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2019 (2) TMI 961 - Tri - Money LaunderingAttachment orders challenged - PMLA, 2002 and the IB Code - attach the properties of the corporate debtor under the Prevention of Money-laundering Act, 2002 (PMLA) and restore the said properties to the liquidator for the purpose of liquidation under the IBC, 2016 to declare the right of the lenders/creditors on the attached properties of the corporate debtor to recover their dues prevails over the right of the respondent to attach the properties under the PMLA - whether an offence of money laundering has been prima facie made out or not and the properties that are mortgaged to the bank and other lenders, thereby creating security interest are proceeds of crime , or not ? - whether properties attached are not proceeds of crime? Held that - Issue here has to be decided only by the Adjudicating Authority or the Appellate Authority or the Special Court under the provision of the PMLA but not by this Adjudicating Authority exercising jurisdiction under the I and B Code. Two different enactments, i.e., the PMLA, 2002 and the I and B Code provide two different hierarchies of functionaries to decide the controversies that arise under the respective enactments. When such is the case one authority cannot interfere with the functions of the other authority under a different enactment. It is already said there is no repugnancy in procedure that is being followed for liquidation of the asset of the corporate debtor and the procedure to be followed in case of proceeds of crime, where an offence of money laundering has been committed. It is already said even if an offence of money laundering is committed, the claimant who are having security interest over the properties of the corporate debtor, can still ask for release of the properties, if they are able to establish they acted in good faith and they parted with valuable consideration in the form of sale consideration or debt and/or that the properties attached are not proceeds of crime. Therefore, the liquidator is at liberty to approach the Authorities under the PMLA and seek order to release the properties from the attachment on the ground that the properties attached are not proceeds of crime and the lenders are bona fide lenders and it is for the authorities under the PMLA Act to decide such issues based on the record of investigation and other material placed on record before then, uninfluenced by any of the findings or observations or opinion expressed in this order. In view of the above discussion the reliefs prayed in the petition cannot be granted without the liquidator taking recourse to remedies provided under the PMLA.
Issues Involved:
1. Provisional attachment of properties under the Prevention of Money-laundering Act, 2002 (PMLA). 2. Conflict between the Insolvency and Bankruptcy Code, 2016 (IBC) and PMLA. 3. Rights of secured creditors versus the state’s right to confiscate proceeds of crime. 4. Jurisdiction and authority of the National Company Law Tribunal (NCLT) versus the authorities under PMLA. Issue-wise Detailed Analysis: 1. Provisional Attachment of Properties under PMLA: The liquidator filed an application seeking the withdrawal of the provisional attachment order issued by the Directorate of Enforcement under PMLA, arguing that the properties should be restored to the liquidator for the purpose of liquidation under IBC. The Directorate of Enforcement initiated an investigation based on information from the CBI, alleging that the corporate debtor misappropriated bank funds, committed criminal breach of trust, and laundered money. Consequently, the Directorate issued a provisional attachment order, attaching the properties of the corporate debtor, deeming them as "proceeds of crime" under section 2(1)(u) of PMLA. 2. Conflict between IBC and PMLA: The liquidator argued that the provisional attachment under PMLA violated section 33(5) read with section 238 of IBC, which states that no legal proceedings can be instituted against the corporate debtor post-liquidation order. The liquidator contended that the provisions of IBC, being later in time, should prevail over PMLA. However, the respondent argued that PMLA was enacted to prevent money laundering and forfeit illegal properties, and thus has an overriding effect under section 71 of PMLA. 3. Rights of Secured Creditors versus State’s Right to Confiscate Proceeds of Crime: The respondent contended that the state has the first right to confiscate proceeds of crime over the rights of secured creditors to recover debts. The liquidator argued that the attachment adversely affects the interests of creditors and relied on various judgments, including the Bombay High Court's decision in Aryarup Tourism Club Resorts P. Ltd. (in liquidation), which emphasized the liquidator's role as a trustee and custodian of the properties for distribution among creditors. 4. Jurisdiction and Authority of NCLT versus Authorities under PMLA: The NCLT held that there is no inconsistency between PMLA and IBC as both operate in exclusive fields. PMLA deals with proceeds of crime and money laundering, while IBC deals with the liquidation and revival of corporate debtors. The NCLT emphasized that it is for the authorities under PMLA to decide whether the properties are proceeds of crime. The liquidator has the opportunity to approach the Adjudicating Authority under PMLA to seek an order for raising the attachment. Conclusion: The NCLT concluded that the properties attached under PMLA form part of the liquidation estate, and the liquidator must take recourse to remedies provided under PMLA to release the properties from attachment. The application was disposed of, directing the liquidator to approach the authorities under PMLA to establish that the properties are not proceeds of crime and that the lenders acted in good faith. Final Order: The application (I. A. No. 150 of 2018) is disposed of, with the liquidator instructed to seek appropriate relief under PMLA.
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