PMLA attachment yields to prior secured creditor rights where mortgaged property predates the alleged offence and lacks money-laundering nexus.
Property purchased and mortgaged before the alleged offence was not treated as "proceeds of crime" under PMLA because no nexus with money-laundering was shown, and the bank was an innocent secured creditor. The prior mortgage and enforcement steps under SARFAESI were held to have statutory priority, reinforced by the amended debt-recovery and security-interest provisions that give secured creditors precedence over competing attachment claims. On that basis, the provisional attachment and confirmation order were set aside, and the bank was allowed to proceed against the mortgaged properties in accordance with law, without affecting the criminal proceedings against the borrowers.
Issues: (i) whether properties acquired and mortgaged before the alleged offence could be treated as proceeds of crime and continued under attachment under the Prevention of Money Laundering Act, 2002; (ii) whether the secured creditor's prior mortgage and enforcement rights under the SARFAESI regime and the amended debt-recovery law override the attachment.
Issue (i): whether properties acquired and mortgaged before the alleged offence could be treated as proceeds of crime and continued under attachment under the Prevention of Money Laundering Act, 2002.
Analysis: The properties were found to have been purchased before the alleged criminal activity and were already mortgaged to the bank. On those facts, they did not answer the statutory description of "proceeds of crime" under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002. The statutory scheme under Sections 5 and 8 requires a nexus with money-laundering before attachment can be sustained, and the materials showed no involvement of the bank in the alleged offence. The bank was treated as an innocent secured creditor and not as a participant in the scheduled offence.
Conclusion: The attachment could not be sustained against the mortgaged properties on the footing that they were proceeds of crime.
Issue (ii): whether the secured creditor's prior mortgage and enforcement rights under the SARFAESI regime and the amended debt-recovery law override the attachment.
Analysis: The amendment introducing Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 and Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was treated as conferring priority on secured creditors over other claims, including governmental dues, and as applicable to pending lis. The bank's prior security interest and recovery steps under Section 13(2) and Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were held to have precedence over the enforcement attachment. The Tribunal relied on the statutory priority accorded to secured creditors and the absence of any money-laundering nexus against the bank.
Conclusion: The secured creditor's rights prevailed and the attachment had to yield to the bank's prior security interest.
Final Conclusion: The provisional attachment and the impugned confirmation order were set aside, and the bank was permitted to proceed against the mortgaged properties in accordance with law, without prejudice to the criminal proceedings against the borrowers.
Ratio Decidendi: Property acquired before the alleged offence and validly mortgaged to an innocent secured creditor cannot be continued under PMLA attachment where it is not shown to be proceeds of crime, and the subsequently amended statutory priority of secured creditors prevails over competing attachment claims.
TaxTMI 
AI Drafter ✕
TaxTMI 
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