Technology
HC rejects ED appeal on bank-mortgaged properties
Bengaluru — The Karnataka High Court has dismissed an appeal by the Enforcement Directorate (ED) concerning seven properties in Mandya that were mortgaged to Syndicate Bank (now part of Canara Bank). The court held that allowing the ED’s attachment would interfere with the bank’s recovery rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
The case traces back to 2009 when the Central Bureau of Investigation (CBI) filed a case against a branch manager of Syndicate Bank and others over fraudulent loan disbursements, resulting in a loss of ₹12.63 crore to the bank.In 2012, the ED attached seven properties as alleged ‘proceeds of crime’ under the Prevention of Money-Laundering Act, 2002 (PMLA), but the attachment was quashed by the PMLA Tribunal in 2017. The matter then moved to the High Court via the ED’s appeal.
Court’s reasoning
The High Court emphasised that the properties in question were mortgaged to the bank before the alleged offence and were offered as collateral, not acquired from illicit funds. As such, they did not qualify as “proceeds of crime” under Section 2(u) of the PMLA.The bench further noted that the bank was a victim of the fraud (via its manager), rather than a conspirator, and that the bank had already initiated recovery action under SARFAESI, meaning the ED’s attachment would unduly hinder the bank’s statutory right to recover dues.
Implications
The ruling clarifies that when a property is mortgaged to a financial institution prior to alleged wrongdoing, and the institution is not implicated in the wrongdoing, such asset cannot be easily treated as proceeds of crime under PMLA. It reinforces the primacy of the bank’s security rights under SARFAESI in cases where recoveries are ongoing.For lenders and borrowers alike, this sets a meaningful precedent: the statutory rights of banks under recovery laws must be respected even when parallel criminal or money-laundering investigations are in play.
Bengaluru — The Karnataka High Court has dismissed an appeal by the Enforcement Directorate (ED) concerning seven properties in Mandya that were mortgaged to Syndicate Bank (now part of Canara Bank). The court held that allowing the ED’s attachment would interfere with the bank’s recovery rights under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
The case traces back to 2009 when the Central Bureau of Investigation (CBI) filed a case against a branch manager of Syndicate Bank and others over fraudulent loan disbursements, resulting in a loss of ₹12.63 crore to the bank.In 2012, the ED attached seven properties as alleged ‘proceeds of crime’ under the Prevention of Money-Laundering Act, 2002 (PMLA), but the attachment was quashed by the PMLA Tribunal in 2017. The matter then moved to the High Court via the ED’s appeal.
Court’s reasoning
The High Court emphasised that the properties in question were mortgaged to the bank before the alleged offence and were offered as collateral, not acquired from illicit funds. As such, they did not qualify as “proceeds of crime” under Section 2(u) of the PMLA.The bench further noted that the bank was a victim of the fraud (via its manager), rather than a conspirator, and that the bank had already initiated recovery action under SARFAESI, meaning the ED’s attachment would unduly hinder the bank’s statutory right to recover dues.
Implications
The ruling clarifies that when a property is mortgaged to a financial institution prior to alleged wrongdoing, and the institution is not implicated in the wrongdoing, such asset cannot be easily treated as proceeds of crime under PMLA. It reinforces the primacy of the bank’s security rights under SARFAESI in cases where recoveries are ongoing.For lenders and borrowers alike, this sets a meaningful precedent: the statutory rights of banks under recovery laws must be respected even when parallel criminal or money-laundering investigations are in play.
