Secured creditor priority prevails over money-laundering attachment for mortgaged properties acquired before the alleged offence.

Immovable properties mortgaged to banks before the alleged scheduled offence could not be treated as proceeds of crime or as their value, because they were independently acquired and already encumbered for bona fide loan facilities before the alleged fraud period. The secured creditors' registered security interests under SARFAESI and the RDB Act were treated as having priority over attachment under the Prevention of Money-Laundering Act in respect of those bona fide secured assets. On that basis, provisional attachment was set aside for the properties mortgaged to the appellant banks, while other questions were not examined further.

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Issues: (i) Whether immovable properties mortgaged to the appellant banks before the alleged commission of the scheduled offence could be treated as proceeds of crime or as value thereof and remain subject to provisional attachment under the Prevention of Money-Laundering Act, 2002. (ii) Whether the secured creditors' rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 had priority over attachment under the Prevention of Money-Laundering Act, 2002.

Issue (i): Whether immovable properties mortgaged to the appellant banks before the alleged commission of the scheduled offence could be treated as proceeds of crime or as value thereof and remain subject to provisional attachment under the Prevention of Money-Laundering Act, 2002.

Analysis: The properties in question were acquired and mortgaged before the period of the alleged fraud. The material showed that the banks had advanced bona fide loan facilities and obtained security interests in the properties much prior to the alleged criminal activity. On those facts, the properties themselves were not generated from criminal activity. The attempt to sustain attachment on the footing that they represented the "value" of proceeds of crime could not prevail where the secured assets were independently acquired and were already encumbered in favour of the banks before the alleged offence.

Conclusion: The properties mortgaged to the appellant banks could not be treated as proceeds of crime or value thereof for the purpose of confirming attachment.

Issue (ii): Whether the secured creditors' rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 had priority over attachment under the Prevention of Money-Laundering Act, 2002.

Analysis: The statutory scheme recognized priority in favour of secured creditors after registration of security interest. The special provisions conferring priority on secured creditors were treated as governing the field for assets lawfully mortgaged to banks, and the attachment under the Prevention of Money-Laundering Act, 2002 could not displace that prior secured interest in respect of properties not established to be proceeds of crime. The adjudicating authority had not properly given effect to the secured creditors' priority and had confirmed attachment on an erroneous premise.

Conclusion: The secured creditors were entitled to priority over the attached mortgaged properties, and the attachment could not be sustained against those assets.

Final Conclusion: The appeals succeeded to the extent that the provisional attachment was set aside in respect of the properties mortgaged with the appellant banks, while other questions were not examined further.

Ratio Decidendi: Properties acquired and mortgaged before the alleged offence cannot be attached under the money-laundering law as proceeds of crime or value thereof, and a duly registered secured creditor's priority prevails over such attachment in respect of bona fide secured assets.

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