Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(ATFP) 123

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Balesh Kumar, Member, Rajesh Malhotra, Member
State Bank of India Stressed Assets Management Branch-1 New Delhi – Appellant
Versus
The Deputy Director Directorate of Enforcement Lucknow – Respondent
FPA-PMLA-3412/LKW/2020

Advocates:
For the Appellants/Petitioners: Kunal Tandon, Niti Jain, Nitai Agarwal
For the Respondents: Abhimanyu Kaul

Under PMLA, property equivalent in value to proceeds of crime can be attached even if not derived from crime, and such attachment prevails over secured creditors' rights, subject to the creditor's claim under Section 8(8).

Headnote:(A) Prevention of Money Laundering Act, 2002 - Sections 2(1)(u), 3, 5(1), 8(8), 71 - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13(2), 35 - Definition of 'proceeds of crime' includes 'value of any such property' - Attachment of property equivalent in value permissible even when original proceeds have been dissipated - Reasonable belief under Section 5(1) must be based on material and have rational nexus - Overriding effect of PMLA over other laws (Section 71) - Secured creditor's rights subject to PMLA attachment but may claim under Section 8(8). (Paras 10, 11, 12, 17)

(B) Second limb of definition of 'proceeds of crime' under Section 2(1)(u) allows attachment of any property of equivalent value when the directly derived proceeds are not traceable or have been exhausted - This limb is not dependent on the property being acquired after the offence or having direct nexus with crime - Such interpretation furthers legislative intent and does not render the provision redundant. (Paras 11, 13, 15)

(C) A secured creditor with prior mortgage or charge does not ipso facto defeat an attachment under PMLA; the attachment remains valid and operative but is subject to satisfaction of the bona fide third party claim, and the creditor may pursue its claim before the Special Court. (Paras 17, 18)

Facts of the case:
The appellant bank had a mortgage since 2012 over properties of a company (M/s Simbhaoli Sugars Ltd.) and had initiated recovery proceedings under SARFAESI and before the Debt Recovery Tribunal. The Directorate of Enforcement provisionally attached those properties under PMLA as value equivalent to proceeds of crime, alleging that a loan of Rs.148.60 crores obtained by the company from another bank (Oriental Bank of Commerce) for farmers was diverted and dissipated. The Adjudicating Authority confirmed the attachment. The bank appealed, arguing that the properties were not directly proceeds of crime, that the attachment violated its prior secured interest, and that PMLA could not override SARFAESI.

Findings of Court:
The Appellate Tribunal held that the Deputy Director had sufficient material to form a reasonable belief that the proceeds of crime had been dissipated and that attachment of equivalent value was necessary. The definition of 'proceeds of crime' under Section 2(1)(u) includes 'value of any such property', which permits attachment of property not directly derived from crime when the original proceeds are unavailable. The Tribunal relied on the Supreme Court's interpretation in Vijay Madanlal Choudhary and the Delhi High Court's analysis in Axis Bank, distinguishing Pavana Dibbur on facts. The PMLA has overriding effect under Section 71, and the secured creditor can stake its claim under Section 8(8) before the Special Court, thereby protecting its interests.

Issues: 1. Whether property that is not directly proceeds of crime but equivalent in value can be attached under PMLA? (Answered Yes) 2. Whether a prior mortgage or charge of a secured creditor overrides a PMLA attachment? (Answered No, but creditor can claim under Section 8(8)) 3. Whether the reasonable belief of the Deputy Director was properly formed? (Answered Yes)

Ratio Decidendi: The second limb of the definition of 'proceeds of crime' ('the value of any such property') is a distinct and independent basis for attachment when the directly derived proceeds are not traceable. The PMLA's overriding effect and the need to prevent frustration of confiscation proceedings justify attachment of property equivalent in value, even if acquired prior to the offence. Secured creditors' rights are not extinguished but are subordinated to the attachment until the creditor's bona fide claim is adjudicated under Section 8(8). Result : Appeal dismissed.

Judgement Key Points

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FINAL ORDER

26.02.2026

This Order disposes of the Appeal No. FPA-PMLA- 3412/LKW/2020 filed by State Bank of India, Stressed Assets Management Branch-1, New Delhi, against the Order dated 13.12.2019 (Impugned Order) passed by the Ld. Adjudicating Authority (AA) under the Prevention of Money Laundering Act, 2002 (PMLA) in the Original Complaint No. 1172/2019 (OC). The Provisional Attachment Order No. 02/2019 dated 29.06.2019 (PAO) was confirmed vide the Impugned Order.

2. Ld. Counsel for the Appellant submitted that the attached property was mortgaged by way of deposit of title deeds in favour of the Appellant Bank since 2012 by M/s Simbhaoli Sugars Ltd., to secure the repayment of the amount outstanding as due and payable by M/s Simbhaoli Sugars Ltd. He therefore pleaded that Pari-Passu Charge was with the Appellant Bank. Since the amounts as due and payable by M/s Simbhaoli Sugars Ltd. were neither paid by M/s Simbhaoli Sugars Ltd. nor the account was regularized by M/s Simbhaoli Sugars Ltd., the Appellant herein issued a Demand Notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act") dated 05.10.2018 to M/s Simbhaoli Sugars Ltd. demanding an amount of Rs.257,28,72,955.71 (Rupees Two Hundred Fifty Seven Crore Twenty Eight Lakh Seventy Two Thousand Nine Hundred Fifty Five and Paise Seventy One Only) as on 04.10.2018 and called upon M/s Simbhaoli Sugars Ltd., to discharge in full by paying Rs.257,28,72,955.71 (Rupees Two Hundred Fifty Seven Crore Twenty Eight Lakh Seventy Two Thousand Nine Hundred Fifty Five and Paise Seventy One Only) as on 04.10.2018 along with future interest and incidental expenses/cost within 60 days of receipt of the notice. The Securitization procedure is still continuing and the Appellant reserves it’s right to proceed in accordance with the Securitization Act, 2002. Ld. Counsel further submitted that the Appellant herein has also initiated recovery proceeding by filing an Original Application before the Debt Recovery Tribunal (DRT) at Delhi on 15.12.2018 inter-alia seeking a recovery of Rs.263,67,70,266.27 (Rupees Two Hundred Sixty-Three Crore Sixty-Seven Lakhs Seventy Thousand Two Hundred Sixty-Six and Paise Twenty-Seven Only).

3. Ld. Counsel for the Appellant further stated that it has been alleged that the Deputy Director had reason to believe that the attached assets/properties are proceeds of crime in terms of Section 2 (1) (u) of the PMLA. It has also been alleged that the original proceeds of crime could not be attached as the same have been used up/exhausted by the accused company towards payment of cane dues, loan payments and other operational expenses and therefore the secured/hypothecated assets of the Appellant were attached under Second Proviso to Sub-Section (1) of Section 5 of PMLA, as value equivalent to the proceeds of crime in terms of Section 2 (1) (u) of the said Act. It has also been alleged that if these properties in the possession of the Company (Respondent No. 2) are not attached at this stage, there is every likelihood of the Company filing for bankruptcy and going for liquidation whereupon the banks who enjoy first pari-passu charge on the assets of the Company would be paid out first and the residual value of the assets, which would be utilized towards payment to the Complainant/aggrieved bank Oriental Bank of Commerce (OBC) and other secondary lenders of the Company on equitable basis, would fall considerably short of the loan advanced by OBC and the interest accrued thereon leading to negligible pay outs to the said bank and thereby causing huge losses to the said bank. Further, it has been alleged that there is every likelihood that these properties may be disposed of or dealt with in a manner which may result in frustrating further proceedings relating to confiscation as provided under the Act. Ld. Counsel contended that the very basis or the foundational

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2026 Supreme(Online)(ATFP) 123

APPELLATE TRIBUNAL FOR FORFEITED PROPERTYBalesh Kumar, Member, Rajesh Malhotra, MemberState Bank of India Stressed Assets Management Branch-1 New Delhi – AppellantVersusThe Deputy Director Directorate of Enforcement Lucknow – RespondentFPA-PMLA-3412/LKW/2020

Under PMLA, property equivalent in value to proceeds of crime can be attached even if not derived from crime, and such attachment prevails over secured creditors' rights, subject to the creditor's claim under Section 8(8).

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Balesh Kumar, Member, Rajesh Malhotra, Member
State Bank of India Stressed Assets Management Branch-1 New Delhi – Appellant
Versus
The Deputy Director Directorate of Enforcement Lucknow – Respondent
FPA-PMLA-3412/LKW/2020