2026 (3) TMI 1375 - HC - Money Laundering

PMLA attachment prevails over secured creditor priority, with restoration of property to be sought before the Special Court.

PMLA attachment of property involved in alleged money-laundering is not defeated merely because a secured creditor claims priority under the SARFAESI Act ... Provisional attachment - irregularities in coal block allocation involving Grace Industries Ltd. and associated entities - company derived wrongful financial gains - “proceeds of crime” under section 2(1)(u) - Priority of secured creditors vis-a-vis attachment of proceeds of crime - Overriding effect of the Prevention of Money Laundering Act - Jurisdiction of Special Court to consider restoration or release claims - Whether the secured creditors would have priority of interest over the assets attached under the provisions of PMLA by virtue of provisions of the SARFAESI Act and RDB Act? Conflict between special statutes - Attachment of proceeds of crime - Secured creditor priority - HELD THAT: - The Hon’ble Apex Court in National Spot Exchange Ltd.[2025 (5) TMI 1373 - SUPREME COURT] also confirmed that no priority of interest can be claimed by the secured creditors against the properties attached under the PMLA by virtue of the provisions of SARFAESI Act and RDB Act. The Court held that the object of the PMLA is distinct from the objects of the SARFAESI Act and the RDB Act. Attachment under the PMLA is not a claim for government dues or recovery of debt, but a statutory measure directed against proceeds of crime and property involved in money-laundering. On that footing, the statutory priority granted to secured creditors for realization of secured debts cannot by itself override attachment under the PMLA. The conflict was resolved by holding that the PMLA, by reason of its overriding clause and distinct confiscatory purpose, is not rendered subordinate to the recovery statutes. At the same time, prior charge or encumbrance of a secured creditor is not treated as automatically illegal merely because attachment is made under the PMLA; the competing claims must be reconciled, subject to the bona fides of the third-party claimant. [Paras 21, 22, 23] The Tribunal's view that the SARFAESI Act and the RDB Act had overriding effect over the PMLA was held unsustainable, and the release of the attached properties on that sole basis was set aside. Restoration of property under section 8(8) - Special Court's jurisdiction - Bona fide third-party claim - After confirmation of attachment and commencement of the criminal process, the respondent-Bank's claim for release of the attached property was required to be pursued before the Special Court under the PMLA rather than being finally granted by the Tribunal on the premise of statutory priority. - HELD THAT: - The Court held that the PMLA itself provides a mechanism for protecting a claimant with a legitimate interest in the property. Where attachment has been confirmed, or confiscation has been ordered, or trial for the offence under the PMLA has commenced, the claim of a party asserting legitimate interest is to be inquired into and adjudicated upon by the Special Court. Since a charge-sheet had already been filed, the respondent-Bank had a statutory remedy under section 8(8) to seek release or restoration. The Court therefore declined to examine the factual question whether the attached property was connected with proceeds of crime or whether repayment of the loan involved such proceeds, leaving that aspect open for consideration by the Special Court. [Paras 23, 24] The respondent-Bank was left at liberty to move the Special Court under section 8(8) of the PMLA for release of attachment, and the matter was not remanded to the Tribunal. Final Conclusion: The appeals were allowed. The orders of the Appellate Tribunal were quashed, the Court holding that secured-creditor priority under the SARFAESI Act and the RDB Act does not, by itself, defeat attachment under the PMLA, while preserving liberty to the respondent-Bank to seek release or restoration before the Special Court under section 8(8) of the PMLA. Issues: (i) Whether secured creditors have priority over property provisionally attached under the Prevention of Money Laundering Act, 2022 by reason of section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 and section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (ii) Whether the Appellate Tribunal was justified in setting aside the attachment on the premise that the recovery statutes override the Prevention of Money Laundering Act, 2022. (iii) Whether a mortgagee or secured creditor can seek release of attached property from proceedings under the Prevention of Money Laundering Act, 2022 only before the Special Court under section 8(8).Issue (i): Whether secured creditors have priority over property provisionally attached under the Prevention of Money Laundering Act, 2022 by reason of section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 and section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.Analysis: The statutory schemes operate in different fields. The Prevention of Money Laundering Act, 2022 is a confiscatory statute dealing with proceeds of crime, whereas the Recovery of Debts and Bankruptcy Act, 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are recovery statutes intended to facilitate realization of secured debts. The non-obstante clauses in section 71 of the Prevention of Money Laundering Act, 2022, section 31-B of the Recovery of Debts and Bankruptcy Act, 1993, and section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 must be harmonised. An order of attachment under the Prevention of Money Laundering Act, 2022 is not rendered illegal merely because a secured creditor has a prior charge, and a prior secured interest does not by itself defeat attachment of property involved in money-laundering.Conclusion: The secured creditor does not obtain automatic priority over attached property under the Prevention of Money Laundering Act, 2022, and the contention to the contrary is rejected.Issue (ii): Whether the Appellate Tribunal was justified in setting aside the attachment on the premise that the recovery statutes override the Prevention of Money Laundering Act, 2022.Analysis: The Tribunal proceeded on an incorrect assumption that the Recovery of Debts and Bankruptcy Act, 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prevail over the Prevention of Money Laundering Act, 2022. The judgment holds that the objects of the enactments are distinct and that the Prevention of Money Laundering Act, 2022 cannot be subordinated to the recovery statutes. The attachment order was not shown to be without material, and the Tribunal failed to apply the correct legal position while interfering with the confirmation of attachment.Conclusion: The Tribunal's order setting aside the attachment on the supposed overriding effect of the recovery statutes is unsustainable.Issue (iii): Whether a mortgagee or secured creditor can seek release of attached property from proceedings under the Prevention of Money Laundering Act, 2022 only before the Special Court under section 8(8).Analysis: Once the charge-sheet had been filed and the attachment stood confirmed, the statutory remedy for a claimant asserting a legitimate interest lay before the Special Court under section 8(8) of the Prevention of Money Laundering Act, 2022. The Court recognised that bona fide third-party interests are not to be ignored, but such relief must be sought in the forum empowered to consider restoration of property during trial. The Appellate Tribunal was not the appropriate forum to grant release on that basis after confirmation of attachment.Conclusion: The secured creditor's remedy is before the Special Court under section 8(8), not by defeating attachment before the Appellate Tribunal.Final Conclusion: The appeals succeed, the impugned orders are set aside, and the attachment under the Prevention of Money Laundering Act, 2022 remains undisturbed, leaving the secured creditor to pursue restoration before the Special Court.Ratio Decidendi: Recovery statutes do not override the Prevention of Money Laundering Act, 2022 in relation to attached proceeds of crime, and a bona fide secured creditor can seek restoration only through the statutory mechanism before the Special Court.