The Bombay High Court has held that an entire property cannot continue under attachment under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act) merely because the owner’s spouse is an accused or because the spouse was a co-borrower, when the property was substantially acquired from a housing loan advanced by a bank, no direct nexus is established between the property and investor funds, no role is attributed to the owner in the alleged offence, and the amount allegedly traceable to the accused has already been separately secured. On the facts of this case, the absence of a proven link between the attached property and the tainted funds was decisive.
The Division Bench comprising Justice A. S. Gadkari and Justice Kamal Khata found merit in the appellant’s challenge and placed significant weight on the fact that the property had been purchased substantially through a housing loan advanced by Punjab National Bank. The Court noted that the bank had sanctioned an aggregate amount of Rs. 3.63 crores to the appellant, with separate components for purchase and construction, and that the property had been mortgaged to the bank as security. The Court also noted that the bank had already secured a recovery certificate for over Rs. 2.53 crores.
At the same time, the Court did not ignore the allegation that part of the funds may have come from the appellant’s husband. It referred to the forensic audit report, which showed that Rs. 55 lakhs had been transferred by Arun Kumar Sharma, the accused husband, to the appellant. The Court observed that to that extent, the amount was liable to be secured for the benefit of investors. However, it also noted that Rs. 68.80 lakhs had already been recovered from the appellant and deposited in the EOW account, which was more than the amount identified in the forensic material.
A key factual finding of the Court was that neither the investigation nor the forensic audit report assigned any role to the appellant in the alleged offence. The Court specifically recorded that no direct nexus had been established between the purchase of the subject property and the investor funds involved in the criminal proceedings. It also found that there was no disclosure in the investigation or forensic audit of any flow of funds from Lotus Refineries Private Limited to the appellant.
The Court rejected the argument that the attachment could continue merely because the appellant’s husband was a co-borrower under the housing loan. It held that the fact that the appellant was a housewife with no independent income, by itself, could not justify attaching the entire property when a substantial part of the purchase money had admittedly come from the bank, and when the amount allegedly received from the husband had already been adequately secured.
The Court also clarified that the dismissal of the appellant’s earlier applications did not bar the present appeal. One earlier application had been rejected because it had been filed under Section 457 of the CrPC instead of Section 7(1) of the MPID Act. Another had concerned de-freezing of a bank account, whereas the present proceedings dealt with release of the attached property. The Court held that the two earlier proceedings were different in nature and did not affect the present case.
The High Court further observed that the Special Judge had placed undue emphasis on the husband being a co-borrower. It held that the husband’s inclusion as co-borrower did not alter the character of the bank loan granted to the appellant as principal borrower. It added that the bank was within its commercial discretion to insist on a co-borrower and that non-disclosure of that fact by the appellant was not such suppression of a material fact as would disentitle her from relief in the circumstances of this case.
In its concluding analysis, the Court stressed that the property had been substantially purchased and constructed from funds advanced by a nationalised bank, which themselves represented public funds. Since the bank had already obtained a recovery certificate and since the amount shown in the forensic audit as transferred by the husband had already been sufficiently secured through deposits with EOW, the Court held that, in the absence of material showing a nexus between the property and investor funds, attachment of the entire property could not be sustained. The Court also said that the facts were peculiar and therefore it was not necessary to enter into the larger question of inter-play between the MPID Act and the SARFAESI Act.
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Briefly, an appeal was filed by Seema Sharma against an order of the Special Judge under the MPID Act which had refused to release her residential house in Chandigarh from attachment. The property had been attached through government notifications issued in connection with Special MPID Case relating to the NSEL matter. The house in question was House No. 421, Sector 35-A, Chandigarh. Seema Sharma’s case was that the property had been wrongly attached on the assumption that it belonged to M/s Lotus Refineries Private Limited, a borrower company linked to NSEL.
She argued that although her husband was associated with Lotus Refineries Private Limited and was an accused in the MPID proceedings, she herself had no role in the company’s management or affairs. According to her, she had purchased the property in her own name under a registered sale deed dated 18 July 2013 and the consideration for the purchase had not come from Lotus Refineries or from her husband in the manner alleged by the authorities. She also contended that she was not an accused in the criminal case and that the attachment had been made only on the basis of an accused person’s statement, without proper verification or application of mind.
The appellant further contended that Lotus Refineries became a member of NSEL only on 15 March 2012 and that she was neither a director nor otherwise connected with the company at the relevant time. On that basis, she said no nexus had been shown between her property and the investor funds involved in the criminal case, and therefore the property could not be treated as attachable under Section 4 of the MPID Act. She also claimed that the property had been acquired by taking a housing loan from Punjab National Bank, and that her husband being only a co-borrower would not change her ownership rights in the property.
Punjab National Bank supported release of the property to the extent of protecting its security interest. The bank stated that it had sanctioned a housing loan of Rs. 3.63 crores, out of which Rs. 2.43 crores were for purchase of the property and Rs. 1.20 crores were for construction. The property had been equitably mortgaged to the bank. After default, the bank took symbolic possession on 18 March 2016 and physical possession on 15 September 2016 under SARFAESI, and the DRT at Chandigarh had issued a recovery certificate showing outstanding dues of Rs. 2.53 crores as on 29 January 2016.
On the other side, the intervenor opposing the appeal argued that Seema Sharma was only a housewife with no independent source of income and that there was no material to displace that position. This was used to suggest that her claim of independent ownership and independent funding should not be accepted.
