High Court of Karnataka Allows Canara Bank's Petition to Quash Provisional Attachment Order Under PMLA — Priority of Secured Creditor Over Enforcement Directorate Upheld. The court held that under Section 26E of SARFAESI Act, 2002, a secured creditor has priority over the Enforcement Directorate in respect of mortgaged property, and the provisional attachment under PMLA cannot defeat the rights of the secured creditor.

High Court: Karnataka High Court Bench: BENGALURU In Favour of Prosecution

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2026-05-18 19:11:15

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Case Note & Summary

The petitioner, Canara Bank, a secured creditor, had advanced loans to the third respondent, Iqbal Ahmed, who mortgaged his property in favour of the bank on 20.02.2015. The second respondent, Assistant Director, Directorate of Enforcement, passed a provisional attachment order dated 31.03.2022 under the Prevention of Money Laundering Act, 2002 (PMLA) attaching the same property. The bank filed a writ petition under Articles 226 and 227 of the Constitution of India seeking to quash the attachment order and to direct the release of the property to enable the bank to sell it and realize its dues. The court considered the legal issue of priority between a secured creditor and the Enforcement Directorate. The court held that under Section 26E of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), a secured creditor has priority over all other debts, including dues to the Central Government. The provisional attachment under PMLA does not create any charge or priority in favour of the Enforcement Directorate. The court quashed the impugned order and directed the second respondent to release the property from attachment, allowing the bank to proceed with the sale of the mortgaged property to recover its dues.

Headnote

A) Banking Law - Priority of Secured Creditor - Section 26E of SARFAESI Act, 2002 - Priority of secured creditor over all other debts including dues to the Central Government - The court held that the secured creditor, Canara Bank, has priority over the Enforcement Directorate in respect of the mortgaged property, and the provisional attachment order under PMLA cannot defeat the rights of the secured creditor. (Paras 1-10)

B) Prevention of Money Laundering Act - Provisional Attachment - Section 8(8) of PMLA, 2002 - Effect of provisional attachment on secured creditor's rights - The court held that the provisional attachment order under PMLA does not create any charge or priority in favour of the Enforcement Directorate over the secured creditor's interest in the mortgaged property. (Paras 1-10)

C) Constitutional Law - Writ Jurisdiction - Articles 226 and 227 of Constitution of India - Quashing of order - The court exercised its writ jurisdiction to quash the impugned order dated 31.03.2022 passed by the Assistant Director, Directorate of Enforcement, Mangaluru, as it was contrary to the provisions of SARFAESI Act and the settled legal position regarding priority of secured creditors. (Paras 1-10)

Issue of Consideration

Whether the provisional attachment order passed by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 in respect of a property mortgaged to a secured creditor (Canara Bank) can be sustained, and whether the secured creditor has priority over the Enforcement Directorate in realizing its dues from the mortgaged property.

Final Decision

The court allowed the writ petition, quashed the impugned order dated 31.03.2022 passed by the Assistant Director, Directorate of Enforcement, Mangaluru, and directed the second respondent to release the schedule property from attachment to enable the petitioner to sell the property and realize its dues.

Law Points

Priority of secured creditor over Enforcement Directorate in respect of mortgaged property
Section 26E of SARFAESI Act
2002
Section 8(8) of PMLA
Doctrine of election
Writ jurisdiction under Articles 226 and 227 of Constitution of India

Case Details

NC: 2024:KHC:20115

WP No. 10895 of 2023 (GM-RES)

2024-06-10

S.R.Krishna Kumar

NC: 2024:KHC:20115

Sri. Dhyan Chinnappa, Senior Counsel for Sri. Shetty Vignesh Shivaram (for petitioner); Sri. H. Shanthi Bhushan, DSGI for R-1; Sri. H. Jayakar Shetty for R-2; R-3 served but unrepresented

Canara Bank

The Commissioner of Customs, The Assistant Director, Directorate of Enforcement, Mr. Iqbal Ahmed

Nature of Litigation

Writ petition under Articles 226 and 227 of the Constitution of India seeking to quash a provisional attachment order passed by the Enforcement Directorate under PMLA and to direct release of mortgaged property.

Remedy Sought

Petitioner (Canara Bank) sought a writ of certiorari to quash the impugned order dated 31.03.2022 passed by the Assistant Director, Directorate of Enforcement, Mangaluru, and a direction to release the schedule property mortgaged to the petitioner to enable the bank to sell the property to realize its dues.

Filing Reason

The Enforcement Directorate passed a provisional attachment order under PMLA attaching the property mortgaged to the bank, thereby preventing the bank from enforcing its security interest and recovering its dues.

Issues

Whether the provisional attachment order under PMLA can be sustained in respect of a property already mortgaged to a secured creditor. Whether the secured creditor has priority over the Enforcement Directorate in realizing its dues from the mortgaged property.

Submissions/Arguments

Petitioner argued that as a secured creditor, it has priority over all other debts under Section 26E of SARFAESI Act, and the provisional attachment under PMLA cannot defeat its rights. Respondents argued in support of the attachment order, but the court found no merit in their submissions.

Ratio Decidendi

Under Section 26E of the SARFAESI Act, 2002, a secured creditor has priority over all other debts, including dues to the Central Government. The provisional attachment under Section 8(8) of the PMLA, 2002 does not create any charge or priority in favour of the Enforcement Directorate over the secured creditor's interest in the mortgaged property. Therefore, the attachment order cannot be sustained and must be quashed.

Judgment Excerpts

In this petition, petitioner seeks for the following reliefs:- Issue a writ of certiorari, by quashing the impugned order bearing File No. T-3/MGSZO/02/2022-213-219 dated: 31.03.2022 passed by the Assistant Director, Directorate of Enforcement, Mangaluru Sub-Zonal Office, Mangaluru (Respondent No.2) as per Annexure-A, in respect of the Schedule Property mortgaged to the Petitioner dated: 20.02.2015 as per Annexure-B.

Procedural History

The petitioner filed a writ petition under Articles 226 and 227 of the Constitution of India on an unspecified date. The petition came up for orders on 10.06.2024, and the court made the order allowing the petition.

Acts & Sections

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 26E
Prevention of Money Laundering Act, 2002: Section 8(8)
Constitution of India: Articles 226, 227