30 March,2026 07:16 PM IST | Mumbai | mid-day online correspondent
The judgment was delivered by the Nagpur bench of the Bombay HC on March 23. Representational pic
The Bombay High Court (HC) has held that the Prevention of Money Laundering Act (PMLA) has an overriding effect over debt recovery laws such as the SARFAESI Act and the Recovery of Debts and Bankruptcy (RDB) Act when it comes to the attachment of "proceeds of crime", news agency PTI reported.
In a judgment delivered on March 23, the Nagpur bench set aside previous orders of the PMLA Appellate Tribunal, which had favoured banks' rights to recover debts from attached properties.
The bench, comprising Justices MS Jawalkar and Nandesh Deshpande, observed that debt recovery laws like SARFAESI and RDB "would not render PMLA subservient to them due to the distinct objects and purposes of the two enactments".
The court emphasised that PMLA's legislative objective of confiscating proceeds of crime is separate from the debt recovery framework, and hence, debt recovery laws cannot override the Act.
The case dates back to a 2012 Central Bureau of Investigation (CBI) probe into Grace Industries Ltd over irregularities in coal block allocations. The Enforcement Directorate (ED) identified about Rs 24.92 crore as proceeds of crime and provisionally attached immovable properties of the accused entities in 2015. These properties were already mortgaged to HDFC Bank as security for loans extended before the ED's attachment.
HDFC Bank argued that its statutory priority under RDB and SARFAESI Acts entitled it to recover dues from the attached properties. The bank approached the PMLA Appellate Tribunal under Section 26, which ruled in its favour, stating that "secured creditors enjoy statutory priority" under debt recovery laws.
The ED challenged this order, arguing that the tribunal wrongly equated attachment of proceeds of crime with government dues recoverable under civil law. The ED submitted that PMLA is a special penal statute aimed at confiscation of tainted property, not ordinary debt recovery, and the tribunal's order undermined this objective.
Citing Supreme Court precedents, the high court noted that provisions of both types of enactments cannot be said to override each other automatically.
"We confirm the view taken by the Delhi High Court in Deputy Director, Directorate of Enforcement Delhi v. Axis Bank & Ors that an attachment under PMLA is not rendered illegal simply because a secured creditor has a prior interest," the court said.
However, it clarified that if confiscation orders have been passed or a PMLA trial under Section 4 has begun, claims of parties asserting legitimate interest must be adjudicated only by the special court.
HC described the tribunal's order as "illegal, arbitrary and contrary to law" and granted the bank the liberty to file an application before the special court for release of the attachment under PMLA provisions.
(With PTI inputs)
