2022 (3) TMI 1374 - Tri - Insolvency and Bankruptcy

Legal Jurisdiction - power of NCLT to deal with the matters falling under PMLA - Validity of Provisional Attachment Order - seeking Stay of operation of the Provisional Attachment Order - seeking order of injunction restraining the Respondents from giving any effect or further effect to and/ or taking any steps or further steps on the basis of the Provisional Attachment Order dated December 30, 2021 - HELD THAT - This Adjudicating Authority, with utmost regard to the order relied upon by the Applicant, is bound by the order dated 3rd of January, 2022 passed by Hon ble 3 Member Bench of NCLAT which took the view that NCLT is not empowered to deal with the matters falling under PMLA. In the present case since notice impugned has been issued under the Prevention of Money Laundering Act, 2002 therefore, this application is not maintainable and the same is hereby rejected. Application dismissed.

Summary

Issues Involved:
1. Validity of the Provisional Attachment Order dated December 30, 2021.
2. Jurisdiction of the National Company Law Tribunal (NCLT) under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Conflict between the provisions of the IBC and the Prevention of Money Laundering Act (PMLA), 2002.
4. Impact of the Provisional Attachment Order on the Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Validity of the Provisional Attachment Order dated December 30, 2021:
The Applicant, Ashok Kumar Sarawagi, the Resolution Professional of Kohinoor Steel Private Limited, contended that the Provisional Attachment Order (PAO) issued by the Directorate of Enforcement on December 30, 2021, was wrongful and in violation of the IBC. The Applicant argued that there was no proper adjudication to declare the properties as "proceeds of crime" and that the PAO rendered the CIRP infructuous by attaching valuable properties worth Rs. 96.69 Crores, thus defeating the objective of the IBC, which aims at maximization of value of assets in a time-bound manner.

2. Jurisdiction of the National Company Law Tribunal (NCLT) under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), 2016:
The Applicant asserted that Section 60(5)(a) of the IBC specifically vests the NCLT with jurisdiction to entertain and dispose of any application or proceeding by or against the corporate debtor. The Applicant argued that the ambit of Section 60(5)(a) is extremely wide, and it cannot be contended that NCLT does not have jurisdiction to entertain the present application. The Applicant also cited the decision of the Hon'ble National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT) (Insolvency) No. 575/2019, which held that there cannot be any attachment of Corporate Debtor’s assets under PMLA during continuation of CIRP.

3. Conflict between the provisions of the IBC and the Prevention of Money Laundering Act (PMLA), 2002:
The Applicant argued that the attachment order under PMLA is wholly contrary to the objects and provisions of the IBC and is ex-facie hit by Section 238 of the IBC, which has an overriding effect over all other laws. The Applicant emphasized that PMLA being an older statute, the provisions of the IBC shall prevail over PMLA 2002. The Applicant further argued that the continuation of the attachment order would result in liquidation of the Corporate Debtor, which would be an empty formality due to the unavailability of assets.

4. Impact of the Provisional Attachment Order on the Corporate Insolvency Resolution Process (CIRP):
The Applicant highlighted that the PAO had a significant adverse impact on the CIRP, as the attached assets would no longer be available for resolution, leading to no prospect of any resolution plan being approved. The creditors of the Corporate Debtor would be victimized for no fault on their part, and the liquidation of the Corporate Debtor would be the last resort. The Applicant argued that the attachment order deprived the CIRP of the assets of the Corporate Debtor, which is against the settled law that post declaration of a Section 14 moratorium, there cannot be any action to deprive the CIRP of the assets of the Corporate Debtor.

Submissions of the Respondents:
The Respondents, represented by the Directorate of Enforcement, contended that the properties subject to the CIRP process were purchased out of the proceeds of crime. They argued that the moratorium under IBC does not affect either initiation or continuation of investigation under PMLA, which is a special statute. The Respondents relied on the order passed by NCLAT in Company Appeal (AT) (Insolvency No. 493 of 2018) titled Varrsana Ispat Limited. Vs. Deputy Director of Enforcement, which held that Section 14 of the IBC is not applicable to proceedings under PMLA.

Tribunal's Decision:
The Tribunal, after hearing both parties, concluded that it is bound by the order dated January 3, 2022, passed by a three-member bench of NCLAT, which held that NCLT is not empowered to deal with matters falling under PMLA. The Tribunal noted that the proper course for the aggrieved person is to approach the Appellate Authority under PMLA. Consequently, the application filed by the Resolution Professional was found to be not maintainable and was dismissed.

Conclusion:
The Tribunal dismissed the application, stating that it does not have the jurisdiction to deal with matters under PMLA and that the proper remedy for the Applicant is to approach the Appellate Authority under PMLA. The Provisional Attachment Order dated December 30, 2021, issued by the Directorate of Enforcement, remains in effect, impacting the CIRP of Kohinoor Steel Private Limited.