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Issues: (i) Whether the appellant bank, as a secured creditor having prior mortgage and registered security interest in the property, was entitled to priority over the attachment made under the Prevention of Money Laundering Act, 2002. (ii) Whether the property attached by the Enforcement Directorate could be treated as proceeds of crime or as property in respect of which the statutory conditions for provisional attachment were satisfied.
Issue (i): Whether the appellant bank, as a secured creditor having prior mortgage and registered security interest in the property, was entitled to priority over the attachment made under the Prevention of Money Laundering Act, 2002.
Analysis: The bank had created an equitable mortgage over the property much before the alleged criminal activity. The property had been offered as security for banking facilities and the bank had advanced its own funds in the ordinary course of business. The judgment relied on the statutory priority conferred on secured creditors under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It also applied the principle that a later special enactment with a non obstante clause prevails over an earlier inconsistent law, and treated the bank as an innocent secured creditor.
Conclusion: The appellant bank was entitled to priority as secured creditor and the attachment could not prevail against its prior secured interest.
Issue (ii): Whether the property attached by the Enforcement Directorate could be treated as proceeds of crime or as property in respect of which the statutory conditions for provisional attachment were satisfied.
Analysis: The property had been purchased in 2010, whereas the alleged scheduled offence was stated to have occurred later. On that basis, the property could not reasonably be said to have been derived from criminal activity. The judgment emphasized that Section 5(1) of the Prevention of Money Laundering Act, 2002 requires a reason to believe, based on material in possession, that a person is in possession of proceeds of crime and that such property is likely to be dealt with so as to frustrate confiscation. Since the attached property pre-dated the alleged offence and was already encumbered in favour of the bank, the statutory basis for attachment was not made out.
Conclusion: The attached property was not shown to be proceeds of crime and the provisional attachment was unsustainable.
Final Conclusion: The appeal succeeded, and the provisional attachment and confirming order were set aside in relation to the appellant bank, leaving the criminal case against the borrowers to proceed in accordance with law.
Ratio Decidendi: A property already subjected to a bona fide prior registered security interest in favour of an innocent secured creditor cannot be provisionally attached under the Prevention of Money Laundering Act, 2002 unless the statutory preconditions for attachment are satisfied and the property is shown, on material, to be proceeds of crime.
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