Allowed

FPA-PMLA-664/HYD/2014 of Stressed Assets Stabilization Fund (Sasf) &Anr v/s The Joint Director Directorate of Enforcement, Hyderabad &Ors.

ATFP20 Sept 2018FPA-PMLA-664/HYD/2014

Case brief

AI extract

What is this about?

Tribunal allowed appeals by Stressed Assets Stabilization Fund and Life Insurance Corporation challenging confirmation of property attachment. It held that secured creditors have priority over PMLA attachments for properties acquired and mortgaged before the crime, setting aside the impugned order.

What did the court decide?

Impugned order dated 12.08.2014 set aside; provisionally attached mortgaged properties released from attachment forthwith.

FPA-PMLA-664/HYD/2014 of Stressed Assets Stabilization Fund… — Money Laundering | ATFP (2018)

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APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision : 20.09.2018

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1. FPA-PMLA-664/HYD/2014

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Stressed Assets Stabilization Fund (SASF) &Anr. … Appellants

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Versus

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The Joint Director Directorate of Enforcement, Hyderabad &Ors. … Respondents

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2. FPA-PMLA-924/HYD/2015

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Life Insurance Corporation of India … Appellant

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Versus

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The Joint Director Directorate of Enforcement, Hyderabad &Ors.

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… Respondents

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Advocates/Authorized Representatives who appeared

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For the Appellant in Appeal No. 1 : Ms. Shivangi Singh, Advocate Mr. Sanjay Bhatt, Advocate

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For the Appellant in Appeal No. 2 : None

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For the Respondent : Mr. NiteshRana, Advocate Mr. A. R. Aditya, Advocate

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

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JUDGMENT

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FPA-PMLA-664/HYD/2014& FPA-PMLA-924/HYD/2015

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Due to certain doubts the appeals were fixed for clarifications on 31.08.2018 regarding the rights of the Appellants on the sixteen landed properties mentioned in Para 6(ii) above. The matter was heard. It was pointed by the appellants that the aforesaid landed properties are also

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& FPA-PMLA-924/HYD/2015

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FPA-PMLA-664/HYD/2014

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Page 1 of 47

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mortgaged properties with the appellants as a personal guarantee. The parties were granted two weeks time to file further written submissions. Neither of the parties has filed any further written submissions. So, we have proceeded to record our findings on the basis of the materials available on record.

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Both the appeals have been preferredby the appellants named above against order dated 12.08.2014 passed by Adjudicating Authority in O. C. No. 288/2014 confirming Provisional Attachment Order No. 01/HZO/2014 dated 19.03.2014 in ECIR No. 03/HZO/2010.

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The facts and issues involve in both the appeals as well as the impugned order are same so both the appeals are taken up together for judgment and order.

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FACTS OF THE CASE:

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It is revealed from the records that, CBI, BS & FC, Bangalore registered an FIR No. RC3(E)/05/BS&FC/BLR dated 04.04.2005 against M/s. Sarita Steels & Industries Ltd. (SSIL), its Chairman and Managing Director Shri G. EswaraRao& Others,for defaulting working capital and term loan and fraudulently availing LC Limits to the extent of Rs. 10.27 Crores. On completion of investigationthe CBI filed charge sheet on 31.12.2007 under Sections 120 B read with 420, 467, 468 & 471 of IPC, 1860 & Section 13 (2) read with 13 (1) (d) of the Prevention of Corruption Act, 1988 against M/s. SSIL, G. EswaraRao& Others.

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As the offences under Section 120 B and 467 of IPC are Scheduled Offences, under paragraph 1 of Part B of the Schedule appended to Prevention of Money Laundering Act (PMLA), 2002, the Directorate of Enforcement (ED) registered ECIR No. 03/HZO/2010being authorized in terms of Sections 48

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& FPA-PMLA-924/HYD/2015

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FPA-PMLA-664/HYD/2014

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Page 2 of 47

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& 49 of PMLA read with notification GSR 441 (E) dated 01.07.2005 and initiated investigation.

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According to the allegation in the charge sheet filed by CBI,Shri G.EswaraRao, Chairman & Managing Director of M/s. SSIL fraudulently availed various loans in the nature of working capital,demand loan, cash credit hypothecation, cash credit book debt and letters of credit in the year 2000 for various purposes.

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During the course of investigation, the ED attached following properties vide the aforesaid PAO no. 1 of 2014 under Section 5 (1) of PMLA, 2002

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(i) The fixed assets of M/s. ER Textiles Limited as per the balance sheet as on 31.03.2013, as WDV (Written Down Value) as on 31.03.2013, consists of Land, Building, plant and machinery, office equipment, vehicles etc., valued around Rs. 63.28 crores. Among these the value of the land is Rs. 2,52,07,905/- and the value of the Buildings is Rs. 13,32,50,887/-, under pledge with the Banks and Financial Institutions, to the extent of Rs. 5,33,02,680/-, which is due to SSIL from M/s. ER Textiles Ltd., and lying with M/s. ER Textiles Ltd., as per annexure to the PAO, and

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(ii) The following landed properties, held in the name of Shri. G. EswaraRao, and in the name of his wife Smt. Late G. Saraswati.

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Sl. No.	Document No. & Date	Nature of the Property	Address the Proper	of ty	Prop in name	erty the of	Value of Property per SRO/Docu t (Rs.)	the as men
1.	95/1994	Wet Land 33.00 c	Sy No.45, R. Agraharam Rajam, Srikakulam ,AP.	V. , Dt	G. Eswa o	raRa	56,100
2.		Dry Land 29.00 c	Sy No.45, R.	V.	G. Eswa	raRa	49,300

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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Page 3 of 47

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			Agraharam, Rajam, SrikakulamDt ,AP.	o
3.	1607/1994	Wet Land 0.230 HC	Sy No.36, V. R. Agraharam, Rajam, SrikakulamDt ,AP.	G. EswaraRa o	96,619
4.	1511/1992	Plot 2614 1.00 C	Sy No.45 117 (4840 sqyd) V. R. Agraharam, Rajam, SrikakulamDt ,AP.	G. EswaraRa o	1,70,000
5.	25/1992	Dry Land 0.12 acres	Sy No. 118/2, plot 474, Anthakapally , Rajam, Srikakulam	G. EswaraRa o	24,000
6.		Dry Land 0.78 acres	Sy No. 118/2, plot 474, Anthakapally , Rajam, Srikakulam	G. EswaraRa o	1,56,000
7.	1154/1986	Dry Land 0.25c	Sy No. 35/2, Bondapalle, cheepurupally, Garividi, Vijayanagaram , Dt, AP.	Sub-Total Smt Late. G. Saraswati w/o Shri G. EswaraRa o	5,52,019 62,500
8.	1156/1986	Dry Land 0.75c	Sy No. 34/6, Bondapalle, cheepurupally, Garividi, Vijayanagaram ,Dt,AP.	-Do-	1,87,500
9.		Dry Land 0.75c	Sy No. 34/7, Bondapalle, cheepurupally, Garividi, Vijayanagaram DtAP.	-Do-	1,87,500
10.	1215/1986	Dry Land 0.25c	,, Sy No. 34/6, Bondapalle, cheepurupally, Garividi, Vijayanagaram DtAP.	-Do-	62,500
11.		Dry Land 0.46c	, , Sy No. 34/8, Bondapalle, cheepurupally, Garividi, Vijayanagaram	-Do-	1,15,000

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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Page 4 of 47

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			,Dt,AP.
12.	1214/1986	Dry Land 0.25c	Sy No. 34/6, Bondapalle, cheepurupally, Garividi, Vijayanagaram ,Dt,AP.	-Do-	62,500
13.	1169/1986	Dry Land 1.38 acres	Sy No. 35/4, Bondapalle, cheepurupally, Garividi, Vijayanagaram ,Dt,AP.	-Do-	3,45,000
14.	310/1992	Dry Land 2.35c	Sy No. 33/1, Bondapalle, cheepurupally, Garividi, Vijayanagaram ,Dt,AP.	-Do-	5,87,500
15.	310/1992	Dry Land 0.32c	Sy No. 33/3, Bondapalle, cheepurupally, Garividi, Vijayanagaram ,Dt,AP.	-Do-	80,000
16.	310/1992	Dry Land 2.35c	Sy No. 323/2, Bondapalle, cheepurupally, Garividi, Vijayanagaram ,Dt,AP.	-Do-	5,87,500
				Sub-Total	22,77,500
				TOTAL	28,29,519

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and the attachment of aforesaid properties has been confirmed by Adjudicating Authority vide the Impugned Order dated 12.08.2014.

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8. CASE OF THE SASF & IDBI(FPA-PMLA-664/HYD/2014)

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I. The Industrial Development Bank of India (IDBI) was arrayed as Defendant no. 5 in O.C. No. 288 of 2014. The Adjudicating Authority issued notice dated 21.04.2014 to IDBI, which was received by Stressed Assets Stabilization Fund (SASF) on 03.06.2014. It is revealed from the record that the debt of IDBI has been assigned to SASF and accordingly SASF stepped into the shoes of IDBI and represented IDBI in the present proceedings including the proceedings before the ED and Adjudicating Authority. There is no dispute in this regard. The SASF

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appeared before Adjudicating Authority and filed its reply in response to

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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Page 5 of 47

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the aforesaid notice dated 21.04.2014 received from Adjudicating Authority.

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II. The SASF has filed this appeal as it has stepped into the shoes of IDBI Bank by virtue of transfer deed dated 30.02.2004 wherein the IDBI Bank has assigned in favour of SASF all its right, title and interest in the loan agreement entered into between IDBI and the borrower company and all other collateral and underlying security interest, pledges and/or guarantees created/procured by the borrower company in favour of IDBI. It is seen from the impugned order that the learned Adjudicating Authority has considered the reply filed by SASF for IDBI.

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III. An application dated 05.01.2015 is filed on behalf of SASF, received in this Tribunal on 07.01.2015 wherein it is prayed to amend the appeal to include IDBI as Appellant no. 2 and also prayed to permit the amended memo of parties, filed along with the aforesaid application, to take on record. The said application has been registered as MP-PMLA1367/HYD/2015. The said application has been allowed vide order dated 22.07.2015.

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IV. The appellants have filed written synopsis as well as list of dates and events from which, inter-alia , it is revealed that:-

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a) On 10.05.2001, IDBI granted financial assistance to ER Textiles Ltd. (Respondent no. 4) comprising of termed loan of Rs. 150,00,00,000/for setting up facilities of composite textile unit as 100% EOU with modern processing and finishing facilities for manufacture of high value cotton shirts and trouser fabric. On the same day R-4 had created security interest in favour of IDBI Bank (A-2) by way of hypothecation deed of movable property.

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b) On 24.04.2002, R-4 had also mortgaged immovable properties situated in HosurTaluk, Krishnagiri District in the state of Tamil Nadu by depositing title deeds with A-2. Guarantee agreement dated 10.05.2001 was executed by ShriGrandhiEswaraRao, Smt.

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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GrandhiSarswathi and Ku. GrandhiSarita in favour of IDBI. The properties of Borrower Company which are mortgaged to IDBI the Appellant no.2 is not sufficient to recover the dues of the Appellant. Hence the Appellant had invoked the Guarantees of ShriGrandhiEswaraRao, Smt. GrandhiSaraswathi and Ms. GrandhiSarita and is in the process of taking measures to recover the dues of the Appellant from the properties of the said Guarantors. ER Textiles had availed disbursement of loan aggregating to Rs. 71.16 crore from time to time. The borrower company in terms of the amortization schedule contained in the agreement.

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c) During 2001-2003, financial assistance in form of the Funded Interest Term Loan by funding the interest fallen due during November, 2001 to April 2003 aggregating to Rs. 15.42 crore. This amount together with interest @ 14.50% p.a. was payable in 24 quarterly installments commencing from May, 2004. However, the borrower company failed and neglected to pay IDBI and consequently was classified as a Non Performing Asset in accordance with the RBI guidelines.

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d) On 30.09.2004, a transfer deed was executed by IDBI in the favour of the appellant no.1 herein, unconditionally and irrevocably sold, assigned, transferred and released the loan sanctioned by IDBI to ER Textiles to SASF.

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e) On 31.03.2006, at the request of M/s. ER Textiles Ltd., the Appellant approved the Restructuring Proposal of the M/s. ER Textiles Ltd., however the payment was still not made.

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f) On 31.12.2007, Charge Sheet was filed under Section 120(b) read with Section 420, 467, 471 of IPC and Section 13(2) of the Prevention of Corruption Act, 1988 by CBI against the Respondent no. 2 herein. M/s. ER Textiles is not named as an accused in the Charge Sheet.

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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g) On 06.02.2012, upon default, the Appellant revoked the one time settlement of the dues of Rs. 7800 Lakh.

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h) On 13.09.2013, the appellant, issued notice to the borrower company, under Section 13(2) of the SARFAESI Act, for repayment of their dues. If notice under Section 13(2) has been issued then the secured interest i.e. the mortgaged property shall be deemed as attached [Transcore v. Union of India &Anr., (2008) 1 SCC 125] .

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i) On 19.03.2014, PAO was passed provisionally attaching the properties of M/s. ER Textiles Ltd., G.EswaraRao, Late Smt. G. Saraswathi through her daughter Smt. SaritaBorugu on the basis that R-4 have been termed as proceeds of crime for the reason that Rs. 5,30,55,500/- was allegedly advanced by SSIL(R-2) company in February, 2009 to R-4 company as share application money against which no shares were allotted.

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j) On 03.06.2014, Show Cause Notice received by the Appellant from the Adjudicating Authority.

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k) On 12.08.2014, Adjudicating Authority passed the impugned order confirming the PAO.

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l) The appellant is neither an FIR named accused nor charge sheeted nor involve either in the Schedule Offence or offence committed under the provisions of PMLA.

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m) Respondent no. 4 Company has not been made accused in the ECIR, than the properties of Respondent no. 4 Company as mortgaged to the appellant could not have been attached under PMLA as the same cannot by any stretch of imagination be termed as proceeds of crime.

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n) In terms of Section 41 of Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 provides as under:-

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31B. Priority to secured creditors:-

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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Notwithstanding anything contained in any other law for the time being in force, 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 dues including revenue, taxes, cesses and rates due to the Central Government, State Government or local authority‖

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o) In view of the aforesaid non-obstante clause which came in effect on 01.09.2016, the rights of secured creditors have priority over the government dues and therefore, the attachment order deserves to be set aside.

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p) The appellant has referred to this Tribunal‟s order dated 14.07.2017 passed in the matter of State Bank of India Versus Joint Director, Directorate of Enforcement, Kolkata in FPAPMLA-1026/KOL/2015.

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9. CASE OF THE LIC (FPA-PMLA-924/HYD/2015)

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This appellant is arrayed as Defendant no. 6 in O.C. No. 288 of 2014 and Respondent no. 6 in the appeal filed by SASF in Appeal No. FPA-PMLA664/HYD/2014.

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The appellant (LIC) has filed list of dates and events from which, interalia , it is revealed that:-

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a) On 25.05.2001, IDBI granted financial assistance to M/s. ER Textiles Ltd. (Respondent no. 4) comprising of termed loan of Rs. 150,00,00,000/- for setting up facilities of composite textile unit as 100 % EOU with modern processing and finishing facilities for manufacture of high value cotton shirts and trouser fabric. On the same day R-4 had created security interest in favour of LIC (A-2) by way of hypothecation deed of movable property.

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b) On 24.04.2002, R-4 had also mortgaged immovable properties situated in HosurTaluk, Krishnagiri District in the state of Tamil Nadu by depositing title deeds with A-2. Guarantee agreement dated

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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Page 9 of 47

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10.05.2001 was executed by ShriGrandhiEswaraRao, Smt. GrandhiSarswathi and Ku. GrandhiSarita in favour of IDBI (Lead Institution). The properties of Borrower Company which are mortgaged to IBBI/SASF the Appellant are not sufficient to recover the dues of the Appellant. Hence the Appellant had invoked the Guarantees of ShriGrandhiEswaraRao, Smt. GrandhiSaraswathi and Ms. GrandhiSarita.

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c) On 01.10.2001, Respondent no. 4 defaulted in paying the very first installment due on 01.10.2001.

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d) On 01.05.2004, Respondent no. 4 defaulted in payment of first installment of principal amount due on 01.02.2004. Recall Notices in regard to same were sent by LIC on 01.02.2005 & 26.02.2005. However, the borrower company failed and neglected to pay LIC and consequently was classified as a Non Performing Asset in accordance with the RBI guidelines.

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e) On 30.09.2004, a transfer deed was executed by IDBI in the favour of the appellant SASF herein, unconditionally and irrevocably sold, assigned, transferred and released the loan sanctioned by IDBI to M/s.ER Textiles Ltd.to SASF.

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f) On 26.05.2006, at the request of M/s. ER Textiles Ltd., the Appellant LIC approved the Restructuring Proposal of the M/s. E R Textiles Ltd., however the payment was still not made.

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g) In 2006, since the Respondent no. 4 was defaulting in payment in accordance with the restricted proposal also, LIC approached DRT Mumbai but the same could not be proceeded as the Respondent No. 4 approached BIFR in 2008 and sought OTS.

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h) On 31.12.2007, Charge Sheet was filed under Section 120(b) read with Section 420, 467, 471 of IPC and Section 13(2) of the Prevention of Corruption Act, 1988 by CBI against the Respondent no. 2 herein.

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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M/s. ER Textiles Ltd. is not named as an accused in the Charge

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Sheet.

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i) On 05.02.2001, Consultant of Respondent no. 4 made statement before BIFR that an improved OTS has been sent to the SASF for approval and a similar improved OTS will be sent to LIC for its outstanding amount towards Respondent no. 4 shortly, but the same has not been received till date.

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j) On 13.09.2013, the appellant SASF, issued notice to the borrower company, under Section 13(2) of the SARFAESI Act, for repayment of their dues. If notice under Section 13(2) has been issued then the secured interest i.e. the mortgaged property shall be deemed as attached [Transcore v. Union of India &Anr., (2008) 1 SCC 125] .

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k) On 19.03.2014, PAO was passed provisionally attaching the properties of M/s. E R Textiles Ltd., ShriG. EswaraRao, Late Smt. G. Saraswathi through her daughter Smt. SaritaBorugu on the basis that R-4 have been termed as proceeds of crime for the reason that Rs. 5,30,55,500/- was allegedly advanced by SSIL(R-2) company in February, 2009 to R-4 company as share application money against which no shares were allotted.

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l) On 03.06.2014, Show Cause Notice received by the Appellant from the Adjudicating Authority.

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m) On 12.08.2014, Adjudicating Authority passed the impugned order confirming the PAO.

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10. CASE OF THE ENFORCEMENT DIRECTORATE (Respondent No. 1)

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I. It is the case of R-1, inter-alia , that they have registered ECIR No. 03/HZO/2010on dated 31.12.2010 on the basis of charge sheet dated 31.12.2007 filed by CBI against SSIL &Ors. under Section 120 B read with Sections 420, 467, 468 & 471 of IPC and Sections 13(2) read

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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with 13(1)(d) in RC3(E)/05/CBI/BS&FC cognizance of which has been taken by the designated Court.

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II. It is the contention of R-1 that the charge sheet filed by CBI revealed the role played by various persons in the Commission of Schedule Offence within the meaning of Section 2(1)(y) of the PMLA, including ShriGrandhiEswaraRao, the Chairman & Managing Director of SSIL. The allegations in the charge sheet are that the working capital limits to SSIL were renewed by the Circle Credit Committee of State Bank of India, Hyderabad on 31.03.2000 by sanctioning working capital demand loan of Rs. 480 lakhs, cash credit hypothecation of Rs.45 lakhs, cash credit book debts of Rs. 75 lakhs and letter of credits limits of Rs. 600 lakhs during the year 2000. The LC limits sanctioned to the company was for opening documentary inland LCs for the procurement of raw materials such as steel blooms, Billets etc., mainly from RashtriyaIspat Nigam Limited (RINL).

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III. It is further contended by R-1 that, in the charge sheet, it is further alleged that the letters of credit facility sanctioned by SBI was grossly misused by SSIL repainted by Shri G. EswaraRao, C & MD of SSIL in conspiracy with other accused. The LCs stated to be established in favour of RINL for the purchase of raw materials were found to be false and fabricated and without any actual purchase or movement of goods, false and forged bills of exchange purported to be of RINL were fabricated and discounted against the LCs. The fraudulent LC transactions and failure of the company to repay the term loans resulted in outstanding liability of Rs. 10.27 Crores plus accrued interest and other charges aggregating to Rs. 15.95 Crores. Against the above liability a compromise payment of Rs. 7.14 Crores was made by the accused under the One Time Settlement Scheme. The compromise payment accepted by the bank involved write off of Rs. 3.13 Crores and waiver of notional interest and charges of Rs. 5.68

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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Crores, totaling to Rs. 8.81 Crores. The charge sheet filed by CBI cites this amount. The other accused have actively participated in the above mentioned fraud, as detailed in the above mentioned CBI charge sheet.

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IV. It is also the case of R-1 that during the course of investigation the statement of S/Shri G. EswaraRao, N.Kamaraju, N.Subramaniam, V.SrinivasVaraprasad, B.U.Chandrasekhar, T.R.Rajagopalan and V.Veerasamy, have been recorded under Section 50 of the PMLA, 2002.

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V. The relevant portion of the statements of Shri G. EswaraRao and Shri P.S.C.NageswaraRao, M/s. Balaji Associates, statutory auditors of both SSIL(R-2) and M/s. E R Textiles Ltd. (R-4), as reflected in para no. 6.8& 6.9in PAO are reproduced below:

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“ 6.8. Shri G. EswaraRao is also the Chairman of M/s. ER Textiles Ltd. and had around 77% of share holding in M/s. ER Textile Ltd. and is in the control of the affairs of M/s. ER Textile Ltd. He in his statement dated 19.02.2014. further stated that the share application money amounting to Rs. 5,30,55,500/-, has been advanced by SSIL, in February, 2009, to M/s. ER Textiles Ltd., one of their group companies, engaged in the manufacture of grey fabric at Hosur, Tamil Nadu and is a running unit; that no shares were allotted to SSIL, till now, and M/s. ER Textiles Ltd., is statutorily return the said amount to SSIL; that he was the Chairman and Managing Director in SSIL, and Managing Director in M/s. ER Textiles Ltd., during the said period, and this transaction has been done under his instructions and he is in the knowledge of these matters; that as M/s. ER Textiles Ltd., is running in losses, they could not return the share application money to SSIL, till date; that another advance amount of Rs. 2,47,180/- is also due from M/s. ER Textile Ltd., to SSIL and thus, as on date a total of Rs. 5,33,02,680/- is to be paid by M/s. ER Textiles Ltd., to SSIL. Shri G. EswaraRao, also furnished the details of some properties held in his name and in the name of his wife Smt. Late G. Saraswati.

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6.9. Shri P.S.C. NageswaraRao, M/s. Balaji Associates, statutory Auditors of both M/s. Sarita Steel and Industries Ltd., & M/s. ER Textiles Ltd., in his statement dated 14.02.2014, inter-alia stated that SSIL was earlier engaged in manufacture of Iron and steel products and in 2008 and 2009, SS&IL sold its plant, machinery and other assets and at present the company is only ashell company without any business operations; that the company is in accumulated losses to the tune of Rs. 88,65,97,840/- as per the audited balance sheet for the year ending March, 2013; that an investment of Rs. 5,30,55,500/- towards share application money was made by SS&IL, in their sister concern M/s. ER Textiles Ltd., and share have been not allotted so far and M/s. ER Textiles has to return the investment statutorily to the major shareholder in M/s. ER Textiles Ltd., Shri G. EswaraRao with 77% and is in control of the affairs of the company; that the details of the fixed assets of M/s. ER Textiles Limited as per the balance sheet as on 31.03.2013, are submitted as WDV(Written Down Value) as on 31.03.2013, and it consists of Land, Building, plant and machinery, office equipment, vehicles etc., valued around Rs. 63.28 crores; that the share application monies received are statutorily refundable and the same has been specifically mentioned in Note No. 2.5 of the balance sheet for the year ending 2012-13. ”

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VI. The Respondent no. 1, in the PAO at Para nos. 9, 10 & 12, so far as it relates to M/s. E R Textiles Ltd., has stated as below:-

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“ 9. Investigation revealed that SSIL, as of now is a company on paper. The Proceeds of Crime amounting to Rs. 8.81 crore has mingled with the other legitimate sources of amounts of SSIL/Shri G. EswaraRao and has been used over a period of time. But for this amount, an equal amount of negative balance would have existed in the books of account of SSIL/Shri G. EswaraRao, which is the value of any such property (proceeds of crime) constitutes property involved in money laundering within the meaning of ―Property‖ as defined under Section 2(1)(v) of the PMLA, 2002.

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10. Section 2(1)(u) of PMLA, 2002envisages any property derived or obtained, directly or indirectly by any person as a result of criminal activity relating to scheduled offence or the value of any such property (emphasis supplied) as ―Proceeds of Crime‖. In view of this the value of any such movable or immovable property with SSIL/Shri G. EswaraRao equivalent to the proceeds of crime amounting to Rs. 8.81 crores would constitute proceeds of crime, in this case.

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The investigation conducted so far, as to the identification of properties, in the name of SSIL and Shri G. EswaraRao revealed the following:

¶128

a. M/s. Sarita Steel and Industries Ltd., as of now is a company on paper. As per the balance sheet for the YE 31.03.2013, a major investment of Rs. 5,30,55,500/- towards share application money by SS&IL, in their sister concern M/s. E R Textiles Ltd., has been noticed and the shares have been not allotted so far and M/s. E R Textiles Ltd., has to return the investment statutorily to SS&IL. Further, an amount of Rs. 2,47,180/- is also due from M/s. E R Textiles Ltd. to SSIL, as per the loans and advances details in the above Balance Sheet. Thus a total of Rs. 5,33,02,680/- has gone from SS&IL to M/s. E R Textiles and is due to SS&IL. Shri G. EswaraRao, the then Chairman and Managing Director of SSIL, and the Chairman and major share holder of M/s. E R Textiles Ltd., and Shri P.S.C. NageswaraRao, M/s. Balaji Associates, statutory Auditors of both M/s. Sarita Steel and Industries Ltd., & M/s. E R Textiles Ltd., in their respective statements given under FEMA, 1999, categorically admitted that the above amount of Rs. 5,33,02,680/- of SSIL is lying with M/s. E R Textiles Ltd. No other tangible property is available with SSIL, except the above amount lying with M/s. E R Textiles Ltd.

¶129

b. The fixed assets of M/s. E R Textiles Ltd. as per the balance sheet as on 31.03.2013, as WDV (Written Down Value) as on 31.03.2013, consists of Land, Building, plant and machinery, office equipment, vehicles etc., valued around Rs. 63.28 crores. Among these the value of the land is Rs. 2,52,07,905/and the value of Buildings is Rs. 13,32,50,887/-. However, M/s. E R Textiles had taken term loans from different financial institutions and charge exist on

¶130

FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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Page 15 of 47

¶133

the company‘s assets with Industrial Development Bank of India, IDBI Towers, Mumbai, Life Insurance Corporation of India, Yogakshema, Mumbai, Bank of Punjab Limited, Mumbai, State Bank of India, Industrial Finance Branch, Kolkata, Union Bank of India, Khairtabad, Hyderabad and Central Bank of India, Hosur.

¶134

c. Sixteen lands/properties held in the name of Shri G. EswaraRao, the then Chairman and Managing Director of M/s. E R Textiles Ltd., and in the name of his wife Smt. Late G. Saraswati, valued around Rs. 28,29,519/- have been identified. These details of these landed properties have been got confirmed from the concerned Sub-Registrars of the Department of Stamps &Regsitration, Govt. of Andhra Pradesh. Shri G. EswaraRao and his only daughter Smt. B. Saritha are the legal heirs to Smt. Late G. Saraswati, and Shri G. EswaraRao is entitled to fifty percent share of the properties held in the name of his wife Smt. Late G. Saraswati.

¶135

11.1 ………………………………………………………….

¶136

12. Investigation revealed in identification of the following immovable properties in the name of Shri G. EswaraRao, and M/s. E R Textiles Ltd., (to the extent of SSIL‘s amount lying with them) which would be considered to form the value of property equivalent to the proceeds of crime, as discussed above. ”

¶137

VII. The Respondent no. 1 reflected the details of landed properties, as mentioned in Para no. 6 above, stated that, of the said properties, property at Serial no. 1 to 6 are in the name of Shri G. EswaraRao, valued at around Rs. 5,52,019/-. The properties at Serial no. 7 to 16 are in the name of G. EswaraRao‟s wife, Smt. Late G. Saraswati. Shri G. EswaraRao and his daughter Smt. B. Saritha are the legal heirs of Smt. Late G. Sarawati and Shri G. EswaraRao is entitled for fifty percent share of these properties, held in the name of his wife, which works out to Rs. 11,38,750/-. The total value of immovable properties of Shri G. EswaraRao, works out to Rs. 16,90,769/-.

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

¶140

Page 16 of 47

¶141

The fixed assets of M/s. E R Textiles Ltd. as per the balance sheet as on 31.03.2013 which consists of land, building, plant and machinery, official equipments, vehicles etc., valued around Rs. 63.28 Crores. Among these the value of land is Rs. 2,52,07,905/and the value of buildings is Rs. 13,32,50,887/-. The respondent no. 1 provided details of land and buildings of M/s. E R Textiles Ltd. in the Annexure to PAO.

¶142

VIII. The Respondent no.1 has passed order of attachment of immovable properties mentioned above as equivalent value of Rs. 16,90,769/along with other properties as mentioned in the last paraof PAOdated 19.03.2014.

¶143

IX. It is seen from Page no. 33-34 of the impugned order that in its rejoinder before the Adjudicating Authority the Respondent no.1 had submitted, inter-alia ,that:

¶144

―i). It is not disputed that the defendant no.3, M/s. E R Textiles is a separate legal entity and that the said company is not charged of any offence in the subject CBI charge sheet. In the present case, the money generated in the commissioning of the schedule offence, has been mixed with the normal monies of the defendant no.1, and the same were continuously being projected as untainted ones, till the assets of the company were sold during 2011 & 2012, and the defendants have successfully established that defendant no.1 is no longer company with any tangible assets and without any operations. The investigation under PMLA, conducted so far had located such projected money to the tune of Rs. 5.33 Crore lining with their another group company, M/s. E R Textile Ltd. defendant no. 3 herein. The Provisional Attachment Order and the complaint and the documents relied therein, had clearly brought out the fact of receipt of these amounts from defendant no.1, who is also accused in the CBI charge sheet to the defendant no. 3, the group company of defendant no. 2. The statutory financial returns of defendant companies no. 1 & 3, the statements recorded under Sec.50 of PML Act, 2002, of defendant no. 2, who is in control of

¶145

FPA-PMLA-664/HYD/2014

¶146

& FPA-PMLA-924/HYD/2015

¶147

Page 17 of 47

¶148

the affairs of both these defendant companies and the statutory auditors of both these defendant companies, clearly shows that the fact of receipt of these amounts from defendant no.1, to defendant no.3.

¶149

ii). Contents to the extent of mortgage of the properties of the defendant company no.3 is not disputed. IDBI, the defendant no.5 herein has been made as a defendant as charge holder only.

¶150

As per Sec.71 of PMLA 2002, the provisions of PMLA shall have overriding effect notwithstanding anything inconsistent there with contained in any other law for the time being in force, including SARFAESI Act. The above proposition has been upheld by the Apex Court in the cases of Solidaire India Ltd. AIR 2001 SC 958:JT 2001(2) SC 642 (MANU/SC/0009/2001), Bank of India VsKetan Parekh -2008(8) SCC 148:AIR 2008 SC 2361 (MANU/SC/0009/2001) and Narcotic Control Bureau Vs. Krishnalal in C.A. Nos. 810-811/1989 (MANU/SC/0152/1991). The Prevention of Money Laundering Act is aimed at preventing money laundering and to provide confiscation of property derived from or involved in Money laundering and for matters concerned therewith and incidental thereto.‖

¶151

We have gone through the impugned order. The Adjudicating Authority in his order, so far as the case of present appellants are concerned, has negated the contentions of the appellants herein on all legal issues raised by them. In the discussion part of the impugned order it is held by the Adjudicating Authority that PMLA enactment is subsequent to the SARFAESI Act, 2002 and therefore, provisions of PMLA Act will prevail as it has received the assent of President at a later date. It is also held by him that the provisions of PMLA are retrospective in nature and on present facts it is also continuing offence. It is further held that since the definition of „proceeds of crime‟ includes the value thereof the properties and as such these properties can also be attached under PMLA. Having held as above the Adjudicating Authority confirm the Provisional Attachment Order

¶152

FPA-PMLA-664/HYD/2014

¶153

& FPA-PMLA-924/HYD/2015

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Page 18 of 47

¶155

holding that “On a thorough perusal of the PAO, Complaint, the FIR and the Charge Sheet, the investigations conducted by the ED and the statements recorded u/s 50 of the PMLA and on careful consideration of the arguments advanced on behalf of the complainant & defendants undersigned comes to the prima facie conclusion that the defendant have committed the Scheduled Offences, generated proceeds of crime and laundered them. No doubt the properties attached are proceeds of crime or value thereof and are involved in money laundering. Undersigned therefore orders confirmation of the above Provisional Attachment Order. This order shall continue during the pendency of the proceedings relating to any offence under this Act before court or under the corresponding law of any other country, before the competent court of criminal jurisdiction outside India as the case may be and become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58 B or sub-section 2A or section 60.”

¶156

12. DISCUSSIONS/FINDINGS

¶157

a) It is seen from the record that the IDBI Bank and LIC extended various loans to M/s. E R Textiles Ltd., as mentioned above, in 2001. From the pleadings it appears that, against the loan, movable and immovable properties of M/s. E R Textiles Ltd. and of Shri G. EswaraRao have been mortgaged and personal guarantee with both the IDBI and LIC.

¶158

b) Out of the aforesaid 16 properties, properties at serial no. 1 to 6 are in the name of Shri G. EswaraRao valued at Rs. 5,52,019/- and properties at serial no. 7 to 16 are in the name of his wife Smt. Late G. Saraswathi which is valued at Rs. 22,77,500/-. The ED has taken value of 50% of the said properties of Smt. Late G. Saraswathi, being the share of Shri G. EswaraRao after her death. The Respondent no. 1 has valued the property of Shri G. EswaraRao including the value of 50% of his share of

¶159

FPA-PMLA-664/HYD/2014

¶160

& FPA-PMLA-924/HYD/2015

¶161

Page 19 of 47

¶162

properties in the name of his deceased wife to the tune of Rs. 16,90,769/-in total.

¶163

c) We have carefully gone through the materials on record. It is not the case of the Respondent no. 1 that the properties in question have been acquired out of proceeds of crime rather it is the admitted fact that the properties in question have been attached as value thereof equivalent to proceeds of crime. It is also an admitted fact that the properties in question have been mortgaged with the Appellant Banks.

¶164

d) Both the parties have made their submissionsand various documents have been referred. It is an admitted fact that the appellant banks neither an FIR named accused nor any of their officials are involved either in the scheduled offences or offences committed under the provisions of PMLA. It is not the case of the Respondent no.1 that the properties in question in these appeals have been acquired out of proceeds of crime nor it has been established at this stage that the appellant banks or its officials are in any way conspired with the Respondents – SSIL, G. EwaraRao, M/s. E R Textiles Ltd. and Smt. SaritaBorugu in the commission of the alleged crime. It is, at the cost of repetition, stated that the properties in question are attached by the Respondent no.1 through the PAO 19.03.2014 and confirmed by the Adjudicating Authority vide the present impugned order not as acquired out of proceeds of crime but value thereof.

¶165

e) In the present case, the SARFAESI Act, 2002, RDDB Actand 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

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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Page 20 of 47

¶169

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. has been delivered in the year 2014 whereas the amendment in aforesaid two Acts have been brought in the year 2016. f) This Tribunal has dealt with the aforesaid legal issue i.e., regarding priority of SARFAESI Act, 2002 (after the aforesaid amendment) in various cases and it is the consistent view that, in the light of the aforesaid amendments, the SARFAESI Act, 2002has priority over PML Act, 2002. The full Bench of this Tribunal, in the matter of State Bank of India &Ors. Versus Joint Director, Directorate of Enforcementin FPA-PMLA-1026/KOL/2015 dt,14.07.2017 and also in the matter of Smt. NasreenTaj vs. Dy, Director,ED in FPA-PMLA-382/BNG/2012 vide common order dt. 18.09.2017 held the aforesaid view. Subsequentto the aforesaid judgments this Tribunal has passed several judgments on the same issue. In the said judgments this Tribunal discussed judgments delivered by Hon‟ble Supreme Court and various High Courts as well as the relevant provisions of law. On a recent judgment of this Tribunal, on the aforesaid issue, in the matter of IDBI

¶170

Bank Ltd. Versus The Deputy Director, Directorate of Enforcement &Ors. in FPA-PMLA-1247/DLI/2018 dated 10.05.2018 . The Relevant

¶171

paras of this judgment are reproduced below:

¶172

“ 13. The relevant portions of the tribunal order in state Bank of India matter (Supra) are re-produced below:

¶173

―7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows:

¶174

―32. Effect of the Act on other laws.—(1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 973) and the Urban Land (Ceiling

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FPA-PMLA-664/HYD/2014

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¶178

and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act.‖

¶179

8.The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law except to the provisions of the Foreign ExchangeRegulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar non obstante provision is contained in Section 13 of the Special Court Act which reads as follows:

¶180

―13. Act to have overriding effect.—The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any decree or order of any Court, tribunal or other authority.‖

¶181

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

¶182

10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. FairgrowthFinancial Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ration of the said decision is as follows:

¶183

―Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply.

¶184

The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13 that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act.

¶185

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

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Page 22 of 47

¶189

including those of the Sick Industrial Companies (Special Provisions) Act, 1985.

¶190

It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Acy1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or installments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned."

¶191

11. We are in agreementwith the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the contrary in another Act.‖

¶192

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

¶193

―15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the legislature wanted to provide otherwise, they would have specifically so provided.‖

¶194

32. Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI Act, 2002 and (ii) the DRT Act, 1993(after amendment titled as the Recovery of Debts and

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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Page 23 of 47

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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.

¶198

33. The amended provisions give overriding effect over any other law and priority to the secured condition for the time being in force including the provisions of PMLA in so far as recovery of the loan by the secured creditors is concerned.

¶199

The amended provisions are reproduced as under:

¶200

(i) Section 26E of the SARFAESI Act, 2002 :

¶201

― 26E. Priority to secured creditors – Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.‖

¶202

(ii) Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 :

¶203

31B. Priority to secured creditors – Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and other rates due to the Central Government, State Government or local authority.

¶204

Explanation : For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.‖

¶205

34. In Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993after the words "the date of the application","and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favoursecurity interest is created for the benefit of holders of debt securities or;" is added which makes the said

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FPA-PMLA-664/HYD/2014

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Page 24 of 47

¶209

amendment or the 1993 Act applicable to all the debts which remains unpaid.

¶210

35. Thus, it is very clear from above that the secured creditor, get a priority over the rights of Central or State Government or any other Local Authority. The amendment has been introduced to facilitate the rights of the secured creditors which are being hampered by way of attachments of properties, belonging to the financial institutions/secured creditors, done by/in favour of the government institutions.

¶211

36. The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case ― The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors. ‖

¶212

that ―

¶213

―There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.‖

¶214

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

¶215

―2 We are of the view that if there was at all any doubt, the same stands resolved by view of the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, Section 41 of the same seeking to introduce Section 31B in the Principle Act, Which reads as under:-

¶216

―31B. Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.

¶217

FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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Page 25 of 47

¶219

Explanation. – for the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.‖

¶220

―3 There is, thus, no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ―notwithstanding‖ clause and has come into force from 01.09.2016‖

¶221

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

¶222

―5 The aforesaid would, thus, answer question (a) in favour of the financial institution, which is a secured creditor having the benefit of the mortgaged property.‖

¶223

38. In another Madras High Court judgment in the case of ― Dr. V. M. Ganesan vs. The Joint Director, Directorate of Enforcement ‖ has explained the grievances faced by the financial institutions while holding that

¶224

―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.‖

¶225

39. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras ― State Bank of India Vs. The Assistant Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors. ‖, while upholding the Amendment Act, 2016 to Section 26E of the SARFAESI Act and reaffirming the view of the Full Bench of the same court in The

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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Page 26 of 47

¶228

Assistant Commissioner (CT), Anna Salai-III Assessment Circle (supra) lifted the attachment entry and held that-

¶229

―In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realise the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold good qua 2002 Act as well.‖

¶230

40. B. RAMA RAJU V. UOI AND ORS. Reported in (2011)

¶231

164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition of property in para 103. The same read as under:-

¶232

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

¶233

41. The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of India V/s. SatyawatiTondon and Ors. In paras no. 6, 55 & 56 has held as under:-

¶234

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.

¶235

FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

¶236

Page 27 of 47

¶237

55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.

¶238

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.‖ In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter.

¶239

42. It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant – i.e. Union of India in order to pay the remaining outstanding amount. The undertaking in this regard is recorded in Court. It is written agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to pay the remaining out-standing amount to the State Bank of India in order to clear their liabilities once the attached properties are sold and even otherwise.

¶240

Copy of the settlement of the borrowers and the complainant Bank of India was filed before us. As far as the schedule offence is concerned, we do not wish to make any comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High Court u/s 482 Cr. P.C. could be filed.

¶241

FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

¶242

Page 28 of 47

¶243

43. It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged deeds are also not disputed or/and validity of the same are not challenged on behalf of ED.

¶244

44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr. P.C. at the joint request of the parties.

¶245

45. Three Judge Bench in NarendraLal Jain &Ors., (supra) held that during the investigation pertaining to the culpability of the accused in the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed which was rejected by the trial court but eventually was allowed by the High Court. The charges in the matter were framed under Section 120B/420 IPC by the learned trial Judge against the private parties. As far as bank officials are concerned, charges were framed under different provisions of the Prevention of Corruption of Act, 1988. Being dissatisfied with the said order,, the CBI had preferred an appeal by obtaining special leave and in that context the court observed that the accused respondent had been charged under Section 120-B/420 IPC and the civil liability of the respondent to pay the amount had already been settled and further there was no grievance on the part of the bank. Taking note of the fact that offence under Section 420 of IPC is compoundable and Section 120-B is not compoundable, the Court eventually opined thus:-

¶246

―11. In the present case, having regard to the fact that the liability to make good the monetary loss suffered by the bank had been mutually settled between the parties and the accused had accepted the liability in this regard, the High Court had thought it fit to invoke its power under Section 482 Cr.P.C. We do not see how such exercise of power can be faulted or held to be erroneous. Section 482 of the Code inheres in the High Court the power to make such order as may be considered necessary to, inter alia, prevent the abuse of the process of law or to serve the ends of justice. While it will be wholly unnecessary to revert or refer to the settled position in law with regard to the contours of the power available under Section 482 CR.P.C.it must be remembered that

¶247

FPA-PMLA-664/HYD/2014

¶248

& FPA-PMLA-924/HYD/2015

¶249

Page 29 of 47

¶250

continuance of a criminal proceeding which is likely to become oppressive or may partake the character of a lame prosecution would be good ground to invoke the extraordinary power under Section 482 Cr. P.C.

¶251

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

¶252

―69….. By consent the parties have settled all disputes in the recovery suit, the consent decree of DRT stood to be disposed off as duly satisfied. There is hence no force in the submission of respondents that the complainant bank has not exonerated the petitioners, first being the Civil Procedure Code, and the second being the OTS Scheme of the Reserve Bank of India, which the petitioners have extensively referred to in the original petition. The provisions of OTS Scheme prevent the complainant bank from entering into any compromise or settlement under the said OTS Scheme in the cases of willful default, fraud and malfeasance. The complainant bank in choosing to enter into such consent terms under the provisions of OTS Scheme has not only exonerated the petitioners, but for all intents and purposes given up the perusal of the complaint and having no grievance against them in any other proceeding whether civil or criminal on the same set of issues.‖

¶253

―70. There is no doubt that the trial has been proceeding for offences for the last about 20 years ago. The dispute between the petitioner and complainant Bank 33 years old. A long time has in fact been elapsed since the alleged commission of offences. Still the trial continues. The present petition is maintainable as the same has been filed also on additional grounds and circumstances. No useful purpose would be served if such oppressive trial may continue for many more years. Thus, ends of justice are served by quashing such a proceeding, as the parties cannot be allowed to go through the rigmarole of criminal prosecution for long numbers of years in a matter, it is doubtful in the mind of the Court in whose favour it would be decided.‖

¶254

―71. In view of above mentioned reasons, this Court is inclined to quash the proceedings pending against the petitioners, arising out of R.C. No. 4A/94/SIU(X) dated 23^rd May, 1994, titled ‗CBI vs. N. BhojrajShetty&Ors.‘, being C.C. No.65/11, pending in the Court of Spl. Judge (CBI), Tis Hazari Courts, Delhi.‖ The said decision has been upheld by the Hon‘ble Supreme Court.

¶255

46. In the present case, it is undisputed facts that the attached property were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-11 at the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal complaint. There is no criminal complaint under the schedule offence and PMLA is pending against the two banks. In case of failure on the part of borrowers to

¶256

FPA-PMLA-664/HYD/2014

¶257

& FPA-PMLA-924/HYD/2015

¶258

Page 30 of 47

¶259

comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was recorded.

¶260

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.

¶261

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:-

¶262

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

¶263

―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 subsection (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

¶264

(2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach"

¶265

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

¶266

FPA-PMLA-664/HYD/2014

¶267

& FPA-PMLA-924/HYD/2015

¶268

Page 31 of 47

¶269

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 mensrea 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:-

¶270

―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 MoneyLaundering 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 moneylaundering, he can show before the court that he is innocent and has not received any proceeds of crime.‖

¶271

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.

¶272

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.

¶273

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:-

¶274

FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

¶275

Page 32 of 47

¶276

―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.-

¶277

―(i) Firstly, if he-

¶278

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

¶279

(b) ‗knowingly‘ either assists or is a party, or

¶280

(c) is ‗actually involved‘ in such activity; and

¶281

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

¶282

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

¶283

―A. RE: DIRECT OR INDIRECT ATTEMPT:

¶284

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

¶285

―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."

¶286

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.

¶287

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

¶288

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

¶289

―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.‖

¶290

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.

¶291

C. Actually involved:

¶292

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,

¶293

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."

¶294

FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

¶295

Page 33 of 47

¶296

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."

¶297

59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without having any direct/ indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of mensreaor knowledge is missing.

¶298

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)

¶299

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

¶300

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

¶301

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

¶302

24. Burden of proof

¶303

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

¶304

(a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and

¶305

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

¶306

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

¶307

FPA-PMLA-664/HYD/2014

¶308

& FPA-PMLA-924/HYD/2015

¶309

Page 34 of 47

¶310

that property will not yield proper income. In the circumstances, he sold the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of Gunaseelan cannot be termed as proceeds of crime.

¶311

22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements. Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor.

¶312

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.

¶313

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.

¶314

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

¶315

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

¶316

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

¶317

FPA-PMLA-664/HYD/2014

¶318

& FPA-PMLA-924/HYD/2015

¶319

Page 35 of 47

¶320

property bought without the knowledge that the same is tainted could be subjected to Provisional Attachment Order.

¶321

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 though scheduled offence could be subject matter of provisional attachment order.

¶322

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."

¶323

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

¶324

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.

¶325

26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or that the money paid by them as sale consideration was not legitimate money derived by agricultural activities. No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank."

¶326

14. The Respondent no. 1 has heavily 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. ArihantThreaders Ltd. &Ors. (supra).

¶327

―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

¶328

FPA-PMLA-664/HYD/2014

¶329

& FPA-PMLA-924/HYD/2015

¶330

Page 36 of 47

¶331

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:-

¶332

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

¶333

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.

¶334

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.

¶335

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.

¶336

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.

¶337

52. We might add that this conclusion has been guided by what is considered to be one of the most crucial principles of interpretation

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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¶341

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 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:-

¶342

―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.‖

¶343

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:-

¶344

―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

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FPA-PMLA-664/HYD/2014

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& FPA-PMLA-924/HYD/2015

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¶348

purpose of the statute would be wholly frustrated unless the Government were bound.‖

¶349

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 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.‖

¶350

15. 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) we do not find any departure. 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.

¶351

16. 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

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¶355

(supra) has been delivered in the year 2014 whereas the amendment in aforesaid two Acts have been brought in the year 2016.

¶356

17. 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.

¶357

18. 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

¶358

FPA-PMLA-664/HYD/2014

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¶361

involved. 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.

¶362

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

¶363

Syndicate Bank Vs. Dy. Director , PMLA in Appeal no. FPA-PMLA-A-

¶364

34/CAL/2009 . We 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:-

¶365

"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

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extent of Rs. 10 crores and got Rs. 4.5 crores fraudulently released from 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.

¶370

20. 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.

¶371

21. 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. The relevant sale deed of the mortgaged properties are of 2003 so the date of acquisition is much prior to the date of alleged commission of crime in the present case.

¶372

22. In the present case the Adjudicating Authority has come to a conclusion at para nos. 61, 63 & 65 of the impugned order that the defendants are in possession of proceeds of crime and are involved in money laundering. The aforesaid conclusion has not be elucidated by the Ld. 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 Ld. 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.

¶373

23. 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 FPA-PMLA-664/HYD/2014

¶374

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¶376

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 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 trail would take number of years. The public money cannot be stalled otherwise Banking system would be collapsed.

¶377

24. 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, both the properties have been purchased by the Respondent Sh. ArunSuri and have been mortgaged with the IDBI much prior to the date of alleged offence which shows that no proceeds of crime are involved in the acquiring of these properties and hence the same cannot be attached.

¶378

25. The Ld. 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.

¶379

No money disbursed by the Bank from its loan account, has been FPA-PMLA-664/HYD/2014

¶380

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¶381

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¶382

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 for recovery and has also 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 legally unjustified.

¶383

26. 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.

¶384

27. 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 in case the Respondent no 3 to 5 are not able to pay back the 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.

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FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015

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¶387

28. 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 moneylaundering 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 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 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. The contentions raised by Mr. N.K. Mata, Advocate has no substance. The provisional attachment in the present matter is bad and against the law.

¶388

29. In view of the aforesaid reasons and our decision, we are not going into other legal issues such as "reason to believe", "retrospective application provisions of PMLA" etc.

¶389

30. In the circumstances available in the present case, the allegation of money laundering prima facie, so far as present appellant & properties involved in this appeal, found to be unsustainable for the purpose of attachment under the PMLA, 2002.

¶390

31. In view of aforesaid facts and circumstances and for reasons referred above, we set aside the Impugned Order dated 27.11.2017 and the Provisional Attachment Order dated 28.07.2017. The mortgaged properties attached under the PAO

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FPA-PMLA-664/HYD/2014

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¶394

06/2017, so far as, properties concern in this appeal are released from attachment forthwith. ”

¶395

g) The properties in question have been mortgaged with the appellants much prior to commission of alleged offences. The main allegation against the SSIL and Shri G. EswaraRao is that around a sum of Rs. 5,30,55,500/- have been paid to Respondent no.4 Company by Respondent no.2 Company in February, 2009 as share application money against which no shares were allotted as such the properties of Respondent no.4 has been termed as proceeds of crime and the property in question in the present appeals have been attached as value thereof.

¶396

h) The properties in question which are already under mortgaged and under personal guarantee with the appellants cannot be attached as value thereof. Since right of appellantshave already been created over the questioned properties after being mortgaged and under personal guarantee of said properties with them. It is further gathered from the materials on record that the appellants have already initiated proceedings under SARFAESI Act against the properties of Respondent no. 4 Company and Shri G. EswaraRao due to nonpayment of loan advanced by the appellants.

¶397

i) In view of the aforesaid reasons we are of the view that the appellants who are mortgagees of the properties in question which were purchased before sanctioning the loan, no case of money laundering is made out so far as these properties in question are concerned. The appellants have priority of right to recover the loan amount/debts. In the given facts and circumstances of the case, the Provisional Attachment in the present matter is bad and against the law.

¶398

j) In the circumstances the allegation of money laundering, prima facie, so far as present appellants and properties are involved in these

¶399

FPA-PMLA-664/HYD/2014

¶400

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¶401

Page 46 of 47

¶402

appeals are concerned, we find that the impugned order is not sustainable under law, for the purpose of attachment under the PMLA, 2002.

¶403

k) We have not gone into other legal issues such as retrospective application of provisions of PMLA.

¶404

l) In view of the aforesaid facts & circumstances and for the reasons mentioned above, we set aside the impugned order dated 12.08.2014 passed by Adjudicating Authority in O. C. No. 288/2014. The mortgaged properties attached under the PAO No. 01/HZO/2014 dated 19.03.2014 in ECIR No. 03/HZO/2010, so far as properties concerned in these appeals, are released from attachment forthwith.

¶405

No cost.

¶406

(Justice Manmohan Singh) Chairman

¶407

(G. C. Mishra) Member

¶408

New Delhi 20^th September, 2018

¶409

„AS‟

¶410

FPA-PMLA-664/HYD/2014 & FPA-PMLA-924/HYD/2015