Position of secured lenders in money laundering cases

The application of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), and that of the Prevention of Money-laundering Act, 2002 (PMLA), converge in situations of provisional attachment or confiscation of assets under the PMLA and enforcement of security under the SARFAESI Act.

Attachment process

Section 5 of the PMLA provides that a “director” or another officer not below the rank of a deputy director (as appointed under the PMLA) has the power to provisionally attach a person’s property if they have reason to believe that the person is in possession of “proceeds of any crime” and that such proceeds are likely to be dealt with in any manner which may result in frustrating any proceedings under the PMLA. After duly conducting the adjudication process and hearing any aggrieved parties, the adjudicating authority can confirm the attachment. The question that arises is what happens when secured lenders have rights on the same property.

With regard to provisional attachment, in Indian Bank v Government of India, Ministry of Finance (2012), Madras High Court observed that the PMLA does not take into account the plight of victims of crime. Noting the intent of the PMLA, the court held that this lacuna in the PMLA cannot result in the banks being left high and dry. The court allowed the bank to maintain its claim under the SARFAESI Act, even though the property had been provisionally attached.

Babu Sivaprakasam is a partner, Deep Roy is an associate partner and Megha Agarwal is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.