2020 (10) TMI 262 - Tri - Insolvency and Bankruptcy

Validity of provisional attachment order - Liquidation Process - Section 60(5) of the Insolvency and Bankruptcy Code, 2016, read with Rule 11 of the National Company Law Tribunal Rules, 2016 - HELD THAT - The applicant-corporate debtor is a going concern and undergoing the process of CIRP and at present is at the stage of liquidation. The question of effect of the latest amendment by way of insertion of Section 32A to the Code on the corporate debtor's CIRP and the question of jurisdiction of the Directorate of Enforcement to attach the properties of the corporate debtor or part thereof, which is undergoing CIRP is pending consideration before the Hon'ble NCLAT and of the Hon'ble Supreme Court. It is seen that if the corporate debtor is not permitted to operate the bank accounts, at least to the extent of maintaining the same as a going concern, it will result in closing down the corporate debtor, which is against the object of the Code itself - at this stage, we are not inclined to interfere with the impugned provisional attachment order. However, we permit the applicant-Liquidator of SRS Limited to open a new account in State Bank of India and to operate the same for the purpose of maintaining the corporate debtor company as a going concern, until further orders. However, the applicant has to justify the various transactions in the said new account by filing monthly reports before this Tribunal. List the CA No. 60/2020 on 05.02.2020 along with CA No. 22/2020.

Summary

Issues:
Challenge to Provisional Attachment Order under Insolvency and Bankruptcy Code, Jurisdiction of Enforcement Directorate, Compliance with recent amendment Section 32A, Impact on Corporate Debtor's going concern status.

Analysis:

Issue 1: Challenge to Provisional Attachment Order under Insolvency and Bankruptcy Code
The liquidator of a corporate debtor undergoing liquidation process challenged the Provisional Attachment Order issued by the Directorate of Enforcement. The Tribunal heard arguments from both parties. The liquidator contended that the attachment order hindered the corporate debtor's ability to operate its bank accounts, crucial for maintaining the company as a going concern during liquidation. The Enforcement Directorate argued that the income derived by the liquidator was from properties purchased with proceeds of crime, thus justifying the attachment. The Tribunal acknowledged the stay orders issued by higher courts in similar cases but did not interfere with the attachment order, instead allowing the liquidator to open a new account for operational purposes.

Issue 2: Jurisdiction of Enforcement Directorate
The liquidator argued that the Enforcement Directorate lacked jurisdiction to attach assets of a corporate debtor undergoing insolvency or liquidation processes. Reference was made to previous court orders staying attachment orders by the Directorate of Enforcement. The Enforcement Directorate, while acknowledging the stay orders, emphasized the need for a final decision by the National Company Law Appellate Tribunal (NCLAT) on the matter. The Tribunal noted the pending consideration of the jurisdiction issue by higher courts and refrained from immediate intervention, granting the liquidator permission to open a new account for operational needs.

Issue 3: Compliance with recent amendment Section 32A
The Tribunal highlighted the recent amendment to the Insolvency and Bankruptcy Code, specifically Section 32A, which addresses the liability of corporate debtors for offenses committed before insolvency resolution. The Enforcement Directorate and Ministry of Corporate Affairs were directed by the NCLAT to provide their stance on the applicability of this amendment to corporate debtors in CIRP. The Tribunal noted the ongoing discussions regarding the impact of this amendment on the CIRP process and jurisdiction of the Enforcement Directorate.

Issue 4: Impact on Corporate Debtor's going concern status
The Tribunal recognized the significance of allowing the corporate debtor to operate its bank accounts to maintain its status as a going concern. Failure to do so could lead to the closure of the company, contradicting the objectives of the Insolvency and Bankruptcy Code. While refraining from immediate interference with the attachment order, the Tribunal permitted the liquidator to open a new account for operational purposes, subject to monthly reporting requirements.

In conclusion, the Tribunal acknowledged the complex legal issues surrounding the attachment order, jurisdiction of the Enforcement Directorate, compliance with recent amendments, and the impact on the corporate debtor's operations. The decision to allow the opening of a new account while maintaining oversight through monthly reporting reflects a balanced approach to address the challenges faced by the corporate debtor during the liquidation process.