Secured creditor priority prevails over money-laundering attachment for mortgaged assets owned before the alleged offence.

Secured creditors' statutory priority under the SARFAESI regime was treated as prevailing over provisional attachment under the Prevention of Money-Laundering Act where the lenders were innocent of any scheduled offence or laundering activity. The mortgaged properties had been acquired and charged to the banks before the alleged criminal activity, so they lacked the necessary nexus with proceeds of crime as against the secured creditors. On that basis, the attachment could not be sustained against assets already validly mortgaged for bona fide lending transactions, and the provisional attachment and its confirmation were set aside.

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Issues: (i) Whether the rights of secured creditors under the SARFAESI regime prevail over provisional attachment under the Prevention of Money-Laundering Act, 2002. (ii) Whether the mortgaged properties of the appellant banks, acquired and charged as security before the alleged criminal activity, could be confirmed as attached properties under the Prevention of Money-Laundering Act, 2002.

Issue (i): Whether the rights of secured creditors under the SARFAESI regime prevail over provisional attachment under the Prevention of Money-Laundering Act, 2002.

Analysis: The amended secured-creditor provisions were treated as conferring priority on secured creditors notwithstanding any other law. The later statutory regime was held to override inconsistent claims under the money-laundering attachment process, particularly where the banks were not accused of any laundering activity and had initiated recovery under the security-interest law. The reasoning proceeded on the footing that the secured creditors' statutory priority could not be displaced by attachment of assets already charged in their favour.

Conclusion: The rights of the secured creditors were held to prevail over the attachment under the Prevention of Money-Laundering Act, 2002.

Issue (ii): Whether the mortgaged properties of the appellant banks, acquired and charged as security before the alleged criminal activity, could be confirmed as attached properties under the Prevention of Money-Laundering Act, 2002.

Analysis: The properties were found to have been acquired much before the alleged offence and were already mortgaged to the appellant banks for bona fide lending transactions. The banks were not accused of any scheduled offence or money-laundering activity. On that basis, the attachment was held unsustainable because the properties lacked the requisite nexus with proceeds of crime so far as the banks were concerned, and innocent secured creditors could not be made to suffer for the alleged conduct of the borrowers.

Conclusion: The provisional attachment and its confirmation in respect of the appellant banks' mortgaged properties were set aside.

Final Conclusion: The Tribunal held that the secured creditors' statutory priority protected the mortgaged assets from confirmation of attachment under the money-laundering proceedings, and the impugned attachment orders were unsustainable.

Ratio Decidendi: Where secured assets are lawfully mortgaged to innocent secured creditors and the creditors are not shown to be involved in the scheduled offence or money-laundering activity, the statutory priority of secured creditors prevails and the properties cannot be retained under provisional attachment merely because the borrower is alleged to have generated proceeds of crime.

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