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Judgment
FPA-PMLA-2419-2421/JL/2018
The above appellants have filed an appeal against the order in original in OC 863/2018 dated 28.05.2018. Subsequently M/s. Peagsus
Reconstruction Pvt. Ltd. was also impleaded as a party to the appeal.
Briefly, the case is that a company by the name of M/s. Jaldhara Export, Ludhiana exported readymade garments to Bangladesh in the financial
year 2012-13 to the tune of Rs. 33.36 crores and thereafter claimed VAT refund of Rs. 1.56 crore from the Government of Punjab. However, on an
investigation with the Customs, Petrapole Land Custom Station, West Bengal, the Customs authorities confirmed that all the shipping bills produced by
the firm for the purported export of the readymade garments to Bangladesh were found to be forged and fabricated.
After investigation, the Police filed a case under Section 177, 420, 465 etc. of IPC 1860 against one Shri Raman Kumar Garg, the proprietor of M/s.
Jaldhara Exports, Ludhiana. As per this, Shri Raman Kumar Garg had obtained VAT refund of Rs. 1,56,76,190/- on the basis of forged and fabricated
document from the Department of Excise and Taxation, Ludhiana, Government of Punjab. After receipt of the said money in the accounts of M/s.
Jaldhara Exports maintained with the State Bank of India, Ludhiana, it was then transferred into the accounts of various companies and people all
owned by his relatives inter alia including his mother, his aunt and his wife who are the above three appellants in the present appeals.
Both the parties were heard at length finally as they did not insist on a stay. The learned counsel for the appellants stated as follows:
i. That the Assistant Excise & Taxation Commissioner, Ludhiana had lodged a complaint No. 664 dated 18.07.2013 before the Police at Ludhiana
alleging that M/s. Jaldhara Exports, Ludhiana had fraudulently claimed a VAT refund of Rs. 1.64 crores from the State Government vide its
application dated 11.02.2013 (although they were granted Rs. 1.56 crore as refund). On the basis of above, the Police registered a FIR No. 126 of
26.07.2013. Since the refund was filed on 11.02.2013, the offences under Section 420, 467 and 471 of IPC did not form part of Part B of the Schedule
of the PML Act. Vide amendment made to the PMLA w.e.f. 15.02.2013 offences under Section 420, 467 and 471 were notified under Para 1 of Part
A of the Schedule. Hence, from 01.06.2009 to 14.02.2013, the offences under Section 420, 467 and 471 were not covered either in Part A or Part B
of the Schedule and since the refund application is dated 11.02.2013, the PMLA does not apply to them as the alleged offence was not a scheduled
offence at the time of the commission of the same.
ii. That Shri Raman Kumar Garg in his statement dated 23.10.2017 has disclosed the details and trail of the refund money which he again reiterated on
25.10.2017. However, this statement nowhere mentioned anything about the appellants.
iii. That it was undisputed that the two plots measuring 511.22 sq. yd. and 488.88 sq. yd. of Plot No. 800, Moti Nagar, Ludhiana were purchased in
1991 in the name of Smt. Seema Garg who is the mother of Shri Raman Kumar Garg and Smt. Sangeeta Garg, the aunt of Shri Raman Kumar Garg.
Since the purchases was of the year 1991 i.e. much prior to the alleged offence, it cannot be treated as proceeds of crime. Moreover, nowhere in the
impugned order has it been shown that the plots were purchased by the appellants out of the alleged proceeds of crime.
iv. That the impugned order has nowhere brought any evidence to show that the appellants knowingly assisted Shri Raman Kumar Garg either to
acquire the proceeds of crime or in laundering the same. All the three appellants in their statements all dated 23.11.2017 have stated that they are
house wives and they were not aware of the dealings of either Shri Raman Kumar Garg or his company and this proves their innocence.
v. With regard to the third property i.e. Flat No. 11-A, Empire Residential Project, SAS Nagar, Punjab which belonged to Saiyrah @ Deepika Garg
appellant who is the wife of Shri Raman Kumar Garg, her statement dated 23.11.2017 proves her innocence since she has clearly stated that the
property did not belong to her although the sale deed stands in her name and the said sale deed was signed by her father-in-law Shri Vinod Kumar
Garg. Moreover, the payment for the said flat was made in the year 2012, (although the sale deed is of 2014) and the “VAT refund arose on
05.03.2013 (when the refund amount was transferred in the account)â€. It was therefore prior to the alleged scheduled offence and hence the order is
not sustainable qua the subject flat.
vi. That the value of the properties taken for attachment has been based on different parameters. While in one case it is the market value in the other
it is the sale deed value which has been taken and there is no uniformity.
vii. They relied on the following judgments:
a. Madras High Court in the case of M/s. Indian Bank & Ors. Vs. Government of India dated 11.07.2012 in W.P. Nos. 4696 and 12854 of
2012 and MP Nos. 1, 1 and 2 of 2012.
b. The Appellate Tribunal, PMLA judgment in FPA-PMLA-478/DLI/2013 dated 23.07.2018 in the case of Vinod Kumar Gupta vs. ED.
c. The Appellate Tribunal, PMLA judgment in FPA-PMLA- 971/CHD/2015 dated 26.04.2019.
d. The Appellate Tribunal, PMLA judgement in FPA-PMLA-449/BNG/2013 dated 11.05.2018.
Arguing on behalf of M/s. Peagsus Reconstruction Pvt. Ltd., the learned counsel for the petitioner stated that loans were taken from the Allahabad
Bank with regard to the two properties in Plot No. 800 Street No. 2, Baba Gajja Jain Colony, Moti Nagar, Ludhiana. That they vide deed of
assignment dated 27.09.2013 duly executed between them and Allahabad Bank and registered on 30.04.2014 took over assignment of debt of M/s.
Jaldhara Exports. That as per SARFAESI Act, 2002 every asset reconstruction company on such acquisition would be deemed to be the lender and
all the rights of such bank shall vest on such company in relation to such financial asset. That as per the registered deed of assignment, the appellant in
appeal No. 2419 i.e. Smt. Seema Garg and the appellant in appeal No. 2421 i.e. Mrs. Sangeeta Garg, both mortgaged their immoveable properties
bearing Plot No. 800 at 511.11 sq. yd. and 488.88 sq. yd. as mentioned at para 3(iii)-supra, with Allahabad Bank. As the above properties presently
stand mortgaged with them, they are entitled to recover amounts in the above loan accounts through sale or otherwise. The asset reconstruction
company is therefore the right claimant of the said properties and as per the provision of SARFAESI, and the ED cannot take away this right. He also
relied on the judgment of the High Court of Delhi in CRL.A. 143, 210, 623, 764, 1076 of 2018.
In reply, the learned counsel for the respondent stated the following:
i. That Section 2(1)(u) defines proceeds of crime as any property derived or obtain directly or indirectly by any person as a result of criminal activity
relating to a scheduled offence or the value of any such property……….. Further, he stated that Section 2(zb) of the Act defines “value†to
mean the fair market value of any property on the date of its acquisition by any person or if such date cannot be determined, the date on which such
property is possessed by such person. Accordingly, variable values are prescribed under the law which has been correctly followed by the adjudicating
authority.
ii. That the impugned order has very clearly brought out the role of the three appellants as well as the flow chart of how the proceeds of crime has
been processed and distributed amongst the three appellants. Not an iota of any evidence has been given by the appellants to counter the same. In
fact, they have not challenged the flow chart at all he stated. That a petition was filed by Shri Vinod Kumar Garg, father of Raman Kumar Garg on
various grounds including challenging the issuance of summons and the consequential proceedings against them in the present case before the Punjab
& Haryana High Court.
The Honâ€ble Court vide its order dated 22.12.2015 had dismissed their petition and directed to videograph the proceedings of inquiry and
interrogation. However, notwithstanding this, the appellants and Shri Raman Kumar Garg and his other relatives failed to comply with the above
directions of the Honâ€ble High Court which proves the guilt and culpability of all the accused in the case.
iii. The submission of M/s. Peagsus Reconstruction Pvt. Ltd. that the two properties 511.22 sq. yd. and 488.88 sq. yd. of Plot No. 800, Moti Nagar,
Ludhiana was mortgaged by Seema Garg and Sangeeta Garg to the Allahabad Bank and thereafter to them, shows that the properties belonged to
these appellants.
iv. Since the flow chart as described in the impugned order proves that the proceeds of crime have travelled into accounts of the appellants/companies
owned by them and as per law proceeds of crime includes value of such property the adjudicating authority has rightly attached the values of both
these properties.
v. With regard to the judgment cited, he stated that the facts in each of these cases was entirely different and hence cannot be taken as having
precedent value.
I have carefully examined the documents and records of the appeal and also heard the parties at length. The first contention of the appellant that
since the predicate offences were not schedule offences on the day they filed their refund application with the State Government i.e. 11.03.2013,
therefore the impugned order is illegal, appears to be a too stretched out argument. In the present case, the Assistant Excise and Taxation
Commissioner, Ludhiana, lodged a complaint on 18.07.2013 with regard to the fraudulent refund. Thereafter, the FIR was lodged on 26.07.2013 and
the ECIR was filed on 14.08.2013 under the PMLA. By the appellants own admission, the PMLA had undergone an amendment w.e.f. 15.03.2013
when these offences became schedule offences. Hence, there cannot be any dispute that the said offences were scheduled offences when the ECIR
was filed.
In the grounds of appeal, they have accepted that Shri Raman Kumar Garg the main accused (who is not an appellant in this case) tendered a
correct statement, when at page 8 of the appeal (FPA 2419) they have stated that “there is nothing in the whole POA (should be PAO) as well as
in the whole complaint and impugned order to show/prove that Shri Raman Kumar tendered wrong statementâ€. If one goes through the statement of
Shri Raman Kumar Garg dated 23.10.2017, 25.10.2017 and 26.10.2017, it is seen that he has accepted that he was the proprietor of M/s. Jaldhara
Exports, that after receiving the VAT refund of Rs. 1.56 crore, the same was transferred into the account of M/s. Chetan Exports whose proprietor
was Sangeeta Garg, his aunt and one of the appellants; to M/s. VAN Impex whose proprietor was Seema Garg, his mother and one of the appellants;
M/s. M.A. Exports whose proprietor was Saiyrah @ Deepika Garg, his wife, to M/s. Kohinoor Traders whose proprietor was Umesh @ Arjun Garg,
son of Sangeeta Garg, his aunt. He also accepted in his statement that all these companies were actually looked after by his father Shri Vinod Kumar
Garg and that the VAT refund proceeds were withdrawn as cash for further distribution. Smt. Seema Garg, the mother of Shri Raman Kumar Garg
stated in a statement that the 511.22 sq. yd. and 488.88 sq. yd. of Plot No. 800, Moti Nagar, Ludhiana was purchased in her name jointly with
Sangeeta Garg by someone in her family and she was not aware about other details of the property, that she was unaware regarding deposits into the
account of M/s. VAN Impex of which she was the proprietor. She categorically mentioned that it was her son (Raman Kumar Garg) who could
explain the same. Similar statements were given by Smt. Sangeeta Garg and by the third appellant Saiyrah @ Deepika Garg.
The impugned order has recorded the details of investigation and the flow chart of how this refund money, which is the proceeds of crime, was
processed and disbursed. The VAT refund amount of Rs. 1.56 crores was transferred to the account of M/s. Jaldhara Exports on 26.03.2013
maintained in SBI, Mundian Kalan Branch, Ludhiana. Thereafter, Rs. 32 lakhs was transferred on 26.03.2013 into the DCB Bank account through
RTGS of M/s. M.A. Exports, the proprietor of which was Smt. Saiyrah @ Deepika Garg, wife of Raman Garg. The said money was withdrawn in
cash on the same day. Similar details have been provided in the impugned order with regard to the others which is depicted in the flow chart as below:
The appellants have not controverted the above and not disputed any of the details in the flow chart as above. In this background, it can be
concluded that the refund money received fraudulently has been disbursed/used by the appellants or their companies and therefore, stands the test of
money laundering as defined under the PMLA. The appellants stating that the properties pertaining to 511.22 sq. yd. and 488.88 sq. yd. of Plot No.
800, Moti Nagar, Ludhiana were purchased in 1991 and cannot be proceeds of crime as it was much prior to the date when the schedule offence was
committed does not seem to be a sound argument. The adjudicating authority relying on his earlier order has stated “though ordinarily the Director
attaches properties acquired subsequent to generation of proceeds of crime………..it is not out of bonds for him to attach properties that came into
existence before generation of proceeds of crime……… The Director cannot be faulted as long as the value of the properties attached does not
exceed the quantum of crime. The value of the property cannot be conceived in a vacuum. It has to have reference to a physical entity.†This shows
that the adjudicating authority has attached these properties not because they were directly proceeds of crime but to arrive at a value. As per Section
2(1)(u) of PMLA, 2002 referred to at para-5 supra proceeds of crime includes value of any such property. There is therefore no illegality in attaching
the property with regard to the value thereof. Moreover, I agree with the respondents that the value can be variable as that is how value has been
defined under the PMLA under Section 2(zb).
Coming to the arguments of the M/s. Peagsus Reconstruction Pvt. Ltd. and their reliance on the High Court judgment as quoted at para 3(vii), it is
seen that the Honâ€ble High Court of Delhi while summing up the issue has observed as follows:
“To sum up on the issue, the objective of the legislation in PMLA being distinct from the purposes of the three other enactments viz
RDBA, SARFAESI Act and Insolvency Code, the later cannot prevail over the former. There is no inconsistency. The purpose, the text and
context are different. This court thus reject the argument of prevalence of the said laws over PMLA.†With regard to the rights of third
party, the Honâ€ble Court further observed “an order of attachment under PMLA is not rendered illegal only because a secured creditor
has a prior secured interest (charge) in the subject property. Conversely, mere issuance of an order of attachment under PMLA cannot by
itself render illegal the prior charge or encumbrance of a secured creditor, this subject to such claim of the third party (secured creditor)
being bona fide. In these conflicting claims, a balance has to be struck………..†The Honâ€ble Court at para 155, 157 and 158 of its
order clearly states that “it is well settled that by hypothecation, no interest of property is transferred to the hypothecatee, the latter
acquiring nothing more than equitable and notional charge to have his claim realised by sale of good hypothecated.†“The mortgager
being the owner who had parted with some rights of ownership has a right to get back the mortgage property and the mortgage deed in
exercise of his ownership……… A hypothecatee or a mortgagee, thus, has a limited interest in the property…….. There is no
ownership, or right to possess.â€
Hence, the decision of the Honâ€ble Delhi High Court which was a remand order, does not unequivocally support the claim of M/s. Peagsus
Reconstruction Pvt. Ltd., although it does recognize its claim under SARFAESI as long as it does not override the actions under PMLA.
The Honâ€ble Supreme Court in the case of KSL and Industries Ltd. vs. Arihant Threads Ltd. & ors. [(2015) 1 SCC, 166] decided by three-Member
Bench at para 41 stated “Indeed, the question as to which Act shall prevail must be considered with respect to the purpose of the too enactments;
which of the two Acts is the general or special; which is later. It must also be considered whether they can be harmoniously construedâ€
(emphasis laid)
At para 42, it further quoted from its earlier judgment in Ram Narain vs. Simla Banking & Industrial Co. Ltd. [AIR 1956 SC 614] as follows:
“7. ….. It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a
given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the
language of the relevant provisions therein.â€
It had concluded at para 51 of the judgment by quoting from its earlier judgment in RBI vs. Peerless General Finance and Investment Co. Ltd. [10
(1987), SCC 424] as at para 33
“33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the
texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual
interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be
read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the
context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words
may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we
must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to
fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be
construed so that every word has a place and everything is in its place.â€
Hence, the Supreme Court had talked about harmonious construction. An interpretation of a statute is best when we know why it was enacted.
The interpretation given by the financial institution/Assets Reconstruction company would tantamount to making the PMLA redundant. The legislature
has come out with the law of PMLA in fulfillment of our international obligations as laid in the Preamble of the PML Act so that money laundering
and proceeds of crime could be effectively dealt with. If the interpretation given by M/s. Peagsus Reconstruction Pvt. Ltd. is accepted, then parties
would mortgage such properties with the bank and run away with, on the one hand, the loans taken from the bank, and on the other by securing their
property by mortgaging it to the bank and hence converting it to an “innocent†property. This to my mind would be in blatant violation of the
PMLA as well as the Honâ€ble Supreme Courtâ€s judgment. Moreover if we see the intent of PMLA and DRT Act or SARFAESI Act, the purpose
of these are entirely different. SARFAESI Act and the DRT Act deal with debts due to any secured creditor which shall have priority over all other
debts and all revenues, taxes, cesses and other rates due to the Central Government, State Government or local authority. On the other hand, in
PMLA there are no dues, debts, revenues, taxes, cesses and other rates which is payable to the Central Government, State Government or local
authorities. Properties are attached under PMLA, they being proceeds of crime.They therefore do not fall under the above category as mentioned in
the SARFAESI Act or the DRT Act and hence are mutually exclusive.
An important point of law needs to be brought out at this stage. Section 8(3) of PML Act, 2002 reads as under:
(3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order
in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or 3 [record seized or
frozen under section 17 or section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized
or frozen property] or record shallâ€
(a) continue during [investigation for a period not exceeding ninety days or] the pendency of the proceedings relating to any [offence
under this Act before a court or under the corresponding law of any other country, before the competent court of criminal jurisdiction
outside India, as the case may be; and]
[(b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section
(2A) of section 60 by the [Special Court];]
So the attachment order passed by the Adjudicating Authority will continue during the pendency before a court and become final after an order of
confiscation is passed by the Special Court.
Section 8(5) and 8(6) further states that;
[(5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been
committed, it shall order that such property involved in the moneylaundering or which has been used for commission of the offence of
money-laundering shall stand confiscated to the Central Government.
(6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of moneylaundering has not taken place or the
property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it.
So the powers of confiscation or release of the attached property is only vested with the Special Courts and this Appellate Tribunal
does not have any such powers. Hence exercise of the powers of confiscation or release of the attached property by this Appellate
Tribunal is beyond the scope of activities of this Tribunal and would be grossly illegal. Moreover as per Section 8(8) even the powers
of restoration of such confiscated property or thereof to a claimant with a legitimate interest in the property vests with the Special
Court. Section 8(8) was amended by the Finance Act, 2018, introducing a separate proviso to reinforce this point giving the court
further powers to allow such restoration even during the course of the trial. Usurping this power by the Appellate Tribunal would be a
blatant violation of the law itself.
The appellants have relied on a number of judgments as mentioned at para 3(vii) supra. However, the facts of those cases are entirely different
from the present case. The Supreme Court in Bharat Petroleum Corporation Ltd. & Anr. Vs. N.R. Vairamani and Anr. AIR 2004 SC 778 had
observed:-
“Court should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the
decision on which reliance is placed. Observations of Courts are neither to be read as Euclid’s theorems nor as provisions of the statute
and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments
of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to
embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret
judgments. They interpret words of statutes; their words are not to be interpreted as statutes.â€
In Ambica Quarry Works v. State of Gujarat and Ors. MANU/SC/0049/1986 the Supreme Court observed:-
“The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is
only an authority for what it actually decides, and not what logically follows from it.â€
On the basis of the above discussions and findings and the judgments of the Honâ€ble Delhi High Court and Supreme Court, I do not find any
merits in the appeals or the claim of the asset reconstruction company. The appeals are therefore dismissed as rejected.