20 May 2024

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Money Laundering Law Prevails Over Bankruptcy Act, Insolvency Code Rules Delhi High Court


Delhi High Court in a recent judgment observed that, Money Laundering law prevails over Bankruptcy Act and Insolvency Code, when it comes to attachment of properties obtained as "proceeds of crime". However, High Court also ruled that, the Prevention of Money-Laundering Act, 2002 (PMLA), Recovery of Debts and Bankruptcy Act, 1993 (RDBA), SARFAESI Act, 2002 and Insolvency and Bankruptcy Code, 2016 must co-exist, each to be construed and enforced in harmony. The Court heard batch of appeals filed by the Enforcement Directorate (ED) against the orders of PMLA Appellate Tribunal.

The Tribunal's orders are challenged on the issue of third party rights over a property attached by the agency. The appellate tribunal by its impugned orders, has taken the view that, the relevant statutory provisions of PMLA take a back seat, the enactments under which the third parties (the banks) lay a superior claim over the properties in question having primacy. Delhi High Court set aside order passed by Appellate Tribunal and observed that, the objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former.

The PMLA, by virtue of Section 71, has the overriding effect over other existing laws in the matter of dealing with "money-laundering" and "proceeds of crime" relating thereto. An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Further, it is said that, mere issuance of an order of attachment under 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 empowered enforcement officer has the authority of law in PMLA to attach not only a "tainted property" but also any other asset or property of equivalent value of the offender of money-laundering, the latter not bearing any taint but being alternative attachable property on account of its link or nexus with the offence (or offender) of money-laundering.

Tags : Property Attachment Third party rights

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