TaxTMI 
TaxTMI 
2026 (3) TMI 1375
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....learned Tribunal allowed the appeal filed by the respondent-HDFC Bank under section 26 of the PMLA. By the said order, the Tribunal set aside confirmation of provisional attachment order dated 30/05/2016, insofar as it affected the mortgaged properties. The Tribunal further held that secured creditors are entitled to priority in view of section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 (For the sake of convenience hereinafter referred to as "RDB Act") and section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (For the sake of convenience hereinafter referred to as "SARFAESI Act"). The respondent-Bank was permitted to proceed with enforcement of its security interest. The main points involved in the present matters are as under:- (i) 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? (ii) Whether the properties of the judgment debtors attached under the provisions of PMLA would be available for the execution of the decrees against the judgment debtors in view of the p....
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....atute. The Tribunal failed to appreciate that the PMLA is a Special Penal Statute aimed at confiscation of tainted property, not recovery of debt. Section 31-B of the RDB Act was applied without examining whether it operates retrospectively to defeat the attachment order dated 08/12/2015. The Tribunal did not examine the legal nature of attachment under section 5 read with section 8 of the PMLA, which operates in rem and preserves property pending criminal adjudication. The impugned order undermines the confiscatory object of PMLA by subordinating it to civil recovery proceedings. The Tribunal also failed to harmoniously construe competing non-obstante clause under section 71 of the PMLA and section 31-B of the RDB Act. 6. In view of the points involved, the present appeals turn on the reconciliation of two special statutes, i.e. the PMLA, a penal statute providing for attachment and eventual confiscation of property derived from criminal activity, whereas the SARFAESI Act and RDB Act are recovery statutes granting statutory priority to secured creditors. The Tribunal treated the secured creditors' right as superior by invoking section 31-B of the RDB Act, thereby releasing the ....
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.... of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country: Provided further that, notwithstanding anything contained in [first proviso], any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in ....
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....he pendency of the proceedings relating to any [offence under this Act before a Court or under the corresponding law of any other country, before the competent Court of criminal jurisdiction outside India, as the case may be; and] [(b) become final after an order of confiscation is passed under sub-section (5) or sub-section (7) of section 8 or section 58-B or sub-section (2-A) of section 60 by the [Special Court].] [Explanation.- For the purposes of computing the period of three hundred and sixty-five days under clause (a), the period during which the investigation is stayed by any Court under any law for the time being in force shall be excluded.]" "^1[(8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of money laundering: Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in ....
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....t Delhi v. Axis Bank & Ors.) and other connected matters in support of his proposition that a property need not necessarily be connected with criminal activity to qualify as "proceeds of crime" under section 2(1)(u) of the PMLA. The said judgment also relied in support of his contention that RDB Act or SARFAESI Act has no overriding effect on PMLA. 10. The learned counsel for the respondent-Bank contended that the reliance placed by the appellant on the judgment of the Delhi High Court is misplaced. The appellant has sought to argue that a property need not have any connection with criminal activity to qualify as "proceeds of crime" under Section 2(1)(u) of the PMLA, which is contrary to the scheme and intent of the Act. It is further contended that the said view has not found acceptance across High Courts in India. The Punjab and Haryana High Court as well as the Andhra Pradesh High Court have held that there must be a clear and direct nexus between the property and the criminal activity relating to a scheduled offence. Furthermore, the respondent submitted that this Court in Ajay Kumar Chandraparkash Baheti v. Directorate of Enforcement, 2022 SCC OnLine Bom 1451 has also held ....
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....o a scheduled offence. It is further contended that the issue now stands clarified by the Hon'ble Supreme Court in Pavana Dibbur v. Directorate of Enforcement, (2023) 15 SCC 91, wherein it is held that property having no connection with the scheduled offence cannot be treated as "proceeds of crime". Therefore, a clear and direct link between the property and criminal activity is mandatory to treat the property as "proceeds of crime". In the absence of such nexus, attachment under PMLA cannot be sustained. It is further contention of the respondent that provisional attachment under section 5 of the PMLA must satisfy statutory pre-condition, including existence of "proceeds of crime". The penal consequences required strict consideration of the provisions. 13. The learned DSGI for the appellant contended that the Appellate Tribunal wrongly concluded that SARFAESI Act and/or RDB Act will prevail over PMLA and set aside the Provisional Attachment Order passed by the Adjudicating Authority confirming the said Provisional Attachment Order solely on the ground of primacy of the SARFAESI Act and/or RDB Act over PMLA. It is contention of the learned DSGI that the judgments relied on by th....
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....rs property equivalent to property held or taken outside India, thus date of purchase of property which is equivalent to property held outside India, is irrelevant. Any property irrespective of date of purchase may be attached if property derived or obtained from scheduled offence is held or taken outside India. .............................. The definition part does not create rights and liabilities, thus it should be examined in the light of other sections which create rights and liabilities. As per Section 8(1) of the PMLA, the Adjudicating Authority has to serve notice calling upon the person to indicate the source of his income, earning or assets out of which or by means of which he has acquired the property attached under Section 5 of the PMLA. Seeking explanation about source of property and furnishing explanation is meaningless if property inspite of genuine and explained source may be attached. As per Section 24 of the PMLA, burden to prove that property is not involved in money laundering is upon the person whose property is attached. There is no sense on the part of any person to discharge burden qua source of property if any property may be attached, irrespecti....
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....he said order was confirmed by the Adjudicating Authority. Thus, the said property cannot be said to be purchased out of "proceeds of crime". These contentions were raised before the Appellate Tribunal and the Tribunal set aside the order solely on the ground that the SARFAESI Act and/or RDB Act will prevail over PMLA. 16. Learned DSGI Shri Kartik Shukul for the appellant drew our attention to section 24 of the PMLA, wherein presumption of such "proceeds of crime" is given. For the sake of convenience, section 24 of the PMLA is reproduced as under: "[24. Burden of Proof.- In any proceeding relating to proceeds of crime under this Act,- (a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and (b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.]" 17. The appellant placed reliance on the judgment delivered by Delhi High Court in Shiv Murat Dwivedi v. Directorate of Enforcement, 2025 SCC OnLine Del 7818. It ....
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....t was also noted that there was no nexus between those indulging in money laundering on the one hand and the PNB on the other hand, its claim under the mortgage being a charge which merited priority. As observed by Delhi High Court that newly inserted provision contained in sections 26-B to 26-E in Chapter on registration by secured creditors and other creditors of the SARFAESI Act are yet to be notified and brought in force. It is held in Axis Bank & Oths. (supra) in para 169 as under: "169. In view of above-noted legislative scheme, it must be clarified that if the order confirming the attachment has attained finality, or if the order of confiscation has been passed or, further if the trial of a case for the offence under Section 4 PMLA has commenced, the claim of a party asserting to have acted bona fide or having legitimate interest will have to be inquired into and adjudicated upon only by the special Court." (emphasis supp.) 20. For the sake of convenience, Section 26 of the PMLA is reproduced as under: "26. Appeals to Appellate Tribunal.- (1) Save as otherwise provided in sub-section (3), the Director or any person aggrieved by an order made by the Adjud....
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....rly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bona fides." It is also held in para-139 as under: "139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, SARFAESI Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is "due" to the claimant i.e. the banks or the financial institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the responsibility to seek resolution through a professional (RP), failure on his part leading....
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.... "71. Act to have overriding effect.-The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."" "35. The PMLA was enacted to implement the international resolutions and declarations made by the General Assembly of United Nations, and prevent money laundering as also to provide for confiscation of properties derived therefrom or involved in money laundering. The subject matter of PMLA therefore is traceable or relatable to the Entry-13 of Union List (List-I) of Seventh Schedule. 36. So far as the SARFAESI Act is concerned, the constitutional validity of the said Act was upheld by a three-Judge Bench in the case of Mardia Chemicals Ltd. and Ors. vs. Union of India and Ors.. The said Act was enacted by the Parliament to regulate securitization and re-construction of financial assets and enforcement of security interest and to provide for a central database of security interest created on property rights. The RDB Act was enacted to provide establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and Financial Institutions and for the matt....
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....confirmation by the Adjudicating Authority. The order of Adjudicating Authority in turn is amenable to appeal to the Appellate Tribunal. The Appellate Tribunal has power to pass an order confirming modifying or setting aside the order appealed against. At the same time, the PMLA confers jurisdiction on the Special Court to entertain such claim for the purposes of restoration of the property during the trial of the case. Thus, the Appellate Tribunal as well as Special Court both have jurisdiction to deal with the order of attachment passed by the Adjudicating Authority. However, if the order of attachment is confirmed or order of confiscation has been passed, or trial of a case for the offence under section 4 of the PMLA is commenced, the claim of a party asserting to have legitimate interest will have to be inquired to and adjudicated upon only by the Special Court. 24. Admittedly, charge-sheet bearing No.41 of 2014 is filed on 28/10/2014 before the Special Judge. It appears that the Tribunal proceeded to pass order on presupposition that the SARFAESI Act is having overriding effect on the provisions of PMLA. This presupposition is unsustainable. As discussed earlier, provisions....