PMLA attachment cannot override prior secured creditor rights where the property is not shown to be proceeds of crime.

Immovable properties acquired and mortgaged before the alleged criminal activity could not be provisionally attached under PMLA because no material showed a nexus with proceeds of crime; in the absence of such nexus, the assets were not properties involved in money laundering and the attachment failed. Secured creditors holding prior mortgage charges were entitled to statutory priority under the SARFAESI regime and later amendments, and that priority could not be displaced where the banks were bona fide parties and not implicated in laundering; the attachment against the secured assets was therefore unsustainable.

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Issues: (i) Whether immovable properties acquired and mortgaged before the alleged criminal activity, and not shown to have been acquired from proceeds of crime, could be provisionally attached and confirmed under the Prevention of Money Laundering Act, 2002. (ii) Whether secured creditors in possession of mortgaged properties were entitled to priority over attachment under the money-laundering proceedings in view of the SARFAESI regime and the later statutory amendments conferring priority on secured creditors.

Issue (i): Whether immovable properties acquired and mortgaged before the alleged criminal activity, and not shown to have been acquired from proceeds of crime, could be provisionally attached and confirmed under the Prevention of Money Laundering Act, 2002.

Analysis: The properties in question were acquired long before the alleged diversion of funds and before the relevant PMLA proceedings. The material on record showed that the properties were already mortgaged to the banks, and there was no material linking the acquisition of those assets with proceeds of crime. The definition of proceeds of crime requires a nexus with criminal activity relating to a scheduled offence. In the absence of such nexus, and where the banks and other stakeholders were bona fide parties with pre-existing security interests, the properties could not be treated as properties involved in money laundering.

Conclusion: The attachment and its confirmation were unsustainable in respect of the mortgaged properties, and the finding was in favour of the appellants.

Issue (ii): Whether secured creditors in possession of mortgaged properties were entitled to priority over attachment under the money-laundering proceedings in view of the SARFAESI regime and the later statutory amendments conferring priority on secured creditors.

Analysis: The banks had already initiated recovery measures under SARFAESI and held mortgage charges over the properties. The later statutory amendments giving priority to secured creditors were treated as operative in the field of recovery of secured debts. The reasoning proceeded on the basis that a secured creditor's statutory priority could not be displaced where the properties were not shown to be proceeds of crime and the banks were not accused of any laundering activity.

Conclusion: The banks' security interests were held to prevail, and the attachment could not be maintained against the secured assets. The finding was in favour of the appellants.

Final Conclusion: The common order confirmed by the Adjudicating Authority was set aside, and the attached properties were released from attachment, recognising the bona fide and prior rights of the secured creditors over assets not shown to be proceeds of crime.

Ratio Decidendi: Property cannot be attached under the money-laundering law unless a legally sustainable nexus with proceeds of crime is established, and where the asset is subject to a prior bona fide security interest, the secured creditor's statutory priority cannot be defeated in the absence of such nexus.

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