2023 (8) TMI 1489 - HC - Companies Law

Money Laundering - proceeds of crime - reasons to believe - Jurisdiction of PMLA over properties under IBC liquidation - liquidation measures have been approved in accordance with the provisions of IBC Act, 2016 - Whether the respondent authority under the PMLA Act, 2002 would retain jurisdiction or authority to proceed against the properties of a corporate debtor once liquidation measures have been approved in accordance with the provisions of IBC Act, 2016? HELD THAT - Without assigning any reasons, without any independent finding on reason to believe the order of provisional attachment under Section 5 of the PMLA has been confirmed. In the opinion of this Court, the order of provisional attachment dated 21.9.2022 came to be quashed by order passed in the Special Civil Application No. 19387 of 2022 dated 17.2.2023. In view thereof, the respondent authority has erred in not arriving at an independent finding considering the fact that the case of the writ-applicant stands at identical footing to that of the writ-applicant in the Special Civil Application No. 19387 of 2022. Though the order under Section 5 is quashed and set aside, the respondent authority has proceeded to confirm the order of provisional attachment passed under Section 5(1) which can be said to be an order passed without any application of mind. While passing the impugned order pursuant to the show cause notice wherein a detailed reply came to be filed by the petitioner and written submissions came to be filed after personal hearing for release of the subject land for attachment. The impugned order is passed by the adjudicating authority without considering the submissions advanced by the petitioner herein and has proceeded to conclude that the properties attached are proceeds of crime and, therefore, involved in money laundering. No reasons are recorded by the adjudicating authority while issuing show cause notice in terms of Section 8(1). Having failed to record reasons to believe in terms of Section 8(1), in the opinion of this Court, the adjudicating authority has passed the impugned confirmation order dated 14.3.2023 which is liable to be quashed and set aside by exercising extraordinary jurisdiction under Article 226 of the Constitution of India - While passing the impugned order under Section 8 of the PMLA as referred above, the same is without assigning any independent reasoning and in view thereof the orders impugned dated 21.9.2022 and 14.3.2023 are required to be quashed and set aside and the same is quashed and set aside. By exercising extraordinary jurisdiction under Article 226 of the Constitution of India the order impugned dated 21.9.2022 passed by the respondent No. 1 to the extent the same is qua the subject land and the writ-applicant and the consequential action to the impugned order including the complaint, show cause notice and final order dated 14.3.2023 passed by the adjudicating authority qua the subject land and the writ-applicant are quashed and set aside. Application allowed.

Summary

Issues Involved:
1. Jurisdiction of PMLA over properties under IBC liquidation.
2. Validity of provisional attachment under PMLA.
3. Compliance with procedural mandates under PMLA.
4. Impact of Section 32A, 33(5), and 238 of IBC on PMLA proceedings.
5. Requirement of "reason to believe" for attachment under PMLA.
6. Availability and necessity of alternative remedy.

Issue-wise Detailed Analysis:

1. Jurisdiction of PMLA over properties under IBC liquidation:
The court examined whether the respondent authority under the PMLA Act, 2002, retained jurisdiction to proceed against the properties of a corporate debtor once liquidation measures had been approved under the IBC. The court noted that the liquidation of ABG Shipyard commenced on 25.04.2019 under the IBC, prior to the provisional attachment order issued by the respondent under Section 5 of the PMLA on 21.09.2022. The court held that Section 32A of the IBC would govern the extent to which the non-obstante clause enshrined in the IBC would operate and exclude the operation of PMLA.

2. Validity of provisional attachment under PMLA:
The court found that the provisional attachment order dated 21.09.2022 and the final adjudication under Section 8 of the PMLA were subsequent to the proceedings initiated under IBC. The court emphasized that the protection granted under Section 33(5) and Section 32A(2) of the IBC would override the power of the respondent to attach properties under the PMLA. The court quashed the provisional attachment order, citing that it was issued without jurisdiction.

3. Compliance with procedural mandates under PMLA:
The court scrutinized the procedural compliance under PMLA, particularly the requirement of recording "reason to believe" before issuing a show-cause notice under Section 8(1). The court observed that the adjudicating authority failed to record reasons while issuing the show-cause notice and confirmed the attachment without independent findings. The court highlighted that the absence of proper reasoning rendered the order unsustainable.

4. Impact of Section 32A, 33(5), and 238 of IBC on PMLA proceedings:
The court referred to Section 32A, 33(5), and 238 of the IBC, noting that these provisions provide protection against actions on properties of the corporate debtor in relation to offenses committed before the commencement of the corporate insolvency resolution process. The court reiterated that the IBC provisions would override the PMLA due to the later enactment of IBC and its specific non-obstante clause.

5. Requirement of "reason to believe" for attachment under PMLA:
The court stressed the necessity of having a "reason to believe" based on material evidence for the attachment of properties under Section 5 of the PMLA. It was noted that the adjudicating authority's order lacked detailed reasoning and failed to demonstrate how the subject land was involved in money laundering. The court cited precedents emphasizing that "reason to believe" must be based on sufficient material and not mere suspicion.

6. Availability and necessity of alternative remedy:
The court acknowledged the respondent's argument that the order under Section 8 of PMLA is an appealable order, suggesting the writ applicant should be relegated to avail alternative remedy. However, the court decided to exercise its extraordinary jurisdiction under Article 226 of the Constitution of India, considering the orders impugned were beyond jurisdiction and violated principles of natural justice.

Conclusion:
The court quashed the provisional attachment order dated 21.09.2022 and the final order dated 14.03.2023 under PMLA, holding that the actions were beyond jurisdiction and lacked proper reasoning. The court emphasized the overriding effect of IBC provisions over PMLA in the context of corporate insolvency and liquidation, thereby protecting the writ applicant's interest in the subject land.