Naresh Grover & Ors. vs Joint Director, Directorate Of Enforcement Lucknow & Ors

S.NO.,DETAILS OF PROPERTY,VALUE (INR),

1,"B-42, Ashok Vihar, Phase -I, New Delhi","17,11,42,000/-",

2,"Factory of M/s SurgicoinMedequip Pvt. Ltd., 1703-04

HSIDC, Rai, Sonepat, Haryana","5,,50,00,000/-",

Demand Draft No.,DATE,AMOUNT,Bank Name

522991,09.02.2001,"1,51,875.00",OBC

522992,09.02.2001,"1,51,875.00",OBC

027397,27.06.2001,"4,55,625.00",OBC

806916,16.11.2004,"32,91,200.00",OBC

957390,08.09.2005,"82,500.00",OBC

I am of the view that the stand of the Bank of Baroda must be considered before passing the final order in appeal. During the hearing of,,,

the appeal, few applications have been filed along with the copy of the Tripartite agreement dated 14th December, 2018. Mr. Vikas Garg,",,,

counsel for the respondent submits that the said agreement should not be look into.,,,

At present, I do not wish to give any opinion in this regard, however with regard to Bank of Baroda impleaded as a party is concerned I",,,

am of the considered opinion that Bank of Barodra is a necessary party before the Enforcement Directorate as well as before Adjudicating,,,

Authority in order to decide the real controversy between both parties as the bank is an interested party who are also secure creditor,,,

having equitable mortgager in its favour.,,,

The present application has been filed as per order dated 29th August, 2018. Reply to the application has been filed by the respondent",,,

no. 1.,,,

Mr. Shvet. Gupta, Senior Manage, Bank of Baroda, Kundli Brach Haranya, is present in person before this Tribunal and submits that",,,

no notice u/s 8(1) of PMLA has been received by the Bank. He further submits that the main intention of the bank is to recover the loan,,,

amount from the borrower i.e. appellant.,,,

All the contentions of the respondent with regard to merits will be considered at the time of hearing.. As the prayer made in the,,,

application is concerned, the same is allowed. Bank of Baroda is allowed to impleaded as respondent no. 6.",,,

Let the response to the appeal as well as reply filed by the respondent no. 1 be filed by Bank of Baroda by 7th October, 2018 with an",,,

advance copy to the counsel for the appellant as well as respondent no. 1. Reply if any be filed by 10th October, 2018.",,,

List for remaining arguments on 10th October, 2018 before me.",,,

Order be given dasti to the parties.â€​,,,

The learned counsel for the respondent no.1 does not dispute that the property in question was purchased in 2001/2002 which was not from the,,,

proceeds of crime. However, it is argued by him that the same can be attached in lieu of value thereof as there are serious allegations against the",,,

appellant and his family members. He has referred various documents in order to establish that many allegations are sub-judicebefore the Special,,,

Court against the appellant. It is not denied by him that the Bank is a victim/innocent party which is not involved in any schedule offence or any,,,

PMLA proceedings are pending against the Bank. It is not denied by him that any notice under Section 8(1) was issued to the bank.,,,

It is also not denied by the learned counsel for the respondent that it is a mortgaged property with the Bank and the Bank is enable to recover the,,,

amount in view of the mortgaged deed executed by the appellant. In many dates of hearings, the counsel for the respondent is only preferring alleging",,,

allegations made against the appellant rather to argue the matter with regard to the issue of mortgage of property. He is arguing the matter before this,,,

Tribunal as this Tribunal is to decide the criminality if any of the appellant. As per law, any allegation of criminal nature is to be determined in the",,,

schedule offence and in PMLA complaint.,,,

It is a matter of fact that the scope of this appeal by this Tribunal is very limited. All the allegations faced by the respondent or by the state are to,,,

be decided by the Special Court where the appellant is facing the trial.,,,

The only issue is to be considered by this Tribunal as to whether the provisional attachment order and confirmation thereof have been passed as per,,,

well settled law or not.,,,

It is an admitted fact that before passing the provisional attachment order or confirmation thereof by the adjudicating authority, both were aware",,,

that it is a mortgaged property and the Bank of Baroda is the mortgagee of the property. Despite of having full knowledge, Bank of Baroda was not",,,

arrayed as defendant in the complaint nor any notice under section 8(1) wasissued.,,,

The PMLA, 2002 is a Special Act where the Section 5 & 8 have mandatory provisions. The Bank of Baroda was the mortgagee of the property",,,

having interest in the property and the bank is enable to recover the amount by dispensing of the said property. The respondent no.1 has failed to,,,

comply the provision of section 5 & 8 of the Act. Had the investigation in the matter was property done by the ED, such situation ought not to have",,,

arrived. While issuing the notice under section 8(1) to the appellant to the other parties, no notice was given to the Bank of Baroda who is the",,,

interesting party/owner of the property as the borrowers were in violation to pay the debt of the bank. The law in tis regard is quite settled.,,,

The proceeds of crime are defined in Section 2(1) (u) of the Prevention of Money Laundering Act, 2002 which reads as under:-",,,

“Proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating",,,

to a scheduled offence or the value of any such property.â€​,,,

The scope of the Act and the provisions of PML Act, 2002 is to punish the accused person involved in money laundering, but not to punish an",,,

innocent person, who is not involved in the crime within the meaning of Section 2(u) of the Act.",,,

In the present case, the SARFAESI Act, 2002, RDDB Actand PMLA are special Acts. The SARFAESI Act and RDDB Act are enacted earlier",,,

to PMLA. The RDDB Act and PMLA have non-obstante clause. Recently, the Parliament has amended the twin legislations viz. (i) the SARFAESI",,,

Act, 2002 and (ii) the DRT Act, 1993 (after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security",,,

Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from",,,

01.09.2016. The Parliament in its wisdom has not excluded the application of the amended provisions to the proceedings under PMLA. In other words,",,,

had the Parliament intended to exclude the application of non-obstante clause of SARFAESI Act and RDDB Act to PMLA then it would have done,,,

so expressly as has been specifically prescribed in the amended provisions. It may also be noted here that the judgment of Honâ€ble Supreme Court in,,,

the matter of KSL & Industries Ltd. has been delivered in the year 2014 whereas the amendment in aforesaid two Acts have been brought in the year,,,

2016.,,,

This Tribunal has dealt with the aforesaid legal issue i.e., regarding priority of SARFAESI Act, 2002 (after the aforesaid amendment) in various",,,

cases and it is the consistent view that, in the light of the aforesaid amendments, the SARFAESI Act, 2002has priority over PML Act, 2002. The full",,,

Bench of this Tribunal, in the matter of State Bank of India &Ors. Versus Joint Director, Directorate of Enforcementin FPA-PMLA-1026/KOL/2015",,,

dt,14.07.2017 and also in the matter of Smt. NasreenTaj vs. Dy, Director,ED in FPA-PMLA-382/BNG/2012 vide common order dt. 18.09.2017 held",,,

the aforesaid view. Subsequentto the aforesaid judgments this Tribunal has passed several judgments on the same issue. In the said judgments this,,,

Tribunal discussed judgments delivered by Honâ€ble Supreme Court and various High Courts as well as the relevant provisions of law. On a recent,,,

judgment of this Tribunal, on the aforesaid issue, in the matter of IDBI Bank Ltd. Versus The Deputy Director, Directorate of Enforcement &Ors. in",,,

FPA-PMLA-1247/DLI/2018 dated 10.05.2018. The Relevant paras of this judgment are reproduced below:,,,

“13. The relevant portions of the tribunal order in state Bank of India matter (Supra) are re-produced below:,,,

“7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows:",,,

“32. Effect of the Act on other laws.â€"(1) The provisions of this Act and of any rules or schemes made there under shall have effect,,,

notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act,",,,

1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or",,,

Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act.â€​,,,

8.The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law,,,

except to the provisions of the Foreign ExchangeRegulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar",,,

non obstante provision is contained in Section 13 of the Special Court Act which reads as follows:,,,

“13. Act to have overriding effect.â€"The provisions of this Act shall have effect notwithstanding anything inconsistent therewith,,,

contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any",,,

decree or order of any Court, tribunal or other authority.â€​",,,

It is clear that both these Acts are special Acts. This Court has laid down in nouncertain terms that in such an event it is the later Act,,,

which must prevail. The decisions cited in the above context are as follows:,,,

‘Maharashtra Tubes Ltd. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. KasturiLal;,,,

AllahabadBankv.Canara Bank and Ram Narainv. Simla Banking & Industrial Co. Ltd.,,,

We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. FairgrowthFinancial,,,

Services Ltd. it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the,,,

1985 Act. Rejecting this connection, the Special Court had come to the conclusion that the Special Court Act being a later enactment would",,,

prevail. The headnote which brings out succinctly the ration of the said decision is as follows:,,,

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

enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers",,,

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

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

continue to apply.,,,

The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13 that its provisions are to",,,

prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had",,,

the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have",,,

specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the,,,

provisions of the said Act were to prevail even over the provisions of the Sick Companies Act.,,,

Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which",,,

can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give",,,

directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in",,,

the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand",,,

attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The,,,

distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are,,,

siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and,,,

manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with",,,

the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware,,,

of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give,,,

directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This,,,

can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law,,,

including those of the Sick Industrial Companies (Special Provisions) Act, 1985.",,,

It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he",,,

harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special,,,

Provisions) Acy1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is",,,

to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature,,,

intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay,,,

back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst",,,

considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special,,,

Court can, if it is convinced, grant time or installments.",,,

There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is",,,

concerned.""",,,

We are in agreementwith the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it makes",,,

appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to,,,

Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said",,,

Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the 1985,,,

Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is clear,,,

that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that proceedings in",,,

respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any provision to the,,,

contrary in another Act.â€​,,,

From the above i.e. the principle enunciated in the judgments discussed by us and the observations made by Hon'ble Supreme Court in the matter,,,

of KSL & Industries ltd. (supra),I do not find any departure. When two special Acts have non-obstante clauses, the later statue will prevail over the",,,

earlier statute. At the same time the aim and object of both the special Acts are to be looked into to decide such issue in the manner and,,,

harmoniousconstruction has to be arrived.,,,

In the present case, the SARFAESI Act, RDDB Act and PMLA are special Acts. The SARFAESI Act and RDDB Act are enacted earlier to",,,

PMLA. The RDDB Act and PMLA have non-obstante clause. Recently, the parliament has amended the twin legislations viz. (i) the SARFAESI",,,

Act, 2002 and (ii) the DRT Act, 1993 (after amendment titled as the Recovery of Debts and Bankruptcy Act, 1993) by the Enforcement of Security",,,

Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 and its provisions have been given effect from",,,

01.09.2016. The Parliament in its wisdom has not excluded the application of the amended provisions to the proceedings under PMLA. In other words,",,,

had the Parliament intended to exclude the application of non-obstante clause of SARFAESI Act and RDDB Act to PMLA then it would have done,,,

so expressly as has been specifically prescribed in the amended provisions. It may also be noted here that the judgment of Hon'ble Supreme Court in,,,

the matter of KSL & Industries Ltd (supra) has been delivered in the year 2014 whereas the amendment in aforesaid two Acts have been brought in,,,

the year 2016.,,,

One more important thing to be noted that the Hon'ble Supreme Court in the aforesaid case KSL & Industries Ltd. (supra) matter has held that,,,

the provisions of SICA, in particular section 22, shall prevail over the provisions for the recovery of debts in the RDDB Act because of the fact that",,,

the non-obstante provision of RDDB Act has specifically excluded SICA from its application.,,,

The conflict of non-obstante clause arising in respect of two or more enactments then the same have to be resolved by taking into consideration of,,,

policy underlying the enactment and the language used in them. The Prevention of Money Laundering Act has been enacted for forfeiture of crime,,,

involved in the money laundering which was considered necessary to deprive persons engaged in serious illegal activities and have thereby been,,,

increasing their resources for operating in clandestine manner. the Act was created to forfeit illegal properties and to prevent the money laundering,,,

activities which are threat to financial system of the country and its integrity and sovereignty. Further the question of prevalence of a subsequent,,,

legislation will only come into picture when there is a conflict between the two statutes. The Securitization Act has been enacted for the purpose of,,,

establishing a expeditious system for recovery of debts due to Banks and for matters connected therewith or incidental thereto. It only lays down a,,,

procedure for recovery of debts due to Banks. The Prevention of Money Laundering act vests the statutory authorities with a power to forfeit,,,

proceeds of crime involved in money laundering to the State. There is thus no apparent conflict between the two statues. The two statues operate in,,,

their exclusive fields. The question is only who will have his first claim on any property where the claim of the State concur with the claim of any,,,

other person. In the light of above a harmonious construction has to be arrived that keeping in view the facts of the case vis. a vis the statues involved.,,,

In the present case the aforesaid principle suggest that the amendments carried out in SARFAESI Act and RDDB Act in 2016 will prevail over PML,,,

Act, 2002 because the properties involved in the present appeal were untainted when the same were acquired. Even when the properties were",,,

mortgaged with the respondent no. 2 the same were not tainted. The allegation of commission money laundering is after the mortgage of the said,,,

properties with therespondent no. 2. After the mortgage of the aforesaid properties a legal right has been accrued in favour of the respondent no. 2,,,

over the said properties which cannot be taken away in the given facts and circumstance of the case. As far as borrowers are concerned (who are,,,

the accused parties) even we stress that as per law, they must face the trail in the complaint filedagainst them.",,,

The Respondent has also heavily relied on the judgment or order passed by this Tribunal in the matter of Chief Manager, Syndicate Bank Vs. Dy.",,,

Director, PMLA in Appeal no. FPA-PMLA-A-34/CAL/2009. I have gone through the said order from which it appears that the facts of that appeal",,,

are quite different from the facts of the present appeal. In the said appeal proceeds of crime were used to acquired properties and those acquired,,,

properties were mortgaged with the Bank. Para 2 of the said order of this Tribunal which reflects the brief facts of the case is reproduced below to,,,

clear the cloud:-,,,

Brief facts: M/s Hindustan International, Kolkata proprietor Sh. Gopinath Das operated and maintained current a/c 01000051007 and",,,

03921011000797 with State Bank of India, Overseas Branch, Kolkata (in short SBI) and Oriental Bank of Commerce, Stand Road Branch,",,,

Kolkata (in short OBC) respectively with the intention to defraud the bank and submitted fake and forged documents for export of goods,,,

such as Invoice, Packing List, Quality and Quantify Certificate, SDF Declaration, Undertaking, Origin of Good Certificate, Shipping Bill,",,,

Bill of lading etc. to the bank and god these bills discounted against L/C(s) and obtained an amount of Rs. 12,28,22,463/- and Rs.",,,

1,30,43,433/- from State Bank of India and Rs. 6,76,65,000/- from Oriental Bank of Commerce. The funds which were credited to the above",,,

current accounts, were withdrawn from bank for personal gain of ShriGopinath Das and companies owned and managed by him. Out of",,,

these funds, Sh. GopinathDas has acquired several immovable properties as detailed in the impugned order and mortgaged them with",,,

Syndicate Bank, Salt Lake Branch, Kolkata, the present appellant for availing credit facilities to the extent of Rs. 10 crores and got Rs. 4.5",,,

crores fraudulently released from the appellant against fake and forged documents. As the amount of loan given by the appellant was not,,,

repaid the account became Non Performing Asset (NPA) and the appellant proceeded u/s 13 of the Securitization and Reconstruction of,,,

Financial Assets and Enforcement of Security Interest Act, 2002 (in short Securitisation Act) for recovery of its dues and claimed to have",,,

taken possession of the properties on 30.11.2006.,,,

Neither of the aforesaid judgments relied on by the Respondent no. 1 is of any help to its case in the given facts and circumstances of the case.,,,

The facts in the referred cases are not similar.,,,

It is an admitted fact that the properties herein are mortgaged with therespondent no. 2. It is also a fact that the mortgaged properties are not,,,

acquired out of any proceeds of crime. It has come on record that the properties mortgaged were acquired prior to the alleged commission of crime.,,,

The relevant sale deed of the mortgaged properties are of 2003 so the date of acquisition is much prior to the date of alleged commission of crime in,,,

the present case.,,,

Being a victim party u/s 8(8) of the Act, second proviso which is incorporated very recently in April, 2018, the bank is entitled to dispose of the",,,

properties if the bank is victim and sufferer due to non-return of loan amount by the borrower.,,,

There is no nexus whatsoever between the alleged crime and the bank is merely the secured creditor and was not aware that the borrower would,,,

avoid returning the loan-amount. Prima facie, no case of money-laundering is made out against bank. The bank has the priority rights on assets of the",,,

secured creditors to recover the loan amount/debts by sale of assets over which security interest is created.,,,

This Tribunal has gone through the written submissions as well as reply filed by the respondent. The respondent no. 1 has merely brought the,,,

allegations made against the appellant which are to be decided by the Special Court. As far as issue of mortgage of property is concerned, the same",,,

has not been dealt by the respondent in accordance with the law. Therefore, I reject all the arguments alleged by the respondent no. 1 or its counsel.",,,

The property even could not have been attached in lieu of value thereof in view of the facts and circumstances of the case.,,,

As far as the allegation of the appellant on mortgage is concerned, the same is to be decided by the Special Court and this Tribunal does not wish",,,

to express any opinion about the outcome.,,,

As regards the tri-partite agreement, this Tribunal does not want to express any opinion with regard to the said agreement. Once the property is",,,

released from the attachment, it is for the Bank to decide the mode of recovery of the amount due. For this reference, the Order dated 17th October,",,,

2018 is also reproduced here-below:-,,,

“ORDER,,,

17.10.2018,,,

FPA-PMLA-1982/LKW/2017,,,

Counsel for the respondent has filed the response to the affidavit file by Mr. Amit Shukla. Mr. Handoo, advocate has concluded his",,,

argument. Mr. Shwet Gupta has also made his submission as per reply filed by the bank. The authority letter in his favour is also taken on,,,

record.,,,

Ms. Sanjana Rajput, Advocate seeks one week accommodation as the counsel for the respondent is not available due to personal reason.",,,

List on 26th October, 2018.",,,

Mr. Shwet Gupta, submits that the total sum of Rs. 5 Cr. was sanctioned against the mortgage property and Rs. 2 Cr. towards the Bank",,,

Guarantee. The total amount is Rs. 7 Cr. as of today, the valuation of the property releasable as of today is Rs. 6.25 Cr. pertaining to",,,

mortgaged property in question. Mr. Handoo, Advocate states that his client has paid part payment of remaining amount when is to be",,,

adjusted. The detail of which will be provided on the next date of hearing by the Bank.,,,

List on 26th October, 2018.â€​",,,

With regard to the attachment of the property is concerned, the attachment is not sustainable as the bank is mortgagee of the property and is",,,

entitled to recover the amount as per law. The entire impugned order passed by the adjudicating authority and the provisional attachment order is,,,

contrary to law and null and void. Both authorities have not followed the many judgements of Supreme Court and that various High Courts. The,,,

impugned order is wholly non-application of mind and non-compliance of mandatory provision and mechanical order has been passed.,,,

As per settled law, I am of the view that the respondent no. 1 and the Adjudicating Authority have failed to fulfil to comply the mandatory",,,

provisions. The impugned order even could be set-aside on this ground itself, however, during the course of hearing, counsel for the respondent no. 1",,,

has correctly realized and agreed if the Bank of Baroda be impleaded as respondent no. 2 who was the main stakeholder of attached property in,,,

question.,,,

The Judgements passed by the Honâ€ble Supreme Court and Honâ€ble High Courts are binding upon this Tribunal. Therefore, the impugned order",,,

is set-aside with regard to the property of the subject matter of the present appeal. The respondent no. 1 is enable to recover the amount as per law.,,,

The appellant cannot dispose of the property as the same is already mortgaged with the Bank.,,,

The present appeal is allowed. The impugned order dated 13.9.2017 is set-aside. Consequently, the provisional attachment order dated 26.04.2017",,,

is also quashed.,,,

No costs.,,,