In an important decision that affects banks across India, the Nagpur bench of the Bombay High Court has said that laws used by banks to recover money cannot override the Prevention of Money Laundering Act (PMLA), according to Vaibhav Ganjapure's Times of India report. The court made it clear that the government has the first right over properties linked to “proceeds of crime”.
A bench of Justices Mukulika Jawalkar and Nandesh Deshpande cancelled an earlier order of the appellate tribunal. That order had allowed banks like HDFC Bank and Punjab National Bank to recover their dues from properties that were already attached by the Enforcement Directorate (ED) in a money laundering case related to coal block allocation.
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The High Court said the tribunal was wrong in assuming that the SARFAESI Act, 2002, and the Recovery of Debts and Bankruptcy (RDB) Act were stronger than the PMLA. The court called this view “unsustainable” and against legal principles.
The main issue in the case was whether banks, as secured creditors, can get priority over properties that are attached as “proceeds of crime”. The court clearly said no. It explained that anti-money laundering laws have a completely different purpose than laws meant for debt recovery.
The court also said that when the government acts under PMLA, it is not acting like a normal creditor trying to recover money. Instead, it is using its authority to take away assets that are linked to crime.
The case started after the ED attached properties worth about Rs 24.92 crore, saying they were “proceeds of crime”. These properties had already been mortgaged to banks, which had started recovery when the loans became non-performing assets. The High Court said that even if a property is mortgaged, attachment under PMLA will still remain valid.
However, the court also clarified that this does not completely remove the rights of genuine third parties. Banks and others can still go to the Special Court under PMLA to try to get the property back, if they can prove they acted in good faith and were not involved in the crime.
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The bench said: "It appears that the tribunal proceeded to pass order on presupposition that the SARFAESI Act is having overriding effect on the provisions of PMLA. The tribunal failed to point out how there is no reasoning or material for attachment of property in question, which is mortgaged with the respondent-Bank. Thus, the order by the appellate tribunal quashing the attachment order is illegal, arbitrary and contrary to law."
The ED, represented by advocates Kartik N Shukul, the deputy solicitor general of India (DSGI) assisted by Prutha N Hardas and Gaurav Khatwani, had challenged the tribunal's order in HC. The HDFC Bank was represented by senior advocate MG Bhangde along with advocate SD Ingole, and the Punjab National Bank was represented by senior advocate MG Bhangde along with advocate MY Wadodkar.
Key Takeaways From Verdict:
High Court rules PMLA overrides SARFAESI Act and RDB Act in money laundering cases.
Banks cannot claim automatic priority over properties attached as proceeds of crime.
Tribunal orders favouring banks set aside as legally unsustainable.
Court clarifies state acts to confiscate illicit assets, not as a creditor.
Bona fide third parties can seek relief before Special Court under PMLA.
Attachment remains valid even if property is mortgaged to banks.
Balance maintained between enforcement powers and legitimate financial claims.
Judgement strengthens anti-money laundering enforcement framework nationwide.
(With TOI inputs)
A bench of Justices Mukulika Jawalkar and Nandesh Deshpande cancelled an earlier order of the appellate tribunal. That order had allowed banks like HDFC Bank and Punjab National Bank to recover their dues from properties that were already attached by the Enforcement Directorate (ED) in a money laundering case related to coal block allocation.
Also Read: India’s banks face funding crunch as deposit growth falls behind credit
The High Court said the tribunal was wrong in assuming that the SARFAESI Act, 2002, and the Recovery of Debts and Bankruptcy (RDB) Act were stronger than the PMLA. The court called this view “unsustainable” and against legal principles.
The main issue in the case was whether banks, as secured creditors, can get priority over properties that are attached as “proceeds of crime”. The court clearly said no. It explained that anti-money laundering laws have a completely different purpose than laws meant for debt recovery.
The court also said that when the government acts under PMLA, it is not acting like a normal creditor trying to recover money. Instead, it is using its authority to take away assets that are linked to crime.
The case started after the ED attached properties worth about Rs 24.92 crore, saying they were “proceeds of crime”. These properties had already been mortgaged to banks, which had started recovery when the loans became non-performing assets. The High Court said that even if a property is mortgaged, attachment under PMLA will still remain valid.
However, the court also clarified that this does not completely remove the rights of genuine third parties. Banks and others can still go to the Special Court under PMLA to try to get the property back, if they can prove they acted in good faith and were not involved in the crime.
Also Read: HDFC Bank chairman's sudden exit exposes leadership strains at top Indian lender
The bench said: "It appears that the tribunal proceeded to pass order on presupposition that the SARFAESI Act is having overriding effect on the provisions of PMLA. The tribunal failed to point out how there is no reasoning or material for attachment of property in question, which is mortgaged with the respondent-Bank. Thus, the order by the appellate tribunal quashing the attachment order is illegal, arbitrary and contrary to law."
The ED, represented by advocates Kartik N Shukul, the deputy solicitor general of India (DSGI) assisted by Prutha N Hardas and Gaurav Khatwani, had challenged the tribunal's order in HC. The HDFC Bank was represented by senior advocate MG Bhangde along with advocate SD Ingole, and the Punjab National Bank was represented by senior advocate MG Bhangde along with advocate MY Wadodkar.
Key Takeaways From Verdict:
High Court rules PMLA overrides SARFAESI Act and RDB Act in money laundering cases.
Banks cannot claim automatic priority over properties attached as proceeds of crime.
Tribunal orders favouring banks set aside as legally unsustainable.
Court clarifies state acts to confiscate illicit assets, not as a creditor.
Bona fide third parties can seek relief before Special Court under PMLA.
Attachment remains valid even if property is mortgaged to banks.
Balance maintained between enforcement powers and legitimate financial claims.
Judgement strengthens anti-money laundering enforcement framework nationwide.
(With TOI inputs)
