2025 (10) TMI 495 - AT - Money Laundering

Prior bank mortgage doesn't defeat PMLA attachment; SARFAESI not a bar, bank may seek relief under s.8(7)/s.8(8)

The AT dismissed the appeal, holding that a scheduled commercial bank's prior mortgage did not invalidate attachment under the PMLA; SARFAESI does not ... Money Laundering - attachment of the property which was under prior mortgage - Secured creditors would have priority of interest over the assets attached or not - pre-existing mortgage and charge of the appellant over the subject property at the time of its attachment by the respondent directorate - HELD THAT:- The appellant is a scheduled commercial bank and has not been accused of being involved or complicit in the scheduled offence case against the accused persons who were their borrowers. Indeed, the FIR was lodged at the behest of the appellant bank and the ECIR through which action under the PMLA, 2002 was initiated in consequence of the said FIR. It is also not in dispute that the property was under mortgage to the appellant bank at the time of its attachment by the respondent directorate. Insofar as the issue of attachment of property already under mortgage to a bank or Non- Banking Finance Co. (NBFC) is concerned, it has not been without difficulty. This Appellate Tribunal, has in the past, held that the SARFAESI Act does not have an overriding effect and does not bar action for attachment of property under the PMLA, 2002. There is no merit in the present appeal insofar as the challenge to the attachment of property on the ground of existence of prior mortgage is concerned. However, an alternate plea has also been put forward on behalf of the appellant whereby it has been prayed that in case their main contention in this appeal is rejected, the appellant may be granted at liberty to move the Special Court under the provisions of Section 8(7) or Section 8(8) for release of the property during the pendency of criminal prosecution case before that Court - the alternate contention of the appellant is found to be as per the law and is acceptable. The appellant would be at liberty to approach the Ld. Special Court u/s 8(7) or 8(8) even in the absence of any specific liberty being given by this Appellate Tribunal. However, since a prayer has been made, it is hereby made clear that the decision of this Appellate Tribunal in the present order would not preclude the appellant from seeking any legal recourse available to it under Section 8 by filing an appropriate petition before the jurisdictional Special Court. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a secured creditor's prior mortgage or charge confers priority or entitlement to relief against a property provisionally attached under the Prevention of Money Laundering Act, 2002 (PMLA) such that the attachment must be set aside or recalled. 2. Whether a secured creditor (bank/NBFC) whose mortgaged property has been attached under PMLA may obtain interim release or protection of the property during pendency of criminal/prosecution proceedings and, if so, the appropriate forum and statutory route for such relief under Sections 8(7) and 8(8) of the PMLA. 3. Whether the Appellate Tribunal should defer final adjudication awaiting a review petition before the Supreme Court against a decision adverse to the secured creditor on the same legal question. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Priority of secured creditors over property attached under PMLA Legal framework: PMLA provides for provisional attachment and eventual confiscation of proceeds of crime; SARFAESI Act (as amended in 2016) contains Section 26E addressing priority to secured creditors after registration of security interest. Interaction of statutory schemes and non-obstante clauses governs conflicts between statutes. Precedent treatment: The Appellate Tribunal has in past held that SARFAESI does not categorically override PMLA (example cited in Tribunal's own decision rejecting broad claimed precedence of SARFAESI). However, the Supreme Court in the NSEL litigation has squarely answered the specific question whether secured creditors obtain priority over assets attached under PMLA/MPID by virtue of SARFAESI/RDB Acts, answering that question in the negative. Interpretation and reasoning: The Tribunal examined the competing provisions and precedents and concluded that (a) earlier internal reasoning that SARFAESI does not automatically prevail remains valid in its limited reading of the 2016 amendment, which confers priority only in defined circumstances and does not expressly bar proceedings under PMLA; (b) notwithstanding the Tribunal's prior analyses, the Supreme Court's ruling in the NSEL matter is binding and dispositive on the specific question of secured-creditor priority over PMLA/MPID attachments; and (c) where the Supreme Court has held secured creditors do not have priority over PMLA attachment, that decision governs the present dispute even if the mortgaged property pre-existed the attachment. Ratio vs. Obiter: The conclusion that a secured creditor's prior mortgage does not entitle it to priority over assets attached under PMLA is adopted as binding ratio to the extent the Supreme Court's pronouncement covers this precise issue. Observations by the Tribunal discouraging routine attachment of mortgaged property without attempting to attach unencumbered assets (and its prior reluctance to upset secured creditors' rights on sentiment) are treated as persuasive obiter/interpretive guidance where not inconsistent with the Supreme Court's ruling. Conclusions: The challenge to attachment based solely on existence of a prior mortgage/charge is without merit in light of the Supreme Court's binding answer that secured creditors do not have priority over assets attached under PMLA. The attachment need not be set aside on that ground. Issue 2 - Availability of interim relief to secured creditors under Sections 8(7) and 8(8) of PMLA Legal framework: Section 8 provides for provisional attachment, and Sections 8(7) and 8(8) authorize the Special Court and Central Government to determine and settle claims and, in appropriate situations, to release or settle interests in attached/confiscated property in favour of entitled claimants proportionately. Precedent treatment: The Tribunal relied on its earlier decision in JM Financial Asset Reconstruction Company Ltd. v. Deputy Director (order dated 26.04.2024), which held that (i) attachment protects interests pending trial and does not transfer title unless confiscation follows; (ii) Special Court/Central Government have power to settle competing claims and release property to rightful claimants; and (iii) relief to financial institutions must be considered with safeguards to prevent prejudice to victims or other claimants, with section 8(8) mechanism protecting proportional rights. Interpretation and reasoning: The Tribunal reasoned that while mortgage does not confer priority to defeat attachment under PMLA, statutory safeguards exist for secured creditors to seek relief. The attachment is protective; title remains unaffected until confiscation. Sections 8(7)/8(8) provide the appropriate statutory forum for financial institutions to press their claims for release or for protective orders, permitting the Special Court to tailor relief so as not to prejudice other claimants or victims and to secure equitable settlement on confiscation. Ratio vs. Obiter: The holding that secured creditors may resort to Sections 8(7)/8(8) as the proper remedy for interim or final relief against attachment is treated as part of the operative ratio of the decision-i.e., the Tribunal rejects the mortgage-based challenge but explicitly recognizes the statutory route for protection of secured creditors' interests. Illustrative concerns about potential abuse and competing claims (e.g., multiple mortgages, forged documents, victim interests) function as explanatory obiter supporting the need for Special Court supervision under section 8. Conclusions: The secured creditor is not precluded from seeking relief; it has liberty to approach the jurisdictional Special Court under Sections 8(7) and/or 8(8) of PMLA for release or protection of its mortgaged interest. The Tribunal's dismissal of the appeal does not preclude such statutory petitions and expressly grants liberty to pursue them. Issue 3 - Tribunal's refusal to defer final hearing pending possible review before Supreme Court Legal framework: Judicial administration principles require diligence and avoidance of indefinite adjournments; appellate tribunals are not obliged to await uncertain future proceedings in higher courts when matter is ripe for final hearing. Precedent treatment: The Tribunal referred to the fact that multiple opportunities had already been granted and that the Supreme Court had rendered an adverse decision on the controlling question; a further stay to await hypothetical review was neither necessary nor justified. Interpretation and reasoning: The Tribunal found the request to defer final adjudication until the appellant files a review petition and awaits its outcome to be devoid of merit and contrary to reasonable expedition-particularly given the appeal's pendency since 2016, prior adjournments already granted, and the binding nature of the Supreme Court decision on the central issue. Ratio vs. Obiter: The refusal to defer on the described facts is an operative procedural ruling (ratio) applying sound principles against indefinite delay; the Tribunal's observations on case-age and previous opportunities are factual predicates supporting that procedural conclusion (obiter regarding best practices but operative here). Conclusions: The Tribunal properly declined further adjournment and proceeded to decide the appeal on merits; the appellant's request for deferral to await a review petition was rejected. Cross-references and Practical Outcome 1. Issue 1 and Issue 2 are linked: while a prior mortgage does not displace attachment under PMLA (Issue 1), statutory remedies under Sections 8(7)/8(8) permit claimants to seek protective or release orders (Issue 2). 2. The Tribunal's decision is guided and constrained by the Supreme Court's ruling that secured creditors lack priority over assets attached under PMLA; the Tribunal's prior jurisprudence emphasizing caution in attaching encumbered property remains persuasive but subordinate to the Apex Court's binding pronouncement. 3. Procedurally, claims by financial institutions must be advanced before the Special Court under the PMLA rather than by expecting automatic vacation of attachment on account of pre-existing security.