FPA-PMLA-1051/LKW/2015
1. State Bank of India has filed the above appeal under section 26(1) of the PMLA, 2002 read with the Prevention of Money Laundering Rules, 2005
against the order dated 29.08.2014 passed by the Adjudicating Authority, New Delhi under the PMLA, 2002 in O.C. No. 318/2014.
2. In 2013, Shri Chandan Kumar/Respondent No. 2 applied to the Bank for vehicle loan of Rs. 10.48 Lacs for the purchase of the Skoda Laura car
bearing Registration No. BR 01 BP 5431 (allotted by the seller), Engine No. CLC100619 and Chasis No. TMBBNH1CA152750 (hereinafter referred
to as the said vehicle.
3. The loan sanctioned by the appellant bank on 07.03.2013 was secured with the hypothecation charge over the said vehicle in which it was
mentioned that the appellant Bank has the right to take over the possession of the vehicle in case the respondent did not repay the said loan, which is
evident from the Sale Certificate dated 12.03.2013 issued by M/s Singh Motorcars Pvt. Ltd.
4. Clauses 8 and 12 of the Loan-cum-Hypothecation Agreement executed between the Appellant Bank and the Respondent no. 2 are reproduced
herein below for the sake of clarity:
a. 8. As security for the repayment of Loan/overdraft together with interest at the rates stipulated above and any other charges, costs and
expenses payable to or incurred by the Bank in relation thereto, the borrowers hereby creates a first charge in favour of the Bank by way
of hypothecation of the vehicle together with ail its components, accessories, attachments etc. specified and described in the Schedule
below, purchased/to be purchased by the Borrowers with the Loan/overdraft wherever it shall be kept The borrowers hereby agree that the
vehicle shall be registered In the name of borrower (1st applicant) only.
b. 12. The Bank its agents and nominees shall be entitled at all times to enter any place where the hypothecated vehicle is garaged, and on
the occurrence of either of (I) default in payment of more than one Installments of bouncing of more than one post dated cheques; or (11)
any other event which in the opinion of the Bank will adversely affect the security available to the Bank, they will be authorized to take
possession of/seize the vehicle and eventually sell it off in auction/private treaty for satisfaction of the Bank’s dues.
Thus, the Bank has the rights (being a secured creditor) to sell the property so as to recover its dues against the Respondent No. 2.
5. The respondent no. 2 was unable to repay the said loan and the account soon turned into a Non-Performing Asset. On 11.08.2014, the Appellant
Bank served the notice on Respondent no. 2 recalling the entire amount due of Rs. 10,38,788/-.After serving the recall notice, the Appellant Bank
started the process of locating the said vehicle for taking the same into its custody. It was found that the said vehicle was lying with the Shastri Nagar
Police Station. The Appellant Bank took the possession of vehicle from the police on 14.08.2014.
6. The Appellant Bank got the valuation of the said vehicle which was Rs. 7.50 Lacs as on 21.08.2014. The Appellant Bank issued the sale notice for
selling the said vehicle on 24.08.2014. Before the Appellant Bank could sell the vehicle, the Appellant Bank received the call from Sh. U. K. Gautam,
Asstt. Director, of the office of the ED on 23.08.2014 advising not to sell the said vehicle.
7. On 25.08.2014, the Appellant Bank received the letter dated 22.08.2014 from ED advising for the first time about the attachment of the vehicle
under the PML Act by passing its provisional order attaching the said vehicle. Before the Ld. Adjudicating Authority, it has been admitted by the
respondent no. 1 who acknowledged that the said vehicle was procured by the Respondent No. 2 after obtaining a loan of Rs. 10.48 lacs from the
Appellant Bank even prior to the committing of the Scheduled Offences but despite of that P.A.O was confirmed by the Adjudicating Authority by
passing the impugned order which has been challenged before us.
8. It is alleged on behalf of the Bank that it has the first and paramount charge on the said vehicle and is entitled to recover its dues with the sale of
the said vehicle. The value of the vehicle in the year 2014 was just Rs. 7.50 Lakh, by this time value must have decreased more than 30% as three
years have expired in the present litigation.
9. It is alleged that the hypothecated vehicle is the secured asset of the Appellant Bank as defined u/s 2(zc) of the SARFAESI Act, and the Appellant
Bank has the security interest in the said vehicle as defined u/s 2 (zf) of the said Act. Accordingly, the appellant Bank is well within its rights to
recover its dues with the sale of said vehicle.
10. Earlier, the application was filed by the bank to dispose the vehicle till the appeal is finally decided. Even the order dated 01.03.2017 and
30.05.2017 were passed as interim measure to dispose the vehicle till the appeal is decided. However, there were no consent from either sides. Thus,
the appeal itself was listed for final argument.
11. It is submitted on behalf of respondent that the ED has attached the property by saying that the purchase of the said property involved proceeds of
crime to the tune of Rs. 8,09,945/- out of the total value of the vehicle which is Rs. 18.28 Lacs although it was acknowledged fact that public money is
involved.
12. The value of the vehicle is less than even the principle amount due towards the bank. Mr. Nitesh Rana on the other hand submitted that since the
part amount involved while purchasing the vehicle was proceeds of crime, therefore the vehicle should come into the hand of ED and not the bank.
13. It is agreed by both sides that complaint would take number years which is pending before the Special Court. Counsel for the respondent no. 1 has
admitted before us that the bank is a victim and after trial, the bank is entitled to receive the vehicle or the balance amount due under Section 8(8) of
PML Act, 2002.
14. It is not denied by either side that even today if the vehicle is sold in the market by the Bank or ED, the bank may not be able to recover principle
amount due. We agree with the counsel for the appellant that if the vehicle is not sold, after trial, and it would be merely a junk and its value would be
almost nil. Counsel says that the bank may not be able to recover even half of the principle amount if the vehicle is sold by the ED today.
15. The title of the Appellant Bank over the said vehicle is also not questioned by either the ED or the Ld. Adjudicating Authority. The Right of
Hypothecation which the Appellant Bank has exercised over the vehicle is also valid in the eyes of law. It shows that Appellant Bank is the rightful
owner of the said vehicle and has got all the rights to recover its dues by selling the vehicle in open auction. But this right is taken away from the
Appellant Bank by the ED vide its letter dated 10.10.2014 and also by the Ld. Adjudicating Authority vide the impugned order.
16. As per “The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016†which
came into effect on 01.09.2016.
“a. a new Section 31B in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 under the heading of “Priority of
Secured Creditors†states that Notwithstanding anything contained in any other law from 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, State Government or local authority.;
b. In section 2 of the Recovery of Debts Sue to Banks and Financial Institutions Act, 1993 after the words “the date of the applicationâ€,
“and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the
borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debts
securities or;†is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid.â€
This amendment prima facie gives the secured creditor, i.e. the Appellant/State Bank of India, a priority over the rights of Central or State
Government or any other Local Authority. The amendment has been introduced to facilitate the rights of the secured creditors which are being
hampered by way of attachments of properties, belonging to the financial institutions/secured creditors, done by/in favour of the government
institutions.
17. The Full Bench of the Madras High Court while acknowledging the amount of losses suffered by the Banks and while approving the latest
amended Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 held in the case “The Assistant Commissioner
CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas bank and Ors.†That
“There is, thus no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assets 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. This section introduced in the Central Act is with “notwithstanding†clause
and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the
rights of the parties in respect of even a lis pending.â€
18. In a case contested by one of the branches of the Appellant Bank, the High Court of Madras “State Bank of India Vs. The Assistant
Commissioner, Commercial Tax, Puraswalkam Assistant Circle and Ors.†, while upholding the Amendment Act, 2016 inserting Section 31B of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Section 26E of the SARFAESI Act and reaffirming the view of the Full
Bench of the same court in the Assistant Commissioner (CT), Anna Salai-III Assessment Circle (Supra) lifted the attachment entry and held that
“In other words, not only should the amendment apply to pending lis, but the declaration that the right of a secured creditor to realize
the secured debts, would have priority over all debts, which would include, Government dues including revenues, taxes, etc., should hold
good qua 2002 Act as well.â€
19. The Ld. Adjudicating Authority failed to understand that Appellant Bank has stake in the said vehicle as it has lent its valuable money to the
Respondent. The said vehicle is hypothecated to the Appellant Bank. If tomorrow, the Respondent fails to repay the loan, the Bank has a right to bring
the properties/said vehicle to sale and recover its dues. This valuable right will be lost for the Appellant, by order of attachment and eventual
confiscation.
20. Mr. Rana does not dispute that the bank is a victim and under Section8(8) the bank is either entitled to receive the amount due or take the
possession of vehicle. But at the same time, ED is ready to share any amount with the bank at this stage after selling vehicle as the Rules. The
argument of the respondent is simple that the vehicle must come to the ED.
21. As a matter of fact, the Respondent no. 2 may not be interested in repaying the loan, since they are not going to enjoy the property. Therefore,
ultimately, the action of the ED/Respondent No. 1 would make the Appellant, a much greater victim than even the accused/Respondent.
22. In another Madras High Court Judgment in the case of “Dr. V. M. Ganesan Vs. the Joint Director, Directorate of Enforcement†has
explained the grievances faced by the financial institutions while holding that
“For instance, if LIC Housing Finance Ltd., which has advanced money to the petitioner in the first writ petition and which consequently
has a right over the property, is able to satisfy the Adjudicating Authority that the money advanced by them for the purchase of the property
cannot be taken to be the proceeds of crime, then, the Adjudicating Authority is obliged to record a finding to that effect and to allow the
provisional order of attachment to lapse. Otherwise a, financial institution will be seriously prejudiced. I do not think that the Directorate of
Enforcement or the Adjudicating Authority would expect every financial institution to check up whether the contribution made by the
borrowers towards their share of the sale consideration was lawfully earned or represent the proceeds of crime . Today, if the Adjudicating
Authority confirms the provisional order of attachment and the property vests with the Central Government, LIC Housing Finance Ltd. will
also have to undergo dialysis, due to the illegal kidney trade that the petitioner in the writ petition is alleged to have indulged in. This
cannot be purport of the Act.â€
In the present case, even though the Ld. Adjudicating Authority had all the reasons to believe that the said vehicle was hypothecated to the Appellant
Bank and that the Appellant/SBI had prior charge over the subject matter/said vehicle; still the Ld. Adjudicating Authority confirmed the provisional
attachment order of the Respondent no. 1 and thus caused huge loss to the Appellant/SBI.
23. It may be stated here that the legal issue of overriding effect of the two Acts i.e. SARFAESI Act, 2002 and the PMLA Act, 2002 has since been
decided by this Tribunal. In the aforesaid common judgment, dated 14.07.2017 (supra) passed in this tribunal in the case of State Bank of India Vs.
Joint Director, Directorate of Enforcement in appeal no. FPA-PMLA-1026/KOL/2015 wherein the similar issue was involved. This Tribunal has held
that SARFAESI Act, 2002 has over-riding effect over the PMLA Act, 2002 after discussing the said legal issues in details on the basis of the latest
amendment of SARFAESI Act, 2002 in which section 31 (B) has been inserted in the year 2016 and judgment of Honâ€ble Supreme Court and the
latest judgment of full bench of Madras High Court. We have also discussed several other judgments in the said common judgment dated 14.7.2017.
The relevant paras of our said judgment dated 14.7.2017 are reproduced below:-
40. B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(D Bw)ho has dealt with the aspect of bonafide
acquisition of property in para 103. The same read as under:-
“103. Since proceeds of crime is defined to include the value of any property derived or obtained directly or indirectly as a result of
criminal activity relating to a scheduled offence, where a person satisfies the adjudicating authority by relevant material and evidence
having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must
carefully consider the material and evidence on record (including the Reply furnished by a noticee in response to a notice issue under
Section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to justify the bona fides in the
acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional
attachment by declining to pass an order of confirmation of the provisional attachment; either in respect of the whole or such part of the
property provisionally attached in respect whereof bona fide acquisition by a person is established, at the stage of the section 8(2)
process…â€
41. The Supreme Court in (2010)8 Supreme Court Cases 110 (Before G.S. Singhvi and A.K. Ganguly, JJ) in the case of United Bank of
India V/s. Satyawati Tondon and Ors. In paras no. 6, 55 & 56 has held as under:-
6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of dues of banks
and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of the civil
courts for frustrating the proceedings initiated by the banks and other financial institutions.
55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability
of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have
serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High
Courts will exercise their discretion in such matters with greater caution, care and circumspection.
56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the appellant from taking
action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set
aside. Since the respondent has not appeared to contest the appeal, the costs are made easy.â€
In the subsequent changes in law and amendment in the another Special Act i.e. SARFAESI Act, 2002 the decisions referred by Mr. Matta in
the case of Solidaire (Supra) and Bhoruka Steel (Supra) does not help the case of the respondent no. 1 because the effect of overrding the
PMLA looses its validity once the amendment is made which even has been interpreted subsequently by the Full-Bench of the Chennai High
Court in the case of Assistant Commissioner CT (Supra) and other decision in the nature of the facts in the present matter.
42. It is also a matter of fact that after passing the impugned order the borrowers have also settled the loan amount with the complainant
â€" i.e. Union of India in order to pay the remaining out-standing amount. The undertaking in this regard is recorded in Court. It is written
agreement and the statement of the parties were recorded. Counsel for the borrowers has also informed us that his client also intent to pay
the remaining out-standing amount to the State Bank of India in order to clear their liabilities once the attached properties are sold and
even otherwise.
Copy of the settlement of the borrowers and the complainant Bank of India was filed before us. As far as the schedule offence is concerned,
we do not wish to make any comment. But we can only observe that in case of settlement, joint petition for quashing of FIR in the High
Court u/s 482 Cr. P.C. could be filed.
43. It is not denied on behalf of department that these provisional attachment was made, the proceedings of recovery of amount were
pending before the DRT for recovery against the borrowers and for sum of the properties, possession were with the bank. The mortgaged
deeds are also not disputed or/and validity of the same are not challenged on behalf of ED.
44. It is settled law that generally when the civil dispute between the parties are settled before the court particularly pertaining to the
recovery of out-standing amount, on joint petition, the High Court while exercising its discretion may quash the criminal petition u/s 482 Cr.
P.C. at the joint request of the parties.
45. Three judge bench in narendra lal jain & ors., (supra) held that during the investigation pertaining to the culpability of the accused in
the crime, the concerned bank had instituted suits for recovery of the amount claimed to be due from the respondents and the said suits were
disposed of in terms of the consent decrees. On the basis of the said consent decrees an application for discharge was filed which was
rejected by the trial court but eventually was allowed by the high court. The charges in the matter were framed under section 120-b/420 IPC
by the learned trial judge against the private parties. As far as bank officials are concerned, charges were framed under different
provisions of the prevention of corruption of act, 1988. Being dissatisfied with the said order,, the CBI had preferred an appeal by
obtaining special leave and in that context the court observed that the accused respondent had been charged under section 120-b/420 ipc
and the civil liability of the respondent to pay the amount had already been settled and further there was no grievance on the part of the
bank. Taking note of the fact that offence under section 420 of IPC is compoundable and section 120-b is not compoundable, the court
eventually opined thus:-
“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 purposes 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.
“8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section
17 or under subsection (10) of section 18, if the Adjudicating 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 under sub-
section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information
and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-
laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being
held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that
where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.
(2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under subsection (1); (b) hearing the
aggrieved person and the Director or any other officer authorised by him in this behalf, and (c)taking into account all relevant materials
placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-
section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than a person to whom the notice
had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-
laundering, section 58 B or sub-section (2 A) of section 60 by the Adjudicating Authority (4) Where the provisional order of attach
56. There are judicial pronouncements whereby it has been laid down that the innocent parties can approach the Adjudicating Authority for
release of property by showing their bonafides in their dealings with the property. In the case of Sushil Kumar Katiyar (Appellants) Vs UOI
and Ors. (Respondents) MANU/UP/0777/2016 decided on 10.05.2016 by Allahabad High Court, it has been observed by the Ld. Single
Judge after noticing the judgment of Karnataka High Court that the element of knowingly or mens rea have been provided under the Act so
that the aspect of implicating any innocent person can be ruled out. Relevant para 26 of judgment is reproduced below:-
“26. Thus, upon consideration of the law laid down by the Hon'ble Karnataka High Court, it is clear that the amendment incorporated in
the Money Laundering Act was not held unconstitutional and ultra virus, but it was observed by the Karnataka High Court that the property
of a person can be attached without there being any prosecution for the offence of Money Laundering, but so far as the prosecution of a
person for the offence of money laundering is concerned, the proceedings under section 3 of the PML Act can be initiated only in case the
person is held guilty of receiving proceeds of crime as a result of commission of scheduled offence. The Karnataka High Court has also held
that the complainant in such a case is not required to wait for the result of trial being held for the scheduled offence. A complaint can still be
filed against such person, but if ultimately the person is acquitted of the charge for the scheduled offence, his prosecution under section 3 of
the Act for the offence of Money-Laundering would also come to an end. It has also been kept open by the Karnataka High Court that a
person against whom complaint under section 3 of the PML Act has been filed and he is being prosecuted for the offence of money-
laundering, he can show before the court that he is innocent and has not received any proceeds of crime.â€
It is clear that innocent person can approach the Adjudicating Authority of any competent court to demonstrate his innocence that he has
not received any proceeds of crime. The consequence of this is that while considering whether all or any of the properties provided under
notice issued u/S 8(1) are involved in money laundering, the Adjudicating Authority can take into consideration the plea of innocence
raised by any person and also the fact as to whether the property which has been attached has any nexus whatsoever with that of money
laundering or not if the person before the Tribunal/ Adjudicating Authority is able to demonstrate that he neither directly nor indirectly has
attempted to indulge nor with knowledge or ever assisted any process or activity in connection with proceeds or crime and the question of
his involvement does not arise as he is third party, then the Tribunal/ Adjudicating Authority can consider the said plea depending upon
whether there exist bona fide in the said plea or not and proceed to adjudicate the plea of innocence of the said party.
57. This is due to the reason that Section 8 allows the Adjudicating Authority to only retain the properties which are involved in money
laundering which means as to whether properties attached are involved in money laundering or not is a pre-condition prior to confirming
or attachment by Adjudicating Authority. Therefore, at that time, if the plea is raised that the party whose property is attached is innocent or
is without knowledge of any such transaction with respect to money laundering, then the Tribunal can consider the said plea and proceed to
release the said property out of the properties by holding that the said property is not involved in money laundering.
58. For the purposes of determining whether the property is involved in money laundering, the Court may consider the ingredients of
Section 3 which define offence of money laundering. The aspect of knowledge or involvement has been discussed by Ld. Single Judge of
Gujarat High Court in the case of Jafar Mohammed Hasanfatta and Ors (Appellants) Vs Deputy Director and Ors. (Respondents)
MANU/GJ/0219/2017 wherein Ld Single Judge has observed as under:-
“37. A holistic reading of this definition of 'proceeds of crime' and the penal provision under Section 3 of PMLA, which uses conjunctive
'and', makes it luminous that any persons concerned in any process or activity connected with such ""proceeds of crime"" relating to a
scheduled offence"" including its concealment, possession, acquisition or use can be guilty of money laundering, only if both of the two
prerequisites are satisfied i.e.-
“(i) Firstly, if he-
(a) directly or indirectly 'attempts' to indulge,
(b) “knowingly†either assists or is a party, or
(c) is “actually involved†in such activity; and
(ii) Secondly, if he also projects or claims it as untainted property;
38. The first of the two pre-requisite to attract Section 3 of PMLA shall thus satisfy any of the following necessary ingredients-
“A. RE: DIRECT OR INDIRECT ATTEMPT:
In State of Maharashtra v. Mohd.Yakub, MANU/SC/0239/1980 : (1980) 3 SCC 57, the Hon'ble Supreme Court observed that-
“13. Well then, what is an “attempt� ...In sum, a person commits the offence of ""attempt to commit a particular offence"" when (i)
he intends to commit that particular offence and (ii) he, having made preparations and with the intention to commit the offence, does an act
towards its commission; such an act need not be the penultimate act towards the commission of that offence but must be an act during the
course of committing that offence.
Thus, an “attempt to indulge†would necessarily require not only a positive ""intention"" to commit the offence, but also preparation for
the same coupled with doing of an act towards commission of such offence with such intention to commit the offence.
Respondent failed to produce any material or circumstantial evidence whatsoever, oral or documentary, to show any such 'intention' and
'attempt' on the part of any of the petitioners.
B. RE: KNOWINGLY ASSISTS OR KNOWINGLY IS A PARTY:
In Joti Parshad v. State of Haryana, MANU/SC/0161/1993 : 1993 Supp (2) SCC 497 the Hon'ble Supreme Court has held as follows-
“5. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of ""intention"" or ""knowledge
or ""reason to believe"". We are now concerned with the expressions “knowledge†and ""reason to believe"". “Knowledge†is an
awareness on the part of the person concerned indicating his state of mind. “Reason to believe†is another facet of the state of mind.
Reason to believe"" is not the same thing as “suspicion†or “doubt†and mere seeing also cannot be equated to believing.
“Reason to believe†is a higher level of state of mind. Likewise “knowledge†will be slightly on a higher plane than “reason to
believeâ€. A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have a reason to
believe if he has sufficient cause to believe the same.â€
The same test therefore applies in the instant case where there is absolutely no material or circumstantial evidence whatsoever, oral or
documentary, to show that any of the petitioners, 'Knowingly', assisted or was a party to, any offence.
C. Actually involved:
Actually involved would mean actually involved into any process or activity connected with the proceeds of crime and thus scheduled
offence, including its concealment, possession, acquisition or use. There is absolutely no material or circumstantial evidence whatsoever,
oral or documentary, to substantiate any such allegation qua the petitioners,
D. Neither any of the petitioners is arraigned as accused in the 'Scheduled Offences' punishable under Indian Penal Code for direct or
indirect involvement, abetment, conspiracy or common intention, nor is any such case made out even on prima facie basis against any of
them.
39. The second of the two pre-requisite to attract Section 3 of PMLA would be satisfied only if the person also projects or claims proceeds of
crime as untainted property. For making such claim or to project 'proceeds of crime' as untainted, the knowledge of tainted nature i.e. the
property being 'proceeds of crime' derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence,
would be utmost necessary, which however is lacking in the instant case.
59. These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property
is involved in money laundering or not. If there is no direct / indirect involvement of any person or property with the proceeds of the crime
nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said
transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same
principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that
if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes
the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property
with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it
cannot be the Scheme of the Act whereby bona fide person without having any direct/ indirect involvement in the proceeds of the crime or its
dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere
suspicion when the element of mens rea or knowledge is missing.
60. Similar principle has been laid down by Chennai High Court in the case of C. Chellamuthu (Appellants) Vs The Deputy Director,
Prevention of Money Laundering Act, Directorate of Enforcement (Respondent) MANU/TN/4087/2015 decided on 14.10.2015, relevant
portion of which are reproduced below:-
“ 20. The said sections read as follows:--
“23. Presumption in inter-connected transactions Where money-laundering involves two or more inter-connected transactions and one or
more such transactions is or are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation (under
section 8 or for the trial of the money-laundering offence, it shall unless otherwise proved to the satisfaction of the Adjudicating Authority or
the Special Court), be presumed that the remaining transactions form part of such inter-connected transaction.
24. Burden of proof
In any proceeding relating to proceeds of crime under this Act,
(a) in the case of a person charged with the offence of money-laundering under Section 3, the Authority or Court shall, unless the contrary is
proved, presume that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.
21. In the present case, one G. Srinivasan is accused of having played fraud and obtained a loan of Rs. 15,00,00,000/- by producing bogus
and fabricated documents. From and out of the said amount, the property in question was purchased by him in the names of his Benamies.
One Ayyappan was appointed as their Power Agent. One Gunaseelan purchased the property through the Power Agent Ayyappan. The said
Gunaseelan was examined and his statement was recorded Under Section 50 of the Act. He had stated that he purchased the property for
cultivation. He developed the property but geologist gave opinion that property will not yield proper income. In the circumstances, he sold
the property to appellants. The respondent has not produced any document or material to disprove the statement of Gunaseelan. There is
nothing on record to show that the transaction in favour of the said Gunaseelan, is not genuine. It is not the case of respondent that the said
Gunaseelan is a Benami or employee of G. Srinivasan and that Gunaseelan did not pay any amount as sale consideration or the sale
consideration paid by Gunaseelan was not legitimate money. There is no material to show nexus and link of Gunaseelan with G. Srinivasan
and his Benamies. In the absence of any verification or investigation by respondent with regard to genuineness or otherwise of the purchase
by Gunaseelan; whether he was connected with G. Srinivasan or the sale consideration is legitimate or not the property in the hands of
Gunaseelan cannot be termed as proceeds of crime.
22. Further, the appellants have given statements under Section 50 of the Act. They have categorically stated that they possess agricultural
lands, cultivate GloriosaSuperba seeds and sell the same and derive considerable income. They have named the persons to whom they have
sold the GloriosaSuperba seeds and produced Bank statements. Some of the Appellants have stated that they sold their lands and borrowed
monies to purchase the property in question. There is nothing on record to show that the respondent had verified these statements.
Especially, the respondent has not verified the Bank statement produced by the Appellants to ascertain the genuineness of the same and
whether the money deposited came from genuine purchasers or from the persons involved in fraud and Money Laundering. The respondent
does not allege that Appellants are Benamies of G. Srinivasan or no sale consideration passed to the vendor.
23. Considering the materials on record and judgments reported in MANU/MH/1011/2010: 2010 (5)Bom CR 625 [supra] and : [2011] 164
Comp Cas 146(AP) [supra], I hold that appellants have rebutted the presumption that the property in question is proceeds of crime. The
respondent failed to prove any nexus or link of Appellants with G. Srinivasanand his benamies. Once a person proves that his purchase is
genuine and the property in his hand is untainted property, the only course open to the respondent is to attach sale proceeds in the hands of
vendor of the appellants and not the property in the hands of genuine legitimate bona fide purchaser without knowledge.
24. Before the Adjudicating Authority it was admitted by complainant that appellants had no knowledge that properties in the hands of their
vendor was proceeds of crime. It was also not disputed by complainant that the appellants did not have financial capacity to buy properties.
Paragraphs 21, 22, 23 and 24 of order of Adjudicating Authority is extracted herein for better appreciation.
“21. The CBIBS & FC (BLR) has filed a charge sheet in the court of Spl. Judge for CBI cases Coimbatore, against Sh. Arivarasu, Sh. R.
Manoharan, Sh. R. Selvakumar, Sh. G. Srinivasan, Sh. K. Martha Muthu, Sh. V. InduNesan, Sh. K. Vignesh, Sh. A. Sainthil Kumar, Sh. M.
Ram Krishnan, for the offences punishable under Section 120-B read with 420, 467, 471 IPC and section 13(2) read with 13(1)(d) of PC
Act 1988. The offences punishable under section 120-B, 420, 471 are schedule offence under Section 2(1)(y) of the PMLA and therefore on
of the condition for issuing provisional attachment order is satisfied. The other important point to be determined is whether the properties
attached vide Provisional attachment order are involved in money-laundering. The only defense or explanation raised by Defendants,
particularly Def No. 2 to 8 is that the landed properties attached by the complainant are not proceeds of crime. These properties were
purchased by these defendants without having any knowledge, whatsoever, that these properties were derived or obtained through criminal
activities relating to schedule offence. It has been demonstrated by them that they verified the title deeds relating to the properties and after
due verification of every details entered into the sale transactions as such these are bona fide deals entered by them against proper sale
consideration and the money paid to the seller is also well explained.
22. Against the above arguments vehemently raised by the defendants, the complainant without disputing that the deals are bona fide
heavily relied on the judgment of the Bombay High Court, dated 05.08.2010 in Mr. Radha Mohan Lakhotia Vs. Deputy Director, PMLA,
Directorate of Enforcement, Mumbai in first appeal No. 527/2010. In this case it held by the Bombay High Court that the property bought
without the knowledge that the same is tainted could be subjected to Provisional Attachment Order.
23. In the instant case the only point to be decided is whether the properties bought by any person against clean money and without any
knowledge that properties have been acquired directly or indirectly through scheduled offence could be subject matter of provisional
attachment order.
24. It is an admitted position that the Defendants (D-2 to D-8) had no knowledge that the properties in the hands of the vendor was proceeds
of crime. They have also verified the papers relating to these properties before the deal. No point has been raised with regard to the
financial capability of these Defendants to buy these properties. However, the Bombay High Court decision in Radha Mohan Lakhotia has
been pressed into service to make out a plea that the properties could be attached in such circumstances under the PMLA.
Provisional attachment was sought to be continued only based on the judgment of Bombay High Court in Radha Mohan Lakhotia's case.
25. A reading of paragraphs 21 to 24 clearly reveals that both the Adjudicating Authority as well as Appellate Authority failed to properly
appreciate the facts and findings in Radha Mohan lakhotia's case. In that case, the Department had placed substantial and acceptable facts
to prove that the property in the hands of third party was proceeds of crime. It is pertinent to note that in Mr. Radha Mohan Lokatia's case,
Department had proved the nexus and link between the person possessing the property and person accused of having committed an offence.
All the persons involved in that case were close relatives.
26. In the present case, the respondent failed to prove that the appellants did not have sufficient financial capacity to buy the property or
that the money paid by them as sale consideration was not legitimate money derived by agricultural activities.
No material was produced to show that the appellants are close relatives of person, who involved in criminal activities and the person, who
sent monies to purchase the property did not possess financial capacity to provide such huge amounts and that they are not genuine
purchasers of agricultural products of appellants. The respondent has not made any such investigation and has not produced any such
material. Further, the Appellate Authority in fact considered the additional documents produced before it, but rejected the same on the
ground that Appellants have not given any valid reasons for not filing the same before the Adjudicating Authority. Having considered the
Additional documents, the appellate authority failed to give any finding on merits after verifying with the concerned Bank.â€
52. The appellant bank is the rightful claimants of the said properties which are already in the possession of the appellant bank under the
SARFAESI Act. The Hon’ble Supreme Court of India in the case of Attorney General of India and Ors. (AIR 1994 SC 2179) while
dealing with the matter under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally
acquired properties and held that such properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the
state, hence these properties must justly go back where they belong, the state. In the present case as the money belongs to the Appellant
bank it is public money. The appellant bank has the right to property under the Constitution of India. The property of the appellant bank
cannot be attached or confiscated if there is no illegality in the title of the appellant and there is no charge of money laundering against the
appellant. The mortgage of property is the transfer under the transfer of property act.
53. The objective of Prevention of Money Laundering Act, 2005 has a greater relation to crimes connected with reference to Illicit Traffic in
Narcotic Drugs and Psychotropic Substances, drug crimes and other connected activities. None of the provisions are applicable in the facts
of the present case. As far as the borrowers are concerned, we are not expressing any opinion with regard to matters pending before the
Special Court in relation to schedule offences and the complaint under this Act. These matters are to be considered as per law.
56. That the definition of “proceeds of crime†as per Section 2(u) of the PML Act comprises of the property which is derived or
obtained as a result of criminal activity. In the present case, all the properties have been purchased by the Respondents and have been
mortgaged with the Appellant Bank much prior to the date of alleged offence which shows that no proceeds of crime are involved in the
obtention of these properties and hence the same cannot be attached by the ED because the same would result in hampering the interest of
the Appellant Bank.
58. Thus, in the present case, even though the Ld. Adjudicating Authority had all the reasons to believe that the abovementioned were
mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter/five 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.
59. The Adjudicating Authority did not understand that the alleged illegal money received by the Respondents from the Union Bank of India
cannot overshadow the huge amount of credit facilities which were taken by the Respondents from the appellant bank in lieu of the
properties kept as security with the Appellant Bank. Thus, making the Appellant Bank the rightful owner of the said properties which are
already in the possession of the Appellant Bank under the SARFAESI Act. The origin of the funds is not illegal or unlawful in any manner.
The funds were only deposited in the accounts with the Appellant Bank against the drawings already availed or availed subsequently.
The meaning of money laundering as mentioned in the objects of the Act will have to be read as part of the statute because as per Supreme
Court of India in Vishaka and others Vs. State of Rajasthan reported in AIR1997SC3011 lays down at para 40 that the International
Conventions and Norms are to be read into them in the absence of enacted Domestic Law occupying the field when there is no inconsistency
between them.
61. The Ld. Adjudicating Authority has failed to considered that the ED has attached all the properties without examining the case of the
banks. The evidence on record suggested that all the properties were acquired by the accused much-much before the alleged date of crime.
No money disbursed by the Union Bank of India from its Loan Account, has been invested in acquiring his property. Furthermore, the
Appellants Banks had mortgaged charge over the property prior to the date of the crime. The Bank has already filed the Suit for recovery
and has also had taken the action under SARFAESI Act. The Ld. Adjudicating Authority failed to appreciate that depriving the Appellant
Bank from its funds/property, without any allegations or involvement of the Bank in the alleged fraud would be unjustified.
62. The properties attached cannot be attached under Section 5 of the PML Act because the properties are not purchased from the alleged
proceeds of crime. As per the provisions of Section 5(1) (c) the primary requirement for the attachment is that the proceeds of crime are
likely to be concealed, transferred or dealt with in any manner. In this case it is clear by the order of the Adjudicating Authority that the
funds were transferred for the satisfaction of the bigger credit facilities taken by the respondents from the appellant bank which they could
not pay due to the losses suffered by the companies.
The said properties are already in the possession of the appellant bank under the SARFAESI Act. The Hon’ble Supreme Court of India
in the case of Attorney-General of India and others reported in AIR 1994 SC 2179 while dealing with the matter under Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act has defined the illegally acquired properties and has held that the illegally
acquired properties are earned and acquired in ways illegal and corrupt, at the cost of the people and the state, the state is deprived of
legitimate revenue to that extent hence these properties must justly go back where they belong, the state. In the present case as the money
belongs to the Appellant Bank it is liable to be recovered by the Appellants Banks.
63. The property of the Appellant Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the
Appellant and there is no charge of money laundering against the Appellant. The mortgage of property is the transfer under the transfer of
property act as there is no dispute as regards the origin of funds or the title of the properties. As far as the bank is concerned, the bank had
to recover its outstanding dues by taking over the possession of the mortgaged properties in case the Respondents are not able to pay back
the credit facilities availed by the Respondents and by way of the SARFAESI provisions these properties are being taken in possession by
the appellant bank so that recovery can be made from the accounts which have become NPA.
64. The respondent has no lien over the said properties as the Appellants banks are now the Legal transferee of said properties. Even in the
criminal jurisprudence the stolen property when it is in the hands of unauthorized person that person cannot claim title to the property. The
said recipient cannot retain the property over which he has no legal title and the property should be returned to the lawful owners because
the both banks are victims and even after trial, they are to receive-back the said properties being victim party in normal types of cases u/s
8(8) of the Act. However in the present cases, the banks are innocent parties. They are not involved in any criminal proceedings. If they are
asked to await till the trial is over, the systems in these types of cases, the economy would collapse. In the case, of Union Bank of India, no
sanction against the employee was granted who is also not involved in any criminal proceedings.
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 bank
who are mortgagee 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 to the secured creditors to recover
the loan amount/debts by sale of assets over which security interest is created, which remains unpaid. The Ld. Adjudicating Authority has
not appreciated the facts and law involved in these matters and the primary objective of section 8 of PMLA is that the Adjudicating
Authority to take a prima facie view on available material and facts produced. All the contentions raised by Mr. Matta has no substance.
The provisional attachment in the present matter is bad and against the law.
In the circumstances available in the present case, the allegation of money laundering prima facie found to be unsustainable for the
purpose of attachment under the PMLA, 2002.
66. In view of aforesaid facts and circumstances in the present case and for reasons referred above, we set aside the Impugned Order dated
02.07.2015 and the provisional attachment order dated 04.02.2015. All the eight properties are released from attachment forthwith.â€
24. Admittedly, neither the bank is the accused in any criminal proceedings nor there is any allegations against them that they are involved in the
commission of alleged crime or generating “proceeds of crimeâ€. The amount of loan sanctioned are public money and they are entitled to get back
their money by selling the mortgaged property as a first charge.
25. The provisions of the amended SARFAESI Act prevail over the provision of the PML Act because the Amended SARFAESI Act is the
subsequent legislation to the PML Act as held by the Honâ€ble Supreme Court in the case ofS olidaire India Ltd. Vs. Fairgrowth Financial Services
Ltd. & Ors. (2001) 3 SCC.
26. Thus, the ED has no authority over the said vehicle as the Appellant is now the legal transferee of said vehicle. Even in the criminal jurisprudence,
if the stolen property is in the hands of unauthorized person then that person cannot claim title to the property. The said recipient cannot retain the
property over which he has no legal title and the property should be returned to the lawful owners.
27. In view of above observations, the impugned order dated 29.08.2014 is set aside. The provisional attachment order dated 31.03.2014 also set
aside.
The bank is permitted to sell the said vehicle to recover part of its outstanding against dues of Rs. 12.45 Lacs. As far as the remaining balance amount
is concerned the bank is entitled to recover the remaining amount by taking the appropriate action as per law.
28. The appeal and pending applications are disposed of accordingly.
No costs.
