Prior secured creditor rights can continue despite PMLA attachment, with surplus sale proceeds protected for rival claims.

Mortgaged properties subject to prior SARFAESI enforcement were not to be mechanically kept under attachment under the Prevention of Money Laundering Act where the security interest pre-dated the alleged fraudulent loan transactions. Where one property had already been auctioned before the provisional attachment and the remaining properties were under secured creditor possession, the tribunal recognised that the secured creditor's enforcement rights could continue while safeguarding the enforcement agency's and other claimants' interest in any surplus sale proceeds. Relief was therefore granted to maintain the completed auction and permit further e-auction proceedings subject to preservation of excess proceeds in accordance with law.

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Issues: Whether mortgaged properties already under SARFAESI action and, in one case, already auctioned, could continue to remain attached under the Prevention of Money Laundering Act, and whether the secured creditors could be permitted to proceed with auction and appropriation of sale proceeds subject to protecting the claim of the enforcement authorities and other claimants.

Analysis: The properties in question were mortgaged with the appellants prior to the alleged fraudulent loan transactions that formed the basis of the money-laundering proceedings. One property had already been auctioned by the secured creditor before the provisional attachment order, and the other properties were under SARFAESI possession. The competing claims were therefore between the secured creditors enforcing prior security interests and the attachment made in aid of alleged proceeds of crime. The order proceeds on the footing that the secured creditor's rights are not to be extinguished mechanically by the attachment, but the interest of the enforcement agency and the alleged unsecured creditor must still be protected in respect of any surplus value realised from sale.

Conclusion: The appellants were granted relief to the extent that the auction sale already effected was maintained, and the SBI was permitted to seek permission before the Special Judge to e-auction the mortgaged properties, with the excess sale proceeds to be safeguarded for further claims in accordance with law.

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