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2019 (10) TMI 376 - Tri - Insolvency and BankruptcyMaintainability of application - jurisdiction/appropriate forum - Initiation of CIRP against Corporate debtor - Provisional attachment order - Section 60(5) of Insolvency Bankruptcy Code, 2016 - whether the properties sought to attached were acquired from proceeds of crime? - priority to secured creditors - Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993 - appellant contended that the properties of Corporate Debtor cannot be attached on the ground that it is equivalent to the value of money involved in the money laundering. HELD THAT - This Application filed under Section 60(5) of IBC, questioning the attachment in respect of assets held by Corporate Debtor. The NCLT alone has jurisdiction to decide the same. Thus, attachment is liable to be raised since the properties attached were not acquired with tainted money and that they were acquired long prior to the alleged offence and there is already security created in favour of the Banks in respect of the assets attached. Hon ble Apex Court also held in the decision of ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA ORS. 2018 (10) TMI 312 - SUPREME COURT wherein Hon ble Apex Court held by virtue of Section 60(5) of IBC, the NCLT is having jurisdiction to entertain or dispose of any Application by or against Corporate Debtor. Hon ble Apex Court further held that NCLT alone has jurisdiction to decide the application or proceedings by or against Corporate Debtor. The Provisional Attachment Order is raised - application allowed.
Issues Involved:
1. Legality of the Provisional Attachment Order (PAO) under PMLA. 2. Impact of Moratorium under IBC on the PAO. 3. Priority of Secured Creditors' claims over Government dues. 4. Jurisdiction of NCLT to entertain the application against PAO. Issue-wise Analysis: 1. Legality of the Provisional Attachment Order (PAO) under PMLA: The applications IA Nos. 413/2019 and 298/2019 were filed to set aside the PAO No. 04/2019 issued by the Enforcement Directorate (ED) under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA). The Corporate Debtor's assets, valued at ?315 crores, were provisionally attached on the grounds that they were derived from proceeds of crime. The Tribunal noted that the properties were acquired long before the alleged money laundering activities (2005 vs. 2011-2013). The Tribunal referred to the Andhra Pradesh High Court's decision in B. Rama Raju v. Union of India, which emphasized that properties acquired bona fide and legitimately should not be attached. The Tribunal also cited the PMLA Appellate Tribunal's decision in Punjab National Bank v. Dy. Director, Directorate of Enforcement, which held that properties without direct involvement in proceeds of crime should not be attached. Consequently, the Tribunal found the PAO to be illegal and null and void. 2. Impact of Moratorium under IBC on the PAO: The moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) came into effect on 12.03.2018, prohibiting any proceedings against the Corporate Debtor. Despite this, the ED issued the PAO on 26.03.2019. The Tribunal emphasized that the moratorium remains effective until the approval or rejection of the Resolution Plan. The Tribunal referred to the NCLT Mumbai Bench's decision in SREI Infrastructure Finance Ltd. v. Sterling SEZ & Infrastructure Finance Ltd., which held that attachments under PMLA during a moratorium are null and void. The Tribunal concluded that the PAO was issued in violation of the moratorium and thus could not stand. 3. Priority of Secured Creditors' Claims over Government Dues: The Tribunal highlighted that the attached properties were mortgaged to State Bank of India and Canara Bank in 2008 and 2009, well before the alleged money laundering activities. The Tribunal referred to Section 26E of the SARFAESI Act, 2002, and Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, which prioritize secured creditors' claims over government dues. The Tribunal also cited Section 53 of the IBC, which gives priority to secured financial creditors over unsecured creditors and government dues during the distribution of liquidation assets. The Tribunal concluded that the secured creditors' claims have priority, and the ED's attachment of the properties was unjustified. 4. Jurisdiction of NCLT to Entertain the Application Against PAO: The Tribunal asserted its jurisdiction under Section 60(5) of the IBC, which grants NCLT the authority to entertain applications or proceedings by or against the Corporate Debtor. The Tribunal referred to the Supreme Court's decision in Arcelormittal India Private Ltd. v. Satish Kumar Gupta, which confirmed that NCLT has exclusive jurisdiction over matters involving the Corporate Debtor. The Tribunal concluded that it had the jurisdiction to decide on the legality of the PAO and ordered the attachment to be raised. Conclusion: The Tribunal allowed the applications, set aside the Provisional Attachment Order No. 04/2019 issued by the Enforcement Directorate, and raised the attachment on the Corporate Debtor's properties. The Tribunal emphasized the priority of secured creditors' claims, the overriding effect of IBC provisions during the moratorium, and its jurisdiction to adjudicate the matter.
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