The Karnataka High Court has criticized the Enforcement Directorate (ED)’s action in seizing an immovable property mortgaged to a public sector bank to secure a loan, in a money laundering case.
The case was initiated on a charge sheet filed by the Central Bureau of Investigation (CBI) on a complaint by the bank against its officials and borrowers who had allegedly defrauded the bank.
A Division Bench comprising Justice DK Singh and Justice Venkatesh Naik T passed the order and dismissed the ED’s appeal against the 2017 order passed by the Appellate Tribunal, Prevention of Money Laundering (PML) Act, New Delhi.
The tribunal stayed the ED’s 2012 plea seeking attachment of seven properties mortgaged to the bank by the accused borrowers.
Not the proceeds of crime
When prima facie the properties mortgaged to the bank in 2008-09 were not proceeds of crime as they were owned by the accused before they mortgaged them to the bank for availing loans, the attachment of these seven properties mortgaged to the bank for the purpose of extending loans could not be justified in law, the Bench said.
The CBI alleged that the borrowers, Asadullah Khan and others, in connivance with bank officials, defrauded the bank of around ₹12 crore as they failed to repay the borrowed money and the value of the mortgaged properties was not sufficient to recover the loan amount.
“The bank is a secured creditor and has initiated recovery proceedings under the SARFAESI Act before the Debt Recovery Tribunal against the accused debtors. Blocking the recovery under the SARFAESI Act as a result of the ED’s action would cause serious prejudice to the bank and the recovery proceedings and would not be in the interest of justice and interest of the bank which itself filed the criminal complaint,” the Bench said.
In a precarious position
Since the bank was entitled to recover its security interest by attaching the secured assets under the Act, the Bench said that if the ED was allowed to proceed with the attachment, it would put the bank in a precarious position as their legal remedies to recover part of the loan would be affected.
The Bench also pointed out that the ED had not issued a notice to the bank under Section 8(1) and Section 8(2) of the PML Act before attaching the mortgaged properties.
Published – 23 October 2025 20:00 IST
