FPA-PMLA-2798/MUM/2019
1. By this order, this tribunal proposes to decide the appeal filed by the above bank who was challenged the order dated 16.08.2018 (“Impugned
Judgementâ€) passed by the Adjudicating Authority in O.C. No. 912/2018 (“Complaintâ€) titled “Enforcement Directorate V/s Mehul Choksi &
Ors.†vide which the Adjudicating Authority has confirmed the Provisional Attachment Order No. 03/2018 (""PAO"") dated 28.02.2018, against inter
alia the Appellant, forming part of the consortium of lenders of Nakshatra Brands Ltd. (hereafter referred to as “NBLâ€), in relation to Property
No. 9 being “Flat No. 103, Kheni Tower, CTS No. 4919 to 4944, Santacruz East, Mumbai†(hereinafter referred to as “the Propertyâ€).
2. The Appellant, is one of the banks in the Consortium of NBL (""NBL Consortium Lenders"") which had advanced credit facilities to NBL
(Defendant No. 4 in the Complaint). Punjab National Bank (“PNBâ€) is the lead bank of the NBL Consortium Lenders. Vide Inter Se Agreements
dated 11.01.2013 and 29.03.2014 and Letter of Authority dated 29.03.2014, the Consortium Lenders designated and recognized PNB as the lead bank
of the Consortium, for all acts expedient in the circumstances and in the general interest of the Consortium.
3. The attachment of the said property which was confirmed by the Impugned Judgment despite the same was already stand mortgaged in favour of
the Appellant.
4. The allegations against the main accused are mentioned in para no. 2 to 4 of the impugned order. The details of the PMLA investigations are
mentioned in para no. 5 of the impugned order. The details of the reasons to belief are mentioned in para no. 6 of the impugned order.
5. It is admitted by the Respondent that the Appellant is in no manner connected with any of the other persons arraigned as Defendants in the
Complaint. Further, there is no charge of money laundering against the Appellant nor has the Appellant been made an accused in the Prosecution
Complaint filed in the Special Court.
6. It is alleged on behalf of appellant that the Appellant and the other Consortium Lenders have entered into legitimate banking transactions by
providing Working Capital (“WCâ€) facility to NBL, details of which are specified in Paragraph No. 4 of the Appeal.
7. The said credit facilities were extended to the borrowers as far back as 2005, when the first WC Consortium Agreement was executed amongst
NBL and the NBL Consortium Lenders.
8. The Agreement was subsequently modified contemporaneously in order to provide enhanced credit facilities for which the requisite
Mortgage/Hypothecation/Guarantee Agreement was got executed in favour of the Consortium Lenders and the earliest security deed executed in
favour of the Appellant and the other Consortium Lenders, in order to secure the credit facilities and the extended limits thereon, was in 2005 itself.
9. The Property in question which is subject matter of present Appeal was mortgaged in favour of the NBL Consortium Lenders vide Memorandum
of Entry dated 11.01.2013 and 1st Pari Passu Charge on the same was created vide Deed of Mortgage dated 29.03.2014. (Annexure A6(Colly) has
been filed to establish the same.
10. It is the case of the Appellant that for the purpose of grant of such credit and enhanced facilities thereon, the Consortium Lenders carried out all
the Due Diligence and Credit Assessment as is required. The credit facilities were enhanced from time to time for amounts as are mentioned in the
respective revised Supplemental Working Capital Agreement, which is filed along with the Appeal.
11. Admittedly, the period of the commission of the predicate offence as stated in the FIR and the ECIR, which is noted in the Impugned Judgment, is
between the years 2015-2017.
12. At the time of sanctioning credit facilities and avail enhanced limits thereon, guarantees both personal and corporate, Mortgage Deeds and Deeds
of Hypothecation were executed in favour of the Appellant and the other Consortium Lenders. As per law, the said documents executed are binding
and shall continue to remain in force, till such time as amounts borrowed are repaid by NBL to the NBL Consortium Lenders. Upon failure of NBL to
repay the amounts advanced under the NBL WC Facility, the Appellant initiated all its rightful legal remedies to recover such amounts. The Appellant
in its individual capacity has declared the account of NBL as Non-Performing Asset (NPA) with effect from 31.03.2018. The Appellant in
furtherance of its actions, issued Recall and Statutory Notice U/s 13(2) of the Securitization and Reconstruction of Financial Assets & Enforcement of
Security Interest Act (“SARFAESIâ€) dated 21.02.2018 and 17.05.2018 respectively to NBL and guarantors as mentioned in Paragraph Nos. 4.09
and 4.10 of the Appeal. It is pertinent to state that the Appellant gave a description of the Assets, which included the Properties (subsequently
attached by the Respondent), which had been secured in favour of the Appellant. The said documents also produced (Annexure Nos. A9(Colly) and
Recall Notice & Notice Under SARFAESI).
13. The Appellant and the other Consortium Lenders have filed Original Application before the Debt Recovery Tribunal (“DRTâ€), Mumbai being
OA No. 555/2018 on 30.08.2018 U/s 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDBFIâ€) seeking
recovery of debts advanced under the NBL WC Facility.
14. The Appellant has also filed a Corporate Insolvency Resolution Process (“CIRPâ€) Application against NBL U/s 7 of the Insolvency &
Bankruptcy Code, 2016 (“I&B Codeâ€) before the National Company Law Tribunal, Mumbai (“NCLTâ€) on 24.10.2018 vide Company
Petition No. 4062/2018. NCLT pronounced the Admission Order on the said Application vide Judgment dated 29.01.2019 declared Moratorium against
NBL to come into operation with immediate effect.
15. It is the case of the appellant that an amount of INR. 842,90,27,167.31/- (Rupees eight hundred and forty two crores ninety lacs twenty seven
thousand one hundred and sixty seven and thirty one paise only) is outstanding as on 20.08.2018 together with further interest and other charges, in
favour of the NBL Consortium Lenders, out of which the Appellantâ€s claim is for a sum of INR 129,90,95,957.46/-(Rupees one hundred and twenty
nine crore ninety lacs ninety five thousand nine hundred and fifty seven and forty six paise only), payable to the Appellant and the other Consortium
Lenders under the NBL WC Facility and the property qua which the Appellant is seeking relief stands mortgaged as security with the Appellant and
the Consortium Lenders.
16. It is argued on behalf of the appellant that the present case is squarely covered by the recent judgment of the Honâ€ble Delhi High Court in
Directorate of Enforcement vs. Axis Bank & Ors. reported in 2019 SCC Delhi 7854 dated 2.4.2019 , wherein, it has been observed as under:
“163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in
the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is
suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot
conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the
commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-off. From this, it naturally
follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration,
acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or frustrated
by attachment of such property to such extent by enforcement authority in exercise of its power under Section 8 PMLA.
165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide
third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law
for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect
of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the
preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat
allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its
value, if any, thereafter to be made available for purposes of PMLA.â€
17. The Honâ€ble High Court of Delhi has held that the interest of a third party in the property of an accused, acquired prior to the commission of the
proscribed offence, cannot be defeated or frustrated by attachment of such property U/s 8 of the Act. The Honâ€ble High Court further recognized
the right of such third party to proceed with enforcement of its interest in accordance with law such that while the order of attachment under the Act
would not be rendered irrelevant, yet it would take a backseat such that the State action would be restricted to such part of the value of the property
as exceeds the claim of the third party, if any.
18. From the facts of the present, it is evident that legal issues of the Appellant case are similar to the judgement rendered by Honâ€ble Delhi High
Court as (a) The Appellant is not an accused and is bona fide third party to the transactions complained of by the ED; (b) The Appellant disbursed a
loan in accordance with law to the Respondents Accused and created a mortgage over the Secured Property prior to the commission of the Scheduled
Offence in respect of the Secured Property; and (c) The Appellant commenced the proceedings under SARFAESI Act against the Secured Property
prior to its provisional attachment. (d) The said property was not acquired from the proceed of crime.
19. The main findings of the Honâ€ble High Court of Delhi are as follows:-
i) Date of Commission of offence of Money Laundering under PMLA is the “cut off†date and if the Bank has mortgage / charge over the
properties prior to the commission of offence under PMLA then it is a Bonafide Claimant and its Statutory rights canâ€t be defeated under Section 8
of PMLA ,2002.
ii) Priority of Bonafide Claimants / Secured Creditors will have their dues realized first from the sale of such attached immovable assets and if any
balance is left out then the balance amount shall go to the ED on the premise the said properties will continue to remain attached with the ED under
PMLA on the ground of value thereof .
iii) Prior mortgage charge of secured creditors must be registered qua the mortgaged immovable properties only then Bankâ€s statutory rights under
Section 13 of the SARFAESI, Act are protected and protected.
iv) SARFAESI, Action initiated prior to the commission of offence of Money Laundering under PMLA would remain valid and interest of secured
creditors will remain protected .
20. In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by
the Adjudicating Authority may challenge such confirmation in an appeal to this Tribunal U/s 26 of the Act and then before the Honâ€ble High Court
U/s 42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted
its remedies in appeal right up to the Honâ€ble High Court, an order confirming the attachment cannot be said to have attained finality. This Tribunal is
only concerned with the validity of the impugned order and provisional attachment order which has been confirmed.
21. Therefore, this Tribunal possesses the requisite jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the
Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. Upon an argument
being raised by the Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending,
the Honâ€ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be
inquired into by the Special Court only if the order confirming the attachment “has attained finalityâ€. An order cannot be said to have attained
finality until and unless all the remedies under the Act have been exhausted. No doubt, the bank and financial institutions are always at liberty to
approach the Special Court (if so desired) in order to invoke the amended provision of sub section 8 of Section 8, however, it is wrong to suggest that
the bank and financial institutions are not entitled to challenged the order of attachment because this tribunal is only exclusively having jurisdiction to
examine the validity of attachment and to decide the same under section 26 of the Act as to whether attachment was valid or not. The bank and
financial institution are entitled to take the remedy before the Special Court after the decision of appeal or during the pendency of appeals.
22. 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€
23. B. RAMA RAJU V. UOI AND ORS. Reported in (2011) 164 company case 149(AP)(DB) who has dealt with the aspect of bonafide acquisition
of property in para 103. The same read as under:-
“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€
24. Ingredients of S. 5(1) of the Act are not satisfied:
An order of attachment U/s 5(1) of the Act can only be passed upon satisfaction of the compulsory twin conditions found in sub clauses (a) and (b),
i.e.
Firstly, the Director must have reason to believe, on the basis of the material in possession, that any person is in possession of any proceeds
of crime; and
Secondly, that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating
any proceedings relations to confiscation of such proceeds of crime.
25. The admitted case of the Respondent, is that the alleged proceeds of crime generated are a sum of Rs. 6138.73 crores which the entities of the
Gitanjali Group including GGL and GECL, have siphoned from Punjab National Bank, Brady House Branch, Mumbai and allegedly layered overseas
for making payments to overseas suppliers and for settling existing Buyerâ€s Credit liabilities with the overseas branches of Indian banks. Upon the
conclusion of investigation, the Respondent arrived at the finding that “as the proceeds of crime have been siphoned off out of the country, the
same is not available for attachment in the Country….Thereafter, the said funds were routed and diverted to various overseas companies out of
country with the intention to launder the proceeds of crime….The said three accused entities have acquired the proceeds of crime and layered the
same out of country to hide its criminal origin. The said proceeds of crime is not available in the country for attachment.†Therefore, as per the case
of the Respondent, all the alleged Proceeds of Crime as were generated were syphoned out of the country. Consequently, it is not the case of the
Respondent that the Property attached was purchased from the ill-gotten gains generated. Further, admittedly the Appellant has not been charged by
the Respondent for the offence of money laundering.
The Respondent, whose finding found favour with the Adjudicating Authority, submitted that the proceeds of crime generated were layered out of the
country and were accordingly not available in the country for attachment. Erroneously, the Adjudicating Authority then went ahead to take a
diametrically opposite view, which is noted in the Impugned Judgment at Page No. 136, “The Adjudicating Authority is required to record findings
that all or any of the properties referred in the Notice to Show Cause are/is involved in Money Laundering or not. Money Laundering as can be seen
from the definition of the Offence of Money Laundering given in section 3 of PMLA is any process or activity connected with the proceeds of crime
and its projection as untainted. …There is considerable evidence regarding generation of proceeds of crime by commission of the scheduled offences.
There is sufficient evidence of such proceeds of crime having been utilized by the Defendants.… It is concluded that the properties are all involved in
money laundering.â€
26. Admittedly, since the Accused Persons syphoned the proceeds of crime out of the country, the Property in question cannot be said to have been
involved in the offence of Money laundering and hence cannot be generated as a result of criminal activities. Furthermore, the property was
purchased prior to the commission of the predicate offence and the first charge over such property in favour of the Appellant and the otherConsortium
Lenders was created much prior to the period of the commission of the predicate offence being 2015-2017 as per the Respondent. Therefore, the
properties do not qualify as proceeds of crimes. Consequently, the first ingredient as prescribed under S. 5(1)(a) is not satisfied in the present case.
The 2nd proviso contained in S. 5(1) reads as under:
“PROVIDED FURTHER that, notwithstanding anything contained in first proviso, any property of any person may be attached under this
section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has
reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property
involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any
proceeding under this Act"".
In consonance with the statutory requirement, the Respondent can in the absence of a complaint or a chargesheet immediately attach a property if
“non-attachment of the property is likely to frustrate any proceedings under this Actâ€, which condition is sine-qua-non to the provisional
attachment of properties by the Respondent. The basis of the Department for immediate attachment of the Properties which was subsequently upheld
by the Ld. Adjudicating Authority is recorded on Page Number 66 of the Impugned Judgment, which reads as under:
“..The Deputy Director observed that Shri Mehul Choksi is not co-operating with the investigation at all as he has not attended office of
Enforcement Directorate despite of three summons having been issued to him under the provisions of the PMLA. The Deputy Director
therefore, believed that the likelihood of selling and/or disposing of the said property are extremely high. Therefore, the Deputy Director
has reason to believe that the properties mentioned at Para 24 of PAO i.e the proceeds of crime are likely to be concealed, transferred or
dealt with in such a manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under
Chapter-III of the Prevention of Money Laundering Act.â€
27. It is submitted on behalf of the appellant that the Respondent is taking the onerous duty cast upon it under Section 5 of the Act, lightly and in
flagrant disregard of the statutory safeguards incorporated therein. The non-cooperation of Mr. Mehul Choksi with the investigation as was conducted
by the Respondent cannot give rise to an apprehension that in case the Properties are not attached immediately, proceedings under the Act would be
frustrated. Even otherwise, barring this bald statement, the Respondent has not placed on record any material to corroborate and substantiate the said
allegation. The immediacy, as is a statutory safeguard incorporated in the Act, could have been inferred from an actual attempt to sell or alienate the
Properties by Mr. Mehul Choksi or one of the group companies. However, no such attempt to act/alienate the property was mentioned by the
Respondent in their PAO, Complaint or the Impugned Judgment.
There could not have be any likelihood of concealment, transfer or dealing of the Property by Mr. Mehul Choksi or the group companies since the
same was and continues to remain mortgaged to the Appellant, for which the Deeds executed are binding and continue to remain in force. This
eliminates any possibility of the Property being sold or alienated or dealt with in any manner whatsoever which would frustrate any proceedings under
this Chapter.
28. It is true that Constitutional bench of the Hon'ble Supreme Court in the case ofâ €œBarium Chemicals Ltd. & Ors V/s The Company Law Board
& Ors.†(AIR 1967 SC 295 )held that when a statute postulates the exercise of discretion by an authority contingent to the existence of certain
circumstances envisaged therein, the formation of such opinion by the authority has to be compulsorily based on the actual existence of the stipulated
circumstances as envisaged in the statute. Therefore upon the inability of the Respondent to demonstrate the existence of circumstances, which
satisfy the necessary ingredients of S. 5(1)(b) of the Act and its second proviso, the POA and consequently the Impugned Order are liable to set aside
being bad in law.
29. This Tribunal in the decision of “Satyen Suresh Gathani & Ors. Vs The Deputy Director, Directorate of Enforcementâ€
(MANU/ML/0021/2019) held that;
“Section 5 of the PMLA, 2002 provides that property can be attached only when the attaching officer has ""reasons to believe"" based on
the material on record that a person is in possession of any proceeds of crime or where the proceeds of crime are likely to be transferred or
dealt with in a manner which would frustrate any proceedings relating to confiscation of such proceeds. It is not merely formality nor it
means to repetition of contents/allegations referred in the FIR and charge-sheet. Being an independent action under PML Act, the officer
concern has to examine the entire matter in addition to the allegation couple with the additional/independent evidence gathered after
investigation.â€
The Complaint as was filed by the Respondent does not mention of investigation into the charge of the NBL Consortium Lenders over the Property
and the existence of the factum of the banks†dues, recoverable from NBL. The inadequate investigation undertaken by the Respondent, which on
the basis of incomplete facts has taken the drastic measure of provisionally attaching properties already charged with the Appellant and in the absence
of a Complaint or Chargesheet being filed.
30. It is an admitted position that the Property is already mortgaged with the Appellant and the NBL Consortium Lenders, pursuant to legitimate
banking transactions. The Appellant and the other Consortium Lenders possess legitimate third party claim to the Property on account of the security
deeds executed in their favour in order to secure Working Capital facilities as were extended to NBL.
The Honâ€ble High Court of Delhi in the recent decision ofâ €œThe Deputy Director, Directorate of Enforcement, Delhi Vs. Axis Bank & Ors.,â€
reported in 2019 SCC Online Del 7854 (hereinafter referred to as the “Axis Bank Decisionâ€) held that the interest of a third party in the property
of an accused, acquired prior to the commission of the proscribed offence cannot be defeated or frustrated by attachment of such property U/s 8 of
the Act. The Honâ€ble High Court further recognized the right of such third party to proceed with enforcement of its interest in accordance with law
such that while the order of attachment under the Act would not be rendered irrelevant, yet it would take a backseat such that the State action would
be restricted to such part of the value of the property as exceeds the claim of the third party, if any. (Reference Paragraph No. 162-164 of the Axis
Bank Decision).
The Appellant has already initiated recovery proceedings under the SARFAESI and RDDBFI Act and insolvency proceedings under the I&B Code
for enforcement of its interest. S. 13 SARFAESI allows secured creditors to enforce security interest created in their favour without the intervention
of the Court or Tribunal. The Appellant has issued Recall Notice 21.02.2018 respectively to NBL and guarantors prior to the issuance of the PAO on
25.06.2018. Consequently, in terms with the Axis Bank decision, the claim of the Respondent to the Properties would be restricted to such part of the
aggregate value of the properties attached as exceeds the claim of the Appellant.
31. In terms with the statutory safeguards incorporated in the Act, any party aggrieved by the confirmation of the Provisional Attachment Order by
the Adjudicating Authority may challenge such confirmation in appeal to this Tribunal U/s 26 of the Act and then before the Honâ€ble High Court U/s
42 of the Act against the order of this Tribunal. Accordingly, under the legislative and statutory scheme of the Act, unless a party has exhausted its
remedies in appeal right up to the Honâ€ble High Court, an order confirming the attachment cannot be said to have attained finality. Furthermore, it is
trite law that Appeal is a continuation of trial. (Reference Salauddin Sarkar Vs. State (1999) 81 DLT 47, State Vs. Diwanji Gardharji & Ors. AIR
1963 Guj 21, Piarey Lal & Ors. Vs. State of UP MANU/UP/2671/2010)
32. Therefore, this Tribunal is empowered and have jurisdiction in terms with the Act as the court of first appeal, to adjudicate upon the pleas of the
Appellant and determine the bonafides and legitimacy of its claims as well as the legality of the Provisional Attachment Order. Upon an argument
being raised by the Enforcement Directorate that claims of third parties are to be solely adjudicated by the Special Court before whom trial is pending,
the Honâ€ble High Court of Delhi in the Axis Bank Decision has held that the claim of a party asserting a bonafide and legitimate claim would be
inquired into by the Special Court only if the order confirming the attachment “has attained finalityâ€. An order cannot be said to have attained
finality until and unless all the remedies under the Act have been exhausted.
33. With respect to the factum of mortgage and the effect thereof on the claim of the Appellant, the Impugned Judgment erroneously notes at Page
No. 230 & 233 as under:
“….Thus if a property is a proceeds of crime or is a property involved in money laundering, the same is necessarily to be provisionally
attached, confirmation whereof may be adjudicated and finally liability of confiscation may be determined by the Special Court….To
advance the argument that Provisional Attachment Orders should not be issued in relation to the proceeds of crime involved in money
laundering, as such properties are required to be liquidated in favour of the bank, who are custodian of public fund may amount to putting
a premium on such unchecked activities carried on by the officers due to irresponsible approach or connivance of the bank
management….The pleas of the mortgagees, therefore cannot be granted at this stage of confirmation of the provisional attachment order,
as such grant of the relief would interject with the scheme of the Act, deliberately provided. As aforesaid section 8(8) of the PMLA provides
for rights of claimant with a legitimate interest with the property provisionally attached/confiscated, who may have suffered a quantifiable
loss as a result of the offence of money laundering….In view of the legal provisions above referred and the object sought to be achieved
by the PMLA, I humbly and with great respect cannot concur with the view expressed by the Appellate Tribunal, PMLA in the Judgments of
the Appellate Tribunal cited by D-17 and D-18.
34. The Adjudicating Authority erred in upholding the view canvassed by the Respondent that the pleas of the Appellant of possessing a legitimate and
bonafide claim as a third party to the Properties cannot be tackled at the stage of confirmation of the PAO and that the rights of the Appellate will be
dealt with by the Special Court at the stage of Section 8(8) of the Act. The Honâ€ble High Court in the Axis Bank Decision has now diluted the said
view. Furthermore, it is contrary to the statutory and legislative scheme of the Act. It would amount to an exercise in futility and wasteful litigation if
the Appellant were required to be a mute spectator to the confirmation of attachment of mortgaged properties at this stage and await the conclusion of
trial U/s 3, 4 of the Act to agitate and pursue its rightful legal claim over such mortgaged properties. It would be futile to deny the Appellant his claim
over the mortgaged properties at the stage of confirmation of the PAO itself. Further, the legislative intent for relief at this stage can be borne out
from the fact that under the proviso to sub clause 1 and 2 of section 8 of the Act, prior to the confirmation of the PAO, the Adjudicating Authority is
required to adjudicate over the claim of an innocent party who seeks claim over the attached property, apart from the person to whom notice had been
issued. Therefore, the Adjudicating Authority vide the Impugned Judgment has erred in failing to recognise the legitimate claim of the Appellant at the
stage of confirmation of the PAO itself.
35. The Appellant Bank is a victim of the fraud perpetuated by Mr Mehul Choksi and the Gitanjali group companies including NBL, which is further
aggravated by the effect of the Impugned Judgment, depriving it of pursuing its legal claims against properties mortgaged to it. Furthermore, the value
of the properties on account of the present case as well as the FIR has depreciated significantly and is deteriorating on a daily basis, such that any
delay in enforcement of recovery by the Appellant would be rendered meaningless. In the present case, the Appellant is the victim of the fraud played
upon it by Mr. Mehul Choksi and the Gitanjali group of Companies.
36. The Appellant along with the other Consortium Lenders have a mortgage on the attached property and have provided facilities against the security
of such attached Property and does not fall within the purview of Section 8(1) of the Act. Consequently, the notice U/s 8(1) of the Act as was issued
to the Appellant as Lead Bank of Consortium Lenders was non-application of mind. The PAO ought not to have been confirmed in view of settled
law on the subject.
37. The words “reason to believe†used in S. 8(1) of the Act cast an onerous duty on the Adjudicating Authority, before issuing and deciding to
act under the said Section 8(1). The Honâ€ble Supreme Court and various Honâ€ble High Courts have held that “reason to believe†is not the
same thing as suspicion or doubt and merely seeing cannot be equated to believing. “Reason to believe†is a higher level of state of mind. A
person must have reason to believe if the circumstances are such that a reasonable man would, by probable reasoning, conclude or infer regarding the
nature of the thing concerned.
38. The impugned order confirming the provisional attachment order is passed without application of mind and without understanding the law, it is
liable to be quashed with regards to mortgage properties.
39. I do not agree with the submission of counsel appearing on behalf of ED that the banks may not be allowed to dispose of the mortgage properties
owned by Muhul Choksi and Nirav Modi and we should wait for trial to be faced by these offenders and it would also have some bearing in their
extradition proceedings. The main reasons for disagreeing his arguments are that the mortgage properties were acquired much prior period from the
date of offense. The banks are innocent and victims. The banks are not charge-sheeted. They are the secured creditors. Banks moneys have been
looted by these cheaters. Public Sectors banks†money is the public money. The banks are in critical conditions as these alleged accused have
cheated every citizen of this country. The courts in overseas countries are aware about the mortgage law. Rather, if their mortgage properties are
disposed off, loan amount would be decreased. No doubt, they should also be dealt with criminal liabilities, but recovery process cannot be stalled in
this way. These joneys are always happy if their mortgage properties shall remain attached and should not be disposed of. It is also held that if the
mortgage properties are not the proceeds of crime, the said properties cannot be attached in lieu of value thereof as banks are the secure creditors,
but ED, no doubt, after investigation, is welcome to attach the properties in lieu of value thereof only in the cases where it was virtually not possible to
trace out the properties which were purchased from proceeds of crime, but other than the mortgage properties which were not acquired from
proceeds of crime. Borrowers mortgage properties can not secure in safe heaven if they failed to return back the loan amount otherwise public will
suffer.
40. No doubt, this tribunal is clear in its mind that if the property was acquired from proceeds of crime and at the time of mortgage, the bank is aware
and still the loan is sanctioned, then said property can be attached even in lieu of value thereof if the borrowers has concealed or is concealing the
proceeds of crime, but under those circumstances, there must be material or prima facie evidence on record before passing the provisional attachment
orders.
41. This order is being passed in relation to mortgage properties in favour of banks which are not purchased from proceeds of crime. The same were
purchased and mortgage with the banks prior to the of crime period. ED is not precluded to attach other private properties and all other assets of the
alleged accused.
42. It is clarified that this order shall have no bearing in any proceedings initiated against the alleged accused including extradition proceedings pending
or proposed to be initiated in any part of the world. Those are to be considered as per law and without any influence of this order which is being
passed in the interest of public as bank money is a public money. Most of the banks are public sector banks. Their valid and legal recovery can not be
blocked for years without valid reasons. Therefore the issue in hand is being decided only for limited purposes
43. The period of continuation of proceedings before the Adjudicating Authority, PMLA, and before this Tribunal till the passing of the present
judgment and order, from the date of commencement of the moratorium order, be treated as excluded while calculating limitation of the period of
completion of the Corporate Insolvency Resolution Process.
44. In the light of above, the impugned order dated 16.08.2018 is set-aside in OC No. 912/2018 titled “Deputy Director, Directorate of
Enforcement Vs. Shri Mehul Choksi & Ors.†by the Adjudicating Authority confirming the Provisional Attachment Order No. 03/2018 dated
28.02.2018, qua Property No. 9 being “Flat No. 103, Kheni Tower, CTS No. 4919 to 4944, Santacruz East, Mumbaiâ€.
