Dismissed

FPA-PMLA-2734/SNR/2018 of Punjab National Bank v. The Deputy Director, Directorate of Enforcement, Srinagar

ATFP14 Jun 2024FPA-PMLA-2734/SNR/2018

Case brief

AI extract

What is this about?

The Appellate Tribunal rejected PNB's appeal challenging the attachment of mortgaged properties under the PMLA. The court held that forfeiture of proceeds from crimes outweighs the bank's mortgage rights when ownership lacks valid title and adverse possession is claimed, dismissing the appeal.

What did the court decide?

Impugned order confirming attachment of properties was upheld; appeal dismissed with liberty to file claim before Special Judge, PMLA Court.

FPA-PMLA-2734/SNR/2018 of Punjab National Bank Vs. The Deputy… — Banking and Recovery | ATFP (2024)

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BEFORE RAJESH MALHOTRA, MEMBER; SINGLE BENCH: APPELLATE TRIBUNAL UNDER SAFEMA; AT NEW DELHI.

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FPA-PMLA-2734/SNR/2018 Punjab National Bank … Appellants

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Versus

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The Deputy Director, Directorate of Enforcement, Srinagar…Respondent

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Advocates/Authorized Representatives who Argued

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For the Appellant : Mr. Rajesh Kumar Gautam, Advocate, For the Respondent : Mr. Aditya Singla, Advocate.

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FINAL ORDER 14.06.2024

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Present appeal is filed by appellant Punjab National Bank against the impugned order dated 12.09.2018 passed by Adjudicating Authority in Original Complaint No. 931/2018 vide which Provisional Attachment

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Order for attachment of properties was confirmed, including the following properties mortgaged with the appellant bank:

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S. No.	Description of the Property	Value (in Rs.)
1	Land at 91/11 Nanak Nagar, Jammu having land area of 7 marlas along with Commercial cum residential complex constructed over the land. This land was under unauthorized possession of S. Harpal Singh and the same was got regularized vide order dated 20.12.2005 from Jammu Development Authority on payment of fee of Rs. 39,072/-. Mortgaged with PNB, Trikuta Nagar, Jammu vide mortgage deed dated28.06.2007.	Rs. 34.80 lakh, as per valuation dated 03.08.2010
2.	Residential house at 42 Extn., Trikuta Nagar Jammu at Khasra no. 385, Plot no. 224, Channi Rama having land area of 19.5 marlas. Possession with S. Harpal Singh. Mortgaged with PNB vide mortgaged deed dated 28.06.2017	Rs. 58.85 lakh, as per valuation report dated 03.08.2010
	TOTAL	Rs. 93.65 lakh

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As per the facts of the case, complainant Sardar Joginder Singh lodged FIR No. 302/2018 at PS- Gandhinagar, Jammu against the accused persons for commission of offences u/s 406/409/420/467/468/471/120-B Ranbir Penal Code, 1932. As per allegation, M/s. Dutta Financers and few other finance companies run by Sardar Gurbachan Singh Dutta and his son Sardar Harpal Singh

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Rajesh Malhotra

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Member

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FPA-PMLA-2734/SNR/2018 Punjab National Bank v. E.D., Srinagar

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Dutta, cheated about 1,000 depositors of District Jammu and adjoining districts, as they failed to return the deposits along with the promisedinterest. The said finance company closed its office and Sardar Harpal Singh fled to USA with depositors amount of about 20 to 25 Crores. Crime Branch, Jammu, after investigation filed charge-sheet against the accused persons.

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On the basis of said FIR, ECIR No.01/SRZO/2014 dated 03.01.2014 was registered. Respondent-ED attached the properties of the accused persons vide Provisional Attachment Order dated 28.03.2018 and thereafter filed Original Complaint no. 931/2018 before Adjudicating Authority for confirmation of attachment. The said attachment was confirmed vide order dated 12.09.2018.

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Aggrieved by the said order appellant PNB filed the present appeal.

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During the argument, Learned Counsel for the Appellant submitted that Respondent No. 2 Sardar Harpal Singh Dutta being the sole Prop. of M/s. Dutta Trading Corporation approached the appellant bank for availing credit facilities for Rs. 40,00,000/- on 04.05.2007 for expansion of their business of transport carrier, contract etc. ODI limit of Rs. 40,00,000/- was sanctioned on 08.06.2007 against the mortgage of the properties of Respondent No.2. The documents of mortgage were executed in favour of appellant bank by Respondent no.2 on 28.06.2007. M/s. Dutta Trading Corporation and Respondent No. 2 Sardar Singh Dutta failed to maintain the financial discipline of the appellant bank and violated the terms & conditions contained in the mortgage agreement and accordingly, its account was declared as NPA w.e.f. 31.03.2011.Learned Counsel for the Appellant bank pointed out that legal notice was issued to the accused proprietorship concern, Respondent No. 2 on 26.06.2013, whereby loan facility was recalled and they were directed to make payment of Rs. 65,00,000/-. Thereafter, suit

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Rajesh Malhotra Member

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FPA-PMLA-2734/SNR/2018 Punjab National Bank v. E.D., Srinagar

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for recovery was filed on 06.07.2013, which are decreed by Ld. ADJ, Jammu vide order dated 23.11.2021 for sum of Rs. 65,32,448/- along with interest. After the decree of recovery suit, ECIR No. 01/SRZO/2014 was registered by Respondent-ED on 03.01.2014. Thereafter, Respondent-ED passed the Provisional Attachment Order No. 02/SRZO/2018 qua the property in issue, without appreciating the fact that decree for recovery is already issued against the mortgaged property, and hence, question of attachment does not arise. Original complaint No. 931/2018 was filed before Adjudicating Authority, PMLA on 19.04.2018, by Respondent-ED for confirmation of PAO.Show cause notice was also issued to the appellant bank on 27.04.2018. On 10.07.2018, appellant bank filed detailed reply to the OriginalComplaint filed by Respondent No.1. Rejoinder was filed by Respondent-ED on 27.07.2018. Thereafter, impugned order was passed on 12.09.2018 and hence, appellant bank filed the appeal.

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Learned Counsel for the Appellant bank submitted that there is nothing on record to show that the mortgaged property was purchased by the accused persons from any proceeds of crime. He further contended that even otherwise, the attachment proceedings cannot be pressed against the previously mortgaged property, with appellant bank. He further submitted that the impugned order passed by Learned Adjudicating Authority cannot nullify the decree for recovery dated 23.11.2013 passed by Learned Ld. ADJ, Jammu, in favour of the appellant bank, in absence of any challenge to the said decree. He further argued that even otherwise there is nothing on record that the instalments of loan over the property were paid by the accused persons out of the proceeds of crime. Prayer was accordingly made to set aside the impugned order 12.09.2018 passed by the Adjudicating Authority,and thereby,also vacate the Provisional Attachment Order No. 02/SRZO/2018 dated 28.03.2018.

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Rajesh Malhotra Member

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FPA-PMLA-2734/SNR/2018 Punjab National Bank v. E.D., Srinagar

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On the other hand, Learned Counsel for the Respondent-ED submitted that the accused personsS. Harpal Singh Dutta and other family members have acquired huge proceeds of crime through their various finance companies and duped various investors by collecting huge amounts from them. He pointed out that the total quantum of fraud as per the complaints of many complainants was calculated between 20 to 25 crores, but the actual fraud might be more than hundreds of crores. He submitted that the impugned order dated 12.09.2018 was passed by the Adjudicating Authority confirming the attachment of properties after appreciating the material on record. The said order is well reasoned and detailed order and needs to be maintained. Prayer was accordingly made to dismiss the present appeal being devoid of any merits. He further argued that the provisions of Ranbir Penal Code are in verbatim to the provisions of Indian Penal Code with only some minor variations. He pointed out that sub-section (2) of section 1), clearly states that Prevention of Money Laundering Act, 2002, extends to whole of India. This implies that all the Central Acts, applicable to India, which are made applicable to the State of Jammu & Kashmir with change of name will impliedly stand applicable with respect to the corresponding scheduled offences as mentioned in the PMLA, otherwise, sub-section-(2) of section 1of PMLA, 2002 will become redundant. He further argued that appellant bank is not in possession of any sale deed in favour of the mortgager S. Harpal Singh, even then, the bank disbursed loan to M/s. Dutta Trading Corporation just on the basis of valuation report. In support of his contention, he pointed out the mortgage deed dated 28.06.2007, which is silent regarding the ownership right of the mortgager, by way of any sale deed in favour of S. Harpal Singh. He contended that in absence of any sale deed in favour of S. Harpal Singh, he seems to be in possession of the said property by way of adverse possession. In such circumstances, the question of

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Rajesh Malhotra Member

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FPA-PMLA-2734/SNR/2018 Punjab National Bank v. E.D., Srinagar

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advancing loan on the said property is not legally permissible as per banking norms. He stressed that as the accused persons committed fraud with large number of public persons, before and after disbursal of loan, the right of the appellant bank cannot prevail over the right of the victims. Accordingly, he submitted that after the auction of attached properties the sale proceeds are likely to be disbursed amongst all the creditors/claimants in proportionate ratio by learned Special Judge, PMLA Court. He submitted that under these circumstances the question of releasing the two properties mentioned in para no.1 above does not arise. Prayer is accordingly made to dismiss the present appeal being devoid of any merits.

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After hearing the rival submissions, I have given my thoughtful consideration to the same. I am fully convinced by the submissions made by Ld. counsel for respondent ED as mentioned in the preceding para. The fact that PMLA, 2002 is applicable to whole India and accordingly by implication the schedule offences of Indian Penal Code corresponding to Ranbir Penal Code will be applicable.

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It is pertinent to refer to the recommendations of UN-constituted Financial Action Task Force [FATF] which is designated as " global money laundering and terrorist financing watchdog "; of the 40 recommendations, the following are a bit relevant for our purpose:

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“Paras 4, 5, 6 & 7: "Scope of the Criminal Offence of Money Laundering: 4. Each country should take such measures as may be necessary, including legislative ones, to enable it to criminalise money laundering as set forth in the Vienna Convention. ... Each country would determine which serious crimes would be designated as money laundering predicate offences. As provided in the Vienna Convention, the offence of money laundering should apply at least to knowing money laundering activity, including the concept that knowledge may be inferred from objective factual circumstances... Para 7: Countries should adopt measures similar to those set forth in the Vienna Convention, as may be necessary, including legislative ones, to enable their competent authorities to confiscate

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Rajesh Malhotra Member

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FPA-PMLA-2734/SNR/2018

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Punjab National Bank v. E.D., Srinagar

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property laundered, proceeds from, instrumentalities used in or intended for use in the commission of any money laundering offence, or property of corresponding value... In addition to confiscation and criminal sanctions, countries also should consider monetary and civil penalties, and/or proceedings including civil proceedings, to void contracts entered into by parties ."

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The Hon’ble Jammu & Kashmir High Court - Srinagar Bench, in

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case of Ahsan Ahmad Mirza And Others vs Enforcement Directorate & Another in W.P. No. 2780/2019 dated 15 October, 2019 has held as under:-

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“21 The definition of 'corresponding law' as given in clause (ia) of Sub- section 1 of Section 2 of PMLA inserted by Act 2 of 2013 is, therefore, required to be restricted to the expression used in the Amendment Act 2 of 2013 which introduced various new provisions in the PMLA.

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22 It is, thus, clearly demonstrable that the offence of criminal conspiracy defined under section 120-A RPC and punishable under section 120- B RPC is a deemed scheduled offence for the purpose of Section 3 read with clause (u) of Sub-section 1 of Section 2 of PMLA.”

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Similarly, the Hon’ble Karnataka High Court in case Sri Anish Mohammed Rawther vs The Deputy Director in W.P. No. 20092 of 2021 dated 3 January, 2022 held that:

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E. Recent legislative development and extension of IPC to the State of J & K:

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There is one more aspect, advertence to which would put the controversy to rest, once for all, as rightly pointed out by learned Sr. Panel Counsel for the ED: the Parliament has enacted the Jammu and Kashmir Reorganization Act, 2019 w.e.f. 9.8.2019; section 95 r/w Item 48, Table-1 in the Fifth Schedule to this Act omits the phrase "except the State of Jammu and Kashmir" from section 1 of Indian Penal Code, 1860; thus, the application of IPC is extended to the State of Jammu & Kashmir; the Enforcement Case Information Report vide No.ECIR/BGZO/02/2020 has been registered on 02.01.2020, as pleaded in the petition and appearing from the records; apparently this is post new enactment;therefore, the question raised and argued by the petitioners in the case at hands is answered by this legislative development; the Writ Petition has been structured sans advertence to this new development .

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Rajesh Malhotra Member

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FPA-PMLA-2734/SNR/2018

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Punjab National Bank v. E.D., Srinagar

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Accordingly, the contention of the appellant bank challenging the applicability of section 420 of RPC is decided against it.

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The fact that S. Harpal Singh is not the registered owner of the said two properties mentioned in para no.1 above either by way of sale deed or any conveyance deed, the question of releasing the loan on the basis of said properties as collateral security does not arise. I agree with the contention of respondent ED that mortgagee S. Harpal Singh might have become the prescriptive owner of the said two properties by way of adverse possession. Therefore, in case of conviction of the accused persons and consequent confiscation, the issue regarding distribution of proceeds of auction sale amongst the claimants will be decided by the concerned trial court. Hence, the present appeal is liable to be dismissed being devoid of any merits.

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In sequel to my findings in the preceding para, the present appeal is hereby dismissed, with liberty to appellant bank to file its claim before Ld. Special Judge, PMLA Court at appropriate stage. It is made clear that nothing expressed herein will affect the merits of the criminal trial and the right of the parties, in any manner.

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Appeal dismissed.

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Pronounced on this 14^th Day of June, 2024.

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(Rajesh Malhotra)

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Member

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‘AB’

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Rajesh Malhotra Member