The Delhi High Court has held that the Prevention of Money Laundering Act (PMLA) prevails over the Bankruptcy Act and insolvency code when it comes to attachment of properties obtained as “proceeds of crime”.
The High Court, however, said that the PMLA, Recovery of Debt and Bankruptcy Act (RDBA), Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act and Insolvency and Bankruptcy Code (IBC) must co-exist and be enforced in harmony.
Third party rights
The High Court order came on a batch of appeals by the Enforcement Directorate (ED) against the orders of PMLA appellate tribunal on the pleas of various banks. The ED had challenged the tribunal’s orders on the issue of third party rights over a property attached by the agency.
The tribunal had held that third parties, banks in this case, which have legitimately created rights such as a charge, lien or other encumbrances, have a superior claim over such properties.
The High Court set aside the appellate tribunal’s order and held that the objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and IBC, the latter three legislations do not prevail over the former.
“An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest [charge] in the property, within the meaning of the expressions used in RDBA and SARFAESI Act,” the High Court said.
“Similarly, mere issuance of an order of attachment under the PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release [or restoration] from PMLA attachment being dependent on its bonafides,” the court said.
It also said that by virtue of Section 71, PMLA has the overriding effect over other existing laws in the matter of dealing with “money-laundering” and “proceeds of crime”.
