Priority of secured creditors limits PMLA attachment where mortgaged assets are unconnected to proceeds of crime.

A prior and admitted security interest of bona fide secured banks over mortgaged properties cannot be displaced by PMLA attachment where the banks are not alleged to have participated in, assisted, or known of the laundering activity. The properties were acquired before the alleged criminal conduct, and the required nexus between the assets and the proceeds of crime was not shown in relation to the banks' security interest. In light of the secured creditor priority recognised under the SARFAESI and RDB regimes, the mortgaged assets could not remain under attachment, and the banks were entitled to enforce recovery of their dues.

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Issues: Whether the enforcement attachment under the Prevention of Money Laundering Act could continue against mortgaged properties over which the appellant consortium of banks had a prior and admitted security interest, where the banks were not alleged to have any role in the predicate offence or laundering activity.

Analysis: The properties were shown to have been acquired much before the alleged criminal activity and were admittedly mortgaged to the appellant banks. The record did not disclose any allegation that the banks assisted, participated in, or had knowledge of any money-laundering activity. The legal nature of "proceeds of crime" under the Act requires a nexus with criminal activity, and that nexus was not established in relation to the banks' security interest. The amended regime under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and the Recovery of Debts and Bankruptcy Act, including the priority accorded to secured creditors, was relied upon to hold that a secured creditor with a prior charge cannot be deprived of its lawful recovery rights in the absence of connection with the proceeds of crime.

Conclusion: The attachment could not be sustained against the mortgaged assets of the appellant consortium, and the banks were held entitled to proceed with recovery of their dues.

Ratio Decidendi: A bona fide secured creditor with a prior registered security interest, whose claim is unconnected to the proceeds of crime and whose conduct is not tainted by money laundering, is entitled to priority in recovery and its mortgaged property cannot be continued under attachment merely because the borrower is alleged to have committed laundering offences.

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