Manmohan Singh, J
FPA-PMLA-2503/DLI/2018
1. The appellant has filed this appeal under Section 26 of the Prevention of Money Laundering Act, 2002 against the Order dated 24.7.2018 passed by
the adjudicating authority under PMLA in O.C. no. 896/2018 confirming the Provisional Attachment Order (PAO)n No. 02/2018 dated 07.02.2018 in
ECIR No. ECIR/02/DIZO-II/2018 dated 17.03.2017.
2. The impugned order has been passed against Bimal Ramgopal Agarwal and 4 others, including the present appellant - Bharat Co-operative Bank
(Mumbai) Ltd. which is named as one of the respondents.
3. The impugned order was received by the Branch Office of the appellant bank situated at Shivagiri, Ground Floor, Plot No. 11, Samant Estate,
Gurgaon (East), Mumbai â€" 400 063 on 30.07.2018. This appeal is filed within the prescribed period of 45 days as provided under the provisions of
Section 26(3) of the Act.
4. The appellant, Bharat Co-operative Bank (Mumbai) Ltd. is a multi-state Scheduled Bank under the provisions of the Multistate Co-operative
Societies Act, 2002 having 102 Branches and the appellant bank‘s branch is one of them.
5. The case of the respondent â€" Deputy Director of Enforcement is that the Zonal Office â€" Ahmedabad was investigating a case of illegal cricket
betting vide ECIR Bi, 03/AMZO/2015 under the supervision of Joint Director of Enforcement with Assistant Director; that one Bimal Ramgopal
Agarwal, in connivance with Joint Director collected Rs.2.75 crores from one Manoj Jain alias Chusu on 28.07.2015 and Rs.50,00,000/- from one
Surinder Kalra alias R.S. Mandi on 25.05.2015 as bribe/illegal gratification for doing favour to the accused in the above said case of cricket betting;
that a sum of Rs.96.75 lakhs out of Rs.3.25 Crores was deposited in various bank accounts of companies/firms/individuals related to Bimal Agarwal
between 28.07.2015 and 22.09.2015; that on the basis of a complaint dated 21.09.2015 of the Director of Enforcement, New Delhi, an F.I.R. was
registered on 22.09.2015 by the CBI under Section 120-B IPC r/w Section 7, 12, 13(1)(d) and 13(2) of the Prevention of Corruption Act against Joint
Director of Enforcement, Ahmedabad and other unknown person; that ECIR/02/DLZO-II/2017 was registered by the Directorate of Enforcement on
17.03.2017 against J.P. Singh and others under Section 3 of the PMLA r/w Section 4 of PMLA; that a Charge Sheet was filed by the C.B.I. New
Delhi on 18.04.2017 against ex-Joint Director of Enforcement, ex-Assistant Director, Bimal Ramgopal Agarwal and others under Section 120-B IPC
r/w Section 7, 8, 9, 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988; that the respondent â€" Deputy Director of Enforcement passed the
Provisional Attachment Order (PAO) dated 07.02.2018 attaching Penthouse No. 2001/2101 jointly owned by Bimal Ramgopal Agarwal and his wife,
Barkha Bimal Agarwal on the alleged ground that Bimal Agarwal derived or obtained proceeds of crime as a result of criminal activity relating to a
scheduled offence by assisting the Joint Director in taking bribes/illegal gratifications.
6. The appellant Bank says that it is not aware of any criminal acts alleged to have been committed by the said Bimal Ramgopal Agarwal between
28.07.2015 and 22.09.2016.The appellant is pressing the relief only to the extent that the attachment order must be lifted against the respondent ED.
7. By virtue of attachment, the property was attached i.e. the Pent House No. 2001/2101 fully described in the Provisional Attachment Order was
mortgaged by Bimal Ramgopal Agarwal to the appellant bank for the first time on 19.01.2011 against the enhancement of the Cash Credit Limit from
the then existing Rs.5 Crores to Rs.10 Crores and enhancement of composite Bank Guarantee Limit and Letter of Credit Limit from Rs.10 Crores to
Rs.15 Crores.
8. The said property was mortgaged as per supported by the following legal documents created in favour of the appellant bank:
i. Sanction Letter No. BCB/GGE/CC-650/3642/2011 dated 17.01.2011 issued by the Bank.
ii. Loan Agreement for Cash Credit of Rs. 10 Crores dated 19.01.2011.
iii. Letter of General Lien and Set Off for Cash Credit of Rs. 10 Crores dated 19.01.2011.
iv. Demand Promissory Note for Cash Credit Limit of Rs. 10 Crores dated 19.01.2011
v. Borrowers‘ Forwarding Letter dated 19.01.2011 confirming the deposit of title deeds in respect of the said Pent House and continuation of the
properties already mortgaged earlier.
vi. Memorandum of Entry dated 19.01.2011 by the Branch Manager of Goregaon (E) Branch of the Bank, by paying requisite amount of stamp duty
in respect of the said Pent House.
vii. Loan Agreement for Bank Guarantee/ Letter of Credit Limit of Rs. 15 Crores dated 19.01.2011.
viii. Letter of General Lien and Set Off for Bank Guarantee/ Letter of Credit Limit of Rs. 15 Crores dated 19.01.2011.
ix. Demand Promissory Note for Bank Guarantee/ Letter of Credit Limit of Rs. 15 Crores dated 19.01.2011.
8.1. The said Penthouse No. 2001/2101 was again mortgaged by Bimal Ramgopal Agarwal to the Appellant - Bank for the Second time on 04.03.2011
against the enhancement of the Cash Credit Limit from the then existing Rs. 10 Crores to Rs. 15 Crores and reduction of composite Bank Guarantee
Limit and Letter of Credit Limit from Rs. 15 Crores to Rs. 10 Crores. The said mortgage is duly supported by the following legal documents created in
favour of the Appellant Bank:-
i. Sanction Letter No. BCB/GGE/CC-650/4205/2011 dated 28.02.2011 issued by the Bank.
ii. Loan Agreement for Cash Credit of Rs. 15 Crores dated 04.03.2011
iii. Letter of General Lien and Set Off for Cash Credit of Rs. 15 Crores dated 04.03.2011
iv. Demand Promissory Note for Cash Credit Limit of Rs. 15 Crores dated 04.03.2011
v. Borrowers‘ Forwarding Letter dated 04.03.2011 confirming the deposit and continuation of title deeds in respect of the said Pent House and
other properties already mortgaged earlier.
vi. Memorandum of Entry dated 04.03.2011 by the Branch Manager of Goregaon (E) Branch of the Bank, by paying requisite amount of stamp duty
in respect of the said Pent House.
vii. Loan Agreement for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 04.03.2011
viii. Letter of General Lien and Set Off for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 04.03.2011.
ix. Demand Promissory Note for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 04.03.2011.
8.2. The said Pent House No. 2001/2101 was again mortgaged by Bimal Ramgopal Agarwal to the Appellant - Bank for the Third time on 19.12.2011
against the enhancement of the Cash Credit Limit from the then existing Rs. 15 Crores to Rs. 25 Crores and renewal of composite Bank Guarantee
Limitand Letter of Credit Limit of Rs. 10 Crores. The said mortgage is duly supported by the following legal documents created in favour of the
Appellant Bank:-
i. Sanction Letter No. BCB/GGE/CC-650/1917/2011 dated 13.12.2011 issued by the Bank.
ii. Loan Agreement for Cash Credit of Rs. 25 Crores dated 19.12.2011.
iii. Letter of General Lien and Set Off for Cash Credit of Rs. 25 Crores dated 19.12.2011
iv. Demand Promissory Note for Cash Credit Limit of Rs. 25 Crores dated 19.12.2011
v. Borrowers‘ Forwarding Letter dated 19.12.2011 confirming the deposit and continuation of title deeds in respect of the said Pent House and
other properties.
vi. Memorandum of Entry dated 19.12.2011 by the Branch Manager of Goregaon (E) Branch of the Bank, by paying requisite amount of stamp duty
in respect of the said Pent House.
vii. Loan Agreement for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 19.12.2011.
viii. Letter of General Lien and Set Off for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 19.12.2011
ix. Demand Promissory Note for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 19.12.2011.
8.3. It was again mortgaged by Bimal Ramgopal Agarwal to the Appellant - Bank for theFourth time on 29.01.2013 against the renewal of the Cash
Credit Limit of Rs. 25 Crores and enhancement of composite Bank Guarantee Limit and Letter of Credit Limit from Rs. 10 Crores to Rs. 15 Crores.
The said mortgage is duly supported by the following legal documents created in favour of the Appellant Bank:-
i. Sanction Letter No. BCB/GGE/CC-650/2717/2011 dated 14.01.2013 issued by the Bank.
ii. Loan Agreement for Cash Credit of Rs. 25 Crores dated 29.01.2013.
iii. Letter of General Lien and Set Off for Cash Credit of Rs. 25 Crores dated 29.01.2013.
iv. Demand Promissory Note for Cash Credit Limit of Rs. 25 Crores dated 29.01.2013.
v. Borrowers‘ Forwarding Letter dated 29.01.2013.confirming the deposit and continuation of title deeds in respect of the said Pent House and
other properties.
vi. Memorandum of Entry dated 29.01.2013 by the Branch Manager of Goregaon (E) Branch of the Bank, by paying requisite amount of stamp duty
in respect of the said Pent House.
vii. Loan Agreement for Bank Guarantee/ Letter of Credit Limit of Rs. 15 Crores dated 29.01.2013.
viii. Letter of General Lien and Set Off for Bank Guarantee/ Letter of Credit Limit of Rs. 15 Crores dated 29.01.2013.
ix. Demand Promissory Note for Bank Guarantee/ Letter of Credit Limit of Rs. 15 Crores dated 29.01.2013.
8.4. The Pent House No. 2001/2101 was again mortgaged by Bimal Ramgopal Agarwal to the Appellant - Bank for the Fifth time on 23.08.2013
against the enhancement of the Cash Credit Limit from Rs. 25 Crores to Rs. 30 Crores and reduction of composite Bank Guarantee Limit and Letter
of Credit Limit from Rs. 15 Crores to Rs. 10 Crores. The said mortgage is duly supported by the following legal documents created in favour of the
Appellant Bank:-
i. Sanction Letter No. BCB/GGE/1713/2011 dated 20.08.2013 issued by the Bank.
ii. Loan Agreement for Cash Credit of Rs. 30 Crores dated 23.08.2013
iii. Letter of General Lien and Set Off for Cash Credit of Rs. 30 Crores dated 23.08.2013.
iv. Demand Promissory Note for Cash Credit Limit of Rs. 30 Crores dated 23.08.2013.
v. Borrowers‘ Forwarding Letter dated 23.08.2013 confirming the deposit and continuation of title deeds in respect of the said Pent House and
other properties.
vi. Memorandum of Entry dated 23.08.2013 by the Branch Manager of Goregaon (E) Branch of the Bank, by paying requisite amount of stamp duty
in respect of the said Pent House.
vii. Loan Agreement for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 23.08.2013.
viii. Letter of General Lien and Set Off for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 23.08.2013
ix. Demand Promissory Note for Bank Guarantee/ Letter of Credit Limit of Rs. 10 Crores dated 23.08.2013.
8.5. It was also mortgaged by Bimal Ramgopal Agarwal to the Appellant - Bank for the Sixth time on 15.09.2016 against the reduction of the Cash
Credit Limit from Rs. 30 Crores to Rs. 21 Crores and renewal of composite Bank GuaranteeLimit and Letter of Credit Limit of Rs. 10 Crores.
The Pent House No. 2001/2101 was again mortgaged by Bimal Ramgopal Agarwal to the Appellant - Bank for the Seventh time on 31.03.2017
against the renewal of the Cash Credit Limit of Rs. 21 Crores and reduction of Composite Bank Guarantee Limit and Letter of Credit Limit from Rs.
10 Crores to Rs. 8 Crores. The said mortgage is duly supported by the following legal documents created in favour of the Appellant Bank:-
i. Sanction Letter No. BCB/GGE/LOANS/4111/2017 dated 31.03.2017 issued by the Bank.
ii. Loan Agreement for Cash Credit of Rs. 21 Crores dated 31.03.2017.
iii. Letter of General Lien and Set Off for Cash Credit of Rs. 21 Crores dated 31.03.2017.
iv. Demand Promissory Note for Cash Credit Limit of Rs. 21 Crores dated 31.03.2017.
v. Borrowers‘ Forwarding Letter dated 31.03.2017 confirming the deposit and continuation of title deeds in respect of the said Pent House and
other properties.
vi. Memorandum of Entry dated 31.03.2017 by the Branch Manager of Goregaon (E) Branch of the Bank, by paying requisite amount of stamp duty
in respect of the said Pent House.
8.6. Bimal Ramgopal Agarwal had created legally sustainable Equitable Mortgage by deposit of Title Deeds in respect of the above Penthouse No.
2001/2101 in favour of this Appellant - Bank on (i) 19.01.2011, (ii) 04.03.2011, (iii) 19.12.2011, (iv) 29.01.2013, (v) 23.08.2013, (vi) 15.09.2016 and (vi)
31.03.2017. The required documents are also filed as Exhibit â€" “D-Colly.†is a copy of the Equitable Mortgage created on 19.01.2011, Exhibit
â€" “E-Colly.†is a copy of the Equitable Mortgage created on 04.03.2011, Exhibit â€" “F-Colly.†is a copy of the Equitable Mortgage created
on 19.12.2011, Exhibit â€" “G-Colly.†is a copy of the Equitable Mortgage created on 29.01.2013, Exhibit â€" “H-Colly.†is a copy of the
Equitable Mortgage created on 23.08.2013 and Exhibit â€" “I-Colly.†is a copy of the Equitable Mortgage created on 31.03.2017.
SECTION 13(2) SARFAESI ACT NOTICE ALREADY ISSUED
9. The Appellant â€" Bank submits that it is a Secured Creditor. However, the said Bimal Ramgopal Agarwal failed to repay his dues/outstanding
liabilities amounting to Rs.22,43,88,671/- under Cash Credit Limit Account and Rs.44,44,040/- under Bank Guarantee Limit Account as on 31.01.2018
alongwith applicable interest thereon. Hence, as a Secured Creditor, this Appellant â€" Bank has issued Notice dated 17.02.2018 under the provision
of Section 13(2) of SARFAESI Act directing Bimal Ramgopal Agarwal, Barkha Bimal Agarwal, its Directors â€" Manoharlal Khandelwal, Kishore
Kumar Ramgopal Agarwal, Co-Borrowers and their Company M/s. Technotrade Impex India Pvt. Ltd. to discharge in full all their liabilities, failing
which the Appellant - Bank would exercise all or any of its rights under the provisions of sub-section (4) of Section 13 and other applicable provisions
of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as
“SARFAESI Actâ€) for the purpose of taking possession of the property, appointing any person to manage the property, etc. Exhibit â€"â€J†is a
copy of the said Notice dated 17.02.2018 issued under Section 13(2) of SARFAESI Act as the Appellant - Bank was fully empowered to take
recourse under the SARFAESI Act for dealing with the said secured assets in order to recover its outstandings against the said borrower, viz : Bimal
Ramgopal Agarwal.
10. It is a matter of fact that despite the said Penthouse stands mortgaged to the Appellant â€" Bank since January 2011, the Respondent â€" Deputy
Director of Enforcement, passed the Provisional Attachment Order No. 02/2018 on 07.02.2018 under Section 5(1) of PMLA on the alleged ground
that Bimal Ramgopal Agarwal was in possession of the value of the proceeds of crime. The Appellant case is having created a legally valid mortgage
in its favour by the Predicate Offender in 2011, i.e. even before the commission of the alleged scheduled crime in 2015, the property in question is a
secured asset in the hands of the Appellant, as has been held by this Tribunal in a number of cases. Both the Respondent and the Adjudicating
Authority did not appreciate that it is not even the value of the proceeds of crime. The said Bimal RamgopalAgarwal through Advocate has raised no
objection if the prayer made in the appeal is allowed.
11. It is truethat the Respondent â€" Deputy Director is empowered to pass Provisional Attachment Order under Section 5(1) of PMLA only if the
conditions mentioned therein are satisfied. Sub-Section (1) of Section 5 of PMLA reads as under :-
“5. Attachment of property involved in money-laundering.-
(1) Where the Director or any other officer not below the rank of Deputy Director authorized by the Director for the purposes of this
section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that â€
(a) Any person is in possession of any proceeds of crime;
and
(b) Such proceeds of crime are likely to be concealed, transferred or dealt with any manner which may result in frustrating any proceedings
relating to confiscation of such proceeds under this Chapter,
he may, by order in writing, provisionally attach such property.â€
But Section 5(1) of PMLA clearly provides that the Respondent â€" Deputy Director is empowered to attach only if a person is in possession of
proceeds of crime. Section 2(1)(u) of PMLA defines “proceeds of crime†as follows:-
“Proceeds of crime†means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity
relating to a Scheduled offence or the value of any such property; [or where such property is taken or held outside the country, then the
property equivalent in value held within the country];â€
ABSENCE OF “REASON TO BELIEVEâ€
12. The Respondent - Deputy Director himself has admitted in Para 25 of his Complaint at Page No. C â€" 57 that the Penthouse No.2001/2101
attached by him was purchased by Bimal Ramgopal Agarwal and his wife - Barkha Agarwal in the year 2010. If the attached property had already
been purchased by Bimal Ramgopal Agarwal and his wife, Barkha Agarwal in the year 2010 itself, the Respondent â€" Deputy Director cannot have
any reason to believe that Bimal Ramgopal Agarwal and his wife purchased the said property with the proceeds of crime derived by Bimal Ramgopal
Agarwal by his criminal activities relating to the scheduled offences allegedly committed between 28.07.2015 and 22.09.2015 and that they are in
possession of the proceeds of crime as mandated by Section 5(1)(a) of PMLA. Hence, the Respondent â€" Deputy Director has no power at all to
attach the property purchased by Bimal Ramgopal Agarwal and his wife in the year 2010 on the ground that the same was acquired by proceeds of
crime.
13. The Appellant has submitted that the Respondent â€" Deputy Director has failed to furnish to this Appellant - Bank either before or after issuing
the Impugned Provisional Attachment Order, any such grounds and/or reason to believe that Bimal Ramgopal Agarwal and his wife were in
possession of proceeds of crime derived by them by committing any Scheduled Offences, on the basis of which the Respondent â€" Deputy Director
has proceeded to issue the Provisional Attachment Order.
14. The Respondentâ€"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:-
“The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time
being in force.â€
15. There is no denial on behalf of respondent that appellant is a Secured Creditor and is entitled to priority over all other debts and all revenues, taxes,
cesses and other rates payable to the Central Government or State Government or Local Authority. In this connection, the Appellant â€" Bank relies
upon the amended provisions of Section 26E of the SARFAESI 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:-
“26E. Priority to secured creditors. â€
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.â€
Case of appellant in nut-shell
16. The Appellant submits that both the lower authorities, namely, the Deputy Director - Shri Rajesh Kumar Pandey and the Adjudicating Authority
â€" Shri Tushar V. Shah, Member (Law) constituted under PÄLA have passed the Impugned Orders without proper and/or with improper
application of mind. In doing so, there is absolute failure on their part in taking into consideration the irrelevant material and the Impugned Orders have
been passed on the basis of absolutely extraneous material. In the circumstances, the Adjudication Order as well the Provisional Attachment Order
have become non est, unjustifiable and untenable in law and deserve to be quashed and set aside with directions for releasing the attached property
and handing over the possession thereof to the Appellant. The Appellant states that as mentioned in Clause E of Paragraph 41 under the heading
“GROUNDS†in the Memo of Appeal, in the face of the admission made by the Deputy Director himself, in the Impugned Provisional
Attachment Order dated 07.02.2018 and in the Rejoinder dated 09.07.2018 filed by him before the Adjudicating Authority, the property having been
purchased as far back in the year 2010, coupled with the fact that the Bank had lent its own money to its Customer - the Predicate Offender while
creating the mortgage against the property in question by way of collateral security, it was totally erroneous to conclude and to hold that Bimal
Ramgopal Agarwal has acquired the said property by committing the alleged criminal activities in the year 2015 and the same represents the proceeds
of crime. In the light of the said admission which goes unrebutted by bringing on record any relevant material to prove its veracity, the concerned
transaction ought to be held as a bona fide transaction executed and for valuable consideration. In the set of these facts it was totally illegal and invalid
on the part of the Respondents to have arrived at the conclusion that either it is derived from the proceeds of crime, or the same could represent value
of the proceeds of crime subsequently earned by the Predicate Offender. In the submission of the Appellant, therefore, the very basis of both the
Impugned Provisional Attachment Order as well as the Adjudication Order was bad and against the law,therefore, the said Impugned Order is liable to
be set aside by lifting the attachment and for handing over the possession to the Appellant.
17. It is matter of record that Shri Bimal Ramgopal Agarwal and his wife by executing legal mortgage of the attached property in favour of the
Appellant -Bank by way of deposit of Title Deeds thereof, secured and availed of the benefit of financial assistance from the Appellant - Bank.The
Appellant Bank had already given its own money to the said Bimal Ramgopal Agarwal by way of loan. The Appellant - Bank, therefore, had become
secured creditor as far as the property attached under the Impugned Order is concerned. In the face of the rulings laid down by this Tribunal in
number of cases referred to in Paragraphs 31 to 34 of the instant Memo of Appeal, which rulings have been handed down by this Tribunal after duly
considering the law as laid down by the Hon'ble Supreme Court, followed by the full Bench of the Madras High Court,Andhra Pradesh High Court as
stated in Paragraphs 25 to 29 of the Memo of Appeal, this case is quite a fit and proper case deserving it to be allowed by setting aside the Impugned
Orders by directing the release of the property from attachment and handing over the property to the Bank. As the records stands, in the absence of
any material having been brought on record to support the reasonable belief which is a condition precedent for exercising powers vested in the
Authority under Section 5 of PMLA, the entire exercise undertaken leading to the passing of the Impugned Orders by the Respondent Officers of the
Directorate of Enforcement and the Adjudicating Authority is sans the proper exercise of powers and jurisdiction.
18. In the face of the continued failure of Respondent to file its Reply, first within four weeks as directed by this Tribunal in its Order dated
24.08.2018 and again within two weeks from 10.10.2018, the case/grounds advanced by the Appellant in the Appeal goes unrebutted. When the
appeal was being heard, the appeals filed by the borrowers were also listed who has no objection if prayer made in the ground of appeal filed by the
bank is allowed.
19. 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:-
“26E. Priority to secured creditors. -
Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to
any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central
Government or StateGovernment or local authority.â€
20. The amended provisions of Section31B of the Recovery of Debts due to Banks and Financial' InstitutionsAcc 1993 as amended by the
Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment)Act, 2016 which reads as under:-
“31B. â€" Priority to secured creditors.
Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due
and payable to them by sale of assets, over which security interest is created, shall have priority and shall be paid in priority over all other
debts and government dues including revenues, taxes, cesses and rates due to the Central Government, StateGovernment or local
authority.â€
21. It was brought to our notice of this Tribunal that the above mentioned provisions had come into force w.e.f. 16.08.2016, empowering this Appellant
Bank to have priority over the mortgaged property.
22. The Hon'ble Supreme Court, wherein it has been categorically held that if non-obstante clause is contained in two enactments, the non-obstante
clause in the later enactment shall prevail over the non-obstante 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. The Hon'ble Supreme Court has categorically held that the non-obstante 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 :-
“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 prevailâ€
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-
(i) AIR 1956 SC 614 - Ramnarayan vs. Simla Banking andIndustrial Company Ltd.
 (ii) (1977) I SCC 750 - Sarvan Singh vs Kasturi Lal
 (iii) (1993) 2 SCC 144 = Maharashtra Tubes Ltd. vs State Industrial Investment Corporation of Maharashtra Ltd.
(iv) (2000) SCC 406 - Allahabad Bank vs. Canara Bank
23. 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. The following is the relevant portion
of the decision of the Special Court, as appearing at Para 10 of the said Supreme CourtJudgment:-
“Where there are two special statues which contain non-obstante clauses, the later statute must prevail. This is because at the time of
enactment of the later statute, the Legislature was aware of the earlier Legislation and its non-obstante clause. If the legislature. still confers
the later enactment with a non-obstante clause, it means that the Legislature wanted that enactment to prevail. If the Legislature does not
want the later enactment to prevail, then it could and would provide inthe later enactment that the provisions of the earlier enactment
continue to apply.â€
24. 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, etc. [TheAssistant 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:-
“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 LocalAuthority.â€
25. 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:-
“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 ofSection 26E.
26. It is clear from the material placed on record that the Appellant â€" Bank being a Secured Creditor, since it had lent its own money to the
Predicate Offender earlier, is entitled to priority over all other debts and government dues, including revenues, taxes, cesses and rates due to the
Central Government, StateGovernment or local authority. Hence, the Respondent - DeputyDirector has no power to attach the property of the
mortgagors viz: - Bimal Ramgopal Agarwal and his wife and the Adjudicating Authority has no power to confirm and to continue the attachment any
further, as the property in question has already been mortgaged to this Appellant Bank.
27. The Hon'ble Andhra Pradesh High Court in the case of B. Rama Raju vs. Union of India &Ors. reported in (2011) 164 Comp Cases 149 in which
the Hon'ble High Court has held that if the Adjudicating Authority is satisfied as to the bona fide acquisition of property, it should relieve such property
from provisional attachment by declining to pass anOrder of confirmation of the provisional attachment.
28. The following isthe relevant portion of the Para 103 of the said decision passed by theHon'ble Andhra Pradesh High Court :-
“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 thereof 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, assests 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.
29. In the present case, the mortgagors â€" BimalRamgopal Agarwal and his wife - Barkha Bimal Agarwal had admittedly purchased the Penthouse
in the year 2010 bona fidely and for valuable consideration i.e. long before the mortgagors are alleged to have committed the Scheduled Offencein the
year 2015. This fact has been admitted by the Respondent â€" Deputy Director not only in his Provisional Attachment Order dated07.02.2018 but also
in his Rejoinder dated 09.07.2018. Hence, the said property cannot be considered to have been purchased with any proceeds of crime and the
Respondent â€" Deputy Director has no power to attach the said property under Section 5(1) of PMLA.
30. The AdjudicatingAuthority also has no power to confirm the Attachment under Section8(2) of PMLA. Similarly, it is a simple case of 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 earned in licit
means and during the normal Banking Business Transaction it had made available to its Customer such a huge amount while creating the mortgage in
Bank's favour by Bimal Ramgopal Agarwal as collateral security.
31. The principle laid down in the above decisions of the Hon'ble Supreme Court and the Hon'ble Madras High Court has been followed by this
Appellate Tribunal, Prevention of Money Laundering Act, New Delhi, 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. The Tribunal was pleased to hold that as per the amended provisions of Section 26E of SARFAESIAct and 31B of
the Recovery of Debts due to Banks and Financial Institutions Act, 1993, a 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.
32. The following are the relevant Paragaphs of the said Judgment dated 14.07.2017
“46. In the present case, it is undisputedfact that the attached property were purchased much prior to the period when the facility of loan
was sanctioned to borrowers. The Bank whilerendering 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 scheduledoffence.
47. In view of the entire gamut of thedispute, we are of the considered opinion that the conduct of the banks are always bona fide. Both
banks are innocent parties.
58. Thus in the present case even thoughthe 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 â€" 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.
60. We also find that the Adjudicating Authority has not examined the law on mortgages and securities.
63. The property of the Appellant bank cannot be attached and confiscated when there is no illegality or unlawfulness in the title of the
appellant.
64. The respondent has no lien over thesaid properties as the appellant banks are now the legal transferees ofthe saidproperties.
65. 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.â€
33. This Tribunal in the above Judgment dated 14.07.2017 has also relied upon its own earlierJudgment 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 follows :-
“55. Whether innocent party whose properties i.e.movable or immovable are attached can approach the Adjudicating Authority for
release of attached property.
The Scheme of Prevention of Money Laundering Act clearly provides the mechanism whereby the innocent parties can approach the
Adjudicating Authority for the purpose of release of properties which have been attached in terms ofthe provisions ofSection 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.
34. 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 provisionally attached by the Respondentâ€" Deputy Director ought to have been released by the
Adjudicating Authority under Section 8(2) of PMLA.
35. In Appeal No. FPA-PMLA-1756/KOL/2017 decided by this Appellate Tribunal, PMLAon 09.11.2017 in the case of Adtiya Birla Finance Ltd. vs.
The Deputy Director, Directorate of Enforcement, Kolkata, while allowing the Appeal preferred by the Aditya Birla Finance Ltd., it was clearly held
as follows - - “When the properties do not even remotely or prima facie bear a link with the proceeds of crime or the criminal activity, then the said
properties are not liable to be attached under the false pretext of 'national security’.
36. The Appellant - Bank also submits that this AppellateTribunal, PMLA in the Admission Order dated 20.11.2017 in the case of Bajaj Finance Ltd.
vs. The Joint Director, Directorate of Enforcement,Lucknow in Appeal No. MP-PMLA-3975/LKW/2017 (Stay) FPAPMLA-2058/LKW/2017, while
staying the operation of the Impugned Order passed by the Adjudicating Authority has observed as follows :-
“2 The case of the Appellant is closely similar to the case decided by this Tribunal on dated 14.07.2017 in State Bank of India and Ors.
Vs. The Joint Director, Directorate of Enforcement, Kolkata. In Paragraphs 46 and 47 of the Judgment, this Tribunal found that the
attached property was purchased much prior to the period when the facility of offending loans were sanctioned to the borrowers. Further,
the Bank was not involved in the schedule offence. It was further observed that the mortgaged properties are security to the loans and
cannot be subject matter of attachment particularly when the same were purchased and mortgaged prior to theevents of funds diversion and
frauds committed by the borrowers. A completely same scenario exists in the present case also where the Appellant is a bona fide lender and
the properties in question have been originally purchased, much before offending transactions took place. The contents of. said properties
46 and 47 are reproduced:-
“46. In the present case, it is undisputedfacts that the attached property were purchased much prior to the period when the facility of
loan sanctioned to the borrowers. The banks while rendering the facilities were bona fide parties. It is not the case ofthe respondent that the
attached properties were purchased after the loan was obtained. The mortgages of the properties were done as bonafide purposes. None of
the bank is involved in the schedule offence. No PMLA proceedings are pending except the complainant bank was arrayed as Column;-ll at
the time of framing charges. Union Bank of India has not granted sanction against its employee to proceed against him in criminal
complaint. There is no criminal complaint under the schedule offence and PML4 is pending against the two banks. In case of failure on the
part of borrowers to comply with the terms of settlement, the contempt proceedings are maintainable in the Court where the settlement was
recorded.
47. In view of the entire gamut of the dispute, we are of the considered opinion that the conduct of the banks are always bonafide. Both
banks are innocent parties. They were legally entitled to inform the Adjudicating Authority about their innocence and they rightly did so but
their contention was rejected as appearedfrom the impugned order.â€
37. The said Judgment passed by us has not been considered and followed by the Adjudicating Authority. It is a very serious matter. The Authority is
supposed to give due respect to the judgment of the higher Authority and Courts. The said judgment was passed by referring the decisions of Supreme
Court, Full Bench of the High Court of Madras and other High Court. But the same has not been discussed at all.
38. However, it appears that in many matters, the judgments of the Tribunal and higher courts are not being followed. The Member who has passed
the impugned order is not a judicial member, he should have consulted at least the Member (legal) before ignoring the judgment of higher authority and
courts.
39. In a recent Judgment dated04.07.2018, this Appellate Tribunal under PMLA in the case of Goa State Co-operative Bank vs. The Deputy Director,
Directorate ofEnforcement, Ahmadabad has categorically held as follows: -
“35. I am also of the view that once it was found that the appellant is an innocent party who is not involved in the money laundering
directly or indirectly or assist any party and the mortgaged property is also not purchasedfrom theproceeds of crime then the question of
provisional attachment order and confirmation thereof does not arise and the victims/innocent party i.e., innocent party would be entitled to
dispose ofthe saidproperty.
36. In the fact and circumstances and material available in the present case, the allegation of money laundering, so far as present appellant
& properties involved in this appeal are concerned, found to be unsustainable for the purpose of attachment under the PMLA, 2002.Both
set of appeal are allowed.
37. Thus, for reasons recorded above, I set aside the Impugned Order dated 29.12.2017 and the Provisional Attachment Order dated
17.07.2017.â€
40. This Tribunal has reiterated time and again and also taken the same view in its very recent decision dated 19.07.2018 in the case of Punjab
National Bank vs. Deputy Director, Directorate of Enforcement, Lucknow.
The relevant portion of the said decision reads as under :-
“41. I am also of the view that once it was found that the appellant is a innocent party who is not involved in the money laundering
directly or indirectly or assist any party and the mortgaged property is also not purchasedfrom the proceeds of crime then the question
ofprovisionalattachmentorder andconfirmation thereof does not arise and the victims/innocent party i.e. innocent partywould be entitled to
dispose of the said property.â€
41. This Tribunal in recent judgment dated 02.08.2018, in the case of Standard CharteredBank &Ors. vs. The Deputy Director of Enforcement,
Mumbai (Mehul Choksi's case), allowing the Appeal and setting aside the Orders of Provisional Attachment and Adjudication. The facts of the case
herein is exactly identical to the said case decided by the Tribunal, since no allegation of any nexus or link directly or indirectly has been established by
the Department in respect of the Secured Assets as being involved in the proceeds of crime.
42. The Appellant - Bank is an innocent party which is not involved in the money laundering directly or indirectly or assisted in any manner, any party
or the said Predicate Offender â€" Bimal Ramgopal Agarwal and others; that the mortgaged property was also not purchased from the proceeds of
crime; that the said property not being owned by Bimal Agarwal, cannot form the value of proceeds of crime. Thus, the question of provisional
attachment order and confirmation thereof, does not arise and the Bank being the legal owner. Thus, the appellant is entitled to recover the amount if
not paid, the same can be recovered from mortgaged of the said property by disposing the same as per court of law.
43. The ED and Adjudicating Authority did not understand the real issue of the mortgages executed in favour of the Appellant - Bank by its Customer.
The Bank had, while executing the mortgages in its favour, already parted with its own money as loans to its Customer-Shri Bimal Ramgopal Agarwal
and his wife-Barkha Bimal Agarwal. It is further respectfully submitted that the Respondent-Department despite very well knowing the above fact of
loans given by the Bank out of its own funds, against which the collateral security stood created by its Customer in favour of the Bank and further that
by no stretch of imagination the said Secured Asset was not at all involved in any proceeds of crime, still harassing the Appellant-Bank without any
rhyme or reason, for which the Respondents ought to be awarded with heavy costs.
44. In the light of above, the appeal is allowed. The Impugned Order as well as the Provisional Attachment Order are set-aside qua the present
appellant as the same are bad and passed against the law. All MP‘s are disposed of. The cases before the Special Court against the borrowers shall
continue as per law.
The same have to be considered as per its own merit.
45. No costs.
