The Bombay High Court (Nagpur Bench) in Enforcement Directorate vs HDFC Bank Ltd. & Anr 2026:BHC-NAG:4705-DB has clarified the legal position regarding the conflict between the Prevention of Money Laundering Act, 2002 (PMLA) and bank recovery laws such as the SARFAESI Act, 2002 and the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act).
The matter arose from a case involving Grace Industries Ltd., which was under investigation in connection with alleged irregularities in coal block allocation. The Enforcement Directorate (ED) identified approximately Rs. 24.92 crore as "proceeds of crime" and accordingly attached certain immovable properties (such as land and related assets) owned by Grace Industries Ltd., on the basis that these assets were linked to the alleged illegal gains. These same properties had earlier been mortgaged to banks, including HDFC Bank and Punjab National Bank, as security for loans. After the borrower defaulted, the banks initiated recovery proceedings and sought to enforce their security by selling the mortgaged properties.
The key issue before the Court was whether banks, as secured creditors, could enforce their rights over these mortgaged properties despite the ED's attachment under PMLA.
The High Court held that the provisions of the PMLA will prevail over SARFAESI and RDB laws in cases of conflict. The Court explained that PMLA is a special law aimed at preventing money laundering and confiscating assets connected to criminal activity, whereas SARFAESI and RDB laws are meant for recovery of loans. Therefore, once such properties are attached under PMLA, banks cannot automatically sell or take control of them, even if they hold a valid mortgage.
At the same time, the Court clarified that banks are not without remedy. They may approach the Special Court under Section 8(8) of the PMLA and seek release or restoration of the attached properties by demonstrating that they acted in good faith and were not involved in the alleged wrongdoing.
Key Takeaways:
- PMLA has overriding effect over SARFAESI and RDB Acts.
- Mortgaged properties attached by ED as proceeds of crime cannot be directly sold by banks for recovery.
- Banks can seek relief before the Special Court under PMLA to seek restoration of the attached properties.