Bharat Co-Operative Bank (Mumbai) Ltd. vs Deputy Director Directorate Of Enforcement, Chennai

Manmohan Singh, J

FPA-PMLA-2385/CHN/2018

The Appellant has filed the above-mentioned Appeal under Section 26 of Prevention of Money Laundering Act, 2002 (for short, “Actâ€​), against

the Order passed on or about 13.04.2018 by the Adjudicating Authority under the said Act in O.C. No. 853/2017 in P.A.O. No. 20/2017 dated

25.10.2017 in ECIR/CEZO/02/2016 dated 12.02.2016 (hereinafter referred to as the “Impugned Orderâ€​).

The said Order is passed in the case of Shri L. Srinivasan, s/o. Lakshminarayan, proprietor of M/s. VLS Mining Corporation & Partner

representing M/s. VLS Exports, residing at House No. 26-1, South Avenue, Kamraj Nagar, Thiruvanmiyur, Chennai â€" 400041 and 7 Other

Defendants.

The Appellant Bank is named as Defendant No. 4 in the proceedings of the said Impugned Order.

The delay of 17 days caused not at all deliberate and intentional and it is for bona fide reasons and the sufficient cause was shown that it is

condoned.

The Bharat Co-operative Bank (Mumbai) Ltd. (“the said Bankâ€, for short) is a Multi-State Scheduled Bank having 102 Branches and the

Appellant Branch is one of them. The said Bank is engaged in carrying out its functions as a Banker under the permission and license granted by the

Reserve Bank of India in terms of the relevant statute. The said Bank is having its Central Office at Marutagiri, Plot No. 13-9A, Sonawala Road,

Goregaon (East), Mumbai - 400 063 and registered Office at Mohan Terrace, First Floor, 64/72, Modi Street, Fort, Mumbai â€" 400 001. The said

Bank is a Multistate Co-operative Bank registered under the provisions of the Multistate Co-operative Societies Act, 2002.

One of the activities/functions which it carries is of lending monies to its Customers against various kinds of Securities such as pledging and

mortgaging the properties and creating lien of the Bank on such properties of the Customers where against the loan is advanced by the Bank.

The Appellant had extended two separate loans of Rs.42,55,000/- (Rupees Forty two Lakh Fifty Five Thousand Only) and Rs.3,00,000 (Rupees

Three Lakh only) to M/s. Aalians Consultants India Pvt. Ltd. which Company is named as Defendant No. 3 in the proceedings of the said Order

against creation of a lien over the Fixed Deposit Receipt for Rs.50,00,000/- (Rupees Fifty Lakh Only) held by the said Company with the Appellant, by

creating Security Interest in favour of the Appellant Bank.

The said Fixed Deposit Receipt of the Defendant No. 3 â€" Company has thus become a Secured Asset within the meaning of Section 2(zf) of the

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “SARFAESI Actâ€​).

The outstanding loan with interest as of now worked out to Rs.61,09,049/- and Rs.4,03,516/- and thus the total liability of the borrower in respect of

the said two loans as of now became Rs.65,12,565/. The value of the Fixed Deposit of Rs.50,00,000/- with accrued interest as on date is worked out

to be Rs.59,85,395/-. Since, the said Fixed Deposit along with accrued interest thereon, being the Secured Asset of the Appellant â€" Bank, the same

is the property of the Bank itself, over which the Appellant â€" Bank has got the First Charge as per the amended provisions of the SARFAESI Act,

2002.

The Deputy Director, Directorate of Enforcement, Chennai in case No. ECIR/CEZO/02/2016 dated 12.02.2016 passed the Provisional

Attachment Order No. 20/2017 dated 25.10.2017 under Section 5 of the said Act. By the said Provisional Attachment Order, immovable properties

and moveable properties mentioned in the Schedule of Properties given in Paragraph 1 of the Impugned Order had been attached provisionally. The

said Fixed Deposit Receipt in the sum of Rs.50,00,000/- which is given by creating lien in favour of the Appellant â€" Bank to obtain loan of

Rs.45,55,000/- is specified in Table II of the said Schedule. The Bank has filed its reply disputing the provisional attachment of the said F.D., over

which a legally sustainable lien was already created in favour of the Bank and as such it is the secured asset of the Bank, thus it is not proceeds of

any crime.

The said Provisional Attachment Order dated 25.10.2017 was confirmed by the impugned order passed by Adjudicating Authority.

The Adjudicating Authority has come to the conclusion in paragraph 20 of the said order that the attached property described in Table II Page No.

56 of the Provisional Attachment Order in the name of Defendant No. 3 - Company lying deposited with the Appellant Bank is involved in Money

Laundering and therefore, Ordered that the said Provisional Attachment shall continue during the pendency of the proceedings relating to the Offence

under the said Act before a Court and will become final after an Order of confiscation is passed under sub-section (5) or sub-section (7) of Section 8

of the said Act.

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.

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€​

The amended provisions of Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 as amended by the

Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 which reads as under :-

“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, State Government or local

authoritâ€​

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.

In view of the amended provisions of Section 26B of SARFEASI Act, 2002 and amended provisions of Section 31B of the Recovery of Debts due

to Banks and Financial Institutions Act, 1993 has particularly stated in the Memo of Appeal and in the light of the law laid down by the Supreme Court

in its decision reported in (2001) 3 SCC 71 (Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd.), wherein the decision of the Bombay High

Court reported in (1997) 83 Comp cases 547 stood approved and which Supreme Court's decision was followed by the full Bench of the Madras High

Court as well as by the Andhra Pradesh High Court as specified in Paragraphs 15 to 18 of the Memo of Appeal and particularly in the light of this

Tribunal's decision dated 14.07.2017 in a batch of Appeals filed by various Nationalized Banks, including State Bank of India & Ors. and in the cases

of Aditya Birla Finance Ltd. and Bajaj Finance Ltd. relied upon in Paragraphs 19 to 22 of the Memo of Appeal, the property namely, the Fixed

Deposit Receipt being the property of the Bank and belongs to it in the capacity of the Secured Creditor, since a legally valid lien was created in

favour of the Bank, the same is not liable to be attached in the hands of the Respondent - Directorate of Enforcement Officers and as such, the

Impugned Orders are, therefore, without any authority of law and without proper exercise of powers and jurisdiction and/or improper exercise of

powers and jurisdiction and therefore, unsustainable in law and unjustified in law.

In Hon‘ble Supreme Court, has 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, has held that its own catena of decisions echoed earlier, which are reported

in-

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

(ii) (1977) 1 SCC 750 - Sarvan Singh vs Kasturi Lal

(iii) (1993) 2 SCC 144 â€" Maharashtra Tubes Ltd. vs State Industrial Investment Corporation of Maharashtra Ltd.

(iv) (2000) SCC 406 â€" Allahabad Bank vs. Canara Bank

Hon'ble Supreme Court in the said case of Solidaire India Ltd. vs. Fairgrowth Financial Services Ltd. has approved the decision 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 Court Judgment:-

“Where there are two special statues which contain non-obstante clauses, the later statute must prevail. This is because at the time of

enactment of the later statute, the Legislature was aware of the earlier Legislation and its non-obstante clause. If the legislature still confers

the later enactment with a nonobstante clause, it means that the Legislature wanted that enactment to prevail. If the Legislature does not

want the later enactment to prevail, then it could and would provide in the later enactment that the provisions of the earlier enactment

continue to apply.â€​

The aforesaid afore-stated principle laid down by the Hon'ble Supreme Court has been followed by the Full Bench of the Hon'ble Madras High

Court in a recent decision dated 10.11.2016 in W.P. Nos. 2675 (authored by Hon‘ble Mr. Justice S.K. Kaul), who is now the Hon‘ble Judge of

Supreme Court [The Assistant Commissioner (Commercial Taxes) vs. Indian Overseas Bank], in which the Hon'ble High Court upheld the provisions

of the amended Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993.

The following is the relevant portion of the said decision:-

“3. There is, thus, no doubt that the rights of a secured creditor to realize secured debts due and payable by sale of assests over which

security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the

Central Government, State Government or Local Authority.

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 of Section 26E.â€​

Thus, it clear that the Appellant-Bank being a Secured being a Secured Creditor, is entitled to priority over all other debts and government dues,

including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.

Even 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 an Order of confirmation of the provisional attachment. The following is the relevant portion

of the Para 103 of the said decision passed by the Hon'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.

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 SARFAESI Act 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. The following are the relevant Paragraphs 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 while rendering the facilities were bona fide parties. It is not the case of the respondent that the

attached properties were purchased after the loan was obtained. The mortgage of the properties were done as bona fide purposes. None of

the bank is involved in the scheduled offence.

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

banks are innocent parties.

Thus in the present case even though the Ld. Adjudicating Authority had all the reasons to believe that the above mentioned were

mortgaged to the Appellant Bank and that the Appellant/SBI had prior charge over the subject matter 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.

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

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

appellant.

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

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

loan amount/debts by sale of assets over which security interest is created, which remains unpaid.â€​

The Appellant - Bank further submits that this Tribunal in the above Judgment dated 14.07.2017 has also relied upon its own earlier Judgment

dated 22.06.2017 in the case Indian Performing Right Society Ltd. vs. The Deputy Director, Directorate of Enforcement, Mumbai, wherein the

Hon'ble 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 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.

As admitted by the respondent that the Appellant-Bank is an innocent party and the property, in question, which is provisionally attached by the

Respondent-Deputy Director ought to have been released by the Adjudicating Authority under Section 8(2) of PMLA, but despite of the same, the

impugned order is passed which is against the law.

In Appeal No. FPAPWA-1756/KOL/2017 decided by this Appellate Tribunal, PMLA on 09.11.2017 in the case of Aditya Birla Finance Ltd. vs.

The Deputy Director, Directorate of Enforcement, Kolkata, while allowing the Appeal preferred by the Aditya Birla Finance Ltd., it was 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'.

This Appellate Tribunal, 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 the events 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 the offending transactions took place. The contents of said

properties 46 and 47 are reproduced:-

“46. In the present case, it is undisputed facts 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 of the 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 PML4 proceedings are pending except the complainant bank was arrayed as

Column;-11 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 PMLA 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.

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 appeared from the impugned order.â€​

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.

However, it appears to us, 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 here consulted at least the member (legal) before ignoring the judgment of

higher authority and courts.

Issue notice of the appeal. Mr. Vikas Garg, Counsel for the respondent accepts the notice and seeks time to file the reply. Let the reply be

filed within four weeks with an advance copy to the counsel or the appellant.

List this appeal for final disposal on 15th January, 2018.

In the meanwhile, operation of impugned order shall remain stayed as far as the case of the appellant is concerned.

Copy of the order be sent to the Ministry.

Order be given “Dastiâ€​ to both the parties.

The aforesaid interim order dated 20.11.2017 passed by this Tribunal in Bajaj Finance case was finally confirmed by it in the Final Order/Judgment

dated 28.06.2018, by allowing the Appeal and setting aside the Impugned Orders of the Provisional Attachment and the Adjudication Order passed

therein. It is worthwhile to reproduce here below the 3 concluding Paragraphs of the said Judgment dated 28.06.2018, which are in the following

terms: -

“53. 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 properly is also not purchased from the proceeds 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

disposed of the said property.

In the fact and circumstances and material available in the present case, the allegation of money laundering, prima facie, 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.

In view of aforesaid facts and circumstances and for reasons recorded above, I set aside the Impugned Order dated 13.09.2017 and the

Provisional Attachment Order dated 05.04.2017 in P.A.0 03/2017.â€​

In a recent Judgment dated 04.07.2018, this Appellate Tribunal under PMLA in the case of Goa State Co-Operative Bank Vs. The Deputy

Director, Directorate of Enforcement, 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 purchased from the proceeds 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 of the said property.

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 appeals are allowed.

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€​

This Tribunal has reiterated 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 purchased from the proceeds 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 of the said property.â€​

In addition to the afore cited judgments, this Appellant has also relied upon the ratio decided by this Tribunal in its very recent Judgment dated

02.08.2018, in the case of Standard Chartered Bank & Ors. vs. The Deputy Director of Enforcement, Mumbai, allowing the Appeal and setting aside

the Orders of Provisional Attachment and Adjudication. The facts in the present case are almost same 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.

The Respondents did not deny about the issuance of Loan of Rs.45,55,000/- extended by the Appellant â€" Bank to its Customer â€" Predicate

Offender. Nowhere in their Counter the Respondents dealt with the subject matter of the said loan given by the Bank to its Customer on 05.03.2015

and 19.08.2015. It is not the case of the Respondents that in this entire transaction, no loan whatsoever, was given by the Bank. But it is other way

round. The Bank had, while creating the said lien over. the said Fixed Deposit of Rs.50,00,000/-, had already parted with its own money amounting to

Rs.45,55,000/-, as loan to its Customer. The Respondent - Department despite knowing the above fact of loan given by the Bank very well, 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 without any valid reason and without following the law on the issue, the impugned order is

passed/confirmed. The order is also liable to be quashed. In the present appeal, the appellant is pressing the relief only against the impugned order and

PAO. As far as recovery is concerned, the same is to be conducted as per law and procedure.

The Respondent has since the Reply dated 24.09.2018 filed who is silent except stating that the PMLA has got overriding effect in the matter of

attachment of any property, as value of proceeds of crime, by virtue of the non-obstante clause contained therein, as against the legal dictum created

in all other enactments, the Department had failed to address as to how the property (mortgaged property) can be attached in the facts of present

case. It appears that it is mere case of harassment to the financial institution. If it will continue which bank and financial institution would lend the loan

against the mortgaged property. The order has been passed without appreciating the law and the judgement rendered by the Supreme Court.

In the light of above, the appeal is allowed. The impugned order is set aside pertaining to the appellant. The attached property is released

forthwith. As far as borrower is concerned, the proceedings before the Special Court shall continue and shall be decided as per its own merit.

It is clarified that nothing is expressed about to due amount, it is for the appropriate court to decide the issue of quantum of loan amount due. -

No costs.