Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2012 Supreme(Mad) 2929

2012 (4) CTC 225
High Court of Judicature at Madras
V. RAMASUBRAMANIAN
M/s. Indian Bank, Represented by its Chief Manager, Asset Recovery Management Branch-I & Another
Versus
Government of India, Ministry of Finance, Department of Revenue, Directorate of Enforcement Represented by Joint Director of Enforcement & Others
Writ Petition Nos.4696 and 12854 of 2012 & M.P.Nos.1, 1 and 2 of 2012
Decided On : 11-07-2012

Advocates Appeared:
For the Petitioners:M. Balachandar, R. Yashodhvardhan, Senior Counsel for B. Natarajan, Advocates.
For the Respondents: M. Ravindran, Additional Solicitor General assisted by M. Dhandapani, Standing Counsel.

The main legal point established in the judgment is the court's finding that the property represented the proceeds of crime, upholding the power of the respondents to attach the property, but also holding that the proceedings before the Adjudicating Authority were vitiated due to the violation of an interim stay order and the failure to make the Indian Bank a party to the proceedings.

Headnote:
Money Laundering - Property Attachment - Prevention of Money Laundering Act, 2002, Section 5(1), Section 8 - The court considered the validity of the provisional order of attachment passed by the Joint Director of Enforcement under Section 5(1) of the Prevention of Money Laundering Act, 2002, and the subsequent confirmation of the attachment by the Adjudicating Authority under Section 8. The court found that the property in question represented the proceeds of crime and upheld the power of the respondents to attach the property. However, the court held that the proceedings before the Adjudicating Authority were vitiated due to the violation of an interim stay order and the failure to make the Indian Bank a party to the proceedings. The court set aside the provisional order of attachment and all further proceedings as illegal.
Fact of the Case:

The Indian Bank filed a writ petition challenging a provisional order of attachment passed by the Joint Director of Enforcement, while the company, which borrowed money from the bank, filed a second writ petition challenging the provisional attachment and a consequent complaint lodged with the Adjudicating Authority. The bank contended that the property was already a non-performing asset and sought to quash the provisional order of attachment. The company argued that the property did not represent the proceeds of a crime.
Finding of the Court:

The court found that the property represented the proceeds of crime and upheld the power of the respondents to attach the property. However, the court held that the proceedings before the Adjudicating Authority were vitiated due to the violation of an interim stay order and the failure to make the Indian Bank a party to the proceedings. The court set aside the provisional order of attachment and all further proceedings as illegal.
Issues: The court considered whether the property represented the proceeds of crime and the implications for the Indian Bank's claim on the property. The court also addressed the validity of the proceedings before the Adjudicating Authority in light of the interim stay order and the failure to make the Indian Bank a party to the proceedings.
Ratio Decidendi: The court held that the property represented the proceeds of crime and upheld the power of the respondents to attach the property. However, the court found that the proceedings before the Adjudicating Authority were vitiated due to the violation of an interim stay order and the failure to make the Indian Bank a party to the proceedings. The court set aside the provisional order of attachment and all further proceedings as illegal.
Final Decision: The court allowed both writ petitions, setting aside the provisional order of attachment and all further proceedings as illegal. The findings recorded were specified not to have a bearing on the criminal prosecution.

Judgment :-

1. While the Indian Bank has come up with the first writ petition challenging a provisional order of attachment passed by the Joint Director of Enforcement, the Company whose property was so attached has come up with the second writ petition challenging the provisional attachment well as a consequent complaint lodged with the Adjudicating Authority.

2. I have heard Mr.M.Balachandar, learned counsel for the petitioner in the first writ petition, Mr.R.Yashodhvardhan, learned Senior Counsel for the petitioner in the second writ petition and Mr.M.Ravindran, learned Additional Solicitor General assisted by Mr.M.Dhandapani, learned Standing Counsel for respondents.

3. As stated above, the petitioner in the first writ petition is the Indian Bank and the petitioner in the second writ petition is a company, which borrowed monies from the Indian Bank. The factual matrix, out of which the present writ petitions arises, is as follows:-

(i) The petitioner in the second writ petition was sanctioned 3 term loans, under a sanction ticket dated 2.1.2006 by the Indian Bank. With the money so advanced by the Indian Bank, the petitioner in the second writ petition, hereinafter referred to as the "company", purchased a property at old Door No.14, New Door No.17, Trunk Road (G.S.T. Road), St. Thomas Mount, Chennai-16, under a Sale Deed dated 15.2.2006, registered as document No.280/2006 in the office of the Joint Sub Registrar, Saidapet.

(ii) On 31.1.2008, the Indian Bank lodged a complaint with the Superintendent of Police, Central Bureau of Investigation against the company, alleging that the company and the officers of the company, had defrauded the Bank. The complaint lodged by the Indian Bank was registered as RC No.1/E/2008-CBI-EOW/Chennai, on 6.2.2008.

(iii) Similarly, the State Bank of India lodged a complaint alleging that the company organised personal loans for 161 persons, showing them as its employees. This complaint was lodged in RC No.11/E/2008-CBI-EOW/Chennai, on 14.11.2008.

(iv) The Bank of India lodged another complaint in RC No.9/E/2008-CBI-EOW/Chennai, on 29.9.2008, alleging that the company obtained loans under Star Personal Loan Scheme in the name of 149 persons allegedly employed by them.

(v) On the complaint lodged by the Indian Bank, a charge sheet was filed in No.21/2008 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Chennai. Another charge sheet was laid in No.9/2009 on 11.12.2009 in respect of the complaint filed by the State Bank of India. The charge sheet alleged that the company and one Mr.S.Senthilkumar, who is its Managing Director, had committed offences punishable under Sections 120-B, 420, 467, 468 and 471 of the Indian Penal Code.

(vi) The charges framed against the company and its officers also included the offences indicated in the Schedule in terms of Section 2(1)(y) of the Prevention of Money Laundering Act, 2002.

(vii) Thereafter, the Joint Director of Enforcement passed an order bearing No.01/2012 on 22.2.2012 under Section 5(1) of the Prevention of Money Laundering Act, 2002, hereinafter called the "Act", directing the provisional attachment of the aforesaid property bearing old Door No.14, New Door No.17, Trunk Road (G.S.T. Road), St. Thomas Mount, Chennai-16. The order was passed on the premise that the said property purchased in the name of the company was acquired out of the proceeds of crime as defined in Section 2(1)(u) of the Act and that therefore, it was liable for adjudication and confiscation in terms of Section 8 of the Act.

(viii) Immediately upon coming to know of the said order of provisional attachment, the Indian Bank came up with the above writ petition W.P.No.4696 of 2012, contending that the account of the company had already become a non-performing asset and that since the property was mortgaged to them, the Bank had already taken steps to bring the property to sale in terms of the provisions of the SARFAESI Act, 2002. The prayer in the writ petit

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