PMLA (Prevention of Money Laundering Act)

Prevention of Money Laundering Act, 2002 — Sections 3, 4, 5

The Prevention of Money Laundering Act, 2002 — the primary anti-money laundering legislation in India, enforced by the Enforcement Directorate (ED). The ED can attach properties that are "proceeds of crime" regardless of whether a criminal case is pending. Banks' NPAs involving fraud are frequently referred to the ED. Attachment under PMLA can complicate SARFAESI enforcement as PMLA attachments take priority in some circumstances.

PMLA changes the dynamics of a fraud-tainted NPA because the Enforcement Directorate can attach "proceeds of crime" independently of, and sometimes ahead of, a secured creditor. In practice, once a bank's fraud-tagged account is referred and the ED attaches the borrower's properties under the Act, a bank that was poised to sell the same asset under SARFAESI may find its enforcement frozen or its priority contested, since PMLA attachments take precedence in certain situations. For lenders this means coordinating recovery strategy with the criminal track: filing claims before the adjudicating authority, asserting the bona fide secured-creditor position, and avoiding steps that clash with an ED attachment. For accused promoters and guarantors, the ED's powers of attachment, summons and arrest create exposure entirely separate from the civil recovery. Getting the interplay wrong wastes enforcement effort on an asset already locked. Well-advised creditors check for any ED attachment over the security before committing to a SARFAESI sale.