Asset Reconstruction Co. (India) Ltd. Vs. Chief Controlling Revenue Authority. - In all taxing Statutes, there are taxing provisions and machinery provisions. Once a single instrument has been charged under a correct charging provision of the Statute, namely Article 20(a), the Revenue cannot split the instrument into two, . . .

Supreme Court (26.04.2022) in Asset Reconstruction Co. (India) Ltd. Vs. Chief Controlling Revenue Authority. [Civil Appeal No. 3070 of 2022 @ Special Leave Petition (Civil) No. 34723 of 2016] held that;

• In all taxing Statutes, there are taxing provisions and machinery provisions. Once a single instrument has been charged under a correct charging provision of the Statute, namely Article 20(a), the Revenue cannot split the instrument into two,  . . . 

• In other words after having accepted the deed of assignment as an instrument chargeable to duty as a conveyance under Article 20(a) and after having collected the duty payable on the same, it is not open to the respondent to subject the same instrument to duty once again under Article 45(f),

Excerpts of the order;

# 1. Aggrieved by the opinion rendered by the Full Bench of the High Court of Gujarat in a Stamp Reference under Section 54(1)(a) of the Gujarat Stamp Act, 1958 (hereinafter referred to as the ‘Act’), made by the Chief Controlling Revenue Authority of the State of Gujarat, the Asset Reconstruction Company (India) Ltd., has come up with the above appeal.

 

# 2. We have heard Mr. V. Chitambaresh, learned senior counsel appearing for the appellant and Ms. Archana Pathak Dave, learned counsel appearing for the State of Gujarat.

 

# 3. The Oriental Bank of Commerce (‘OBC’ for short) granted certain facilities to a borrower and the borrower committed default in repayment. Unable to recover the loan, the Bank assigned the debt in favour of the appellant herein, which is an Asset Reconstruction Company registered with the Reserve Bank of India under Section 3 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘Securitisation Act 2002’). The assignment made by the OBC was under an Agreement dated 18.11.2008. The Assignment Agreement was registered with the Sub-­Registrar, Bharuch, on 18.11.2008. In fact, the registration of the document was preceded by an adjudication under Section 31 of the Act.

 

# 4. However, an audit objection was raised by the Office of the Accountant General on the ground that the deed of assignment contained a reference to a Power of Attorney (‘PoA’ for short) in Schedule 3 and that the said PoA was chargeable to stamp duty under Article 45(f) of Schedule­-I to the Act. A demand for deficit stamp duty to the tune of Rs.23,53,800/­ was raised pursuant to the audit objection.

 

# 5. Thereafter, the Deputy Collector (Stamp Duty) referred the matter to the Chief Controlling Revenue Authority, who in turn issued a notice to the appellant herein. After considering the reply submitted by the appellant, the Chief Controlling Revenue Authority passed an order dated 04.01.2012 setting aside the order of adjudication passed on 23.10.2008 and directing recovery of the deficit stamp duty.

 

# 6. Aggrieved by the said order, the appellant submitted an application under Section 54(1)(a) of the Act. On the said application, the Chief Controlling Revenue Authority referred the following two questions for the opinion of the Court:­

• “(A) Whether the objection raised by the Account General, Ahmedabad in audit para, in the year 2008 is proper or not, as per Article­45(f) of the Bombay Stamp Act, 1958 or not?

• (B) Whether the Asset Reconstruction Company (India) Limited is liable to pay stamp duty of Rs.24,94,100/­ i.e. 4.9% as per Article­20(a) of the Bombay Stamp Act or not?”

 

# 7. For finding an answer to the above questions, the Full Bench of the High Court examined the recitals contained in the deed of assignment and found that the Bank had agreed to execute an irrevocable PoA in favour of the appellant herein, substantially in the form set out in Schedule 3 of the deed of assignment. The form set out in Schedule 3 contained recitals empowering the assignee, as the agent of the Bank, to sell any immovable property. Therefore, considering the fact that Article 45(f) of Schedule I to the Act makes a PoA given for a consideration and containing an authority to sell any immovable property chargeable to stamp duty as a conveyance, the High Court came to the conclusion that the appellant has to pay stamp duty as fixed by Article 45(f). The High Court opined that merely because the power to sell, forms part of the deed of assignment under Schedule 3, the appellant could not escape the charge of duty and that the PoA is required to be considered independently.

 

# 8. But we do not think that the above reasoning can be accepted. First of all, what was presented for registration by the appellant was a single document namely an “Assignment Agreement”. Clause 11.12 of the Assignment Agreement contained recitals to the effect that the seller (assignor, namely the OBC) had agreed to execute simultaneously with the execution of the deed of assignment, an irrevocable PoA, substantially in the form set out in Schedule 3. What was contained in Schedule 3 to the Assignment Agreement was the format of an irrevocable PoA.

 

# 9. The High Court overlooked the fact that there was no independent instrument of PoA and that in any case, the power of sale of a secured asset flowed out of the provisions of the Securitisation Act, 2002 and not out of an independent instrument of PoA. Section 2(zd) of the Securitisation Act, 2002 defines a ‘secured creditor’ to mean and include an Asset Reconstruction Company. The appellant has acquired the financial assets of OBC in terms of Section 5(1)(b) of the Securitisation Act, 2002. Therefore, under sub­section (2) of Section 5 of the Securitisation Act, 2002, the appellant shall be deemed to be the lender and all the rights of the Bank vested in them. In fact, under Amendment Act 44 of 2016, sub­section (1A) was inserted in Section 5 of the Securitisation Act, exempting from stamp duty, any document executed by any bank under Section 5(1) in favour of an Asset Reconstruction Company acquiring financial assets for the purposes of asset reconstruction or securitization. Though the said amendment may not be applicable to the case of the appellant, as the deed of assignment, in this case, was executed long prior to the amendment, we have just taken note of the amendment to show how far the Parliament has gone.

 

# 10. Article 45(f) of Schedule I to Act, reads as follows:­

(f) (i) when given for consideration and authorizing the attorney to sell any immovable property

The same duty as is leviable on a conveyance under Article 20 for the amount of the consideration or, as the case may be, the market value of the immovable property whichever is greater;

# 11. For invoking Article 45(f), two conditions have to be satisfied. They are, (i) the PoA should have been given for a consideration; and (ii) an authorization to sell any immovable property should flow out of the instrument.

 

# 12. In the case on hand, the consideration paid by the appellant to OBC, was for the purpose of acquisition of the financial assets, in respect of a particular borrower. The draft of the PoA contained in Schedule 3 of the deed of assignment was only incidental to the deed of assignment. The deed of assignment has already been charged to duty under Article 20(a) which deals with “conveyance”. In fact Article 45(f) also requires a PoA covered by the said provision to be chargeable to stamp duty under Article 20.

 

# 13. But what has happened in this case was that under a Notification bearing No.GHM/2002­5­M STP­102000­2749/H­1 dated 25th January, 2002, the Government ordered the reduction of stamp duty payable on an instrument of securitization of loans or assignment of debt with underlying securities, to 75 paise for every Rs.1000 or part thereof. This Notification reads as follows:­

• “In exercise of the powers conferred by clause (a) of Section 9 of the Bombay Stamp Act, 1958 (Bom LX of 1958) and in supersession of Government Orders Revenue Department No. GHM­98­22­M­STP­1096­2527­H­1 dated 26.02.1998, the Government of Gujarat hereby reduces from the date of publication of this order the duty with which an instrument of securitization of loans or assignment of debt with underlying securities chargeable under Article 20 (a) of Schedule I to the said Act to 75 paise for every rupees 1000 or part thereof the loan securitised or debt assigned with underlying securities. By order and in the name of the Governor of Gujarat.”

 

# 14. The above Notification was amended by a subsequent Notification bearing No. GHM/2003/28/STP/102002/2065/H­1 dated 1st April, 2003. The said Notification reads as follows:­

• “In exercise of powers conferred by clause (a) of section 9 of the Bombay Stamp Act, 1958 (Bom LX of 1958), the Government of Gujarat hereby amends Government Order No. GHM/2002/5/M/STP/102000/ 2749/H­1, dated 25th January, 2002 as follows, namely:­

• In the said order, for the words and figures “to seventy five paise for every rupees 1000 or part thereof” the words and figures “subject to maximum of rupees one lakhs, seventy­-five paise for every rupees 1000 or part thereof” shall be substituted.

• By order and in the name of the Governor of Gujarat.”

 

# 15. In view of the Notification dated 01.04.2003 issued in exercise of the power to reduce, remit or compound the duty, conferred by Section 9(a) of the Act, the amount of duty chargeable in terms of Article 20(a) was capped at Rs. 1,00,000/­. In addition to the said amount of Rs.1,00,000/­, the appellant was asked to pay an additional duty of Rs.40,000/­ under Section 3­A. The appellant has thus paid a total amount of Rs.1,40,000/­ with the instrument having been charged as a conveyance under Article 20(a).

 

# 16. In all taxing Statutes, there are taxing provisions and machinery provisions. Once a single instrument has been charged under a correct charging provision of the Statute, namely Article 20(a), the Revenue cannot split the instrument into two, because of the reduction in the stamp duty facilitated by a notification of the Government issued under Section 9(a). In other words after having accepted the deed of assignment as an instrument chargeable to duty as a conveyance under Article 20(a) and after having collected the duty payable on the same, it is not open to the respondent to subject the same instrument to duty once again under Article 45(f), merely because the appellant had the benefit of the notifications under Section 9(a). Since the impugned order of the High Court did not address these issues and went solely on the interpretation of Article 45(f), the same is unsustainable. Therefore, the appeal is allowed and the impugned order is set aside. The demand made by the Chief Controlling Revenue Authority is consequently set aside. There will be no order as to costs.

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Mohammed Maqmoor Ateeq Vs. HDB Financial Services Ltd. - That ordinarily relief under Articles 226 and 227 of the Constitution of India is not available, if an efficacious alternative remedy is available to any aggrieved person.

 HC Karnataka (10.03.2022) in Mohammed Maqmoor Ateeq Vs. HDB Financial Services Ltd.[Writ Petition No. 5005/2022 (Gm-Res)] declined to examine as to whether the petitioner is in lawful possession under a valid lease and whether such valid lease is made prior to the creation of mortgage by the borrower in favour of the respondent-Financial Institution or whether the petitioner is a protected tenant, since the same could be examined by the Tribunal under Section 17(4A) of the 2002 Act, which requires placing of evidence to decide the said question.

• That ordinarily relief under Articles 226 and 227 of the Constitution of India is not available, if an efficacious alternative remedy is available to any aggrieved person.

Excerpts of the order;

The petitioner, claiming to be a lessee of 1st floor of the property bearing No.145, Prathamesh Apartment, 3rd Cross, R.K. Garden, RMV 2nd Stage, New BEL Road, Devasandra, Bengaluru – 560 054, which is mortgaged to the first respondent-HDB Financial Services Limited (for short ‘the Financial Institution’) is before this Court, questioning the correctness of the order dated 27.05.2020 passed under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the 2002 Act”) and also the mahazar dated 24.02.2022.

# 2. Heard Smt Sona Vakkund, learned counsel for the petitioner and Sri V.B.Ravishankar, learned counsel for caveator/respondent No.1. Perused the writ petition papers.

# 3. Learned counsel for the petitioner submits that petitioner is a lessee of 1st Floor consisting of 3 Bed Rooms in the property bearing No.145, Prathamesh Apartment, 3rd Cross, R.K. Garden, RMV 2nd Stage, New BEL Road, Devasandra, Bengaluru – 560 054, in pursuance of the Lease Agreement dated 03.02.2017. Initially the period of lease was for a period of 36 months and thereafter, the same was extended by another 36 months under lease agreement dated 07.02.2020. It is submitted that respondents 2 to 5 had borrowed loan from the 1st respondent-Financial Institution. As the respondents 2 to 5 failed to honour their commitment in repaying the loan taken by them, the 1st respondent initiated recovery action under the provisions of 2002 Act. The 1st respondent approached the VII Additional Chief Metropolitan Magistrate at Bangalore (for short ‘the ACMM’) under Section 14 of the 2002 Act for possession of the mortgaged property. In pursuance to the impugned order passed by the ACMM, the 1st respondent-Financial Institution on 24.02.2022 barged into the house of the petitioner with police force and forcibly the petitioner and his family members were pulled out of the house, without even allowing to take the belongings of the petitioner. Subsequently on enquiry, the petitioner came to know that since the respondents 2 to 5 failed to pay the loan amount, as the property was mortgaged as security to the loan, the 1st respondent has taken action to take possession of the mortgaged property. Challenging the impugned order dated 27.05.2020 passed under Section 14 of the 2002 Act as well as the mahazar dated 24.02.2022, taking possession of portion of the property in which the petitioner was lessee, the petitioner is before this Court in this writ petition.

# 4. Heard Smt. Sona Vakkund, learned counsel for the petitioner and Sri V.B. Ravi Shankar, learned counsel for the 1st respondent. Perused the writ petition papers.

# 5. Smt. Sona Vakkund, learned counsel submits that petitioner is a lessee under unregistered lease from 03.02.2017 which is continued subsequently by lease agreement dated 07.02.2020. The petitioner was not a party to any of the proceedings and without giving an opportunity to the petitioner and without following due process of law, the petitioner is dispossessed from the 1st floor of the premises in question. Learned counsel submits that at least the petitioner ought to have been made a party to the proceedings initiated under Section 14 of the 2002 Act. It is her submission that Section 14 of the Act requires filing of an affidavit by the secured creditor with regard to the nature of the property and as to whether there are tenants in the property mortgaged. Without disclosing the occupation of the property by the tenants the 1st respondent-Financial Institution approached the ACMM Court under Section 14 of the Act.

# 6. Learned counsel would further submit that petitioner being a lessee under the lease agreement dated 03.02.2017 as well 07.02.2020, the petitioner ought to have been evicted by following due process of law. The 1st respondent could not have taken forcible possession of the premises in which the petitioner was residing. The 1st respondent- Financial Institution had not even taken inventory, while taking possession of the property from the petitioner. By drawing attention of this Court to the Mahazar under which possession of the property is taken, learned counsel submits that owner of the property, who was residing in the 3rd floor of the Apartment has not been evicted and without evicting the landlord, it is unreasonable and arbitrary to evict only the petitioner, who was in occupation of 1st floor. Thus she submits that action of the 1st respondent is wholly unreasonable. Learned counsel in support of her contention relies on the decision of the Hon’ble Apex Court in Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited & Others reported in (2014) 6 SCC 1 inviting attention of this Court to paragraph 25 of the judgment to contend that the petitioner was in lawful possession under a valid lease. Hence without following the due process of law, petitioner could not have been evicted. Further learned counsel also relies upon the decision in Vishal  N. Kalsaria Vs. Bank of India & Ors.  reported in (2016) 3 SCC 762 to say that the petitioner is a protected tenant and could be evicted only by following the due process of law.

# 7. Per contra, Sri V.B. Ravi Shankar, learned counsel for the 1st respondent submits that petitioner is not a lawful tenant or lessee and the petitioner is not in lawful possession of the premises. He submits that the property was mortgaged in favour of the 1st respondent-Financial Institution on 17.03.2015 much prior to the alleged lease dated 07.02.2017 in favour of the petitioner. Further he submits that the lease is not a registered lease and there is no document with regard to lawful possession or to establish valid lease in favour of the petitioner. It is his submission that in the decisions of Harshad Govardhan Sondagar as well as Vishal  N. Kalsaria cited supra, the lessee was in lawful possession under a valid lease. Further learned counsel relied upon the decision of the Hon’ble Apex Court in Criminal Appeal No.1371/2019 disposed of on 11.09.2019 in Bajarang Shyamsunder Agarwal Vs. Central Bank of India & Anr. to contend that the Three Judges Bench of the Hon’ble Supreme Court has held that tenant claiming entitlement to possession of a secured asset shall be supported by a registered lease instrument or if the tenant relies on an un-registered instrument or oral agreement, the tenant is not entitled to possession more than the period under Section 107 of the Transfer of Property Act. Further he submits that only where a valid tenancy is created prior to the creation of mortgage to the Bank, only such tenancy is recognized. It is his submission that petitioner is not a tenant prior to the mortgage of the property to the 1st respondent-Financial Institution and further submits that creation of tenancy in favour of the petitioner is also not intimated to the Bank.

# 8. Learned counsel would next contend that the writ petition is not maintainable since the petitioner is provided with alternate remedy to approach the Debt Recovery Tribunal under Section 17 of the 2002 Act. Referring to Section 17(4A) of the 2002 Act, the learned counsel would submit that the Debt Recovery Tribunal is empowered to pass appropriate order, if the tenancy right or lease hold rights are established. Thus he prays for dismissal of the writ petition.

# 9. The petitioner claims that he is a lessee/tenant in respect of the 1st floor of the property in question, which is admittedly mortgaged on 17.03.2015 to the 1st respondent-Financial Institution for the financial assistance obtained by respondents 2 to 5. It is an admitted fact that when respondents 2 to 5 failed to adhere to their commitment in repaying the loan amount, the 1st respondent initiated action under the provisions of the 2002 Act to recover the amount due from respondents 2 to 5. On initiation of proceedings under Section 13 of the Act, the 1st respondent filed a petition before the ACMM under Section 14 of the 2002 Act. Under the impugned order petition filed under Section 14 of the Act is allowed. The 1st petitioner was permitted to take possession of the mortgaged property with the help of the jurisdictional police. Pursuant to the order dated 27.05.2020, after more than 1 ½ years the 1st respondent-Bank on 24.02.2022 took possession of a portion of the mortgaged property. Though the impugned order is dated 27.05.2020, the date of taking possession of the property is on 24.02.2022 and the petitioner is before this Court by filing the petition on 03.03.2022. The sequence of dates mentioned above, creates a doubt in the mind of the Court with regard to the bonafides of the petitioner. As contended by the learned counsel for the 1st respondent-Financial Institution the petitioner is provided with an alternate remedy of approaching the Debt Recovery Tribunal by filing an application under Section 17 of the 2002 Act. If the petitioner establishes valid lease and lawful possession as observed by the Hon’ble Apex Court in the decision of Harshad Govardhan Sondagar and Vishal  N. Kalsaria supra, the Tribunal is competent to pass appropriate order under sub-Section (4A) (ii) of Section 17 of the 2002 Act.

# 10. The Hon’ble Apex Court in a recent decision in Civil Appeal Nos.257-259/2022 decided on 12.01.2022 Phoenix ARC Private Limited  Vs. Vishwa Bharathi Vidya Mandir & Ors. considering Section 17 of the 2002 Act and earlier decisions has held that ordinarily relief under Articles 226 and 227 of the Constitution of India is not available, if an efficacious alternative remedy is available to any aggrieved person. The relevant portion at paragraphs 7.4, 7.5 and 7.6 reads as follows :-

• “7.4 In the case of City and Industrial Development Corpn. Vs. Dosu Aardeshir Bhiwandiwala, (2009) 1 SCC 168, it was observed by this Court in paragraph 30 that the Court while exercising its jurisdiction under Article 226 is duty bound to consider whether ……………(c) the petitioner has any alternative or effective remedy for the resolution of the dispute.

• 7.5 In the case of Kanaiyalal Lalchand Sachdev and Ors. (supra) after referring to the earlier decisions of this Court in the cases of Sadhana Lodh Vs. National insurance Co. Ltd. and Anr., (2003) 3 SCC 524; Surya Dev Rai Vs. Ram Chander Rai and Ors., (2003) 6 SCC 675 and State Bank of India Vs. Allied Chemical Laboratories and Anr., (2006) 9 SCC 252 while upholding the order passed by the High Court dismissing the writ petition on the ground that an efficacious remedy is available under Section 17 of the SARFAESI Act, it was observed that ordinarily relief under Articles 226/227 of the Constitution of India is not available if an efficacious alternative remedy is available to any aggrieved person.

• 7.6 Similar view has been expressed by this Court in subsequent decisions in the case of General Manager, Sri Siddeshwara Cooperative Bank Limited & Anr. (supra) as well as in the case of Agarwal Tracom Private Limited (supra).”

# 11. In the present proceedings, I decline to examine as to whether the petitioner is in lawful possession under a valid lease and whether such valid lease is made prior to the creation of mortgage by the borrower in favour of the respondent-Financial Institution or whether the petitioner is a protected tenant, since the same could be examined by the Tribunal under Section 17(4A) of the 2002 Act, which requires placing of evidence to decide the said question.

# 12. Smt. Sona Vakkund, learned counsel for the petitioner submits that belongings of the petitioner are inside the premises of the I floor of the mortgaged property, which the 1st respondent-Financial Institution has taken possession and prays for a direction to the 1st respondent-Financial Institution to hand over the movables and belongings of the petitioner or an opportunity to take those articles and movables from the premises.

# 13. The request of the learned counsel for the petitioner appears to be reasonable. Hence the following order :-

• (i) The writ petition is disposed of with liberty to the petitioner to approach the Debt Recovery Tribunal under Section 17 of the 2002 Act.

• (ii) The 1st respondent-Financial Institution is directed to permit the petitioner to take the movables and house hold articles from the seized premises within ten days from today by notifying the date and time to the petitioner.

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Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (SARFAESI Act)

# Section 17(4A) Where—

(i) any person, in an application under sub-section (1), claims any tenancy or leasehold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy,—

• (a) has expired or stood determined; or

• (b) is contrary to section 65A of the Transfer of Property Act, 1882 (4 of 1882); or

• (c) is contrary to terms of mortgage; or

• (d) is created after the issuance of notice of default and demand by the Bank under sub-section (2) of section 13 of the Act; and

(ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold rights claimed in secured asset falls under the sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (i), then notwithstanding anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act.

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Deputy Director, Directorate of Enforcement Delhi and others V. Axis Bank and others - An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act.

 High Court Delhi  (02.04.2019) in Deputy Director, Directorate of Enforcement Delhi and others V. Axis Bank and others  [CRL.A. 143/2018 & Crl.M.A. 2262/2018 ] held that;

• An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. 

• Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides.

• A party in order to be considered as a "bonafide third party claimant" for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, 

• The party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered.

• If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.

Excerpts of the order;

# 1. These five appeals presented under Section 42 of the Prevention of Money-Laundering Act, 2002 ("PMLA", for short) against more or less similar orders of the appellate tribunal (constituted under Section 25), such orders having been rendered on appeals of the respondents ("banks") vis-à-vis the orders of provisional attachment issued by the enforcement officers under Section 5, as confirmed by the adjudicating authority under Section 8, give rise, inter alia, to certain common questions of law of import concerning nature of property that may be attached under this special law as indeed the conflict arising from claim of bonafide acquisition of interest by third parties. Hence, they have been heard together and are being decided by this common judgment.

 

THE ISSUES

# 2. The measure of attachment of property involved in "money laundering", it essentially representing "proceeds of crime" (as defined in law), is provided to ensure that the ultimate objective of "confiscation" of such ill-gotten property be not frustrated, the power and jurisdiction to order confiscation being vested in the Special Court. As would be seen at length in later part of this judgment, the provisions for attachment (followed by adjudication) leading to confiscation are sanctions in addition to the criminal sanction rendering the act of "money laundering" a penal offence (by virtue of section 4). The order of "confiscation" of property attached under PMLA takes away the right and title of its owner and vests it "absolutely in the Central Government free from all encumbrances" (Section 9).

 

# 3. The appeals at hand relate to claims of entities other than the persons in whose name the attached properties are held - to be referred hereinafter as "third party" - such claims of the third party emanating from charge, lien or encumbrances legitimately created. To put it simply, the conflict meriting resolve here concerns the sovereign authority of the State to take away and confiscate the property which has been acquired by a person through criminal activity as against the lawful claim of a third party to reach out to such property to recover, in accordance with law, what is due by attachment and sale of same very property.

 

# 4. Bearing in mind the above, the learned counsel on both sides of the divide in these matters repeatedly submitted that the issues presently brought for adjudication are not adversarial in nature, in that both sides concededly have been given certain authority by law to reach out to the properties in question for their respective purposes, the challenge essentially being to prioritize the claims of one over the other. The appellate tribunal (as constituted under PMLA), by its impugned orders, has taken the view that the relevant statutory provisions of PMLA take a back seat, the enactments under which the third parties (the banks) lay a superior claim over the properties in question having primacy. The appellant assails the said view questioning the correctness of the logic and reasoning by which the appellate tribunal has so concluded arguing that if the decision of the tribunal were to prevail it would not only be prone to misuse but also render PMLA toothless.

 

SUMMARISING THE CONCLUSIONS

 

# 171. It will be advantageous to summarise the conclusions reached by the above discussion, as under :-

(i). The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering.

 

(ii). The empowered enforcement officer is expected to assess, even if tentatively, the value of proceeds of crime so as to ensure such proceeds or other assets of equivalent value of the offender of money-laundering are subjected to attachment, the evaluation being open to modification in light of evidence gathered during investigation.

 

(iii). The empowered enforcement officer has the authority of law in PMLA to attach not only a "tainted property" - that is to say a property acquired or obtained, directly or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property of equivalent value of the offender of money- laundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering.

 

(iv). If the "tainted property" respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset ("the alternative attachable property" or "deemed tainted property") of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime.

 

(v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him.

 

(vi). The objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former.

 

(vii). The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with "money-laundering" and "proceeds of crime" relating thereto.

 

(viii). The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" and consequently being "proceeds of crime", within the mischief of PMLA.

 

(ix). If the property of a person other than the one accused of (or charged with) the offence of money-laundering, i.e. a third party, is sought to be attached and there is evidence available to show that such property before its acquisition was held by the person accused of money-laundering (or his abettor), or it was involved in a transaction which had inter- connection with transactions concerning money-laundering, the burden of proving facts to the contrary so as to seek release of such property from attachment is on the person who so contends.

 

(x). The charge or encumbrance of a third party in a property attached under PMLA cannot be treated or declared as "void" unless material is available to show that it was created "to defeat" the said law, such declaration rendering such property available for attachment and confiscation under PMLA, free from such encumbrance.

 

(xi). A party in order to be considered as a "bonafide third party claimant" for its claim in a property being subjected to attachment under PMLA to be entertained must show, by cogent evidence, that it had acquired interest in such property lawfully and for adequate consideration, the party itself not being privy to, or complicit in, the offence of money-laundering, and that it has made all compliances with the existing law including, if so required, by having said security interest registered.

 

(xii). An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides.

 

(xiii). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property), claiming that it had acquired the same at a time around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim for its release from attachment it must additionally prove that it had taken "due diligence" (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest.

 

(xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the third party will not be subjected to confiscation so long as the charge or encumbrance of such third party subsists, the attachment under PMLA being valid or operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.

 

(xv). If the bonafide third party claimant (as aforesaid) is a "secured creditor", pursuing enforcement of "security interest" in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property), it having acquired such interest from person(s) accused of (or charged with) the offence of money-laundering (or his abettor), or from any other person through such transaction (or inter-connected transactions) as involve(s) criminal activity relating to a scheduled offence, such third party (secured creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third party.

 

(xvi). In the situations covered by the preceding two sub- paragraphs, the bonafide third party claimant shall be accountable to the enforcement authorities for the "excess" value of the property subjected to PMLA attachment.

 

(xvii). If the order confirming the attachment has attained finality, or if the order of confiscation has been passed, or if the trial of a case under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafide or having legitimate interest in the nature mentioned above will be inquired into and adjudicated upon only by the special court.

 

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Alok Kistuchand Agarwal Vs Sub-Registrar - It is trite law that, unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts.

HC Ahmedabad  (06.04.2022) in Alok  Kistuchand Agarwal Vs Sub-Registrar [Special Civil Application No. 10314 of 2021 ] Held that;

• It is trite law that, unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts.

Excerpts of the order;

# 1. By this writ application, the writ applicants under Article 226 of the Constitution of India, the writ applicants have prayed for the following reliefs:

• “This Hon’ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, direction or order and be pleased to:

• A. Quash and set aside the impugned letter / order dated 24.05.2021 at Annexure – A and impugned letter / order dated 31.12.2020 at Annexure – F;

• B. Direct the respondent No.1 herein to release the registered sale deed bearing registration number 1016 of 2020 in favour of Petitioners concerning plot numbers 01 to 12 at Revenue Survey Number: 119/3 & 156/1, Block Number:191 paiki west side at Village: Karang, Taluka: Mandavi, District: Surat, Gujarat, admeasuring 7185 Square meters;

• C. Quash and set aside attachment order dated 18.04.2013 at Annexure – G to the petition and direct the Respondent No.2 herein to lift / remove all its charges, encumbrances over plot numbers 01 to 12 at Revenue Survey Number: 119/3 & 156/1, Block Number: 191 paiki west side at Village: Karang, Taluka: Mandavi, District: Surat, Gujarat, admeasuring 7185 Square meters;

• D. Pending notice, admission and final hearing of this Petition, restrain Respondent No.2 from taking any further steps in pursuant to attachment order dated 18.04.2013 at Annexure – G to the petition;

• E. Pending notice, admission and final hearing of this Petition, your lordship may be pleased to direct Respondent No.1 herein to provisionally release the registered sale deed subject to outcome of the main petition;

• F. Any other and further relief deemed just and proper be granted in the interest of justice;”

 

# 2. The facts giving rise to this litigation, may be summarized as under:

2.1 We are concerned with 12 plots of land forming part of the Revenue Survey Nos.119/3 and 156/1 respectively, Block No.191 paikee West side situated at village: Karanj, Ta. Mandavi, Dist. Surat, Gujarat admeasuring 7185 Sq. Mtrs. These 12 plots were owned by a Company running in the name of M/s. Salar Polyfab Private Limited. M/s. Salar Polyfab Private Limited availed loan facilities some time in the year 2006-07 from the respondent No.3 – State Bank of India by mortgaging all the 12 plots. The Company thereby created a security interest with respect to the 12 plots in favour of the State Bank of India within the meaning of Section 2(lb) of the Recovery of Debts and Bankruptcy Act, 1993 (for short  “the RDB Act”). The bank could be said to have become the secured creditor so far as the 12 pots of land are concerned.

2.2 In or around 2011-12, the Company defaulted in repayment of the debts of the bank to the tune of Rs.85,41,51,495/- (Rupees Eighty-five Crore Forty-one Lakh Fifty-one Thousand Four Hundred Ninety-five only). In such circumstances, the bank decided to proceed against the Company by filing an Original Application No.295 of 2012 before the Debts Recovery Tribunal – II, Ahmedbaad, under the provisions of the RDB Act.

2.3 The Debts Recovery Tribunal allowed the Original Application vide order dated 29.01.2015 and authorized the bank to recover the outstanding by auctioning the secured assets in accordance with the provisions of the RDB Act, 1993. The Tribunal issued a Recovery Certificate under Section 18(22) of the Act,1993.

2.4 All the 12 plots were put to auction by the bank. The writ applicants participated in the auction proceedings and were declared as the highest bidders. The offer of Rs.1,30,00,000/-

towards sale consideration was accepted by the bank. The writ applicants were declared as the highest bidders. It is not in dispute that the writ applicants deposited the entire amount towards the sale consideration. It is also not in dispute that later the Tribunal confirmed the sale of land in favour of the writ applicants. The sale deed also came to be executed by the State Bank of India in favour of the writ applicants.

2.5 The writ applicants as on date are facing two fold problems; first the sale deed has not been released by the Sub-Registrar and secondly, the Talati-cum-Mantri has declined to mutate the entry of such sale in the revenue records. This has happened because the State has put forwarded its claim towards the dues to be recovered from the erstwhile Company towards income tax.

2.6 In such circumstances referred to above, the writ applicants are here before this Court with the present writ application.

 

# 3. We have heard Mr. Jaymin Dave, the learned counsel appearing for the writ applicants, Mr. Nikunt Raval, the learned senior standing counsel appearing for the respondent No.2 and Mr. Anand B. Gogia, the learned counsel appearing for the respondent No.3.

 

# 4. The short point that falls for our consideration which otherwise no longer res integra is whether the bank will have the precedence over the secured assets or the Income Tax Department will have the precedence over the secured assets. 

 

# 5. The Supreme Court in a recent pronouncement in the case of Punjab National Bank Vs. Union of India and Others, Civil Appeal No.2196 of 2012 decided on 24.02.2022 has taken the view that once any immovable property is mortgaged / hypothecated towards secured creditors then having regard to the provisions contained in Section 2(zc) to (zf) of the SARFAESI Act, 2002 read with the provisions contained in Section 13 of the SARFAESI Act, 2002, the secured creditor will have the first charge on the secured assets. The Supreme Court proceeded to hold that Section 35 of the SARFAESI Act, 2002 inter alia provides that the provisions of the SARFAESI Act shall have overriding effect on all other laws.

 

# 6. In the case on hand, the Income Tax Department obviously would rely upon the provisions of Section 281 of the Income Tax Act.

 

# 7. In view of the recent pronouncement, the provisions contained in Section 281 of the Income Tax Act would be said subject to the provisions contained in the SARFAESI Act, 2002. It appears that the Company was assessed for the F.Y. 2007-08. We do not have the exact date on which the assessment order came to be passed, but the records reveals that the Income Tax Department proceeded to attach the plots some time in 2013.

 

# 8. In the aforesaid context, Mr. Dave invited the attention of this Court to one another decision of the Supreme Court in the case of Connectwell Industries Private Limited Vs. Union of India Through Ministry of Finance and Others reported in (2020) 5 Supreme Court Cases 373, wherein the Supreme Court held as under:

• “9. It is trite law that, unless there is preference given to the Crown debt by a statute, the dues of a secured creditor have preference over Crown debts. [See:- Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., Union of India & Ors. v. SICOM Ltd., Bombay Stock Exchange v. V.S.  Kandalgaonkar, CIT v. Monnet Ispat and Energy Ltd.]

• 10. Rule 2 of Schedule II to the Act provides for a notice to be issued to the defaulter requiring him to pay the amount specified in the certificate, in default of which steps would be taken to realise them. The crucial provision for adjudication of the dispute in this case is Rule 16. According to Rule 16(1), a defaulter or his representative cannot mortgage, charge, lease or otherwise deal with any property which is subject matter of a notice under Rule 2. Rule 16(1) also stipulates that no civil court can issue any process against such property in execution of a decree for the payment of money. However, the property can be transferred with the permission of the Tax Recovery Officer. According to Rule 16(2), if an attachment has been made under Schedule II to the Act, any private transfer or delivery of the property shall be void as against all claims enforceable under the attachment.

• 11. There is no dispute regarding the facts of this case. The property in dispute was mortgaged by BPIL to the Union Bank of India in 2000 and the DRT passed an order of recovery against the BPIL in 2002. The recovery certificate was issued immediately, pursuant to which an attachment order was passed prior to the date on which notice was issued by the Tax Recovery Officer- Respondent No.4 under Rule 2 of Schedule II to the Act. It is true that the sale was conducted after the issuance of the notice as well as the attachment order passed by Respondent No.4 in 2003, but the fact remains that a charge over the property was created much prior to the notice issued by Respondent No.4 on 16.11.2003. The High Court held that Rule 16(2) is applicable to this case on the ground that the actual sale took place after the order of attachment was passed by Respondent No.4. The High Court failed to take into account the fact that the sale of the property was pursuant to the order passed by the DRT with regard to the property over which a charge was already created prior to the issuance of notice on 11.02.2003. As the charge over the property was created much prior to the issuance of notice under Rule 2 of Schedule II to the Act by Respondent No.4, we find force in the submissions made on behalf of the Appellant.”

 

# 9. In view of the aforesaid, this writ application succeeds and is hereby allowed. The impugned letter / order dated 24.05.2021 and 31.12.2020 respectively at Annexure F are hereby quashed and set aside. The respondent No.1 is directed to release the registered sale deed bearing registration No.1016/2020 in favour of the writ applicants with respect to the property in question. The attachment order dated 18.04.2013, Annexure G passed by the

Income Tax Department is also hereby quashed and set aside. The writ applicants are entitled in law to get their names mutated in the revenue records on the strength of sale deed.

 

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