2020 (1) TMI 1533 - Tri - Companies Law

Liquidation process - action shall be taken against the property of the Corporate Debtor in relation to an offence committed prior to the commencement of CIRP or sale of liquidation assets under the provisions of Chapter III of Part II of the Code or not - Section 32A inserted by way of Ordinance dated 28.12.2019 - HELD THAT - It becomes clear that no action including attachment can be taken against the liquidation assets of the CD for the offences committed prior to the commencement of the CIRP. The Ordinance operates with retrospective effect. It is further submitted that vide notification dated 31.03.2017 the State of Maharashtra has lodged a complaint against the CD viz. M/s. Namdhari Food International Pvt. Ltd. alongwith other entities on the accusation of the investors that they have deposited the money with NSEL but were defrauded. Further the offences have been registered against the accused by EoW vide CR No. 89/13 under Section 409 465 467 468 471 474 477(A) and 120 (B) of Indian Penal Code 1860 (IPC) read with Section 3/4 of Maharashtra Protection of Interest of Depositors (in financial establishment) Act 1999 (MPID Act). It is prayed that the attachment order dated 22nd of October 2018 and r/w 31.03.2017 needs to be vacated in order to give effect to the provisions of the IBC to proceed with the liquidation process of the CD and to sell the assets as prescribed so as to distribute the proceeds to the creditors as per the water fall mechanism provided under Section 53 of the IBC subject to the provisions of 52 of the Code . The Investors/Creditors cannot raise any objection as they were at liberty to file their claims with the liquidator within the stipulated time under Section 35 (j) of the IBC 2016. The submissions of the liquidator are plausible which are accepted. The registration of CR No. 89/13 under the Provisions of the IPC and the MPID Act is in relation to the alleged offences committed by the erstwhile management of the CD and other entities. But the Company (CD) cannot be prosecuted under the said provisions. Hence the satisfaction of the claims of the creditors of the CD is possible only under the provisions of IBC. Therefore in public interest the Order dated 22nd October 2018 read with notification dated 31st of March 2017 is hereby set aside on the grounds stated by the Ld. Counsel for the Liquidator. Application disposed off.

Summary

Issues:
1. Application of Section 32A of the Insolvency and Bankruptcy Code (IBC) in relation to offences committed prior to the commencement of Corporate Insolvency Resolution Process (CIRP).
2. Validity of attachment order on assets of the Corporate Debtor (CD) under liquidation process.
3. Impact of the notification dated 31st March, 2017 and the attachment order dated 22nd October, 2018 on the CD.
4. Interpretation of Section 238 of the IBC in relation to overriding other legislations.
5. Rights of creditors in the liquidation process under the IBC.

Analysis:

1. The Tribunal noted that the liquidator had sent private notices to relevant authorities as directed, and despite no representation from the respondents, the service of notice was deemed sufficient. Consequently, the Home Secretary and District Magistrate were proceeded Ex-Parte.

2. The liquidator's counsel highlighted the insertion of Section 32A in the IBC by an ordinance, which prohibits actions against the property of the CD for offences committed before the CIRP commencement. The counsel argued that the attachment of assets by authorities was not permissible under this provision.

3. The Tribunal considered the complaint lodged by the State of Maharashtra against the CD and other entities, citing offences under various sections of the Indian Penal Code and the Maharashtra Protection of Interest of Depositors Act. It was noted that NSEL was not considered a financial establishment by the Bombay High Court, a decision under challenge in the Supreme Court.

4. The liquidator's counsel contended that Section 238 of the IBC overrides other legislations, including the MPID Act, to protect the rights of creditors. Any attachment affecting creditor rights would hinder the liquidation process, contrary to the IBC's provisions.

5. In the interest of settling creditor claims and ensuring the liquidation process proceeds smoothly, the Tribunal set aside the attachment order on the CD's assets. The assets were directed to be handed over to the liquidator within three weeks for distribution among creditors as per the IBC's provisions.

6. The Tribunal emphasized that the CD could not be prosecuted under criminal provisions, and creditor claims could only be satisfied through the IBC process. The order dated 22nd October, 2018, along with the notification from March 2017, was thus revoked to facilitate the liquidation process.

7. The liquidator was tasked with obtaining a copy of the order for compliance by relevant authorities, ensuring the assets were handed over within the stipulated timeline. The Tribunal pronounced the order in open court, thereby disposing of the case.

This detailed analysis of the judgment provides a comprehensive overview of the issues addressed by the Tribunal and the legal reasoning behind its decision.