Allowed

FPA-PMLA-1935/DLI/2017 of Chief Manager, Syndicate Bank v/s The Deputy Director Directorate of Enforcement, Delhi & Ors.

ATFP11 Dec 2019FPA-PMLA-1935/DLI/2017

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed the Bank's appeal against PMLA attachment. Relying on the Delhi High Court's Axis Bank decision, it held that as the attachment did not attain finality and the bank is a bonafide secured creditor with interest acquired prior to the crime, the Tribunal has jurisdiction to quash the attachment to allow enforcement of recovery.

What did the court decide?

Impugned order confirming provisional attachment was set aside; the provisional attachment order was quashed in respect of the secured property.

FPA-PMLA-1935/DLI/2017 of Chief Manager, Syndicate Bank v/s The… — Money Laundering | ATFP (2019)

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APPELLATE TRIBUNAL, PREVENTION OF MONEY LAUNDERING ACT AT NEW DELHI

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Date of Decision : 11.12.2019

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FPA-PMLA-1935/DLI/2017

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Chief Manager, Syndicate Bank … Appellant Versus The Deputy Director Directorate of Enforcement, Delhi & Ors. … Respondents

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Advocates/Authorized Representatives who appeared

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For the Appellant : Mr. V. Sudeer, Advocate Mr. E.P. Gopinathan, Advocate For the Respondent No. 1 (ED) : Mr. Atul Tripathi, Advocate CORAM SHRI G. C. MISHRA : ACTING CHAIRMAN JUDGMENT

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FPA-PMLA-1935/DLI/2017

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The Hon‟ble High Court of Delhi at New Delhi in the matter of CRL.A. 603/2018 & Crl.M.A. 10259/2018 filed by the Deputy Director, Directorate of Enforcement, Delhi against The Chief Manager, Syndicate Bank & Anr. on dated 01.11.2019 passed the following order;

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“ It is agreed between the parties that in view of the judgment passed by a coordinate bench of this court in the case of bearing Crl.A. 143/2018 in Deputy Director Directorate of Enforcement Delhi vs. Axis Bank and Ors. and other batch matters, the present case be remanded to Appellate Tribunal for PMLA and the tribunal shall restore the appeal and after hearing both the parties, decide the same within six weeks from the receipt of this order.

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The appeal is disposed of, accordingly. Pending application stands disposed of.”

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Since the matter is remanded to this Tribunal and since the appeal

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is restored, the present appeal has to be decided in the light of the order

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FPA-PMLA-1935/DLI/2017

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passed in CRL.A. 143/2018 & Crl.M.A. 2262/2018 in the matter of The Deputy Director, Directorate of Enforcement, Delhi Versus Axis Bank & Ors. and four other batch matters.

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In view of the above, the matter is heard afresh.

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In FPA-PMLA-1974/DLI/2017 filed by State Bank of India, none appeared. However, the materials available on record in respect of both the parties are considered. Since, the property involved in the present appeals is same and the nature of pleadings are also same, so the appeals are taken up together and a common order is passed.

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The facts are already recorded in the earlier order dated 15.03.2018 which may be read in the present order. However, the relevant Paras are reproduced below;

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“ 2. The Syndicate Bank (appellant in appeal no. 1) and the State Bank of India (SBI) (appellant in appeal no. 2) were defendant nos. 8 &7 respectively in O.C. no. 763/2017.

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3. These two appellants have preferred the present appeals u/s 26 of Prevention of Money Laundering Act-2002 (PMLA) against the impugned order dt. 24.7.2017 wherein the ld. Adjudicating Authority has confirmed the attachment of the following immovable property confirming the provisional attachment order no. 4/2017 dt. 31.03.2017:-

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*Sr. no.*	_Description of Property _	*Value ( In Rs. )*
1.	601, Type Sovereign, 6^th	80,50,549.80/-
	Floor, Section-49, Vatika
	City, Gurgaon, Sohna Road, Haryana

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The brief relevant facts of the appeals are as below:-

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4. On the basis of a written complaint filed by Appellants the CBI registered two separate FIRs against M/s Suhrit Services Pvt. Ltd. (SSPL) (R.2), Dhiren Tamang, (R.3) Anoop Pradhan (R.4) M/s Binita Pradhan (R.5), Smt. Madhavi Shrestha (R.6) and others for commissions of offence u/s 120-B, 420,406,468,471,IPC and section 13(2) r/w section 13(1)(d) of PC Act 1988 regarding the alleged fraud committed whereby the appellants were cheated.

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Pursuant to the aforesaid FIRs, Sections 120-B, 420 of IPC, being scheduled offences, the Enforcement Directorate on 26.03.2013 registered an ECIR no. DLZO/05/2013/AKS against the aforesaid accused persons and others.

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FPA-PMLA-1935/DLI/2017

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5. It is revealed that SSPL (R-2) having its registered office at S-6, Building no. 18 &19, Gulmohar Community Centre, Youshf Sarai, New Delhi had approached the Appellants for loan facilities which was agreed to by the Appellants. In order to collaterally secure the said loan M/s SSPL created mortgage of the undernoted properties in favour of Syndicate Bank led consortium.

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i. Property bearing no B-230, admeasuring 707.99 sq mtr situated at Florence Elite Sushant Lok III, Gurgaon (Haryana)

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ii Residential flat bearing no. A-09/110 P-4, admeasuring 553.83 sq mts situated at 10^th Floor Block –A, Sahara Grace Gurgaon (Harayana).

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Iii Residential Flat bearing no. 312-A, admeasuring 244 sq mts situated at 12^th Floor Hamilton Court, DLF City Phase-IV, Gurgaon (Haryanan).

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6. Besides the above there had been one other property bearing i.e. “Flat no. 601, Type Sovereign, 6^th Floor, Sector-49, Vatika City, Sohna Road Gurgaon, Haryana” title to which was acquired by M/s SSPL by way of “Apartment Buyers Agreement dt. 25/02/2005 executed by “Vatika Greenfield Projects Pvtl Ltd.”, A Company registered under the Companies Act, 1956, having its registered office at 308, Vishal Bhawan, 95, Nehru Place New Delhi. In order to collaterally secure the aforesaid loan a Tripartite Agreement dt. 18/07/2007 entered between M/s SSPL and “Vatika Greenfield Projects Pvt. Ltd.” and Syndicate Bank. M/s SSPL agreed to create mortgage of the said property in favour of Syndicate Bank Consortium and further agreed not to transfer/alienate or to create any charge over the said property without the prior consent of the Syndicate Bank consortium. This is worth to submit here that Syndicate Bank Consortium was acting as leader of consortium with SBI. In Addition to above M/SSPL. also executed an agreement to mortgage dt. 29.03.2007 in favour of Syndicate Bank. Copy of Tripartite agreement dt. 18.7.2007 including agreement to mortgage dt. 29.03.2007 are placed on record.

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6. It is also revealed that in connivance with other accused persons the R-2 defrauded the appellants in their cash credit loan account by dishonest means of inflating the value of stocks. They had also indulged in removal of hypothecated stocks without banks knowledge through illegal sale of cars. SSPL company account remains irregular since 6/12/2008 as such the said account was classified as NPA on 31.03.2009.

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7. That on 29.03.2007 borrower M/s. Surhit Services Pvt. Ltd. (SSPL) executed agreement to Mortgage the Property in question (being owner of the said property in terms of the “Apartment Buyers Agreement” dated 25.2.2005 executed by M/s Vatika Projects Ltd. – (as the Builder was known at the relevant time) in favour of the appellant Syndicate Bank as security to the loan of Rs. 26.50 Crores sanctioned to M/s SSPL by Syndicate Bank. Copy of the Agreement to Mortgage dated 29.03.2007 is filed.

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8. The Respondent No. 2 Borrower M/s SSPL, the Builder M/s Vatika Land Base Ltd. and the appellant Syndicate Bank

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FPA-PMLA-1935/DLI/2017

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entered into a Tripartite Agreement dated 18.07.2007 wherein amongst others it is duly recorded that:

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a) Syndicate Bank had agreed to grant credit facilities to the extent of Rs. 26.50 Crores to the Borrower M/s SSPL. b) The Builder M/s Vatika Land Base Ltd. has agreed to construct and sell to the Respondent No. 2 M/s SSPL a three bed room plus study room being Flat No. 2/601, Type: Sovereign, Block No. II, 6^th Floor, Vatika City, Sohna Road, Gurgaon and the said property will be ready by March, 2008.

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c) The Respondent no. 2 M/s SSPL has paid to the Builder M/s Vatika Land Base Ltd. a sum of Rs. 44,18,970/- towards the cost of the flat and the balance of Rs. 33,87,640/- shall be paid by the said Respondent No. 2 M/s SSPL as and when demanded by the said Builder. d) The Respondent No. 2 M/s SSPL and the Builder agree that the Appellant Syndicate Bank will have unrestricted right of entry and taking possession of the flat in question.

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e) The said Respondent No. 2 M/s SSPL agrees that in case of any default in paying the loan amount to Appellant Syndicate Bank by said Respondent No. 2, the Builder will accept the new person brought by the Appellant Syndicate Bank as the purchaser and accordingly execute the documents in their favour.

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9. The Appellants above were the members of the Consortium of Banks. The Syndicate Bank was the lead Bank of the Consortium. In exercises it power under SARFAESI Act, the Syndicate Bank issued notices to M/s SSPL u/s 13(2) of the SARFAESI on 25.08.2009 and possession of three mortgaged properties mentioned below were taken on 16.02.2010 and on 23.03.2010. The Appellant Syndicate Bank, being the lead bank, sold said three properties of the Respondent No. 2 M/s Surhit Services Pvt. Ltd. (M/s. SSPL) and shared the proceeds with the other Appellant State Bank of India and a sum of Rs. 3.22 Crores being the share of State Bank of India has been credited towards the loan account of SSPL.

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10. Admittedly the property in question Flat No. 2/601, Type: Sovereign, Block No. II, 6^th Floor, Vatika City, Sohna Road, Gurgaon is a secured asset of the Appellant Banks in terms of the Tripartite Agreement dt. 18.07.2007 r/w Agreement to Mortgage dt. 29.03.2007 being part of the security to the amount of Credit Facilities by Appellant Banks granted by Syndicate Bank to the Respondent No. 2 M/s SSPL.

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11. The loan amounts were released by the Appellant Syndicate Bank in 5 installments, as and when demanded by the Builder M/s Vatika Land Base Ltd. (hereinafter referred to as “the Builder”), remitted a sum of Rs. 28,95,698/- between 03.05.2007 to 17.09.2008 towards the property in question. The said amount of Rs. 28,95,698/- was remitted by debiting/liquidating the Fixed Deposit kept by the Respondent No. 2 M/s SSPL much prior to 30.09.2008.

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12. It is contended by the Appellants that on 25.08.2009 the Appellant Syndicate Bank issued notice under Sec. 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 calling upon the Respondent No. 2 M/s SSPL to pay the dues of the appellant

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FPA-PMLA-1935/DLI/2017

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Bank failing which the Bank will amongst others sale the four immovable properties being secured assets of the Bank.

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13. It is contended by the appellant Syndicate Bank that it could not sell the property in question at that time as the same was not ready.

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14. The Fixed Deposit kept by the Borrower M/s SSPL having been exhausted on 06.09.2011 appellant Syndicate Bank in order to protect its security and perfect the sole right of the lenders to the property in question as their secured asset, the paid the last installment demanded by the Builder amounting to Rs. 7,35,876/- and Rs. 1,08,988/- totaling Rs. 8,44,864/- by debiting the Overdraft Account of the respondent No. 2 M/s SSPL. It is alleged by the appellant that though appellant Syndicate Bank has remitted a sum of Rs. 37,40,562/- to the Builder towards the cost of the property in question only a sum Rs. 8,44,864/- is from the funds of the borrower M/s. SSPL kept in fixed deposit for the purpose much prior to 30.09.2008.

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It is mentioned that the sum of Rs. 37,40,562/- remitted by the appellant to the Builder towards the cost of the property in question by liquidating the fixed deposits kept for the said purpose by the respondent no. 2 is much prior to 30.09.2008.

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15. The Appellant Syndicate Bank filed O.A. No. 143/2011 on 26.09.2011 in Debt Recovery Tribunal-I, Delhi for recovery of Rs. 28.27 crores from the respondent no. 2 M/s SSPL.

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16. The property in question was attached by CBI on 29.01.2013 in execution process under Sec. 83 of the Cr. P.C. in pursuance of the order of the Court of the learned Shri V.K. Gupta, Additional District & Sessions Judge, CBI Court, Patiala House Courts, New Delhi.

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17. The Appellant Syndicate Bank moved application dated 05.02.2013 before the CBI court of praying that the property in question be de-sealed so as enable them to sell the same under Sec. 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to “the SARFAESI Act).

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18. The CBI in its reply filed stated that the appellant Syndicate Bank suffered a loss of Rs. 26.24 crores and State Bank suffered a loss of Rs. 8.96 crores and stated as under:“Since Syndicate Bank suffered a loss as above therefore, it may be allowed to recover its loss incurred due to the act of M/s Surhit Services Pvt. Ltd. After valuation of the flat/property as on date.”

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The CBI Court vide order dated 04.03.2013, on an erroneous appreciation of the facts and circumstances of the case, held that the appellant Syndicate Bank shall be paid only the amount financed by it to purchase the property.

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19. It is the case of the Syndicate Bank that there being no irregularity or illegality in Syndicate Bank taking the property in question as security and the appellant Syndicate Bank being entitled to sell the same and appropriate the proceeds towards the dues of the Respondent no. 2 M/s SSPL under Sec. 13 (4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 the appellant

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FPA-PMLA-1935/DLI/2017

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Syndicate Bank filed Criminal Revision Petition No. 299 of 2013 in May, 2013 before the Hon’ble High Court of Delhi against the order of the CBI court dated 04.03.2013.

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20. The High Court by order dated 07.11.2014 was pleased to de-seal the property in question in favour of the appellant Syndicate Bank noting the submission of the Bank “that it is a secured creditor and is entitled to recover its due in terms of Sec. 13 (4) of the Securitization and Reconstruction of Financial Assets and enforcement of Security Interest Act, 2002.”

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21. The DRT on 23.09.2015 issued Recovery Certificate No. 394 of 2015 in T.A. No. 01/2014 (Originally O.A. No. 143 of 2011) in favour of the appellant and against Respondent no. 2 for recovery of Rs. 28,28,68,238/- (Rupee twenty eight crores twenty eight lakhs sixty eight thousand two hundred thirty eight only) and directed the respondent no. 8 Builder to execute sale deed of the property in question in favour of the appellant. The relevant portion of the DRT’s order dt. 23.09.2015 is reproduced below:-

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“15. The applicant has stated that the residential property no. 2/601, SOV-II, 3B/RS, 6^th Floor, Gurgaon was greed to be sold to DI by D6. The applicant has stated that the entire payments towards the cost of the flat has been remitted by applicant on behalf of D1 to D6. D1, D6 and the applicant has entered into tripartite agreement. D1 by an agreement to mortgage AW-1/19 dt. 29.03.2007 agreed to create mortgage of the property in favour of the applicant bank. The agreement with D6 executed by D1 on 25.02.2005, AW-1/20 was produced before the bank. The original of this document is seized by the CBI and copy is produced before court. Since the entire sale consideration on behalf of D1 is paid by the applicant to D6, the applicant is entitled to execute the sale deed in its favour and D6 is directed to execute the sale deed in favour of the applicant. The applicant shall be entitled to possession of the property and thereafter the sale of the property to recover the debt.”

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22. The Recovery Officer, on 27.11.2015 issued Demand Notice under Sec. 25 to Sec. 28 of the Recovery of Debts and Due to Bank and Financial Institutions Act, 1993 and rule 2 of the Second Schedule to the Income Tax Act, 1961 to the Respondent nos. 2, 5 and 6.

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24. Sri Rajesh Kumar Jain, Deputy Director, Director of Enforcement, New Delhi passed Provisional Attachment Order No. 04/2017 dated 31.03.2017 attaching the property in question namely property no. 601, Type Sovereign, 6^th Floor, Sector-49, Vatika City, Gurgaon, Sohna Road, Haryana.

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25. Shri Rajesh Kumar Jain, on 28.04.2017, Deputy Director of Enforcement, New Delhi filed complaint no. OC-763 of 2017 before the Adjudicating Authority under the PMLA.

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26. It is averred in the appeal that the Appellant is also a victim of fraud played by the above named persons. The Appellant Syndicate Bank had granted credit facilities to the

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extent of Rs. 26.50 Crores to M/s SSPL. Recovery Certificate for recovery of Rs. 28,27,18,238/- (Rupees twenty eight Crores twenty seven lakhs eighteen thousand two hundred thirty eight only) has been issued by the Debt Recovery Tribunal vide recovery Certificate No. 394/15 dated 23.09.2015 which the Appellant Syndicate Bank is not able to recover so far.

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27. As per the Provisional Attachment Order No. 04/2017 in ECIR No. ECIR/05/DZ/2013/AD (AKS) dated 31.03.2017, a sum of Rs. 8.96 Crores is outstanding against M/s SSPL with State Bank of India against the amount of Loan of Rs. 13 Crore sanctioned to M/s SSPL by the State Bank of India on 30.09.2008. As per Deputy Director Enforcement, Delhi Zone-I, New Delhi, the accused persons named above, “have committed the offence of Money Laundering as defined under Section 3 and punishable under Section 4 of the PMLA, 2002; as the money has been transferred and layered and further invested in the properties procured in the name of entity.” That according to the Deputy Director, the property in question is Flat No. 2/601, Type: Soverign, Block No. II, 6^th Floor, Vatika City, Sohna Road, Gurgaon.

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28. The case of the appellant was that the above said conclusion of the Deputy Director is prima facie erroneous in as much as the Loan of Rs. 13 Crore was sanctioned to M/s SSPL by the State Bank of India only on 30.09.2008 where SSPL paid the consideration of the Property in question in full or otherwise made provision for payment of the balance amount as and when demanded by the builder M/s Vatika Land Base Ltd. by way of fixed deposits with the appellant prior to 30.09.2008. This is evident on the face of the record and therefore the consideration towards the cost of the property in question did not come from proceeds of crime and the Adjudicating Authority could not have in law attached the same. The proceeds of the crime could not have come into existence prior to 30.09.2008.

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29. However, the Adjudication Authority has confirmed the provisional attachment order by passing the impugned order on 02.08.2017.

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33. Admittedly, it is not the case of the Deputy Director that the property was purchased by the respondent no. 2 SSPL from the amount financed by the State Bank of India or Syndicate Bank. The case of the Appellant Banks are in much stronger footing than the case cited above.

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34. Rather the respondent no. 1 Director, Enforcement has conceded that the property in question has not been purchased from the proceeds of the crime. The appellant Syndicate Bank in Para 3 (f) of the reply field by it before the Adjudicating Authority has shown that the property in question has not been purchased from the proceeds of the crime as loan was sanctioned only on 30.09.2008 whereas the cost of the property was paid much before the said date. The respondent no. 1 in his rejoinder has avoided replying to this contention of the appellant.

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35. There is no material nor any pleading of any party contrary to the fact that no transaction has been shown that any amount of the loan of Rs. 13 Crores sanctioned to the Defendant No. 1 by State Bank of India on 30.09.2008 was

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used for the purchase of the property in question. A sum of Rs. 5 Crores and Rs. 2.50 Crores is said to have been transferred to the account of the respondent no. 2 with the appellant Syndicate Bank on 12.06.2008 and 27.06.2008 respectively by the respondent no. 7 State Bank of India (SBI). (Para 7.3 at Page 6 of the Complaint). But this is prior to sanction of the loan by SBI on 30.09.2008. Therefore the transfer cannot be from the proceeds of the crime.

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36. The amount of Rs. 5 Crore transferred to the Account of the respondent no. 2 on 12.06.2008 to the appellant Syndicate Bank was to clear another loan account with of the said respondent no. 2 with Syndicate Bank i.e. OSL 01/08. (Please see statement of account of the respondent no. 2 with Syndicate Bank entry for Rs. 4,97,62,012.19 dated 13.06.2008. Similarly, the amount of Rs. 2.5 Crores transferred to the account of the respondent no. 2 with the appellant Syndicate Bank was to reduce the overdrawn limit in the account (Please see statement of account of the respondent no. 1 with Syndicate Bank entry for Rs. 2.5 crores dated 27.06.2008.

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37. Even borrower the (Respondent no. 2 on 17.06.2008 requested the SBI to transfer a sum of Rs. 25 lakhs to their account with Syndicate Bank (Para 7.6 at Page 7 of the Complaint). But as per appellant Syndicate Bank the said request was not acted upon by SBI (there is no such entry in the account of the Respondent no. 2 with Syndicate Bank (Statement of Account does not show any such entry). In any case, this also prior to 30.09.2008. Therefore, it is apparent on the face of the record that the proceeds of the crime were not used to purchase the property in question. ”

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The aforesaid appeals vide order dated 15.03.2018 were allowed relying on the judgment passed by this Tribunal in State Bank of India Versus Enforcement Directorate in FPA-PMLA-1026/KOL/2015 and 11 others dated 14.07.2017 and in FPA-PMLA-1368/GOA/2016 HDFC Versus Joint Director, Directorate of Enforcement, Goa dated 28.08.2017.

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This Tribunal also decided the batch of matters which were challenged before Hon‟ble High Court of Delhi at New Delhi in CRL.A. 143/2018 & Crl.M.A. 2262/2018 and four others relying on the FPAPMLA-1026/KOL/2015 and FPA-PMLA-1368/GOA/2016 on the basis of views taken therein. Being aggrieved with the orders passed in FPAPMLA-1848/DLI/2017 filed by Axis Bank, FPA-PMLA-729/DLI/2014 and FPA-PMLA-1411/DLI/2014 filed by State Bank of India & Ors., FPAFPA-PMLA-1935/DLI/2017 Page 8 of 33

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PMLA-2147/DLI/2018 filed by IDBI Bank Ltd., FPA-PMLA1958/DLI/2017 filed by Punjab National Bank, FPA-PMLA1616/DLI/2017 filed by Punjab National Bank and FPA-PMLA1618/DLI/2017 filed by DBS Bank Ltd., the Enforcement Directorate filed the CRL.A.143/2018 & Crl.M.A.2262/2018; CRL.A.210/2018 & Crl.M.A.3233/2018; CRL.A.623/2018 & Crl.M.A.10886-87/2018, 48245/2018; CRL.A.764/2018 & Crl.M.A.28500/2018, 199/2019, 202/2019 and CRL.A1076/2018 & Crl.M.A.34565/2018, 34567/2018 respectively.

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The Hon‟ble High Court, while deciding the aforesaid batch of matters in CRL.A. 143/2018 & Crl.M.A. 2262/2018 and others, have made the following observations and summarized the conclusions which are reproduced below;

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“ 163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-off. From this, it naturally follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration, acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or frustrated by attachment of such property to such extent by the enforcement authority in exercise of its power under Section 8 PMLA.

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164. Though the sequitur to the above conclusion is that the bonafide third party claimant has a legitimate right to proceed ahead with enforcement of its claim in accordance with law, notwithstanding the order of attachment under PMLA, the latter action is not rendered irrelevant or unenforceable. To put it clearly, in such situations as above (third party interest being prior to criminal activity) the order of attachment under PMLA would remain valid and operative, even though the charge or encumbrance of such third party subsists but the State action would be restricted to such part of the value of the property as exceeds the claim of the third party.

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165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative

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attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to coexist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA.

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166. As already noted, the newly inserted provision contained in Sections 26-B to 26-E falling in Chapter (no. IV-A) on “registration by secured creditors and other creditors” of SARFEAESI Act are yet to be notified and brought into force. In the event of said statutory clauses coming into force, a creditor will not be entitled to exercise the right of enforcement, inter alia, of security interest over the property of borrower unless such “security interest” has been duly registered under the said law. Upon such amended law being enforced, a bona fide third party claimant seeking relief against an order of attachment under PMLA will also be obliged to show due compliance with such statutory requirements.

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167. As has been highlighted earlier, the provisional order of attachment is subject to confirmation by the adjudicating authority. The order of the adjudicating authority, in turn, is amenable to appeal to the appellate tribunal. The said forum (i.e. the appellate tribunal) may pass such orders as it thinks fit “confirming, modifying or setting aside the order appealed against” [Section 26(4)]. Undoubtedly, an aggrieved party is entitled in law to invoke the said jurisdiction of the appellate tribunal to bring a challenge to the orders of attachment (as confirmed) but, the law in PMLA, at the same time, also confers jurisdiction on the special court to entertain such claim for purposes of restoration of the property during the trial of the case [Section 8]. The jurisdiction to entertain objections to attachment conferred on the appellate tribunal on one hand and, on the special court, on the other, thus, may be co-ordinate, to an extent.

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168. An argument, however, was raised, by the appellants that the respondents herein should have approached the special court, instead of the appellate tribunal, for consideration of their respective claims.

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169. In view of above-noted legislative scheme, it must be clarified that if the order confirming the attachment has attained finality, or if the order of confiscation has been passed or, further if the trial of a case for the offence under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest will have to be inquired into and adjudicated upon only by the special court.

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170. But, the above exception cannot be applied to all cases of bona fide third party claimants so as to confer a general right to seek release of such property as last mentioned above from attachment even in cases where the encumbrance is created or interest acquired at a time around or after the date or period of criminal activity. In this category of cases, the third party will have the additional burden to prove that it had exercised due diligence having "taken all reasonable precautions" at the time of

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acquisition of such interest or creation of such charge, the jurisdiction to entertain and inquire into such claim and grant relief of release after order of attachment has attainted finality, or of restoration after order of confiscation, vesting only in the special court under Section 8(7) & (8) PMLA. The due diligence is to be tested amongst others, on the touchstone of questions as to whether the party had indulged in transaction after due inquiry about untainted status of the asset or legitimacy of its acquisition.

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SUMMARISING THE CONCLUSIONS

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171. It will be advantageous to summarise the conclusions reached by the above discussion, as under :-

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(i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering.

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(ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation.

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(iii). The empowered enforcement officer has the authority of law in PMLA to attach not only a "tainted property" - that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property of equivalent value of the offender of money laundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering.

¶105

(iv). If the "tainted property" respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset ("the alternative attachable property" or "deemed tainted property") of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime.

¶106

(v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him.

¶107

(vi). The objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former.

¶108

(vii). The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with "money-laundering" and "proceeds of crime" relating thereto.

¶109

FPA-PMLA-1935/DLI/2017

¶110

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¶111

(viii). The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" and consequently being "proceeds of crime", within the mischief of PMLA.

¶112

(ix). If the property of a person other than the one accused of (or charged with) the offence of money-laundering, i.e. a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of moneylaundering (or his abettor), or it was involved in a transaction which had interconnection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends.

¶113

(x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as "void" unless material is available to show that it was created "to defeat" the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance.

¶114

(xi). A party in order to be considered as a "bonafide third party claimant" for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered. (xii). An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides.

¶115

(xiii). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken “due diligence" (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest.

¶116

(xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the

¶117

FPA-PMLA-1935/DLI/2017

¶118

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¶119

third party will not be subjected to confiscation so long as the charge or encumbrance of such third party subsists, the attachment under PMLA being valid or operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.

¶120

(xv). If the bonafide third party claimant (as aforesaid) is a "secured creditor", pursuing enforcement of "security interest" in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.

¶121

(xvi). In the situations covered by the preceding two subparagraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the "excess" value of the property subjected to PMLA attachment.

¶122

(xvii).If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.

¶123

DECISION ON THE APPEALS

¶124

172. In view of the above conclusions, the impugned decisions of the appellate tribunal will have to be set aside. There is a need for further scrutiny particularly on facts, of the claims of the respondents, in their appeals which were presented before the said forum to challenge the orders of attachment, as confirmed by the adjudicating authority in the five cases. This may be illustrated hereinbelow.

¶125

173. It does appear that the assets which have been the subject matter of attachment in the appeals at hand are not “tainted property”, the same having been seemingly acquired prior to the criminal activity giving rise to accusations of money-laundering. But, they are sought to be attached and subjected to eventual confiscation on account of they being the alternative attachable properties or deemed tainted properties, which is permissible in law. The audi car (subject matter of first appeal) was acquired by a transaction which has no direct connection with the case of money-laundering. However, there is no clarity as to the value of proceeds of crime which are to be confiscated as against value of the attached property as indeed the extent of the debt yet to be recovered by the secured creditor. The monetary gains made by the transactions which are subject matter of the accusations of

¶126

FPA-PMLA-1935/DLI/2017

¶127

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¶128

money-laundering on account of illicit foreign exchange transactions (third appeal) or the case of cheating by use of fabricated defence supply orders (fourth appeal), both involving public servants, require closer scrutiny as to the claim of the respondent banks of bonafide action. Though there is no such element of complicity on part of any of the officials of the respondent banks in the case relating to fictitious hospital equipment (second appeal) or the one involving consortium of banks (fifth appeal), scrutiny respecting legitimacy and bonafide of the claim on the touchstone, inter alia, of the subsisting value of the secured interest and chronology of events leading to attachment would be necessary.

¶129

174. It will be appropriate that such further scrutiny as is necessary on the touchstone of above principles is undertaken by the appellate tribunal after calling for further responses (and inputs) from each side.

¶130

175. Ordered accordingly.

¶131

176. Thus, the appeals are allowed. The impugned decisions of the appellate tribunal are set aside. The matters arising out of the appeals of the respondents stand revived and restored for further consideration by the appellate tribunal. The parties are directed to appear before the said forum on 15.04.2019.

¶132

177. The appeals, and the applications filed therewith, stand disposed of in above terms. ”

¶133

Heard the learned counsel for the Syndicate Bank and Shri Atul Tripathi, learned counsel for the respondent. None appeared for the State Bank of India. However, the materials available on records are perused. The appellant has placed the list of dates and events which are as below;

¶134

Sr. No.	Date	List of Events
1.	25.02.2005	M/s. Surhit Services Pvt. Ltd. (SSPL)
		(Respondent no.2) entered into Apartment
		Buyers Agreement with the Builder M/s. Vatika
		Land Base Ltd. (VLBL)
2.	29.03.2007	Execution of agreement to mortgage the property
		in question by M/s. SSPL with appellant as
		security to the amount of Rs.26.50 Crores.
3.	18.07.2007	Tripartite agreement entered into by the M/s.
		SSPL, the appellant and M/s. VLBL.

¶135

FPA-PMLA-1935/DLI/2017

¶136

Page 14 of 33

¶137

4.	18.07.2007	a) Tripartite agreement shows that M/s. SSPL has paid Rs.44,18,970/- to M/s. VLBL being
		the part consideration of the property in
		question prior to the date of tripartite
		agreement.
		b) The balance consideration amount of the property in question of Rs.33,87,640/- shall be paid by the Respondent no.2 M/s. SSPL as and when demanded by M/s. VLBL.
		c) M/s. SSPL agrees to create mortgage of the flat in question as soon as the sale deed is executed.
		d) M/s. SSPL and M/s. VLBL agree that the appellant will have unrestricted right of entry and taking possession of the flat in question. e) M/s. SSPL agrees that in case of any default in payment of loan amount to appellant, the M/s. VLBL will accept the new person brought by the appellant as the purchaser and execute the document in their favour accordingly. f) The property in question is a secured asset of the appellant being security to the amount of Credit Facilities granted by the appellant to M/s. SSPL. The said property is also security
		to Rs. 13 Crores sanctioned by SBI to the Respondent no.2 M/s.SSPL.
5.	17.09.2008	The appellant in 5 installments remitted a sum of Rs.28,95,698/- between 03.05.2007 to 17.09.2008 toward the property in question.
6.	30.09.2008	The loan of Rs.13 Crores was sanctioned to

¶138

FPA-PMLA-1935/DLI/2017

¶139

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¶140

		M/s. SSPL by State Bank of India.
7.	25.08.2009	The appellant issued notice under Section 13(2) of SARFAESI Act, 2002 to Respondent no.2 M/s. SSPL to pay the dues of the Bank. The Appellant sold three of the said four immovable properties of Respondent no.2 M/s. SSPL and adjusted the said amounts so realized towards the dues of M/s. SSPL.
8.	2010	The appellant and SBI lodge complaint of cheating with CBI against M/s. SSPL.
9.	06.09.2011	The FD kept by M/s. SSPL having been
		exhausted, the appellant paid the last
		installment demanded by the builder amounting to Rs.8,44,864/- by debiting Overdraft Account of M/s. SSPL.
10.	26.09.2011	The appellant filed O.A. No. 143/2011 before DRT, Delhi.
11.	29.01.2013	The property in question attached by CBI.
12.	07.11.2014	The Hon‟ble High Court Delhi ordered to de- seal the property in question in favour of the
		appellant noting the submission of the appellant that it is a secured creditor and is entitled to recover its due in terms of Section 13(4) of SARFAESI Act, 2002.

¶141

During the course of hearing the learned counsel for the appellant

¶142

submitted the following;

¶143

a) It is clear finding of this Tribunal that the property in question has not been derived or obtained as a result of criminal activity relating a scheduled offence.

¶144

FPA-PMLA-1935/DLI/2017

¶145

Page 16 of 33

¶146

b) There is no material available to show that security interest was created “to defeat” the provisions of the Prevention of MoneyLaundering Act, 2002 (PMLA Act) and that the property is not available for attachment and confiscation under PMLA, free from such encumbrance. All legal proceedings for recovery were initiated by the Bank prior to provisional attachment.

¶147

c) That it is clear that the Appellant Bank is not privy or complicity in, the offence of money-laundering as;

¶148

i. The F.I.R. has not been lodged again the Appellant but others.

¶149

ii. That the security interest of the Appellant in the property in question has been acquired lawfully and for adequate consideration.

¶150

d) The subject property is not an alternate attachable property and not even claimed as such.

¶151

e) The property in question was acquired much before the alleged criminal activity and is not involved in a transaction which had interconnection with transactions concerning money-laundering.

¶152

f) That even otherwise, due diligence was exercised by the Bank in taking the property in question as security.

¶153

g) The subject property is not tainted property. Property valued at Rs.80.50 Lakh;

¶154

DRT issued Recovery certificate for Rs.28.27 crores much more than value of property.

¶155

h) The property in question is not attached as an alternate property.

¶156

It is contended by the Appellant Bank that CBI has fully investigated the matter and the transactions involved in the case and filed charge sheet in the CBI Court. If it had found that there was any offence involved in the matter of purchase of the property in question or creation of security interest in favour of the Bank including money FPA-PMLA-1935/DLI/2017 Page 17 of 33

¶157

laundering even remotely, it would not have consented that the property in question confiscated by the CBI to be released to the Appellant Bank for being sold to recover its dues before the Hon‟ble High Court and Hon‟ble High Court on merits would not have released the property in favour of the Bank.

¶158

On the other hand the respondent has inter-alia submitted the following:

¶159

a. That, Enforcement Directorate issued Provisional Attachment Order no. 04/2017 dated 31.03.2017 for property situated at address “601, type Sovereign, 6^th Floor, Sector-49, Vatika City, Gurgaon, Sohna Road, Haryana”.

¶160

b. That, consequent to issuing of the Provisional Attachment Order, the Original Complainant vide no. 763/2017 was filed before the Hon‟ble Adjudicating Authority for adjudication. After hearing both the parties, the Ld. Adjudicating Authority has also confirmed the Provisional Attachment Order and allowed the Original Complaint filed by Enforcement Directorate vide its order dated 02.08.2017, confirming the provisional attachment of assets worth Rs. 80,50,549.80/-.

¶161

c. That, the respondent Syndicate Bank preferred an appeal against the order dated 02.08.2017. The Hon‟ble Appellate Authority, Prevention of Money Laundering Act at New Delhi vide its Orders dated 15.03.2018 allowed the appeal of the respondent bank and set aside the confirmation of Provisional Attachment Order dated 02.08.2017.

¶162

d. That, a prosecution complaint has also been filed in Hon‟ble Trial Court under PMLA, 2002 against M/s Surhit Service Pvt. Ltd. and its Directors for prosecution and confiscation of the attached property.

¶163

FPA-PMLA-1935/DLI/2017 Page 18 of 33

¶164

Hon‟ble Trial Court has taken cognizance of the same and the case is pending for trial.

¶165

e. That, Enforcement Directorate filed an appeal no. Crl. A. 603/2018 in Hon‟ble Delhi High Court u/s 42 of the PMLA, 2002 against the Order dated 15.0.3.2018 passed by Hon‟ble Appellate Tribunal(PMLA) in FPA-PMLA-1935/DLI/2017 in which Hon‟ble High Court vide order dated 01.11.2019 disposed the appeal filed by Enforcement Directorate and ordered that:

¶166

“It is agreed between the parties that in view of the judgment passed by a coordinate bench of this court in the case bearing Crl. A. 143/2018 in Deputy Director Directorate of Enforcement Delhi vs. Axis Bank and Ors. and other batch matters, the present case be remanded to Appellate Tribunal for PMLA and the tribunal shall restore the appeal and after hearing both the parties, decide the same within six weeks from the receipt of this order. This appeal is disposed of, accordingly.”

¶167

f. The respondent has drawn the attention of this Tribunal to the judgment passed in CRL. A. no. 143/2018 in matter of Deputy Director Directorate of Enforcement Delhi Vs. Axis Bank and other and other batch matters and has also drawn attention to para 163 to 167 and para 171 of the aforesaid judgment of Hon‟ble High Court of Delhi which has already been re-produced in earlier paragraph.

¶168

g. From the above it emerges that Hon‟ble High Court of Delhi has held

¶169

as under:-

¶170

The charge or encumbrance of a third party in a property cannot make attachment under PMLA void or not tenable.

¶171

An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest/charge in the property.

¶172

SARFAESI Act and Insolvency Code do not prevail over PMLA for the reason that the objective of PMLA is distinct from these legislators. By virtue of Section 71, PMLA has overriding effect over other existing law in the matter dealing with money laundering.

¶173

Bonafide third party has to prove its claim and in case bonafide third party proves its claim even then the attachment under PMLA would not be invalid.

¶174

FPA-PMLA-1935/DLI/2017

¶175

Page 19 of 33

¶176

If order confirming the attachment has attained the finality or if the order of confiscation has been passed or if trial of a case under Section 4 of PMLA has commenced the claim of a party with regard to legitimate interest in the property will be inquired into and adjudicated upon only by the Special Court.

¶177

h. In the instant case, as per Agreement to Mortgage dated 29.03.2007 between appellant bank and M/s. Surhit Services Pvt. Ltd., the property in dispute was actually never mortgaged to the appellant bank. The extract of the agreement in this regard is as below:

¶178

“The First party shall mortgage the said property in favour of the Bank immediately after the execution of the sale deed in their favour by M/s Vatika Greenfields Projects Pvt. Ltd.”

¶179

Further, from Tripartite Agreement which was signed between Appellant Bank, Builder and M/s. Surhit Services Pvt. Ltd. dated 18.07.2007 the aforesaid fact is again clear that the property in dispute was never mortgaged to the appellant Bank and the extract of the agreement in this regard is as below:

¶180

“ One of the terms and conditions of the said sanction of credit facilities that amongst others the borrower shall create the mortgage of the scheduled property on completion of construction and other formalities of transfer by the builder in favour of the Borrower and meanwhile to project the interest of the Bank an agreement shall be entered into by the builder with the borrower in favour of the bank agreeing for certain terms and conditions.”

¶181

Thus, from the aforesaid facts, it is clear that the claim of the appellant bank that it was a mortgagee is not tenable as the property in question was never mortgaged to the appellant Bank.

¶182

i. Further, it is submitted that the attached property is a proceeds of crime. It is also relevant to mention herein that in the present case Prosecution complaint has already been filed and Special Court has taken cognizance therefore the attached property has also become the case property.

¶183

FPA-PMLA-1935/DLI/2017

¶184

Page 20 of 33

¶185

j. It is also submitted that the prosecution complaint has been filed after the pronouncement of this Appellate Tribunal judgment dated 15.03.2018.

¶186

k. Attachment is still continuing. It was not a housing loan but a loan against credit facility.

¶187

Heard both sides. Perused the materials available on record and gone through the order of Hon‟ble High Court of Delhi passed in Crl.A. No.143/2018 and other batch matters. It is revealed from the record that the following are the undisputed facts of the appeals:

¶188

i. On 25.02.2005, M/s. Surhit Services Pvt. Ltd. (SSPL) (Respondent no.2) entered into Apartment Buyers Agreement with the Builder M/s. Vatika Greenfields Project Pvt. Ltd. (Annexure A-1)

¶189

ii. On 29.03.2007, Execution of agreement to mortgage the property in question by M/s. SSPL with appellant as security to the amount of Rs.26.50 Crores. (Annexure A-1 Agreement to Mortgage)

¶190

iii. On 18.07.2007, Tripartite Agreement entered into by the M/s. SSPL, the appellant and M/s. Vatika Land Base Ltd. (VLBL) (Builder). (Annnexure A-2)

¶191

iv. The said Tripartite Agreement shows that M/s. SSPL has paid Rs.44,18,970/- to M/s. VLBL being the part consideration of the property in question prior to the date of tripartite agreement. (Annnexure A-2)

¶192

v. The balance consideration amount of the property in question of Rs.33,87,640/- was to be paid by the Respondent no.2 M/s. SSPL as and when demanded by M/s. VLBL. (Annnexure A-2)

¶193

FPA-PMLA-1935/DLI/2017

¶194

Page 21 of 33

¶195

vi. M/s. SSPL agrees to create mortgage of the flat in question as soon as the sale deed is executed. (Annnexure A-2)

¶196

vii. M/s. SSPL and M/s. VLBL agreed that the appellant bank will have unrestricted right of entry and taking possession of the flat in question. (Annnexure A-2)

¶197

viii. M/s. SSPL agreed that in case of any default in payment of loan amount to appellant, the M/s. VLBL will accept the new person brought by the appellant as the purchaser and execute the document in their favour accordingly. (Annnexure A-2)

¶198

ix. The said property is also security to Rs. 13 Crores sanctioned by SBI to the Respondent no.2 M/s.SSPL.

¶199

x. On 17.09.2008, the appellant bank in 5 installments remitted a sum of Rs.28,95,698/- between 03.05.2007 to 17.09.2008 toward the property in question.

¶200

xi. On 30.09.2008, the loan of Rs.13 Crores was sanctioned to M/s. SSPL by State Bank of India.

¶201

xii. On 25.08.2009, the appellant issued notice under Section 13(2) of SARFAESI Act, 2002 to Respondent no.2 M/s. SSPL to pay the dues of the Bank.

¶202

xiii. In 2010, the appellant bank and SBI lodge complaints of cheating with CBI against M/s. SSPL.

¶203

xiv. On 06.09.2011, the FD kept by M/s. SSPL having been exhausted, the appellant paid the last installment demanded by the builder amounting to Rs.8,44,864/- by debiting Overdraft Account of M/s. SSPL.

¶204

xv. On 26.09.2011, the appellant filed O.A. No. 143/2011 before DRT, Delhi.

¶205

xvi. On 29.01.2013, the property in question attached by CBI.

¶206

xvii. On 07.11.2014, the Hon‟ble High Court of Delhi ordered to deseal the property in question in favour of the appellant noting the submission of the appellant that it is a secured creditor and

¶207

FPA-PMLA-1935/DLI/2017

¶208

Page 22 of 33

¶209

is entitled to recover its due in terms of Section 13(4) of SARFAESI Act, 2002.

¶210

The bonafide as well as due diligence in sanctioning the loan by the appellant to M/s. SSPL has not been doubted by the respondent at any point of time. It is also not clarified by the respondent how the property in question is acquired out of proceeds of crime. On perusal of the conclusive para i.e. Para No. 12, the ld. Adjudicating Authority is not sure whether the property attached in proceedings are proceeds of crime or value thereof and how the appellants are involved in the money laundering.

¶211

One of the main contentions of the respondent that the property was not mortgaged rather there is an agreement to mortgage the same. On the other hand, it is the contention of the appellant bank that security interest has already been created on 29.03.2007 on Execution of Agreement to mortgage the property in question by M/s. SSPL with the appellant and followed by Tripartite Agreement entered into by M/s. SSPL, the appellant and M/s. VLBL on 18.07.2007. It is also contended by the learned counsel for the appellant that the CBI in the proceedings relating to the predicate offence pending before the Ld. Special Judge, CBI submitted that “an amount of Rs.33,77,816/- paid by the Bank to M/s. Vatika. In this case, SBI suffered a loss of Rs.8.96 crore out of Rs.13 crore and also Syndicate lead Bank also suffered a loss of Rs. 26.24 crore. CBI has filed a charge-sheet in the Hon’ble Court in RC.BDI/2010/E/0005/CBI/BS&FC/New Delhi related to loss of Syndicate Bank. Since Syndicate Bank suffered a loss as above therefore, it may be allowed to recover its loss incurred due to act of M/s. Surhit Services Pvt. Ltd. after proper valuation of the flat/property as on date.” (Annexure A-3)

¶212

FPA-PMLA-1935/DLI/2017

¶213

Page 23 of 33

¶214

Annexure A-6 is the copy of the order passed by the Hon‟ble High Court of Delhi in CRL. REV.P. 299/2013 & Crl. M.A. 8119/2013 filed by the Appellant against the order dated 04.03.2013 passed by the Ld. Special Judge, in complaint case no. 10/2011 filed by CBI. On the said Criminal Revision Petition the Hon‟ble High Court of Delhi has passed the following order:

¶215

“Counsel for the petitioner has put in appearance.

¶216

Parties have addressed arguments.

¶217

Submission of the learned counsel for the petitioner is that the order dated 04.3.2013 passed in Complaint Case No.10 of 2011 is patently illegal and in gross violation of Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

¶218

Record shows that M/s Surhit Services Pvt. Ltd. had mortgaged its property i.e. Flat No.2/601, Type: Sovereign Block No.II, 6^th Floor, Vatika City, Sohna Road, Gurgaon on 29.3.2007 with the petitioner bank i.e. Syndicate Bank. An agreement of mortgage to the said effect had been executed. This property had been mortgaged as a security for the loan amount of Rs.26.50 crores which had been sanctioned by the bank to the borrower (M/s Surhit Services Pvt. Ltd.). On 18.7.2007 the borrower, builder (M/s Vatika Land Base Ltd.) and the petitioner bank entered into a tripartite agreement. The contention of the petitioner bank is that the bank is a secured creditor and the property had been mortgaged with the bank; the impugned order dismissing the application of the bank and not allowing the de-sealing of the property had committed a folly.

¶219

The reply filed by the CBI has been perused. It is not in dispute that the present property stood as a security with the petitioner bank pursuant to which a loan had been granted to M/s Surhit Services Pvt. Ltd. There is also no dispute to the factum of the tripartite agreement entered into between the bank (petitioner), builder and the borrower.

¶220

The CBI has reiterated that the afore noted flat is a secured asset of the Syndicate Bank. It has supported the stand of the petitioner bank and has stated that since the bank had suffered a loss it may be permitted to sell the aforenoted property.

¶221

Record shows that this property had been attached by the Special Judge in the proceedings under Section 82 and 83 Cr.P.C. as the borrower had not been appearing and that Court had been informed that as on date he is a proclaimed offender.

¶222

Noting the submissions of the petitioner bank that it is a secured creditor and is entitled to recover its due in terms of Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the present prayer made in the present application is granted and the property Flat No.2/601, Type: Sovereign Block No.II, 6^th Floor, Vatika City, Sohna Road, Gurgaon be de-sealed in favour of the petitioner bank.

¶223

With these directions this petition is disposed of.”

¶224

FPA-PMLA-1935/DLI/2017

¶225

Page 24 of 33

¶226

Annexure A-11 to Annexure A-14 are the copy of the documents showing that the appellant had filed recovery proceedings before the DRT-II, Delhi for recovery of the loan amount which was concluded vide order dated 23.09.2015 and issue of recovery certificate dated 27.11.2015. It is contended by the Appellant Bank that the recovery of the outstanding loan could not be made due to the present attachment proceedings. It is contended by the learned counsel for the appellant bank that the total outstanding amount is Rs.28.27 Crores and there will be deficiency even after disposal of the property in question. The learned counsel for the appellant submits that the appellant bank is a victim and not an offender, the public money is stuck due to the proceedings under PMLA.

¶227

The appellant is a third party bonafide claimant of the property. The security interest has been created on the property in question and there are legitimate banking transactions. There is no allegation on the part of Enforcement Directorate that the appellant has not exercised due diligence in sanctioning loan. Such facilities were extended after conducting due diligence and the necessary checks and balances.

¶228

The security interest has been created in the year on 29.03.2007, whereas the ECIR has been registered much later and the Provisional Attachment Order has been passed on 24.03.2017. Much prior to the year 2017, Section 13(2) notice under SARFAESI Act, 2002 was issued on 25.08.2009 and the DRT proceedings have been finally concluded in the year 2015.

¶229

The Hon‟ble High Court of Delhi in the recent decision of “ The Deputy Director, Directorate of Enforcement, Delhi Vs. Axis Bank & Ors. ,” reported in 2019 SCC Online Del 7854 (hereinafter referred to as the FPA-PMLA-1935/DLI/2017 Page 25 of 33

¶230

Page 25 of 33

¶231

“Axis Bank Decision ”) has rightly held that the interest of a third party in the property of an accused, acquired prior to the commission of the proscribed offence cannot be defeated or frustrated by attachment of such property under Section 8 of the Act.

¶232

The Hon‟ble High Court further recognized the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property as exceeds the claim of the third party, if any . (Reference Paragraph No. 162-164 of the Axis Bank Decision ) speak for itself.

¶233

In terms with the Axis Bank Decision , the claim of the Respondent to the property would be restricted to such part of the aggregate value of the property attached as exceeds the claim of the Appellant.

¶234

Claim of the Bonafide Third Party Claimant to be determined by the Appellate Tribunal.

¶235

In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal U/s 26 of the Act and then before the Hon‟ble High Court U/s 42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted its remedies in appeal right up to the Hon‟ble High Court, an order confirming the attachment cannot be said to have attained finality.

¶236

FPA-PMLA-1935/DLI/2017

¶237

Page 26 of 33

¶238

Therefore, this Tribunal is fully equipped and possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order.

¶239

There is no force in the argument of learned counsel appearing on behalf of Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending. The Hon‟ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be inquired into by the Special Court only if the order confirming the attachment “has attained finality”. An order cannot be said to have attained finality until and unless all the remedies under the Act have been exhausted. The Tribunal has only to examine the impugned order and is empowered under Section 26 of the Act as to whether the attachment order has been passed as per law or not. This Tribunal has the exclusive jurisdiction on this issue. The Appellant Bank is otherwise if so may approach the Special Court for release of property even during the pendency of appeal or after allowing the appeal. The validity of the confirmation of attachment order is only to be considered by this Tribunal.

¶240

The plea of the Respondent that the submission of the Appellant of possessing a legitimate and bonafide claim as a third party to the property cannot be tackled at the stage of confirmation of the PAO and that the rights of the Appellate will be dealt with by the Special Court at the stage of Section 8(8) of the Act in incorrect. The said argument of the respondent is contrary to the statutory and legislative scheme of the Act. It would amount to an exercise in futility and wasteful litigation if the Appellant were required to be a mute spectator to the confirmation of FPA-PMLA-1935/DLI/2017 Page 27 of 33

¶241

Page 27 of 33

¶242

attachment of mortgaged property at this stage and await the conclusion of criminal trial under the PMLA, 2002 to agitate and pursue its rightful legal claim over such property on which security interest has been created.

¶243

Therefore, the Adjudicating Authority by the Impugned Judgment has erred in failing to recognise the legitimate claim of the Appellant at the stage of confirmation of the PAO itself as the Appellant Bank is a victim of the fraud by M/s. SSPL the effect of the Impugned Judgment, depriving it of pursuing its legal claims against property mortgaged to it. The value of the property on account of the present case as well as the FIR has depreciated significantly and is deteriorating on a daily basis, such that any delay in enforcement of recovery by the Appellant would be rendered meaningless. In the present case, the Appellant is the victim of the fraud played upon it by M/s. SSPL.

¶244

The authorised officer has failed to trace out the other property which is involved in the money laundering. Without any proper investigation in this regard, the officer concerned straightaway target the secured property which are not acquired from the proceeds of crime and the same were secured prior to the date of offence committed.

¶245

The impugned order confirming the provisional attachment order is passed without application of mind and without understanding the law, it is liable to be quashed with regards to secured property.

¶246

It is not agreed with the submission of counsel appearing on behalf of ED that the banks may not be allowed to dispose of the secured property and should wait for trial to be faced by these offenders and it would. The main reasons for disagreeing his arguments are that the secured property is secured much prior period from the date of offense. FPA-PMLA-1935/DLI/2017 Page 28 of 33

¶247

The banks are innocent and victims. The banks are not charge-sheeted. They are the secured creditors. Public Sectors Banks‟ money is the public money.

¶248

No doubt, this tribunal is clear in its mind that if the property was acquired from proceeds of crime and at the time of creating security, the bank is aware and still the loan is sanctioned, then said property can be attached even in lieu of value thereof if the borrowers has concealed or is concealing the proceeds of crime, but under those circumstances, there must be material or prima facie evidence on record before passing the provisional attachment orders.

¶249

This order is being passed in relation to secured property in favour of bank which is not purchased from proceeds of crime. The same was purchased and secured with the bank prior to the of crime period.

¶250

SARFAESI Act, 2002 measure under Section 13(2) was initiated in the year 2009 and Bank‟s OA for recovery of dues under RDB, Act was filed in the year 2014 and DRT order dated 15.10.2015 restraining the Borrowers and Guarantors to deal with the secured property is much prior to the passing of the PAO order 24.03.2017 by the ED.

¶251

The appellant is always at liberty to approach the Special Court to initiate the proceeding for disposal of secured property, if so desired, who is agreeable to deposit the excess amount if such situation will arise. Counsel for appellants after taking the instructions from his clients stated that his clients are duty bound to deposit the excess amount with the respondent.

¶252

The Appellant has nothing to do and has no connection with the allegation of crime committed by the borrower. They are not involved for FPA-PMLA-1935/DLI/2017 Page 29 of 33

¶253

the offences of money-laundering. The secured property is admittedly not derived from criminal activities or proceeds of crime. The scope of the PMLA is to punish the accused person and not to punish the innocent person who is not involved in the crime within the meaning of Section 2 (v) read with Section 3 of the Act. The appellant is not charge sheeted nor any prosecution complaint has been filed against the appellant.

¶254

There is no nexus whatsoever, between the alleged crime and the appellant who has secured property and is a victim of the fraud and is innocent party. The definition of proceeds of crime as per Section 2 (u) of the Act comprises of the property which is derived or obtained as a result of criminal activities. The secured property is not acquired from proceeds of crime.

¶255

The scheme of the Act is such that is cannot apply to a transaction of the nature as in the present case against the appellant. Money of appellant is public money and its right under SARFAESI cannot be taken away by the attachment order, in case the attachment continues against the mortgage property, in all matters the economy of the country would suffer.

¶256

If paras 167 to 169 are read co-jointly with para-163 and 165, it is clear from the same that if the attachment has attained finality or if order of confiscation has been passed, the claim and legitimate interest will have to be inquired by the Special Court. The said findings are correct if the situation in the present appears are the same. In the present case, attachment has not attained finality or any confiscation has been passed or any trial has commenced under the Section-4 of PMLA against the appellant. In fact, appellant is an innocent party and a victim also. The trial against accused parties may take number of years.

¶257

FPA-PMLA-1935/DLI/2017

¶258

Page 30 of 33

¶259

Appellant‟s case is squarely covered under para-163 and 165 of the judgment.

¶260

In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal under Section 26 of the Act and then before the Hon‟ble High Court under Section 42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted its remedies in appeal right up to the Hon‟ble High Court, an order confirming the attachment cannot be said to have attained finality. This tribunal is only concerned with the validity of the impugned order and provisional attachment order which has been confirmed.

¶261

Therefore, this Tribunal possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the Appellant and determine the bonafide and legitimacy of its claims as well as the legality of the Provisional Attachment Order. Upon an argument being raised by the Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending, the Hon‟ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be inquired into by the Special Court only if the order confirming the attachment “has attained finality”. An order cannot be said to have attained finality until and unless all the remedies under the Act have been exhausted. No doubt the bank and financial institutions are always at liberty to approach the Special Court (if so desired) in order to invoke the amended provision of sub-section 8 of Section 8, however, it is wrong to suggest that the bank and financial institutions are not entitled to challenged the order of attachment FPA-PMLA-1935/DLI/2017 Page 31 of 33

¶262

Page 31 of 33

¶263

because this tribunal is only exclusively having jurisdiction to examine the validity of attachment and to decide the same under section 26 of the Act as to whether attachment was valid or not. The bank and financial institutions are entitled to take the remedy before the Special Court after the decision of appeal or during the pendency of appeals.

¶264

In view of judgment passed by the High Court also, I am of the view that the Provisional Attachment Order dated 24.03.2017 passed by ED and impugned order dt. 02.08.2017 passed by the Adjudicating Authority, PMLA, confirming the Provisional Attachment Order is to be quashed and set aside.

¶265

The Hon‟ble High Court of Delhi, vide order dated 06.12.2019 passed in Crl.A.1090/2018 in the matter of Directorate of Enforcement Versus Indian Overseas Bank & Ors. have clarified the “status quo” order of Hon‟ble Supreme Court passed in the appeal against the order dated 02.04.2019 passed in the matter of Deputy Director, Directorate of Enforcement Versus Axis Bank & batch matters in CRL.A. No.143/2018. The order dated 06.12.2019 of Hon‟ble High Court of Delhi is reproduced below:

¶266

Crl.M.A.42109/2019 (Exemption)

¶267

Allowed, subject to all just exceptions.

¶268

This application is, accordingly, disposed of.

¶269

Crl.M.A. 42108/2019

¶270

Vide the present application, the applicant/respondents seek clarification of the order dated 01.11.2019 as to whether the Tribunal shall proceed with the present matter.

¶271

Vide order dated 01.11.2019, this court remanded the matter to the Appellate Tribunal for PMLA and directed the said Tribunal to restore the appeal and after hearing both the parties decide the same within six weeks from the receipt of this order.

¶272

The said order was passed on the consent made by the parties and in view of the order passed by this court in Crl.A.

¶273

FPA-PMLA-1935/DLI/2017

¶274

Page 32 of 33

¶275

143/2018 in Deputy Director, Directorate of Enforcement, Delhi vs. Axix Bank & Ors. and other batch matters.

¶276

Learned counsel appearing on behalf of the nonapplicants/petitioner submits that the Hon’ble Supreme Court has granted status quo qua the property in question, however, there is no status quo to proceed with the matter by any court including the Appellate Tribunal of PMLA. This fact has not been disputed by counsel for the respondent.

¶277

Thus, it is clarified that the order of the status quo of the Supreme Court is regarding the disposal of the property, therefore, Appellate Tribunal of PMLA is directed to comply with the order dated 01.11.2019 passed by this court within six weeks from today.

¶278

In view of above directions, the application is disposed of.

¶279

Copy of the order be given dasti under the signatures of Court Master. ”

¶280

In view of the said clarificatory order no order in respect of disposal of the property can be passed by this Appellate Tribunal.

¶281

In the light of above, the present appeal is allowed in terms of the Judgment dated 02.04.2019 passed by the Hon‟ble High Court of Delhi in Crl. A. No. 1076/2018.

¶282

The impugned order dated 02.08.2017 is set-aside. Consequently, Provisional Attachment Order is also quashed in respect of questioned property secured with the appellant.

¶283

No costs.

¶284

(G. C. Mishra) Acting Chairman

¶285

New Delhi, 11^th December, 2019 „AS‟

¶286

FPA-PMLA-1935/DLI/2017

¶287

Page 33 of 33

FPA-PMLA-1935/DLI/2017 of Chief Manager, Syndicate Bank v/s The Deputy Director Directorate of Enforcement, Delhi & Ors.

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FPA-PMLA-1935/DLI/2017 of Chief Manager, Syndicate Bank v/s The Deputy Director Directorate of Enforcement, Delhi & Ors.

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