Secured creditor priority prevails over money-laundering attachment, and insolvency moratorium bars continuation of attachment proceedings.

A bona fide secured creditor's prior mortgage and hypothecation were held to prevail over a later attachment under the money-laundering law, because the secured asset had been created long before the attachment and the later statutory priority for secured creditors was treated as governing the field. The Tribunal found that the money-laundering regime did not override the bank's security interest where the asset was not shown to be proceeds of crime, so the provisional attachment could not be sustained against the bank. It also held that, after a moratorium under the insolvency code, continuation and confirmation of the attachment proceedings were inconsistent with the moratorium and could not continue.

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Issues: (i) Whether the secured creditor's rights over the mortgaged and hypothecated assets had priority over attachment proceedings under the Prevention of Money Laundering Act, 2002; (ii) Whether the moratorium under the Insolvency and Bankruptcy Code, 2016 barred continuation of the attachment proceedings before the Adjudicating Authority.

Issue (i): Whether the secured creditor's rights over the mortgaged and hypothecated assets had priority over attachment proceedings under the Prevention of Money Laundering Act, 2002.

Analysis: The asset in question was admitted to be a secured asset created in favour of the bank long before the impugned attachment. The later amendments introducing priority to 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 and Bankruptcy Act, 1993 were treated as governing the field. The Tribunal applied the principle that where two special laws contain non-obstante clauses, the later enactment prevails, and held that the provisions of the money-laundering law do not create an overriding charge against an innocent secured creditor whose funds were not shown to be proceeds of crime.

Conclusion: The secured creditor's claim had priority and the provisional attachment could not be sustained against the appellant bank.

Issue (ii): Whether the moratorium under the Insolvency and Bankruptcy Code, 2016 barred continuation of the attachment proceedings before the Adjudicating Authority.

Analysis: The proceedings under Section 8 of the Prevention of Money Laundering Act, 2002 were treated as civil in nature. Once the National Company Law Tribunal had declared moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, continuation of the attachment proceedings and confirmation of the provisional attachment were found to be contrary to the legislative intent. The Tribunal also treated the later code's overriding clause as supporting this result in the facts of the case.

Conclusion: The attachment proceedings could not continue after the moratorium and the confirmation order was unsustainable.

Final Conclusion: The provisional attachment and its confirmation were set aside insofar as they affected the appellant bank, and the appeal succeeded.

Ratio Decidendi: A bona fide secured creditor's prior security interest prevails over attachment under the money-laundering law, and proceedings inconsistent with a subsisting insolvency moratorium cannot be continued.

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