By Ajay Bhargava, Arvind Kumar Ray, Karan Gupta

Recently in the case of Standard Chartered Bank v. Deputy Director, Directorate of Enforcement, the Appellate Tribunal, Prevention of Money Laundering Act, New Delhi has clarified the anomaly regarding the right of the Enforcement Directorate (ED) to attach assets, which have previously been mortgaged to banks, by way of lending. The Appellate Tribunal held that the ED cannot claim right over assets of individuals who are suspected of criminal activity if banks have created prior right over such assets through lending and there exists no direct or indirect relation between the asset and the proceeds of crime.

The Appellate Tribunal further noted that such mortgaged assets act as security to the loans and cannot be subject to attachment, particularly when they were purchased and mortgaged prior to the events of funds diversion or fraud committed by the borrowers.