PMLA attachment cannot override a victim bank's prior recovery rights when proceedings breach an operative stay and omit hearing the claimant.

Property acquired from bank-disbursed funds was treated as prima facie proceeds of crime because the underlying complaints disclosed scheduled offences, and a later amendment to the statutory schedule did not negate that character for the case. The Court also stated that attachment and confiscation under the money-laundering law could not be used to defeat a victim bank's prior recovery rights over mortgaged property, especially where the property had been financed through the bank's funds. Proceedings and the confirmation order were held unsustainable because they were taken in breach of an operative interim stay and without impleading or hearing the bank; the attachment and consequential proceedings were set aside, while the criminal prosecution remained unaffected.

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Issues: (i) Whether the attached property represented the proceeds of crime within the meaning of the Prevention of Money Laundering Act, 2002. (ii) Whether the victim bank's claim to proceed against the mortgaged property could be defeated by attachment and confiscation proceedings under the Prevention of Money Laundering Act, 2002. (iii) Whether the adjudication proceedings and the confirmation order were vitiated for breach of an interim stay order and for failure to implead the bank.

Issue (i): Whether the attached property represented the proceeds of crime within the meaning of the Prevention of Money Laundering Act, 2002.

Analysis: The property was purchased out of funds disbursed by the bank and the criminal complaints disclosed scheduled offences under the penal law as it stood when the complaints were lodged. The definition of proceeds of crime extends to property derived, directly or indirectly, from criminal activity relating to a scheduled offence. On the materials placed, the property was prima facie traceable to such criminal activity, and the fact that the statutory schedule was later amended did not erase the earlier scheduled character of the offences for the purpose of the case.

Conclusion: Yes. The property was prima facie liable to be treated as proceeds of crime.

Issue (ii): Whether the victim bank's claim to proceed against the mortgaged property could be defeated by attachment and confiscation proceedings under the Prevention of Money Laundering Act, 2002.

Analysis: The attachment and confiscation scheme under the money-laundering statute is directed against property linked to scheduled offences, but it does not fairly address the position of victims whose funds were used to acquire the property. The Court held that the statutory mechanism, if applied mechanically, would visit loss upon the victim bank and could not be used to inflict injury on a victim of the fraud in preference to its recovery rights under the securitisation regime.

Conclusion: No. The bank's right to pursue the property could not be defeated in the manner sought by the respondents.

Issue (iii): Whether the adjudication proceedings and the confirmation order were vitiated for breach of an interim stay order and for failure to implead the bank.

Analysis: The complaint before the Adjudicating Authority was filed after notice of the interim stay in the bank's writ petition, and the bank, though a direct claimant, was not made a party. The Court held that proceedings conducted and concluded in disregard of an operative stay order are non est, and that the Adjudicating Authority was bound to hear the bank once its claim was known. The confirmation order passed during the pendency of the writ petitions was therefore legally unsustainable.

Conclusion: Yes. The proceedings were vitiated and the confirmation order could not stand.

Final Conclusion: The attachment and all consequential proceedings were set aside, while the criminal prosecution itself was left unaffected.

Ratio Decidendi: Property alleged to be proceeds of crime cannot be sustained under the attachment and confiscation provisions where the proceedings are carried out in breach of an operative stay and without hearing a claimant victim whose prior security interest and recovery rights are directly affected.

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