Bona fide secured creditors and pre-laundering acquisitions cannot be treated as proceeds of crime under PMLA attachments.

Bona fide mortgaged properties acquired before the alleged laundering activity, and financed through legitimate bank lending, could not be treated as proceeds of crime under PMLA merely because the borrower was under investigation. The Tribunal also applied the later statutory priority given to secured creditors under SARFAESI and the Recovery of Debts and Bankruptcy Act, holding that the recovery rights of innocent banks prevailed over inconsistent PMLA attachment in the facts considered. On that basis, the attachment against the secured assets was not sustainable, and the property acquired in 1994 was outside the Act's reach.

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Issues: (i) Whether the mortgaged properties, having been acquired prior to the alleged laundering activity and being supported by bona fide bank financing, could be treated as proceeds of crime and confirmed under the Prevention of Money Laundering Act, 2002. (ii) Whether the secured creditors' rights under the SARFAESI Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 had priority over attachment under the Prevention of Money Laundering Act, 2002, particularly after the 2016 amendments.

Issue (i): Whether the mortgaged properties, having been acquired prior to the alleged laundering activity and being supported by bona fide bank financing, could be treated as proceeds of crime and confirmed under the Prevention of Money Laundering Act, 2002.

Analysis: The properties in question were found to have been purchased before the alleged offence and before the relevant lending arrangements in several instances. The record showed that the loan funds were disbursed for acquisition and development of those properties, that the banks were not accused of participation in the scheduled offences, and that the mortgages were created in the ordinary course of financing. On these facts, the Tribunal treated the banks as innocent and bona fide secured creditors and held that properties acquired out of legitimate banking funds could not be equated with proceeds of crime merely because the borrower was under investigation. The property purchased in 1994 was held to be outside the reach of the Act altogether.

Conclusion: The attachment could not be sustained against the mortgaged properties, and the property acquired in 1994 was liable to be released.

Issue (ii): Whether the secured creditors' rights under the SARFAESI Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 had priority over attachment under the Prevention of Money Laundering Act, 2002, particularly after the 2016 amendments.

Analysis: The Tribunal relied on the later statutory amendments introducing Section 26E of the SARFAESI Act, 2002 and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993, both of which confer priority upon secured creditors over other debts and governmental dues. It applied the principle that where two special statutes contain non obstante clauses, the later legislative scheme prevails to the extent of inconsistency, and concluded that the recovery framework for secured creditors could not be displaced by PMLA attachment in the facts of the case. The banks had already initiated recovery steps under SARFAESI before the ECIR, and the properties were already under the mortgage/security regime.

Conclusion: The secured creditors' claim had priority, and the PMLA attachment was not maintainable against the mortgaged assets.

Final Conclusion: The appeals were allowed and the impugned attachment was set aside, resulting in release of the secured properties and recognition of the banks' priority to pursue recovery in accordance with the security enforcement laws.

Ratio Decidendi: Bona fide secured assets acquired before the alleged criminal activity, and not shown to be derived from proceeds of crime, cannot be confirmed under PMLA against an innocent secured creditor, and the later statutory priority conferred on secured creditors prevails over inconsistent attachment claims.

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