Prior secured creditor rights under mortgage can prevail over PMLA attachment when properties are not shown to be proceeds of crime.

A bona fide secured creditor's prior mortgage interest may prevail over PMLA attachment where the properties were created as security before the alleged scheduled offence and the creditor is not shown to have any nexus with money laundering. The Tribunal also required proof that the attached properties themselves were proceeds of crime; in the absence of material showing acquisition from criminal funds, provisional attachment could not be confirmed. On those facts, the attachment over the two mortgaged properties was set aside and the bank was left to pursue its secured recovery remedies.

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Issues: (i) Whether the Prevention of Money Laundering Act, 2002 overrides the priority granted to secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 in respect of the mortgaged properties; (ii) Whether the two attached properties were shown to be proceeds of crime so as to justify confirmation of the provisional attachment.

Issue (i): Whether the Prevention of Money Laundering Act, 2002 overrides the priority granted to secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 in respect of the mortgaged properties.

Analysis: The properties in question had been mortgaged to the appellant bank long before the alleged scheduled offence. The Tribunal noted that the amended provisions conferring priority on secured creditors operate notwithstanding other laws, and that the legislative intent of the later enactments had to be read harmoniously with the anti-money-laundering regime. Since the bank was not shown to be involved in the scheduled offence or in any laundering activity, and its security interest was created before the alleged tainted transactions, the claim of the secured creditor could not be ignored merely because attachment proceedings were initiated under the money-laundering law.

Conclusion: The secured creditor's prior security interest was held to prevail on the facts of the case, and the PMLA attachment could not be sustained against the bank's mortgaged properties.

Issue (ii): Whether the two attached properties were shown to be proceeds of crime so as to justify confirmation of the provisional attachment.

Analysis: The Tribunal found no material showing that the two properties were acquired out of proceeds of crime. The sale deeds were much earlier than the alleged period of criminal activity, and there was no finding that the bank had any nexus with the scheduled offence or that the properties were purchased with laundered funds. In the absence of proof that the properties themselves were derived from criminal activity, the statutory basis for confirming attachment was not established.

Conclusion: The properties were held not to be proceeds of crime for the purpose of attachment under the PMLA.

Final Conclusion: The impugned order confirming attachment was set aside and the provisional attachment over the two mortgaged properties was released, leaving the bank free to pursue its secured recovery remedies.

Ratio Decidendi: A bona fide secured creditor's prior mortgage over properties, unconnected to the alleged criminal proceeds, cannot be displaced by PMLA attachment unless the properties are shown to be proceeds of crime and linked to money laundering.

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