Secured creditor priority prevails where mortgaged assets predate the alleged offence and are not shown to be proceeds of crime.

An innocent secured creditor whose mortgage predates the alleged offence cannot be deprived of its security merely because the assets were provisionally attached under PMLA. The Tribunal noted that the bank was not an accused, the properties had been mortgaged and subjected to SARFAESI/DRT recovery proceedings before the alleged crime, and the later statutory priority given to secured creditors had to be respected. It also found no material linking the mortgaged assets to criminal activity or showing that they were proceeds of crime. On that basis, the attachment and its confirmation were not sustainable against the bank.

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Issues: (i) whether the mortgaged properties of the appellant bank, which were acquired before the alleged crime and were already under recovery action under SARFAESI and DRT proceedings, could still be provisionally attached and continued under the Prevention of Money Laundering Act, 2002; (ii) whether, on the material on record, the attached properties could be treated as proceeds of crime so as to justify confirmation of attachment against the appellant bank.

Issue (i): whether the mortgaged properties of the appellant bank, which were acquired before the alleged crime and were already under recovery action under SARFAESI and DRT proceedings, could still be provisionally attached and continued under the Prevention of Money Laundering Act, 2002.

Analysis: The appellant bank was not arraigned as an accused in the scheduled offence or in the money-laundering proceedings. The properties in question stood mortgaged in favour of the bank much prior to the alleged criminal activity, and recovery proceedings had already been initiated under the SARFAESI framework. The Tribunal held that the later amendments to the SARFAESI Act and the Recovery of Debts and Bankruptcy Act, 1993 conferred priority on secured creditors, and that such statutory priority had to be given effect in the factual setting of the case. The Tribunal also held that the general overriding clause in the PMLA could not be applied to defeat the secured creditor's rights where the bank was an innocent third party and the mortgages predated the alleged offence.

Conclusion: The attachment could not be sustained against the appellant bank's mortgaged properties, and the bank's claim as secured creditor was accepted.

Issue (ii): whether, on the material on record, the attached properties could be treated as proceeds of crime so as to justify confirmation of attachment against the appellant bank.

Analysis: The Tribunal found no material showing that the bank's mortgaged assets were derived from criminal activity or had any nexus with the alleged scheduled offence. The sale deeds and mortgage transactions predated the alleged offence by several years, and the record did not establish that the bank or its officials had participated in, conspired in, or had knowledge of any money-laundering activity. In the absence of proof that the properties themselves were proceeds of crime, the statutory basis for provisional attachment and confirmation under the PMLA was held to be lacking.

Conclusion: The properties were not proved to be proceeds of crime, and the attachment could not be confirmed against the appellant bank.

Final Conclusion: The Tribunal set aside the impugned order and the provisional attachment to the extent of the properties covered by the appeal, thereby releasing the mortgaged properties from attachment in favour of the appellant bank.

Ratio Decidendi: An innocent secured creditor whose mortgage predates the alleged offence cannot be deprived of its security merely on the basis of a PMLA attachment unless the attached asset is shown, on material, to be proceeds of crime with a demonstrable nexus to money laundering.

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