SAFEMA Tribunal rules that a mortgage in favour of an Indian bank does not override PMLA attachment if the property is deemed proceeds of crime.
The SAFEMA Tribunal has upheld the attachment of immovable property under the Prevention of Money Laundering Act, 2002, despite the existence of a prior mortgage in favour of an Indian public sector bank.
The bank had challenged the attachment, arguing secured creditor status under SARFAESI. However, the Tribunal found that once property is established as 'proceeds of crime' under Section 2(u) of PMLA, no third-party interest—not even a registered mortgage—can defeat the State’s claim unless acquired for value and in good faith prior to the initiation of investigation.
"A secured financial creditor cannot claim priority over the State when the asset itself is tainted as unlawful property."
Implications for Practitioners
Banks and secured creditors must conduct enhanced due diligence before extending loans against high-value assets. This ruling limits SARFAESI protections in the face of PMLA proceedings and may influence recovery strategies in fraud-related NPAs.
