Priority of secured creditors under recovery laws prevents PMLA attachment of bona fide mortgaged assets.

Properties mortgaged or hypothecated in favour of a secured bank, where the security interest predated the alleged criminal activity and the bank was not linked to the scheduled offence or money-laundering, could not be treated as proceeds of crime for provisional attachment under PMLA. The Tribunal emphasised that the bank had advanced funds in the ordinary course of business, the borrower's default was already under recovery proceedings, and PMLA must operate harmoniously with the Recovery of Debts and Bankruptcy Act and the SARFAESI Act, which give secured creditors priority over secured assets. The attachment and its confirmation were therefore unsustainable against the bank's secured properties.

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Issues: (i) Whether properties mortgaged or hypothecated in favour of a secured bank, and already under recovery measures, could be provisionally attached and confirmed under the Prevention of Money Laundering Act, 2002 as proceeds of crime.

Analysis: The security interest in favour of the bank had been created before the alleged criminal activity and before the impugned attachment. The bank was not shown to be involved in the scheduled offences or in money-laundering activity. The Tribunal noted that the bank had advanced funds in the ordinary course of business, that the assets were charged to secure those loans, and that the borrower's default had already led to recovery proceedings under the SARFAESI regime. It further held that the Prevention of Money Laundering Act, 2002 must be read harmoniously with the Recovery of Debts and Bankruptcy Act, 1993 and the SARFAESI Act, 2002, which confer priority on secured creditors for recovery from secured assets.

Conclusion: The provisional attachment and its confirmation could not be sustained against the mortgaged and hypothecated properties secured in favour of the bank; the appeal was allowed.

Ratio Decidendi: Properties subject to a prior, bona fide security interest in favour of a secured creditor, and not acquired from proceeds of crime, cannot be attached under the Prevention of Money Laundering Act, 2002 so as to defeat the statutory priority of secured creditors under the recovery laws.

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