Priority of secured creditors defeats attachment of mortgaged assets where no nexus to alleged proceeds of crime is shown.

Mortgaged properties belonging to persons not accused in the scheduled offence or PMLA proceedings could not be provisionally attached and confirmed as equivalent value of alleged proceeds of crime where the assets were not derived from criminal proceeds, the lenders held prior valid security interests, and no nexus was shown with laundering activity. The statutory priority given to secured creditors under the SARFAESI framework and the Recovery of Debts and Bankruptcy Act was treated as governing the competing claims. On these facts, attachment over properties already subject to bona fide mortgage rights was unsustainable, and the mortgaged properties were to be released from attachment.

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Issues: Whether mortgaged properties of the appellants, who were not accused in the scheduled offence or in the PMLA proceedings, could be provisionally attached and confirmed under the PMLA as equivalent value of alleged proceeds of crime, despite the appellants' prior security interest and the statutory priority conferred on secured creditors under the SARFAESI and recovery laws.

Analysis: The properties in question were not found to have been acquired from the proceeds of crime; they were attached only as value equivalent to the alleged proceeds of crime. The appellants were innocent secured creditors, their mortgage rights had been created prior to the alleged criminal activity, and no nexus was established between them and the alleged laundering activity. The statutory scheme of the SARFAESI Act and the Recovery of Debts and Bankruptcy Act, as amended, gives priority to secured creditors, and the later legislative amendment was treated as governing the competing claims in such a case. On these facts, the attachment could not be sustained against properties already subject to valid mortgage and security interests of bona fide lenders.

Conclusion: The confirmation of provisional attachment was unsustainable and the appellants were entitled to release of the mortgaged properties from attachment.

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