In this case (Bank of Baroda and Ors. vs. The Deputy Director, Directorate of Enforcement, Mumbai and Ors. available at http://atfp.gov.in/writereaddata/upload//Judgement/Judgement_99MQH3UFS7_54711.PDF / MANU/ML/0044/2018) , the appeals, before the Appellate Tribunal under Prevention of money Laundering Act New Delhi (Tribunal), were taken up together for a common order as they had identical facts, involved similar questions of law and arose out of the same ECIR and Impugned order
The Appellants had filed these appeals under Section 26 of the Prevention of Money-Laundering Act, 2002 (PMLA) against the common Order passed by the Adjudicating Authority.
The Appellants are Bank of Baroda, Union bank of India, Oriental Bank of Commerce, State Bank of India and had preferred different appeals that were heard together.
In the case of Bank of Baroda (Appellant Bank):
M/s. Siddhi Vinayak Logistic Limited (M/s. SVLL/Borrowers) was dealing with the Appellant Bank since 2008. The Appellant Bank had granted, restructured and sanctioned various credit facilities to M/s. SVLL. M/s. SVLL and other Directors, Guarantors, Corporate Guarantors defaulted in repayment of the loan/credit facilities availed by them. The Appellant Bank, in accordance with Prudential Accounting and Income Recognition Norms prescribed by the Reserve Bank of India for the Bank, classified the said loans of M/s. SVLL as Non-Performing Asset.
The Appellant Bank had taken measures for recovery of the secured debts under the SARFAESI Act-2002 (SARFAESI) and had issued a Demand Notice u/s. 13(2) of the SARFAESI and in-spite of service of the statutory demand notice the Borrowers failed to pay the outstanding dues of Rs. 307,73,40,872/-.The Appellant Bank had served notice u/s. 13(4) of SARFAESI and taken over the symbolic possession of the securities mortgaged/charged/hypothecated with it to recover its dues.
The Appellant Bank had filed an O.A. in the DRT-II, Ahmedabad for recovery of its dues from aforementioned borrowers which had granted status-quo order in respect of the securities.
While the proceedings for recovery of dues under the Debt Recovery & Bankruptcy Act, 1993 (DR&B Act) and the SARFAESI were pending, the CBI, BS &FC, Mumbai, registered an FIR invoking sections 420, 468, 471, 120(B) of Indian Penal Code, 1860 and 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988 (PC Act) against the borrowers. Since the offences also fall under the scheduled offences under PMLA, the Directorate of Enforcement, (Respondent) recorded an ECIR. Consequent to the above, an Original Complaint was filed before the Adjudicating Authority praying for confirmation of the Provisional Attachment order (PAO). The Adjudicating Authority, by the impugned order, allowed the O.C. confirming the PAO which was challenged before this Tribunal.
The Adjudicating Authority had held that the defendant (Siddhi Vinayak), prima facie, had committed the Scheduled Offences, generated proceeds of crime and laundered them and thus, it had confirmed the PAO.
All the Appeals had similar facts and question of law and for this reason they were taken up together.
The incontrovertible facts were that the attached properties were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The Banks while rendering the facilities were bonafide parties. The mortgage of the properties was done for bonafide purposes. The Appellant Banks were not involved in any of the scheduled offences and no criminal complaint were pending against the Banks in this regard.
As per Section 26E SARFAESI:
"26E, Priority to Secured Creditors- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any Secured Creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government of State Government or local authority.
Explanation: For the purposes of this Section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the Borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."
Section 31B of the DR&B Act:
'31B. Priority to Secured Creditors- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and government dues including revenues, taxes, cesses and other rates due to the Central Government, State Government or local authority.
Explanation: for the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."
On behalf of the Appellants it was contended that Secured Creditors have the priority over the rights of the Central or State Government or any other local authority and that the amendment to section 26E of SARFAESI and 31B of DR&B Act amendment had been introduced to facilitate the rights of the Secured Creditors which were being hampered by way of provisional attachment of the properties belonging to the Banks/Secured Creditors. Reliance is placed on the Judgment dated 14.07.2017 passed by this Tribunal in State Bank of India Vs Jt. Director, Directorate of Enforcement, Kolkata.
The Appellants had also referred to judgment of the Full Bench of the Madras High Court in the case The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank and Ors.
"There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending."
The Tribunal had accepted the abovementioned contentions by the Appellants and quashed the order by the Adjudicating Authority.
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