SAFEMA Tribunal holds that a valid mortgage by an Indian bank does not override property attachment under PMLA if proceeds are linked to money laundering.
SAFEMA Upholds PMLA Attachment Over Bank Mortgage
The Special Appellate Tribunal for Foreign Exchange Management Act (SAFEMA) recently dismissed a challenge by an Indian bank against the attachment of property under the Prevention of Money Laundering Act (PMLA), affirming that a prior mortgage does not extinguish the state’s right to seize assets derived from tainted funds.
The Tribunal ruled that when the source of investment in the asset is traceable to proceeds of crime, even bona fide secured creditors cannot claim primacy over enforcement authorities. The decision aligns with the Supreme Court’s interpretation in State Bank of India v. Scindia Steam Navigation Co., reinforcing that PMLA takes precedence over civil claims in cases involving laundered proceeds.
This outcome underscores the need for financial institutions to conduct rigorous due diligence on fund sources, especially in cross-border lending. Legal advisors must counsel clients that secured status under the SARFAESI Act offers no immunity if the underlying transaction is tainted under PMLA.
Citations
- Prevention of Money Laundering Act, 2002, Section 5(1)
- FEMA (Adjudication) Rules, 2000
- State Bank of India v. Scindia Steam Navigation Co., (2005) 2 SCC 476
