Allowed

FPA-PMLA-1950/DLI/2017 of Punjab National Bank v/s The Deputy Director Directorate of Enforcement, Delhi

ATFP6 Aug 2019FPA-PMLA-1950/DLI/2017

Case brief

AI extract

What is this about?

This tribunal allowed appeals filed by Punjab National Bank against confirmation of provisional attachment orders and original complaints under the PMLA. The court quashed the attachment of mortgaged property held by the bank, ruling that it was acquired bona fide prior to the alleged offence and was already in the bank's possession under SARFAESI. The court held that PMLA attachment cannot overri

What did the court decide?

Impugned orders of confirmation of provisional attachment and original complaint under PMLA were set aside; attachment order quashed; appellants at liberty to take further steps.

FPA-PMLA-1950/DLI/2017 of Punjab National Bank v/s The Deputy… — Banking and Recovery | ATFP (2019)

¶1

APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS, PBPT ACT AT NEW DELHI

¶2

Date of Decision: 06.08.2019

¶3

(1) FPA-PMLA-1859/DLI/2017
Punjab National Bank	…	Appellant
Versus
The Deputy Director Directorate of Enforcement, Delhi	…	Respondent
(2) FPA-PMLA-1950/DLI/2017
Punjab National Bank	…	Appellant
Versus
The Deputy Director Directorate of Enforcement, Delhi	…	Respondent

¶4

Advocates/Authorized Representatives who appeared

¶5

For the appellant : Ms. Kirti Uppal, Sr. advocate with Ms. Nishi Chaudhary, Advocate Shri Shailendra Bhardwaj, Adv. Shri Yashartha Gupta, Advocate Shri Raghav Sharma, Adv. For the respondent : Shri Nitesh Rana, Advocate Shri Atul Tripathi CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN SHRI G.C. MISHRA : MEMBER

¶6

JUDGEMENT

¶7

FPA-PMLA-1859 & 1950/DLI/2017

¶8

FPA-PMLA-1859 & 1950 /DLI/2017

¶9

Page 1 of 21

¶10

APPEAL NO. 1859/2017

¶11

The above-mentioned appeal has been filed by the appellant against the impugned dated 14.03.2017 thereby confirming the Provisional Attachment Order no. 08/2016 (in ECIR no. DLZO/01/2015/AD (BKS) vide F. No. DLZO/01/2015/AD(VM)/2996 dated 30.09.2016, passed under sub-section (1) of Section 5 of the PMLA, 2002.

¶12

The case of the appellant is that M/s. Divine Infracon Pvt. Ltd. had availed an overall credit facility of Term Loan of Rs. 373.00 crores and Bank Guarantees of Rs.28.84 crores as sanctioned and granted, inter-alia, by all the members of Punjab National Bank Consortium comprises with Punjab National Bank, Bank of India (now assigned debts to Phoenix ARC Private Limited), Andhra bank (now assigned debts to M/s. Pridhvi Asset Reconstruction and Securitization Company Ltd), Union Bank of India, Bank of Baroda, UCO Bank (now assigned debts to Phoenix ARC Private Limited) and Punjab & Sind Bank lastly enhanced on 15.12.2011 vide PNB Consortium. Therefore the Appellate Punjab Nation Bank being the Lead Bank of PNB Consortium is competent to file the present appeal also on behalf of the other member Bank of PNB Consortium by virtue of interse agreement dated 15.12.2011 executed between the member banks of the PNB Consortium whereby appellant was appointed as the Lead of the PNB Consortium and further vide Joint lenders, meeting dated 16.06.2017 authorised to file the present appeal on or behalf of other member banks of PNB Consortium.

¶13

The appellant Bank being the Lead Bank of PNB Consortium called a JLM Meeting on 06.06.2017 at Circle office PNB, whereby in JLM of the PNB Consortium members it was bring into the knowledge of the PNB

¶14

FPA-PMLA-1859 & 1950 /DLI/2017

¶15

Page 2 of 21

¶16

Consortium members by the borrowers i.e. M/s. Divine Infracon Pvt. Ltd through its Directors that a provisional attachment order bearing no. 08/2016 (in ECIR no. DLZO/01/2015/AD (BKS) dated 30.09.2016 was issued under sub-section 1 of Section 5 of PMLA, 2002 passed by the Deputy Director, Directorate of Enforcement, whereby the Hotel Raddisson Blu was attached in exercise of the powers conferred under section 5(1) of PMLA, 2002 to the extent of Rs.21,10,66,767/- and the Adjudicating Authority under the PMLA passed an adjudication order bearing OC No. 0664/2016 dated 14.03.2017 thereby confirming the provisional attachment order bearing no. 08/2016 (in ECIR no. DLZO/01/2015/AD (BKS) dated 30.09.2016.

¶17

APPEAL NO. 1950/2017

¶18

The above-mentioned appeal was filed under Section-26 of the PMLA against the Adjudication Order no. OC No. 713/2017 (Zone: Delhi) passed on 10.08.2017 by Sh. Tushar V. Shah, Member(Admin), Adjudicating Authority under the Prevention of Money Laundering Act, 2002.

¶19

5. The appellant submits as under:-

¶20

a) It is submitted that present appellant, the Punjab National Bank is a body corporate constituted under the banking Companies (acquisition and transfer of undertakings) Act, 1970 having its head office at 7, Bhikhaji Cama Place, New Delhi-110066 and a branch office amongst other places at ARMB, Mayur Vihar, Phase-II, New Delhi-110091. The present appeal is being filed by Shri P.K. Gupta, who is Principal Officer of the Bank/attorney of Bank and is

¶21

FPA-PMLA-1859 & 1950 /DLI/2017

¶22

Page 3 of 21

¶23

competent to institute suit and engage counsel and take all steps for the conduct of the case and is also duly authorized by the Bank through an Authorization Letter to sign, verify, plaint, replication, swear affidavits, applications etc. and to execute all documents connected with legal proceedings and to do all acts necessary for the prosecution of the case. Further, he is a duly constituted attorney authorized to sign and verify the present appeal and do the needful on behalf of the Punjab National Bank.

¶24

b) On 18.04.2017, the appellant Bank being the Lead Bank of PNB Consortium served with a Show Cause Notice of hearing through the respondent, whereby it was gathered that a Provisional Attachment Order no. 05/2017 (in ECIR no. 01/DLZO/2017 dated 14.03.2017 along with corrigendum dated 05.04.2017 was issued under sub-section 1 of Section5 of PMLA, 2002 passed by the Deputy Director, Directorate of Enforcement, whereby vide the above said POA property at Plot No. 4, Sector-13, Dwarka, New Delhi known as “Hotel Raddisson Blu” was attached in exercise of the powers conferred under Section 5(1) of PMLA, 2002 to the extent of Rs.64.70 Crores.

¶25

c) Upon the receipt of the show cause notice, the appellant Bank duly entered the appearance on behalf of Defendant no. 6 and filed a detailed reply to the OC no. 713/2017 on 14.06.2017 inter-alia challenging the POA no. 05/2017 and Original Complaint filed by the Deputy Director, Directorate of Enforcement under sub-section (5) of section 5 of the PMLA,

¶26

FPA-PMLA-1859 & 1950 /DLI/2017

¶27

Page 4 of 21

¶28

2002 as the same is not maintainable and liable to be dismissed in the eye of law.

¶29

d) It is the admitted case of respondent that the appellant is the mortgagee bank in respect of property bearing plot no. 4, Sector-13, Dwarka, New Delhi, Hotel managed by Raddison Blue ( hereinafter referred as “Attached Hotel”), which was attached by the respondent in exercise of the powers conferred under Section 591) of PMLA, 2002 vide Provisional Attachment Order no. 05/2017 dated 14.03.2017 read with corrigendum dated 5.4.2017 to the extent of Rs.64.70 Crores.

¶30

e) The Provisional Attachment Order no. 05/2017 dated 14.03.2017 read with corrigendum dated 5.4.2017 is arbitrary, perverse and contrary to the rights of Secured Creditor provided under the SARFAESI Act, 2002 and against the facts/documents on record and has been passed or attached in an undue haste manner and without proper investigation in the matter as a security interest upon the attached property i.e. plot no. 4, Sector-13, Dwarka City Centre, Dwarka, Delhi (Hotel Raddison Blue ) thereon was created by the M/s. Divine Infracon Pvt. Ltd in favour of the PNB Consortium member Banks for the due repayment of all the Term Loans and other credit facilities amounting to Rs.401.84 Crores sanctioned and disbursed only for the construction of the Hotel Raddisson Blue.

¶31

FPA-PMLA-1859 & 1950 /DLI/2017

¶32

Page 5 of 21

¶33

f) The appellant (Respondent no. 6, Punjab National Bank) on behalf of other member banks of PNB Consortium for the recovery of Rs.336,46,02,792.48 along with interest as due and recoverable from M/s. Divine Infracon Pvt. Ltd. has already filed a T.A. No.07/2016 (previously O.A. No. 730/2015) before the DRT-I, New Delhi for the determination of the debt due and recoverable.

¶34

6 The enforcement of the security interest created by M/s. Divine Infracon Pvt. Ltd upon the secured asset i.e. plot no. 4, Sector-13, Dwarka City Centre, Dwarka, Delhi with superstructure thereon created for the due repayment of all the Term Loans of Rs.401.84 Crores, the appellant (PNB Consortium) has already initiated measures under section 13 & 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and possession of the attached property was taken over on 7.7.2015 under the provisions of section 13(4) OF SARFAESTI Act, 2002.

¶35

As far as relevant dates and events are concerned, the appellant in

¶36

both appeals have common details. The same are mentioned below:-

¶37

Dates	Events
10.02.2009,	PNB Consortium sanctioned a Term loan and BG
06.03.2009 &	of Rs 401.84 Crores for the construction of Five
07.03.2009	Star Hotel Project cum shopping area at Plot No.4,
04.06.2009 &	Dwarka City Centre Sec13 Dwarka (Radisson
11.07.2009	Blue Dwarka) to M/s Divine Infracon Pvt. Ltd.
14.12.2011/	herein.
15.12.2011
31.03.2009	A consortium was constituted between PNB

¶38

FPA-PMLA-1859 & 1950 /DLI/2017

¶39

Page 6 of 21

¶40

	consortium and all the Loaning document was executed by the M/s Divine Infracon Pvt. Ltd..
	The Loan was duly secured by the mortgage of immovable property admeasuring 3.85 acres situated at Plot No.4, Dwarka City Centre Sec 13, Dwarka with all superstructures thereon.
14.12.2011/ 15.12.2011	M/s Divine Infracon Pvt. Ltd. extended the Equitable Mortgage of property bearing Plot No.4, Dwarka City Centre along with structure thereon.
30.09.2013 21-02-2015	Account of the M/s Divine Infracon Pvt. Ltd. was declared NPA as per RBI guidelines by all the Consortium Member Banks.
02.03.2015	Petitioner Bank on behalf of other Consortium member Banks issued a Notice u/s 13(2) SARFASEI Act,2002, dated 02-03-2015, calling upon M/s Divine Infracon Pvt. Ltd. to discharge in full its liabilities of a sum of Rs.336, 46,02,792.48/- Crores as due & recoverable as on 28.02.2015, within a period of 60 days.
30.04.2015	The M/s Divine Infracon Pvt. Ltd. herein have raised their objections U/s 13(3)(a) of the SARFAESI ACT 2002.
13.05.2015	Petitioner Bank being the lead bank of the PNB Consortium has dealt with the objections of the M/s Divine Infracon Pvt. Ltd.
06.06.2015	A Joint Lenders Meeting was constituted on the request of the M/s Divine Infracon Pvt. Ltd. for examining the proposal of restructuring of the Loan Account, whereby to see the seriousness of the M/s Divine Infracon Pvt. Ltd. about the restructuring of the Loan Account, all the consortium member banks asked to deposit the entire promoter‟s funds of Rs. 15.00 Crores on or before 31.07.2015 in two instalments.
07.07.2015	The M/s Divine Infracon Pvt. Ltd. hereby failed to deposit the first instalment of Rs 7.50 Cr. till 30.06.2015, hence thereafter the Petitioner Bank took symbolic possession of the property bearing

¶41

FPA-PMLA-1859 & 1950 /DLI/2017

¶42

Page 7 of 21

¶43

	Plot No. 14, Dwarka City Centre, Sec-13, Dwarka New Delhi under section 13(4) of SARFAESI Act, 2002.
August 2015	SA No. 162/2015 was filed by M/s Divine Infracon Pvt. Ltd. challenging the measures of Section 13(4) of SARFAESI Act, 2002 (pending before DRT-I, Delhi)
November 2015	TA No. 7/2016 (Old OA No 730/2015) was filed by PNB Consortium against M/s Divine Infracon Pvt.
	Ltd. for the recovery of a sum of Rs. 262,57,87,628.28/- (pending before DRT-I, Delhi)
January 2016	Writ Petition bearing No 147/ 2016 filed by PNB Consortium against M/s Divine Infracon Pvt. Ltd. inter alia praying for the physical possession of the secured asset which was denied by the Ld. CMM, Dwarka under section 14 of the SARFAESI Act, 2002. (pending before High Court of Delhi)
14-03-2017	Provisional Attachment Order No.05/2017 (IN
(PAO 05/2017)	ECIR No./01/DLZO-II/2017) (herein after referred as “POA”) dated 14-03-2017 along with corrigendum dated 05-04-2017 was issued under sub section 1 of Section 5 of PMLA, 2002 passed
	by the Deputy Director, Directorate of
	enforcement,
	Hotel Radison Blue at Plot No-4, Sector-13, Dwarka was attached for the proceeds of crime of Rs. 64,70,00,000/-
12-04-2017	Original Complaint No. 713/2017 filed before Adjudicating Authority by ED under section 5(5) of PMLA, 2002 against Sanjay Jain and 18 other Defendants.

¶44

FPA-PMLA-1859 & 1950 /DLI/2017

¶45

Page 8 of 21

¶46

It is submitted on behalf of the appellants that in view of the recent judgment passed by the Hon‟ble Delhi High Court in the matter of Deputy Directorate of Enforcement Delhi and Ors. v/s Axis Bank (“Judgment”), the impugned order is liable to be set aside.

¶47

The Hon‟ble High Court in its Judgment has held that “ the charge or encumbrance of third party in property attached under PMLA cannot be treated or declared void unless material is available to show that it was created to defeat the PMLA, such declaration rendering such properties available for attachment and confiscation under PMLA, free from encumbrance .” The Hon‟ble High Court further held that “ 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 complacent in, the offence of money laundering, and that it had made all compliances with the existing law including, if so required, by having said security interest registered ”

¶48

In view of the fact that the appellant being the secured creditor has initiated proceedings/ taken actions against DPIL in accordance with the law much before the initiation of proceeding under the PMLA Act, it is submitted that the attachment in respect of the aforementioned property is to be quashed.

¶49

Since the action taken by the Punjab National Bank of India was in accordance with law and was prior to the proceedings initiated under PMLA Act, the proceedings initiated by the Bank of India under the Code is ought to be given precedence over the proceedings initiated under

¶50

FPA-PMLA-1859 & 1950 /DLI/2017

¶51

Page 9 of 21

¶52

PMLA Act in respect of the aforementioned properties. The said position has been clarified by the Hon‟ble High Court of Delhi in the matter of

¶53

Deputy Directorate of Enforcement Delhi and Ors. vs Axis Bank in CRL.A. 143/ 2018 & Crl.M.A. 2262 of 2018 dated April 02, 2019 wherein in Paragraph 171, the court held that:

¶54

“ (xv): If the bona fide 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.”

¶55

The rights of Appellant Bank being the secured creditor would survive in spite of the order of the attachment under PMLA remains operative. Therefore, the Appellant being the lawful mortgagee/transferee of the interest in the Subject Properties are entitled to recover its dues with the sale of the Subject Properties as the Hon‟ble High Court in the Judgment has also held that mere issuance of an attachment order does not ispo facto render illegal prior charge of encumbrance of secured creditor, the claim of the latter of release (or restoration) from PMLA attachment being dependent on its bonafides. the court further held “ if it is shown by the cogent evidence by bonafide third party claimant (as aforesaid), staking interest in an alternate attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of prescribed criminal activity, in order to establish

¶56

FPA-PMLA-1859 & 1950 /DLI/2017

¶57

Page 10 of 21

¶58

a legitimate claim for its release from attachment it must additionally prove that it had taken “due diligence” (eg taking reasonable precautions and after due enquiry) to ensure that it was not a tainted asset and the transactions indulged in where legitimate at the time of acquisitions of such interest ”

¶59

The Hon‟ble High Court further held that “ if it is shown by the 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 proscribed criminal activity, the property to the extent of such interest of 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 in is excess of the claim of the said third party .

¶60

The acquisition of such interest cannot be presumed to have been created with mala fide intent to defeat and/ or frustrate the proceeding under the PML Act and hence the said properties can be held to be “tainted property”. Since in the present case, the bona fide third party claimant, secured creditor, had initiated action in accordance with law for enforcement of interest prior to the order of attachment under PMLA, the PMLA attachment takes a back seat allowing the secured creditor to enforce its claim and only the remainder to be made available for purposes of PMLA. The properties in the present case are thus not liable to be attached even as “alternative attachable property”, as held in Para 165 of the judgment of Hon`ble Delhi High Court in the case of Deputy

¶61

FPA-PMLA-1859 & 1950 /DLI/2017

¶62

Page 11 of 21

¶63

Directorate of Enforcement Delhi and Ors. vs Axis Bank in CRL.A.

¶64

143/ 2018 & Crl.M.A. 2262 of 2018 dated April 02, 2019.

¶65

As already mentioned in the present case, it has come on record that the that the security interest in respect of the of the aforesaid properties were created much before the date or period of the alleged criminal activity in respect of which the attachment order was passed.

¶66

16. The Hon‟ble Delhi High Court on the Axis Bank Judgement (supra)

¶67

had observed that

¶68

“… the charge or encumbrance of third party in property attached under PMLA cannot be treated or declared void unless material is available to show that it was created to defeat the PMLA, such declaration rendering such properties available for attachment and confiscation under PMLA, free from encumbrance …”

¶69

The Hon‟ble Delhi High Court further observed that

¶70

“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 complacent in, the offence of money laundering, and that it had made all compliances with the existing law including, if so required, by having said security interest registered ”

¶71

In POA and in OC No. 664/2016 and O.C. No. 713/2017, Enforcement Directorate admitted the fact that PNB is a mortgagee bank and property attached was mortgaged to secure the liabilities of Rs. 401.84 Crores.

¶72

Statement of mortgagee bank was not recorded under Section 50 of PMLA, 2002.

¶73

FPA-PMLA-1859 & 1950 /DLI/2017

¶74

Page 12 of 21

¶75

It is submitted on behalf of the appellants that the property attached cannot be attached under Section 5 of the PML Act because the Property 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. The said Property are already in the possession.

¶76

The Security interest upon the attached property was created under SARFAESI Act, 2002 and mortgagee bank is the secured creditor in terms of SARFAESI Act, 2002. SARFAESI proceedings initiated in the year 2015 two years prior from the PAO.

¶77

Attached property is under the possession of mortgagee bank since 07-07-2015, hence, it is argued that no question of concealment, transfer, and dealing by the borrowers arise.

¶78

OA for the recovery of a sum of Rs. 262,57,87,628.28/- was filed before DRT under RDDBFI Act. Reply of the appeal filed by Shri B.K. Singh, Assistant Director, Enforcement Directorate, New Delhi without any authority. Neither, he is deputy director, nor any authorization letter was filed along with reply.

¶79

It is submitted on behalf of the appellant that the provisions of PML Act, 2002 does not apply to the Transactions where the rights of the secured Creditor were created in accordance with the Transfer of property Act, 1882.

¶80

FPA-PMLA-1859 & 1950 /DLI/2017

¶81

Page 13 of 21

¶82

It is not denied on behalf of the respondent that the Appellant being the mortgagee bank and secured Creditor is entitled to recover amounts outstanding in the loan account of M/s Divine Infracon Pvt Ltd from the sale of the Mortgaged Property as it was never the case of the ED that the attached Property were purchased after the loan was obtained.

¶83

It has also come on record that the mortgagee bank acted bonafidly while rendering the facilities and mortgage of the Property was done for bonafide purposes. The appellant is not involved in the schedule offence. No PMLA proceedings are pending against the work. There is also no criminal complaint under the schedule offence under PMLA is pending against the bank. In the Reply of the Respondent Bank to the Appeals, it was never urged that the conduct of the bank was malafide all the time. Thus, the mortgaged Property are security to the loans and cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to the events of funds diversion and fraud committed by the borrowers.

¶84

As per settled law that the appellant bank is the rightful claimant of the attached property, which are already in the possession of the Appellant bank since July 2015 under the SARFAESI Act. The legal right under SARFAESI is taken away from the Appellant Bank by the Enforcement Directorate vide provisional attachment Order No.08/2016 dated 30-09-2016. The Respondent failed to understand that the Appellant Bank has stakes in the attached Hotel Raddison Blu prior in time. Therefore, the Appellant Bank has the right to recover the loan amount against the mortgaged Property under law. The valuable right

¶85

FPA-PMLA-1859 & 1950 /DLI/2017

¶86

Page 14 of 21

¶87

will be lost if the Order of attachment would continue. The impugned order passed by Respondent would cause miscarriage of justice if it is not set-aside.

¶88

The Respondent has failed to consider that the Respondent has attached all the Property without examining the case of the banks. The mortgaged Property of the Appellant Bank cannot be attached or confiscated unless link and nexus directly or indirectly established and there is no illegality or unlawfulness in the title of the Appellant Bank and there is no charge of money laundering against the Appellant. The mortgage of property is the transfer under the Transfer of Property Act as there is no dispute as regards the origin of funds or the title of the Property.

¶89

The Respondent does not have any lien over the said Property as the Appellant bank is now the Legal transferee of said Property. The Respondent cannot retain the property over which they have no legal title and the property is to returned to the persons lawfully entitled as the bank is the victim and even after trial.

¶90

It has come on record that by the second Amended & Restated Common Agreement dated 15-12-2011, borrowers have been permitted in all terms Loan Facility of Rs 373.00 CR and Bank Guarantees of Rs 28.84 Crores, which includes the Additional Term Loan of Rs 25 Crores sanctioned by the Lead Bank and the restructuring of the Repayment schedule of Original Term Loan of Rs 275.00 Crores has also been permitted to the Borrower. The said relevant facts have not been denied on behalf of respondent.

¶91

FPA-PMLA-1859 & 1950 /DLI/2017

¶92

Page 15 of 21

¶93

As such the properties/ assets acquired by appellant before the initiation of the proceeding under PML Act and properties/ asset in respect of which security interest has been created in favour of the bona fide secured creditor ought not be subjected to attachment in view of the aforesaid observations of the Hon‟ble Delhi High Court and the State Action would be restricted to such part of the value of the property as it exceeds the claim of the bona fide third party.

¶94

As such, in the present case once it has been showed by the Bank of India that proper due diligence was conducted before the properties/ assets were mortgaged to them, the properties thus cannot be attached, neither as a „tainted property‟ nor as „alternative attachable property‟ since it is nobody`s case that the secured creditor had not done the due diligence and/or the transactions were not legitimate.

¶95

It is the case of appellant that the appellant before seeking to create a mortgage of the afore-mentioned properties had conducted due diligence of the purchase of the properties and upon being satisfied that the properties are in no way tainted and or benami got created mortgage in favour of the Appellant. No contrary evidence is available on record to show that the mortgaged properties were purchased from proceed of crime.

¶96

The attachment of the encumbered property by Respondent No. 1 treating to be tainted is not valid argument 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,

¶97

FPA-PMLA-1859 & 1950 /DLI/2017

¶98

Page 16 of 21

¶99

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. In the situations covered by the preceding, the bonafide third party claimant shall be accountable to the enforcement authorities for the “excess” value of the property subjected to PMLA attachment. Counsel for the appellant is agreeable to deposit the excess value with the respondent no. 1.

¶100

Therefore, it is not possible to hold that the mortgaged properties claimed by the Appellant in no way can be considered to be “Proceed of Crime” under Section 2(u) of PMLA. The impugned order does not disclose any reasoning. There is no application of mind whatsoever and it is assumed that the properties in question are the proceeds of the crime. There is no reasoning to show as to how the attached properties mortgaged prior to the date of alleged offence are the subject matter of proceeds of crime. The Adjudicating Authority has not analysed the facts at all. The order suffers from a fundamental error. There is no understanding by the Adjudicating Authority of the contents of the statute, much less its application to the facts of the case.

¶101

FPA-PMLA-1859 & 1950 /DLI/2017

¶102

Page 17 of 21

¶103

Section-3 of the Act provides that only a person who is knowingly a party to any activity or is involved in such activity connected with proceeds of crime and projects or claims it as untainted property can be guilty of the offence. S.5(1) shows that before any property can be provisionally attached there must be material prima facie to show any person is in possession of any proceeds of crime which are likely to be concealed, transferred or dealt with in a manner which may frustrate the confiscation proceedings thereof. The primary requirement for invoking S.5(1) is that there must be material to show that some proceeds of crime are in possession of any person. The requirement is that material must indicate that any property of whatever description in possession of any known person is “proceeds of crime” as defined in S. 2 (u). Finally adjudication proceedings are under S.8. Perusal of S.8 (1) shows that if any person has committed an offence under S. 3 or is in possession of proceeds of crime he may be served notice to indicate the sources of

¶104

his income etc. out of which or by means of which he has acquired the attached property . This obviously means that if in response to the notice, the person in possession discloses legitimate means for having acquired the property in question, the property cannot deemed to be involved in money laundering. Therefore, the attachment thereof cannot be confirmed.

¶105

The legal implication of a mortgage must be understood by both authorities. When a property is mortgaged, the only right which is left in the mortgagor is that of the equity of redemption. Otherwise the entire corpus of the property passes to the mortgagee i.e. the appellant Bank in this case. The mortgagee has a right to take over the possession of the property and to realise it whereas the mortgagor who is left only with the

¶106

FPA-PMLA-1859 & 1950 /DLI/2017

¶107

Page 18 of 21

¶108

equity of redemption has only the right to make full payment of the dues of the mortgagee and then redeem the property. Otherwise the mortgager is not left with any vested right. In other words the mortgaged assets are essentially assets of the appellant Bank and not of the mortgager.

¶109

B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition of property in para-103. The same read as under:-

¶110

“ 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 …”

¶111

The Appellant undertakes to deposit any amount realized, which is in excess of its outstanding dues, with the ED if such situation would arise.

¶112

The Adjudicating Authority failed to apply its mind at the time of issuance of the Show Cause Notice (“ SCN ”). No reason to believe can be discerned from the SCN, or the provisional attachment order accompanying the SCN under Section 8 of the PMLA, as to how there

¶113

FPA-PMLA-1859 & 1950 /DLI/2017

¶114

Page 19 of 21

¶115

was reason to believe that the Appellant was in possession of „proceeds of crime‟. Adjudicating Authority, in its discussions, did not even consider the reply of the Appellants.

¶116

The Adjudicating Authority is bound by the law laid down by the higher courts. No authority has any justification to ignore the law laid down by the Supreme Court and various High Courts and this Tribunal, who on the basis of decisions of Hon‟ble Supreme Court and various High Courts, has delivered orders. Unless each and every judgment is distinguished or are on different facts, the different conclusion cannot be arrived. The facts and legal issues are almost same and the Adjudicating Authority has incorrectly passed the impugned order by not following the orders passed by this Tribunal. The appellant is a Public Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers which may take many years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the commercial market. The trial may continue against the borrowers. One is failed to understand why the bank loan amount be blocked in view of settled law.

¶117

This Tribunal is of the considered opinion that the proceeding u/s 8 of PMLA, 2002 before the Adjudicating Authority is a civil proceeding and the Adjudicating Authority should have stayed the proceedings on passing of the moratorium order by the NCLT. The continuation of the proceedings from the date of commencement of the moratorium order is contrary to the intention of the legislature hence the consequential order of confirmation of PAO is contrary to law. In the facts of the present case, it appears that hurdle has been created in the process after passing the order of NCLT which ought not to have been done. The question of

¶118

FPA-PMLA-1859 & 1950 /DLI/2017

¶119

Page 20 of 21

¶120

registering ECIR does not arise. The passing of provisional attachment

¶121

order was not application of mind and without consulting the facts and

¶122

law.

¶123

In the light of above, both the impugned orders dated 14.03.2017 passed in OC no. 664/2016 and dated 10.08.2017 passed in OC no. 713/2017, are set-aside by allowing the appeals. The attachment order with regard to the mortgaged property i.e. plot no. 4, Sector-13, Dwarka City Centre, Dwarka, Delhi (Hotel Raddison Blue ) is quashed. The appellants are at liberty to take further steps in accordance with law.

¶124

As far as the case of the borrowers are concerned, they have also challenged the impugned orders by filing of an appeal under section 46 of PMLA. The said appeal is listed and will be argued in due course.

¶125

With regard to the criminal liabilities against the borrowers are concerned, we do not wish to express any opinion in this regard. Those matters will be decided as per their own merit.

¶126