Telangana High Court

Meliora Asset Reconstruction Company ... vs Union Of India on 2 July, 2024

      THE HON'BLE SRI JUSTICE C. V. BHASKAR REDDY

                WRIT PETITION No.18749 of 2021

ORDER:

This Writ Petition, is filed by the petitioner-company seeking

to issue writ in the nature of Certiorari calling for records relating

to the order dated 22.04.2021 passed in O.C.No.1367 of 2020 by

the respondent No.3 confirming the Provisional Attachment Order

No.3 of 2020 dated 27.10.2020 in ECIR/HYZO/01/2016 of the

respondent No.2 and consequently prayed this Court to set aside

the said orders as being contrary to the provisions of Prevention of

Money Laundering Act, 2002 (for short "PMLA Act"), arbitrary and

unconstitutional.

2. It is stated that petitioner is an Asset Reconstruction

Company (for short "ARC") and it obtained license under Section of

the Securitization and Reconstruction of Financial Assets and

Enforcement of Securities Interest Act, 2002 (for short "SARFAESI

Act") from the Reserve Bank of India (RBI) and the RBI also issued

Certificate of Registration on 05.12.2014. It is further stated that

the said Certificate of Registration was cancelled by the RBI vide

order dated 30.08.2019 alleging that the petitioner failed to meet

the capital requirements as mandated by it. It is the case of the

petitioner that under the mechanism evaluated for appointment of

ARC, the loan account and securities would be assigned to ARC

which in turn, will hold it in a trust to which the ARC and bank

would contribute amounts equivalent to their respective shares.

Thereafter, the ARC would act as a trustee to take all reasonable

measures to ensure that the best possible amounts are recovered

depending upon the quality of securities, the outstanding dues,

other possible actions against promoters depending on their net

worth, their other assets etc. Once the best possible amounts are

recovered from the transaction, the net proceeds are divided as per

the initial agreed upon percentage, subject to deduction of

expenses and other fees that ARC is entitled to. While the matter

stood thus, on the basis of material placed before the Complainant

i.e, respondent No.2 and with the reasonable belief that the

properties listed in the compliant are related or acquired out of the

Proceeds of Crime which involved in Money Laundering, and are

required to be attached for the purposes of the ongoing

investigation and adjudication proceedings under the PMLA Act,

2002, the respondent No.2 issued Provisional Attachment Order

No.03/2020 dated 27.10.2020 in File No.ECIR/HYZO/01/2016

provisionally attaching the movable and immovable properties of

the petitioner-company and filed Original Complaint No.1367 of

2020 on the file of respondent No.3-Adjudicating Authority seeking

to take cognizance of the same under Section 5(5) of the PMLA Act,

2002. The respondent No.3 after considering the entire material

and investigation reports placed on record and after taking into

consideration the various objections and contentions raised by the

petitioner company, came to conclusion that the properties

provisionally attached by PAO No.03/2020 dated 27.10.2020 are

involved in money laundering and vide order dated 22.04.2021

confirmed the Provisional Attachment Order and allowed the

complaint. Challenging the same, the present Writ Petition is filed.

3. This Court vide order dated 12.08.2021 issued notice before

admission and granted interim stay of Provisional Attachment

Order No.3 of 2020 dated 27.10.2020 passed by the respondent

No.2 in respect of Schedule 2-A and 2-B properties, on the ground

that the appellate authority is not functioning.

4. Heard the submissions of learned counsel for the respective

parties and perused the record.

5. Sri S. Niranjan Reddy, learned Senior Counsel representing

for Sri P.Sri Harsha Reddy, learned counsel for the petitioner has

submitted that the respondent No.3 without giving cogent reasons

has mechanically confirmed the Provisional Attachment Order

dated 27.10.2020 passed by the respondent No.2. In the absence of

substantial evidence with regard to involvement of petitioner, the

respondents cannot declare the properties possessed by the

petitioner as Proceeds of the Crime as defined under Section 2(u) of

the PMLA Act. It is further submitted that as an ARC, the

petitioner has followed due process of law for recovery of the

amounts from the borrower and there is no prohibition in the law

that the ARC cannot do One Time Settlement (OTS) with the

borrower. It is submitted that the OTS with the borrower is one of

the usual modes adopted by banks' to recover the amounts. It is

contended that the respondent No.3 failed to appreciate the

legislative scheme qua the functioning of ARCs. The banks and

ARCs operate under a strictly specified regime inter alia under the

SARFAESI Act. It is further contended that the respondent No.3

failed to take note of Section 35 of the SARFAESI Act which

provision is having overriding effect on all other laws. The learned

Senior Counsel further submitted that even though remedy of

appeal is provided under PMLA Act, since no Member either

Judicial or Non-Judicial is posted in the Appellate Tribunal, New

Delhi, the petitioner could not file appeal and therefore, the writ

petition filed by the petitioner on the file of this Court is

maintainable and in view of pendency of the same since three long

years, the same has to be decided on merits rather than relegating

the petitioner to the avail the remedy of appeal.

6. On the other hand, the learned Standing Counsel appearing

for the respondents has submitted that Members are posted in the

Appellate Tribunal, New Delhi and the same is now functioning

and therefore, the petitioner has to avail the remedy of filing an

appeal on the file of Appellate Tribunal, PMLA New Delhi.

7. Section 8 of the PMLA Act, 2002 deals with adjudication

process. Sub-Section (1) of Section 8 states that on receipt of a

complaint made under sub-section (5) of Section 5, or applications

made under sub-section (4) of Section 17 or under sub-section (10)

of section 18, if the Adjudicating Authority has reason to believe

that any person has committed an offence under Section 3 or is in

possession of proceeds of crime, he may serve a notice of not less

than thirty days on such person calling upon him to indicate the

sources of his income, earning or assets, out of which or by means

of which he has acquired the property attached under sub-section

(1) of section 5, or, seized or frozen under section 17 or section 18,

the evidence on which he relies and other relevant information and

particulars, and to show cause why all or any of such properties

should not be declared to be the properties involved in money-

laundering and confiscated by the Central Government. The

competent authority under the Act shall make an application

under sub-Section (5) of Section 5 and seek permission or approval

of attachment of property by Adjudicating Authority. Under sub-

section (3) of Section 8 of the Act, the Adjudicating Authority is

competent to confirm the attachment of the property made under

sub-section(1) of section 5 or retention of property or 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 and pass appropriate reasoned order.

Admittedly, in the instant case, on the complaint filed by the

competent authority under sub-section (5) of Section 5, the

Adjudicating Authority i.e, respondent No.3 exercising its power as

conferred under sub-Section (3) of Section 8, has passed the

impugned order dated 22.04.2021 in Original Complaint No.1367

of 2020 confirming the Provisional Attachment order No.03/2020

dated 27.10.2020 passed by the respondent No.2. Against the

impugned order dated 22.04.2021 passed in Original Complaint

No.1367 of 2020 by the respondent No.3-Adjudicating Authority,

an appeal lies under Section 26 of the PMLA Act.

8. In United Bank of India v. Satyawati Tondon 1, the

Hon'ble Apex Court laid down the following principles for

entertaining the writ petitions, when alternative remedy is

available.

"43. Unfortunately, the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute.

44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution.

(2010) 8 SCC 110 : (2010) 3 SCC (Civ) 260]

45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance.

55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection.""

9. In Commissioner of Income Tax vs. Chhabil Dass

Agarwal 2, the Hon'ble Apex Court observed as under:

"15. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case [AIR 1964 SC 1419], Titaghur Paper Mills case [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : 1983 SCC (Tax) 131] and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the

(2014) 1 SCC 603

field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation."

10. In PHR Invent Educational Society vs. UCO Bank and

others 3 the Hon'ble Apex Court while reiterating the principles laid

down above, has observed that the High Courts will not entertain a

petition under Article 226 of the Constitution of India if an effective

alternative remedy is available to the aggrieved person or the

statute under which the action complained of has been taken itself

contains a mechanism for redressal of grievance.

11. In the instant case, in view of the complicated issues

involved in this writ petition and they require determination basing

on the evidence, and as the petitioner is having alternative remedy

of statutory appeal under Section 26 of PMLA Act and taking into

consideration various judgments of the Hon'ble Apex Court referred