Allowed

FPA-PMLA-2595/MUM/2018 of Icici Bank Ltd. v/s The Deputy Director Directorate of Enforcement, Mumbai

ATFP8 Mar 2019FPA-PMLA-2595/MUM/2018

Case brief

AI extract

What is this about?

The Appellate Tribunal set aside an Adjudicating Authority's order confirming provisional attachment of properties mortgaged to the appellant bank. The Tribunal held that secured creditors' rights prevail over PMLA attachment provisions and that PMLA proceedings must yield to an IBC moratorium.

What did the court decide?

Impugned order confirming provisional attachment of mortgaged properties set aside; accused restrained from disposing said properties till CIRP completion; proceedings duration excluded for limitation

FPA-PMLA-2595/MUM/2018 of Icici Bank Ltd. v/s The Deputy Director… — Cheque Dishonour | ATFP (2019)

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

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Date of Decision: 08.03.2019

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FPA-PMLA-2595/MUM/2018

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ICICI Bank Ltd. … Appellant Versus The Deputy Director Directorate of Enforcement, Mumbai … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	:	Shri Madhav Khurana, Advocate Ms. Trisha Mittal, Advocate
For the respondent	:	Mohd. Faraz, Advocate
CORAM
JUSTICE MANMOHAN SINGH	:	CHAIRMAN

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JUDGEMENT

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FPA-PMLA-2595/MUM/2018

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The above-named Appellant has filed the present Appeal under Section 26 of the Prevention of Money-Laundering Act, 2002, (hereinafter referred to as the ―Act‖) against Order dated 16.08.2018 passed by the Adjudicating Authority in O.C. No. 912/18 titled “Enforcement Directorate V/s Mehul Choksi & Ors” (hereinafter referred to as the ―Impugned Order‖).

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FPA-PMLA-2595/MUM/2018

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Page 1 of 28

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By the impugned order, the Adjudicating Authority has confirmed the Provisional Attachment Order No. 03/2018 dated 28.02.2018, against inter-alia the Appellant, the lead bank of the Gitanjali Gems Limited consortium lenders (― Lead Bank ‖), in relation to the following Properties:

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Property No. 8 - Flat No. 102, Kheni Tower, CTS NO. 4919 to 4944, Santacruz East, Mumbai.

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Property No. 17 - 801 Prasad Chambers, Opera House, Mumbai.

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Property No. 18 - 802 Prasad Chambers, Opera House, Mumbai.

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Property No. 19 - Office No. 6, B Wing, 1 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai.

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Property No. 20 - Office No. 3, B Wing, 3 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai.

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Property No. 21 - Office No. A/1, A Wing, 3 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai.

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Property No. 22 - Office No. 1, A Wing, 7 Floor, Laxmi Towers, Plot No. C- 25, G Block, CTS NO 4207, Village Kolekalyan BKC, Bandra East, Mumbai.

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Property No. 23 - Flat No. 3701, 37^th Floor, Springs 1, G.D. Ambedkar Marg, Dadar East, Mumbai.

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Property No. 31 - Land and Bungalow at Gut No. 1355, Hissa No. 1, Village Awas, Taluka Alibaug, District Raigad.

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Page 2 of 28

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Property No. 32 - Commercial Building called Axis Multi Comples, Block A, Action Aria, 1 C, Plot No. CF-29, New Tower, Kolkata.

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Property No. 37 - 84. 13 Acres at Balwant Nagar at Munde Gao, Taluka Igatpuri, District Nasik, off NH3, Adjoining Railway Line.

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Property No. 39 - Land at Village Sanguli near village Shirdhon off Mumbai- Goa National Highway NH-17, Taluka Panvel, District Raigad.

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Property No. 41 - Hardware Park, Sy. No. 1/1 of Imarat Kancha of Raviryal Village, Maheshwaram Mandal, Ranga Reddy District, Andhra Pradesh

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The Appellant, as the Lead Bank and the other banks forming part of the Consortium of Banks (― Consortium Lenders ‖), have advanced credit facilities to Gitanjali Gems Ltd. (― GGL”)/ (Defendant No. 2 in the Complaint), Gitanjali Export Corporation Ltd. (― GECL ‖)(Defendant No. 5 in the Complaint) and Nakshatra Brands Limited (“NBL”) (Defendant No. 4 in the Complaint). The attachment of which was confirmed by the Impugned Order against the properties which were already stand mortgaged in favour of the Appellant, (who is now seeking setting aside of the Impugned Order) on the various grounds:

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The following facts are admitted as per material available on

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record:-

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4.1 The Appellant is in no manner connected with any of the other persons arraigned as Defendants in the Complaint. Further, there is no charge of money laundering against the Appellant.

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Page 3 of 28

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4.2. The Appellant and the other Consortium Lenders have entered into legitimate banking transactions by providing Working Capital (― WC ‖)and External Commercial Banking (― ECB ‖)facilities to GGL and GECL, details of which are specified in Paragraph No. 4 of the Appeal. Such credit facilities were enhanced from time to time for amounts as are mentioned in the respective revised Supplemental Working Capital Agreements and bilateral ECB Facility Agreement, annexed along with the Appeal. ( Annexure Nos. A3(Colly) WC Agreement dated 26.12.2017, A4(Colly) WC Agreement dated 29.06.2011 and A5(Colly) ECB Facility Agreement @191, 288 and 401 have been filed respectively.)

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4.3. In order to secure such credit facilities and avail enhanced limits thereon, guarantees both personal and corporate and Mortgage Deeds were executed in favour of the Appellant and the other Consortium Lenders. Such documents executed are binding and shall continue to remain in force till such time as amounts are repaid by GGL, GECL and NBL to the Consortium Lenders.

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4.4. Upon failure of GGL and GECL to repay the amounts advanced under the GECL WC Facility, GGL WC and ECB Facility, the Appellant initiated all its rightful legal remedies to recover such amounts by issuing Recall Notices, Demand Notices and Notices U/s 13(2) of the Securitization and

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FPA-PMLA-2595/MUM/2018

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Page 4 of 28

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Reconstruction of Financial Assets & Enforcement of Security Interest Act (― SARFAESI ‖) to the borrowers and corporate and personal guarantors, as mentioned in Paragraph Nos. 4.9 and 4.12 of the Appeal. The Appellant mentioned a description of the Securities, which included the Properties (subsequently attached by the Respondent) which had been secured in favour of the Appellant, in Annexure III and II of the Recall Notices and Notices under SARFAESI respectively. ( Annexure Nos. A8 (Colly) Recall Notice & Notice Under SARFAESI, A9(Colly) Demand Notice @ Pg 1209, 1232, 1255 respectively).

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4.5. The Appellant in its individual capacity, has declared the account of GGL and GECL as Non-Performing Asset (NPA) with effect from 31.03.2018.The Appellant and the other Consortium Lenders have filed Original Applications before the Debt Recovery Tribunal (― DRT ‖), Mumbai being OA No. 408/2018 and OA No. 520/2018 on 05.07.2018 and 18.08.2018 U/s 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (― RDDBFI ‖) seeking recovery of debts advanced under the WC and ECB Facilities respectively.

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4.6. The Appellant has also filed a Corporate Insolvency Resolution Process (― CIRP ‖) Application against GGL U/s 7 of the Insolvency & Bankruptcy Code, 2016 before the National Company Law Tribunal, Mumbai(― NCLT ‖) on 10.09.2018 vide Company Petition No. 28004 of 2018. NCLT

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pronounced the Admission Order on the said Application on 08.10.2018 and declared Moratorium against GGL to come into operation with immediate effect.

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4.7. The amount of Rs.5843,97,35,652.30 (Rupees Five Thousand Eight Hundred and Forty Three Crores Ninety Seven Lakhs Thirty Five Thousand Six Hundred Fifty Two and Thirty Paisa Only) as is outstanding on April 30, 2018 together with further interest and other charges is owed to the Appellant & the Consortium Lenders under inter-ali a, the GECL and GGL WC Facilities. Further, an amount of USD 12,053,106.29 (United States Dollars Twelve Million Fifty Three Thousand One Hundred and Six and Twenty Nine Cents Only) as is outstanding on June 30, 2018 together with further interest and other charges is payable to the Appellant and the other Consortium Lenders under the GGL ECB Facility as alleged.

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4.8. All the properties qua which the Appellant is seeking relief stand mortgaged as security with the Appellant and the Consortium Lenders.

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5. Ingredients of S. 5(1) of the Act are not satisfied:

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4.1 An order of attachment U/s 5(1) of the Act can only be passed upon satisfaction of the compulsory twin conditions found in sub clauses (a) and (b), i.e.

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Firstly, the Director must have reason to believe , on the basis of the material in

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Page 6 of 28

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possession, that any person is in possession of any proceeds of crime; and

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Secondly, that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relations to confiscation of such proceeds of crime .

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The admitted case of the Respondent, is that the alleged proceeds of crime generated are a sum of Rs. 6138.73 crore which the entities of the Gitanjali Group including GGL and GECL, have siphoned from Punjab National Bank, Brady House Branch, Mumbai and allegedly layered overseas for making payments to overseas suppliers and for settling existing Buyer‘s Credit liabilities with the overseas branches of Indian banks.

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Upon the conclusion of investigation, the Respondent arrived at the finding that since “the proceeds of crime have been siphoned off out of the country, the same is not available for attachment in the Country….Thereafter, the said funds were routed and diverted to various overseas companies out of country with the intention to launder the proceeds of crime….Therefore, the said three accused entities have acquired the proceeds of crime and layered the same out of country to hide its criminal origin. Therefore the said proceeds of crime is not available in the country for attachment” though admittedly the Appellant is has not been charged by the Respondent for the offence of money laundering.

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On similar lines the Adjudicating Authority, concludes in its order that the proceeds of crime generated were layered out of the country and were not available in the country for attachment. Erroneously, the Respondent then went ahead to take a diametrically opposite stand, which is noted in the Impugned Order, ― As such, the said properties FPA-PMLA-2595/MUM/2018 Page 7 of 28

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Page 7 of 28

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mentioned at Para 24 of the PAO are deemed to be proceeds of crime in lieu thereof generated as a result of criminal activities …”.

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In the present case, the Appellant, for itself and as the Lead Bank, despite of knowledge of ED, the Appellant was not given an opportunity to be heard before the passing of the Provisional Attachment Order. The Appellant is in no manner connected with any of the other persons arraigned as Defendants in the Complaint.

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The Appellant and other Consortium Lenders have entered into legitimate banking transactions with M/s Gitanjali Gems Ltd (― GGL ‖) and M/s Gitanjali Exports Corporation Ltd. (― GECL ‖), for which collateral had been furnished. The Properties which the Respondent has provisionally attached are properties over which the Appellant and the Consortium Lenders already have the first charge i.e. the first right to recovery from the same and as such the same has already been initiated. The Appellant has exercised all its legal remedies to recover the amounts advanced by it to GGL and GECL.

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The Appellant is a public listed company incorporated under the Companies Act, 1956 and a banking company within the meaning of the Banking Regulation Act, 1949, holding the money of the general public in trust.

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Admittedly, none of the Properties in question are as a result of criminal activities and hence proceeds of crimes. Consequently, the first ingredient as prescribed under S. 5(1)(a) is not satisfied in the present case.

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FPA-PMLA-2595/MUM/2018

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Page 8 of 28

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The properties were attached by invoking the second proviso of Section 5(1) of the Act without filing the charge-sheet. The same is read as under

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The 2^nd proviso contained in S. 5(1) reads as under:

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― PROVIDED FURTHER that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act".

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In view of 2^nd proviso of Section 5(1) no doubt the ED is empowered to attach the property in the absence of a complaint or a chargesheet immediately if “non-attachment of the property is likely to frustrate any proceedings under this Act”, which condition is sine-qua-non to the provisional attachment of properties by the Respondent. The Adjudicating Authority is recorded at page 39 of the Impugned Order, which reads as under:

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“..The Deputy Director observed that Shri Mehul Choksi is not co-operating with the investigation at all as he has not attended office of Enforcement Directorate despite of three summons having been issued to him under the provisions of the PMLA. The Deputy Director therefore, believed that the likelihood of selling and/or disposing of the said properties are extremely high. Therefore, the Director has reason to believe that the properties mentioned at Para 24 of PAO i.e the proceeds of crime are likely to be

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concealed, transferred or dealt with in such a manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter-III of the Prevention of Money Laundering Act.”

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However, if the Respondent is exercising such jurisdiction, the duty is also cast upon to attach properties in a very careful manner after consulting the law. In the present case, it is the admitted case of both authorities that the proceeds of crime has been siphoned off out of countries as the funds were routed and divested to various companies and layered the same out of countries to hide criminal origin, therefore, the said proceeds of criminal is not available. If that is the position, the siphoned off funds have to be recovered by taking recourse of all actions against the accused parties in India and overseas countries, except properties which are mortgaged with the banks. Being the secured creditors, the Banks are entitled to recover their dues as per well settled law. The said process of recovery cannot be postponed till the completion of trial and final order is passed in the schedule offence case. The properties are admittedly mortgaged properties which were purchased many years prior to the dates of offence committed by the accused. The said properties at that time had no connection with the offence. The banks are the secured creditors. The same ought not have been attached merely on the grounds of non-cooperation of Mr. Mehul Choksi. It cannot give rise to an apprehension that in case the properties are not attached immediately, proceedings under the Act would be frustrated. This immediacy could have been inferred from an actual attempt to sell or alienate the properties by him or one of the group companies, which admittedly did not happen in the present case.

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There was no likelihood of concealment, transfer or dealing of the Properties which are mortgaged with banks who are the secured creditors of Mr. Mehul Choksi or the group companies related as the same were and continue to remain hypothecated/mortgaged/pledged to the Appellant, which Deeds are binding and in force. This eliminates any possibility of the Properties being sold or alienated or dealt with in any manner whatsoever which would frustrate any proceedings under this Chapter. Therefore the ingredients as prescribed under S. 5(1)(b) as well as the 2^nd Proviso of S. 5(1) of the Act are not satisfied.

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The Constitutional bench of the Hon'ble Supreme Court in the case of ― Barium Chemicals Ltd. & Ors V/s The Company Law Board &Ors.” (AIR 1967 SC 295) held that when a statute postulates the exercise of discretion by an authority contingent to the existence of certain circumstances envisaged therein, the formation of such opinion by the authority has to be compulsorily based on the actual existence of the stipulated circumstances as envisaged in the statute. Therefore, in the absence of circumstances as envisaged under Section 5(1)(b) as well as the 2^nd Proviso of Section 5(1) of the Act, Provisional Attachment Order and confirmation thereof in the Impugned Order is passed against the law. As far as exercise of jurisdiction under the second proviso, no doubt, it empowers the respondent to attach the properties if all requirements prescribed are satisfied. Similarly, if the said proviso, the respondent were entitled to invoke the second proviso by attachment of all other properties, except mortgaged properties.

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It appears from the Complaint as was filed by the Respondent, it would reveal there is no mentioning or investigation into the Charge of the Appellant over the Properties where the bank is the secured creditors. The investigation is on the basis of real facts and the steps of provisionally attaching properties for which the charge is already with the appellant who is otherwise secured creditators. There is no denial that the properties were purchased prior to the period when the alleged offences were committed, and thus cannot be a part of the alleged proceeds of crime.

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Therefore, it is held that the 2^nd proviso no doubt, the ED is empowered to attach the properties with filing the report under Section 173 of Code of Criminal Proceedings 1973, however at the same, such powers has to be exercised in very careful manner if the properties are already mortgaged with the third party. In such situation, the ED has to comply all requirements as stipulated in the said proviso after proper investigation and application of law otherwise the order shall be treated as illegal and the Provisional Attachment Order and confirmation thereof may be set aside on this ground alone.

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It is settled law that the Properties are already mortgaged with the Appellant and the Consortium Lenders, pursuant to legitimate banking transactions and thus could have been attached since the Appellant and the Consortium Lenders would have the first right of recovery against GGL, GECL and their Corporate and Personal Guarantors.

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It is an also admitted fact by the Respondent, which was accepted by the Adjudicating Authority that the properties are mortgaged with the

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Appellant and the Consortium Lenders for the purpose of availing credit facilities by GGL and GECL. The Respondent has no lien over the properties since they stand legally transferred to the Appellant Bank.

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The Respondent–Deputy Director is relying upon the non-obstante clause in Section 71 of PMLA to claim priority over their debts due to the Appellant Bank. Section 71 of PMLA reads as under:-

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“The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

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The said arguments have no force as the amended provisions of Section 26E of the SAR-FAESI Act, 2002 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:-

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“26E. Priority to secured creditors. -

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

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The amended provisions of Section31B of the Recovery of Debts due to Banks and Financial' Institutions Act, 1993 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under:-

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“31B. — Priority to secured creditors.

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Notwithstanding anything contained in any other law for the time being in force, the rights

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of secured creditors to realize secured debts due and payable to them by sale of assets, over which security interest is created, shall have priority and shall be paid in priority over all other debts and government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.”

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The Hon'ble Supreme Court, wherein it has been categorically held that if non-obstante clause is contained in two enactments, the nonobstante clause in the later enactment shall prevail over the nonobstante clause in the earlier enactment. In the case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. (2001) 3 SCC 71, the Supreme Court was considering the effect of the non-obstante clause contained in Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985 and Section 13 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

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The Hon'ble Supreme Court has categorically held that the nonobstante clause in the later Act must prevail over the non-obstante clause in the earlier Act. The following is the relevant portion of the decision of the Hon'ble Supreme Court :-

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“9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail”

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The Hon'ble Supreme Court, while deciding this issue unequivocally, was pleased to uphold its own catena of decisions echoed earlier, which are reported in-

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(i) AIR 1956 SC 614 - Ramnarayan vs. Simla Banking and Industrial Company Ltd.

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(1977) I SCC 750 - Sarvan Singh vs Kasturi Lal

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(1993) 2 SCC 144 = Maharashtra Tubes Ltd. vs State

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Industrial Investment Corporation of Maharashtra Ltd.

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(iv) (2000) SCC 406 - Allahabad Bank vs. Canara Bank

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The Hon'ble Supreme Court in the said case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. has approved the decision of the Special Court rendered by the Hon'ble Mr. Justice Variava, as he was then of the Bombay High Court reported in (1997) 89 Comp cases 547 clarifying that the non-obstante clause in the later enactment will prevail over the non-obstante clause in the earlier enactment.

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The following is the relevant portion of the decision of the Special Court, as appearing at Para 10 of the said Supreme Court Judgment:-

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

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The afore-stated principle laid down by the Hon'ble Supreme Court has been followed by the Full Bench of the Hon'ble Madras High Court in a recent decision dated 10.11.2016 in W.P. Nos. 2675 (authored by Hon‘ble Mr. Justice S.K. Koul, who is now the Hon‘ble Judge of Supreme Court). The Assistant Commissioner (Commercial Taxes) Vs. Indian Overseas Bank], in which the Hon'ble High Court upheld the provisions of the amended Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993. The following is the relevant portion of the said decision:-

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“3. There is, thus, no doubt that the right* of a secured creditor to realize secured debts due and payable by sale of assests over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority.”

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The said principle laid down by the Hon'ble Supreme Court has also been followed by the Hon'ble Madras High Court in another decision dated 22.12.2016 in W.P. No.27504 of 2015 and has upheld the provisions of the amended Section 26E of SARFAESI Act. The following is the extract of the relevant portion of the said decision of the Madras High Court:-

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“8. Concededly, the mortgage in favour of the petitioner Bank was created on 26.05.2005, which was prior to the date of attachment. The date of attachment, as indicated above, was 19.01.2015. To be noted, attachment entry was made by respondent No. 3, on 13.08.2015. This apart, the matter is now put beyond the pale of doubt, as during the pendency of the writ petition, an amendment has been made to the 2002 Act with the insertion of Section 26E.”

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With respect to the factum of mortgage and the effect thereof on the claim of the Appellant, the Impugned Order notes as under:

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― ….Thus if a property is a proceeds of crime or is a property involved in money laundering, the same is necessarily to be provisionally attached, confirmation whereof may be adjudicated and finally liability of confiscation may be determined by the Special Court….To advance the argument that Provisional Attachment Orders should not be issued in relation to the proceeds of crime involved in money laundering, as such properties are required to be liquidated in favour of the bank, who are custodian of public fund may amount to putting a premium on such unchecked activities carried on by

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the officers due to irresponsible approach or connivance of the bank management….The pleas of the mortgagees, therefore cannot be granted at this stage of confirmation of the provisional attachment order, as such grant of the relief would interject with the scheme of the Act, deliberately provided. As aforesaid section 8(8) of the PMLA provides for rights of claimant with a legitimate interest with the property provisionally attached/confiscated, who may have suffered a quantifiable loss as a result of the offence of money laundering….In view of the legal provisions above referred and the object sought to be achieved by the PMLA, I humbly and with great respect cannot concur with the view expressed by the Appellate Tribunal, PMLA in the Judgments of the Appellate Tribunal cited by D-17 and D-18.

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The Adjudicating Authority has erred in its finding that the pleas of the Appellant of being the secured creditor and having a superior claim over the Properties 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. The said view is contrary to the decisions of this Tribunal who have rendered the many judgements on the basis of law laid down by the Supreme Court and High Court. Further, it would amount to an exercise in futility and wasteful litigation if the Appellant is required to be a mute spectator to the confirmation of attachment of mortgaged properties at this stage and await the conclusion of trial u/s 3, 4 of the Act to agitate and pursue its rightful legal claim over such mortgaged properties.

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The Mortgage Deed being a registered document ought to give precedence to the claim of the Appellant. Further, the Appellant Bank is a victim of the fraud perpetuated by Mr Mehul Choksi and the Gitanjali group companies including GGL and GECL, which is further aggravated FPA-PMLA-2595/MUM/2018 Page 17 of 28

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by the effect of the Impugned Order, depriving it of pursuing its legal claims against properties mortgaged to it. Both orders passed by ED and Adjudicating Authority are contrary to law and facts.

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The Adjudicating Authority has wrongly confirmed the Attachment The bank is as per agreement and documents is entitled for recovery by the Appellant-Bank from its borrower its own stressed Asset, since the Bank had already lent the money owned by it, which the Bank is entitled to recover the same. The impugned order has been passed without application of mind. Both authorities should have maintained judicial restraint while making much observations that the Adjudicating Authority cannot concur with the view of this tribunal. It appears to this tribunal that the Adjudicating Authority is carried away by its own personal presumption. It is the duty of every authority to decide the matter on merit and not on the basis of personal opinion. None of the authority can be allowed to ignore the law of the land laid down by the Supreme Court, High Courts and higher appellate tribunal. All the judgements/orders are binding upon them otherwise if contrary view is taken on same facts amounts to contempt of court.

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The principle laid down in the similar facts in the decisions by the Hon'ble Supreme Court and the Hon'ble Madras High Court has not been followed by the Adjudicating Authority. In its catena of decisions, including the decision dated 14.07.2017 in a batch of Appeals filed by various Banks, namely, the State Bank of India vs. The Joint Director Directorate of Enforcement (and connected Appeals) against the Provisional Attachment Order, this Tribunal has held that as per the amended provisions of Section 26E of SARFAESI Act and 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, a FPA-PMLA-2595/MUM/2018 Page 18 of 28

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secured creditor will have priority over all other debts and government dues, including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority and accordingly, set aside the Provisional Attachment Orders.

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The following are the relevant Paragraphs of the said Judgment dated 14.07.2017

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“46. In the present case, it is undisputed fact that the attached property were purchased much prior to the period when the facility of loan was sanctioned to borrowers. The Bank while rendering the facilities were bona fide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgage of the properties were done as bona fide purposes. None of the bank is involved in the scheduled offence.

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In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bona fide. Both banks are innocent parties.

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Thus in the present case even though the Ld. Adjudicating Authority had all the reasons to believe that the above mentioned were mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter — 5 properties ;still the Ld. Adjudicating Authority confirmed the provisional attachment order of the respondent no. 1 and thus causing huge loss to the appellant SBI.

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We also find that the Adjudicating Authority has not examined the law on mortgages and securities.

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The property of the Appellant bank cannot be attached and confiscated when there is no illegality or unlawfulness in the title of the appellant.

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The respondent has no lien over the said properties as the appellant banks are now the legal transferees of the said properties.

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From the entire gamut of the matter, we are of the view that there is no nexus whatsoever between the alleged crime and the two banks who are mortgagees of all the properties which were purchased before sanctioning the loan. Thus no case of money-laundering is made out against banks who have sanctioned the amount which is untainted and pure money. They have priority as secured creditors to recover the loanamount/debts by sale of assets over which security interest is created, which remains unpaid.”

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This Tribunal in the above Judgment dated 14.07.2017 has also relied upon its own earlier Judgment dated 22.06.2017 in the case Indian Performing Right Society Ltd. vs. The Deputy Director, Directorate of Enforcement ,Mumbai, wherein the Tribunal held as

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follows :-

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

¶141

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

¶142

In the present case, this Appellant - Bank is an innocent party since it had already lent its own money to the Predicate Offender and the property in question being mortgaged to the Bank which is

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provisionally attached by the Respondent— Deputy Director ought to have been released by the Adjudicating Authority under Section 8(2) of PMLA.

¶146

The Adjudicating Authority did not appreciate that the afore mentioned moveable/Immoveable property cannot be said to have been acquired out of ― proceeds of crime ‖ as defined in section 2 (1) (u) of the Prevention of Money Laundering Act (PMLA), 2002 and therefore, the same (cannot be Attached under Section 5 of the PMLA by the Enforcement Directorate vide PAO No 03/2018 dated 28.03.2018.

¶147

The Adjudicating Authority did not appreciate the appellant's grievance against the order of provisional attachment, inter alia, since the same was not justified and tenable under the law as the same was passed in violation of Section 5 of the Act and there was no material on the basis of which the hypothecated/Equitably Mortgaged asset could be provisionally attached.

¶148

The Adjudicating Authority failed to appreciate that the provisions of the Prevention of The Money Laundering Act, 2002 do not override the provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as also those of Recovery of Debts and Bankruptcy Act, 1993, wherein, Under the aforesaid two special enactments, a bank or financial institution is entitled to recover its dues by non-adjudicatory and adjudicatory mechanism respectively.

¶149

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¶151

In the present case, it is admitted by the respondent no. 1 that the Adjudicating Authority by itself has not disputed the fact that the Consortium Finance sanctioned by the Appellant herein is untainted and pure money and in an utter disregard to the settled position of law went ahead with the confirmation of the PAO in the impugned order.

¶152

The Adjudicating Authority did not appreciate that the provisions of The Prevention of Money-Laundering Act, 2002 do not constitute any overriding statutory charge so as to defeat and make sub servient the rights of the bank as a secured creditor. It is no longer res integra that crown debts have no priority over the claim of a secured creditor under a contract of loan.

¶153

The Prevention of Money-Laundering Act, 2002 does not override the provisions of The Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest. Act, 2002 should be construed harmoniously so as to give effect to both. The realization of public money through the Securitization& Reconstruction of Financial Asset & Enforcement of Security Interest Act, 2002 cannot be held to be, in any manner, inconsistent with and violative of the purpose and enforcement of provisions of The Prevention of Money-Laundering Act, 2002.

¶154

The PML Act cannot be applied to the detriment of the Appellant being a Secured creditor (Public Sector bank) as held by this tribunal in a catena of judgments. The Adjudicating Authority did not appropriate that even if the two Acts namely The Prevention of Money-Laundering Act, 2002 and The Securitisation & Reconstruction of Financial Assets &

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Enforcement of Security Interest Act, 2002 are held to be inconsistent with each other, The Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 shall prevail over The Prevention of Money-Laundering Act, 2002 as The Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 is a special law applicable to secured assets wherein Security Interest has been created in favour of banks and financial institutions. The respondent no. 1 and adjudicating authority have ignored the decisions of various High Courts and the Supreme Court which were referred by this Tribunal in number of judgments delivered by this Tribunal.

¶158

The provisions of The Prevention of Money-Laundering Act, 2002 cannot be construed and implemented to the detriment of third parties having no connection with and involvement in the scheduled offences which fall within the domain of the Act. The provisions of the Act can only entail penal consequences on those who are guilty of committing of scheduled offences. The rights of a third party having no involvement in the scheduled offences cannot be jeopardized and decimated by the operation of Act as the same would be violative of their legal right under bond fide contracts.

¶159

By virtue of conjoint effect of Sections 31B and 26E of The Recovery of Debts and Bankruptcy Act, 1993 and The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the secured creditor has priority to the secured asset to satisfy its respective dues which shall prevail over and supersede the other

¶160

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debts i.e. government dues, revenues, taxes, cesses and rates due to the Central Government, State Government and local authorities.

¶163

The Adjudicating Authority in the Impugned Order opined that neither Section 26(E) SARFAESI nor Section 31(B) RDDBFI can be construed to exempt the ―proceeds of crime‖ within the meaning assigned to it under PMLA. It further went ahead to hold that the Appellant had statutory recourse in terms of sub clause 8 of section 8 of the Act which takes care of the interest of a claimant with a legitimate interest in the property.

¶164

The legislative intent for relief at this stage can be borne out from the fact that under the proviso to sub clause 1 and 2 of section 8 of the Act, prior to the confirmation of the PAO, the Adjudicating Authority is required to adjudicate over the claim of an innocent party who seeks claim over the attached property, apart from the person to whom notice had been issued.

¶165

Under Section 8(1), upon receipt of a Complaint u/s 5(5) of the Act, if this Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, he may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached U/s 5(1) of the Act.

¶166

The words ― reason to believe ‖ used in S. 8(1) of the Act cast an onerous duty on the Adjudicating Authority, while deciding to act under the said Section. The Hon‘ble Supreme Court and various Hon‘ble High FPA-PMLA-2595/MUM/2018 Page 24 of 28

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Courts have held that ― reason to believe ‖ is not the same thing as suspicion or doubt and merely seeing cannot be equated to believing. ― Reason to believe ‖ is a higher level of state of mind.

¶169

It is also a matter of fact that the PAO no. 03/2018 dated 28.03.2018 passed by the Respondent No.1 was not bonafide in as much as the said PAO was issue by the Respondent No.1 only after the Appellant Bank had initiated recovery measures under the SARFAESI and RDB Act on 26.05.2016, 17.10.2016 and 03.08.2017, respectively. The copy of the reason to believe has neither been produced nor the same was served to the appellant.

¶170

A person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the nature of the thing concerned. Further, at the initial stage for believing the existence of a thing, condition or a statement of fact, one would collect information and then examine the information and come to a final conclusion on the basis of that information, that such a thing, condition or statement of a fact exists. All these ingredients are pre-requisite for forming an opinion based on ― reason to believe ‖.

¶171

Thus, the provisional attachment order is legally erroneous and untenable and could not have been passed more particularly in view of the fact that the complainant was aware of the fact that there is an exclusive and paramount claim of the Appellant Bank, therefore, The Adjudicating Authority had no justification/jurisdiction for confirming attachment of the aforesaid hypothecated/Equitably Mortgaged Moveable

¶172

and immovable properties.

¶173

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¶175

The Hon‘ble Madras High Court in the decision of Indian Bank Vs. Government of India reported in (2012) 4 CTC 225 held that the PMLA does not provide for redressing grievances of victims of fraud such that the Enforcement Directorate cannot take away the right of Banks as security holder by provisionally attaching such property and seeking confirmation thereof. Accordingly, in the present case, the Appellant is the victim of the fraud played upon it by Mr. Mehul Choksi and the Gitanjali group of companies. Accordingly, the Adjudicating Authority erred in confirming the attachment of properties already mortgaged to the Appellant.

¶176

The Adjudicating Authority has failed to understand that the NCLT Mumbai vide order dated 08.10.2018 has declared moratorium under Section 14 of the IBC, 2016, inter alia, the said section 14 of the IBC, 2016 prohibits the continuation of pending suits or proceedings against the corporate debtor (i.e. Respondent No.2 herein). Therefore, the Adjudicating Authority could not have confirmed the PAO bearing No. 03/2018 dated 28.03.2018 passed by the Respondent No.1.

¶177

The said process is promoted by the Government of India. Apex Court has also held in favour of the bank and the main provisions valid in order to recover the amount in the interest of public. One fails to understand why both authorities are against the said process of recovery.

¶178

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¶180

In view of the non-obstante clause as contained in Section 238 of the IBC, 2016, the Adjudicating Authority could not have continued with the Attachment proceedings under the PMLA.

¶181

The Reasoning of the Adjudicating Authority is not wholly bias as it is a settled law that Non-Obstante clause of the later act shall prevail over the non-obstante clause of the prior act. The IBC, 2016 being a subsequent legislation than the PMLA, therefore, the Non-obstante clause of the IBC,2016 shall prevail over the PMLA.

¶182

The proceedings before the Adjudicating Authority are civil in nature, therefore, in view of the Section 14 of the IBC, 2016 the proceedings before the Adjudicating Authority cannot continue as there is clear prohibition under the said section of the IBC, 2016.

¶183

This Tribunal is of the considered opinion that the proceeding u/s 8 of PMLA,2002 before the Adjudicating Authority is a civil proceeding. The Adjudicating Authority should have stayed the proceedings. The continuation of the proceedings after 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.

¶184

Thus, the impugned order is set aside to the extent the Order dated 16.08.2018 bearing OC No. 912/2018 passed by the Adjudicating Authority confirming the Provisional Attachment Order No. 03/2018 dated 28.02.2018 with regard to properties mortgaged to the Appellant in the present case. However, it is clarified that ED is entitled to recover entire proceeds of crime amount from the accused parties in India or

¶185

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properties for which the banks are secured creditors. Thus, this tribunal is of view that the public money should come to the public but at the same time the mortgaged properties cannot be blocked. The banks money must come to the banks in the interest of public.

¶188

All the actions which are pending against the accused parties, the same shall be proceeded further against as per law and without any influence of this order. No one appears on behalf of the borrowers. The appellant is only pressing the relief for lifting of attachment orders only pertaining to mortgaged properties in the present appeal.

¶189

The period of continuation of proceedings before the Adjudicating Authority, PMLA and before this Tribunal till the passing of the present judgment and order, from the date of commencement of the moratorium order, be treated as excluded while calculating limitation of the period of completion of the Corporate Insolvency Resolution Process (CIRP).

¶190

The appeal is allowed. The impugned order is set-aside. The accused parties are restrained not to dispose the mortgaged properties directly or indirectly until completion of the (CIRP) process once final order is passed in favour of banks.

¶191