India: Section 26E Of Sarfaesi Act, 2002 And 31b Debt Recovery & Bankruptcy, 1993 Will Have Overriding Effect Over Section 71 Of Prevention Of Money Laundering Act, 2002

Last Updated: 10 October 2019
Article by Vijay Pal Dalmia, Partner

Article by Vijay Pal Dalmia, Advocate, Supreme Court of India and Delhi High Court, Partner & Head of Intellectual Property Laws Division, Vaish Associates Advocates, India

In this case (Bank of Baroda and Ors. vs. The Deputy Director, Directorate of Enforcement, Mumbai and Ors. available at  / MANU/ML/0044/2018) , the appeals, before the Appellate Tribunal under Prevention of money Laundering Act New Delhi (Tribunal), were taken up together for a common order as they had identical facts, involved similar questions of law and arose out of the same ECIR and Impugned order

The Appellants had filed these appeals under Section 26 of the Prevention of Money-Laundering Act, 2002 (PMLA) against the common Order passed by the Adjudicating Authority.

The Appellants are Bank of Baroda, Union bank of India, Oriental Bank of Commerce, State Bank of India and had preferred different appeals that were heard together.

In the case of Bank of Baroda (Appellant Bank):

M/s. Siddhi Vinayak Logistic Limited (M/s. SVLL/Borrowers) was dealing with the Appellant Bank since 2008. The Appellant Bank had granted, restructured and sanctioned various credit facilities to M/s. SVLL. M/s. SVLL and other Directors, Guarantors, Corporate Guarantors defaulted in repayment of the loan/credit facilities availed by them. The Appellant Bank, in accordance with Prudential Accounting and Income Recognition Norms prescribed by the Reserve Bank of India for the Bank, classified the said loans of M/s. SVLL as Non-Performing Asset.

The Appellant Bank had taken measures for recovery of the secured debts under the SARFAESI Act-2002 (SARFAESI) and had issued a Demand Notice u/s. 13(2) of the SARFAESI and in-spite of service of the statutory demand notice the Borrowers failed to pay the outstanding dues of Rs. 307,73,40,872/-.The Appellant Bank had served notice u/s. 13(4) of SARFAESI and taken over the symbolic possession of the securities mortgaged/charged/hypothecated with it to recover its dues.

The Appellant Bank had filed an O.A. in the DRT-II, Ahmedabad for recovery of its dues from aforementioned borrowers which had granted status-quo order in respect of the securities.

While the proceedings for recovery of dues under the Debt Recovery & Bankruptcy Act, 1993 (DR&B Act) and the SARFAESI were pending, the CBI, BS &FC, Mumbai, registered an FIR invoking sections 420, 468, 471, 120(B) of Indian Penal Code, 1860 and 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988 (PC Act) against the borrowers.  Since the offences also fall under the scheduled offences under PMLA, the Directorate of Enforcement, (Respondent) recorded an ECIR. Consequent to the above, an Original Complaint was filed before the Adjudicating Authority praying for confirmation of the Provisional Attachment order (PAO). The Adjudicating Authority, by the impugned order, allowed the O.C. confirming the PAO which was challenged before this Tribunal.

The Adjudicating Authority had held that the defendant (Siddhi Vinayak), prima facie, had committed the Scheduled Offences, generated proceeds of crime and laundered them and thus, it had confirmed the PAO.

All the Appeals had similar facts and question of law and for this reason they were taken up together.

The incontrovertible facts were that the attached properties were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The Banks while rendering the facilities were bonafide parties. The mortgage of the properties was done for bonafide purposes. The Appellant Banks were not involved in any of the scheduled offences and no criminal complaint were pending against the Banks in this regard.

As per Section 26E SARFAESI:

"26E, Priority to Secured Creditors- Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any Secured Creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government of State Government or local authority.

Explanation: For the purposes of this Section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the Borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."


Section 31B of the DR&B Act:

'31B. Priority to Secured Creditors- Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realize secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and government dues including revenues, taxes, cesses and other rates due to the Central Government, State Government or local authority.

Explanation: for the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."

On behalf of the Appellants it was contended that Secured Creditors have the priority over the rights of the Central or State Government or any other local authority and that the amendment to section 26E of SARFAESI and 31B of DR&B Act amendment had been introduced to facilitate the rights of the Secured Creditors which were being hampered by way of provisional attachment of the properties belonging to the Banks/Secured Creditors. Reliance is placed on the Judgment dated 14.07.2017 passed by this Tribunal in State Bank of India Vs Jt. Director, Directorate of Enforcement, Kolkata.

The Appellants had also referred to judgment of the Full Bench of the Madras High Court in the case The Assistant Commissioner (CT), Anna Salai-III Assessment Circle Vs. The Indian Overseas Bank and Ors.

"There is, thus, no doubt that the rights of a secured creditor to realise secured debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. This section introduced in the Central Act is with ''notwithstanding'' clause and has come into force from 01.09.2016. Further it was also held that the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending."

The Tribunal had accepted the abovementioned contentions by the Appellants and quashed the order by the Adjudicating Authority.

© 2019, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions