taken an action under the Recovery of Debts and Bankruptcy Act, 1973 and this fact was also duly highlighted before the Adjudicating Authority, however, it is stated that the same was not considered. The Impugned Order impinges on the recovery proceedings initiated by Appellant before the Debts Recovery Tribunal No. 1, Mumbai. It is stated that member banks of PNB Consortium, and member banks of UBI Consortium have respectively filed separate Original Applications under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 against (i) Firestar International Limited, (ii) Firestar Diamond International Private Limited and their guarantors who have also failed to pay, have also been arraigned as defendants in the Original Application.

¶42

PNB has also filed a separate Original Application under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 against Stellar Diamonds, Solar Exports, Diamond R US, Firestar International Limited, Firestar Diamond International Private Limited, Nirav Modi, Ami Nirav Modi, ANM Enterprises Private FPA-PMLA-2570/MUM/2018 Page 6 of 12

¶43

Limited, NDM Enterprises Private Limited, Neeshal Deepak Modi, Nehal Deepak Modi, Rohin Niran Modi, Apasha Nirav Modi and Purvi Mayank Mehta. This Original Application has been filed by PNB seeking recovery of losses of INR 70,29,06,87,950.65/(Rupees Seven Thousand and Twenty Nine Crores Six Lakhs Eighty Seven Thousand Nine Hundred and Fifty and Sixty Five Paisa only), which has occurred to PNB on account of fraudulent LOUs.

¶44

The appellants are admittedly secured creditors who have obtained decree against the borrowers who have provided security. As per “The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016” which came into effect on 01^st September, 2016:

¶45

a. a new Section 31B in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 under the heading of “Priority of Secured Creditors” states that Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority .;

¶46

b. in Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 after the words "the date of the application", " and includes any liability towards Debt Securities which remains unpaid in full or part after notice of 90 days served upon the Borrower by the Debenture Trustee or any other authority in whose favour security interest is created for the benefit of holders of Debt Securities or ;" is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid.

¶47

FPA-PMLA-2570/MUM/2018

¶48

Page 7 of 12

¶49

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. MANU/TN/3743/2016” that

¶50

“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. 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.”

¶51

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. MANU/TN/3619/2016”, while upholding the Amendment Act, 2016 inserting Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and 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:

¶52

“In other words, not only should the amendment apply to pending lis, but the declaration that the right of a Secured Creditor to realize 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.”

¶53

In another Madras High Court judgment in the case of “Dr. V. M.

¶54

Ganesan vs. The Joint Director, Directorate of Enforcement

¶55

FPA-PMLA-2570/MUM/2018

¶56

Page 8 of 12

¶57

MANU/TN/2475/2014” has explained the grievances faced by the financial institutions while holding that

¶58

“ 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.”

¶59

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

¶60

under:-

¶61

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.

¶62

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

¶63

FPA-PMLA-2570/MUM/2018

¶64

Page 9 of 12

¶65

High Courts will exercise their discretion in such matters with greater caution, care and circumspection.

¶66

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

¶67

The Section 26E of the SARFAESI (Amendment) Act, 2002 is reproduced herein below for ready reference:-

¶68

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

¶69

In the present appeal, various other grounds are taken by the appellant who is seeking the status quo order in relation to all the properties owned by the Nirav Modi is relation and others. All the contentions raised by the appellant will be considered on the next date of hearing when the appeal will be considered on merit.

¶70

From the entire gamut of the matter, this Tribunal is of the view that Nirav Modi is not trustworthy who ran away from this country after cheating the banks and citizens of this country. The Govt. through various agencies have taken many steps to bring him back to home country. There is an apprehension that he may try to alter the present status of movable and immovable properties (which are attached by the respondent no. 1). The appellant and other banks are public sector banks who have been cheated by Mr. Nirav Modi. The banks are victim

¶71

FPA-PMLA-2570/MUM/2018

¶72

Page 10 of 12

¶73

parties. Their money is a clean money, it must come to the banks. Most of these are public sector banks. It is the public money.

¶74

It has been noticed from this case as well as many other similar cases that the borrowers/NPA/big corporate-houses are not paying the huge defaulted-loan amounts to the public sector banks which are owned by the Government. Most of them are not sitting on the road side and are still operating business in different names and different managements in order to avoid returning the defaulted loan amount. Even many of them (if they return the loan amount) to the banks/financial institutions, they will remain as rich businessmen, but they are intentionally and deliberately not clearing their debts. The question is why they should not pay the defaulted amount of loan. If they pay, rather they will not only help the Government, but will also help the common citizens of this country.

¶75

From the present situation and if they are reluctant to pay the default loan amount, in my view, the time has come that they should not be allowed to raise false and flimsy plea (independent legal entity), by amending law, the defaulted amount must be recovered from their personal assets and from such borrowers/NPA and big-corporate houses (who are able to pay), their companies where the loan amount has been diverted.

¶76

As far as the interim order at present sought by the appellant Punjab National Bank is concerned. I am of the consider view that strong prima-facie case have been made out against the Nirav Modi, Ms. Ami Nirav Modi and others who are liable to the same with regard to 21 properties.

¶77

FPA-PMLA-2570/MUM/2018

¶78

Page 11 of 12

¶79

Under these circumstances, I direct that the respondent shall maintain the status quo in relation to the said property and particularly Shri Nirav Modi, Ms. Ami Nirav Modi and other respondents shall not dispose of or create third party interest in respect of 21 immovable properties following 21 immovable properties of Defendants having purchase cost of Rs. 285,71,07,600/- and Fair Market Value of Rs. 523,72,37,000/ were personally attached of the said respondent here as the prima facie, I am of the view that the bank is entitle to receive the amount after sale proceeds.

¶80