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2021 (4) TMI 585 - AT - Insolvency and BankruptcyAttachment order in respect of the properties of Corporate Debtor - conflict between the IBC and PMLA or not - It is argued that Section 238 of IBC cannot preclude action under PMLA and because of this Section 32A of IBC was required to be introduced and the amendment does not affect action pre approval of resolution plan - HELD THAT - The Application under Section 7 of IBC came to be admitted on 16.07.2018. It appears that the Resolution Professional approached the Appellant for release of the Provisional Attachment of the assets and properties of the Company and handover the charge to the Resolution Professional but this was not accepted and ultimately the Resolution Professional moved Ld. Adjudicating Authority (NCLT, Mumbai Bench, Mumbai) which after hearing the parties passed the present Impugned Orders. Power of Adjudicating Authority under Section 60(5) of IBC - HELD THAT - Under Section 25 of IBC, the Resolution Professional is inter alia duty bound to represent and act on behalf of the Corporate Debtor with third parties, to exercise rights for the benefit of the Corporate Debtor in judicial, quasi-judicial and arbitration proceedings. The Judgment of Hon ble Supreme Court in M/S EMBASSY PROPERTY DEVELOPMENTS PVT. LTD. VERSUS STATE OF KARNATAKA OTHERS 2019 (12) TMI 188 - SUPREME COURT has observed that for such actions the Resolution Professional cannot move the NCLT/Adjudicating Authority under Section 60 (5). There cannot be any shortcut on such counts. Under Section 18(1) (f) the IRP when it takes control and custody of any asset over which Corporate Debtor has ownership rights as recorded in the balance-sheet of the Corporate Debtor, it can include asset regarding which there may be a dispute pending regarding ownership in a court of law. Such issue of Ownership only a Civil Court can decide. The Government has amended Section 11 of IBC by adding additional explanation as per Insolvency and Bankruptcy Code Amendment Act, 2020 published on 13.03.2020. Section 11 of IBC relates to persons who are not entitled to make application. Explanation 2 was added to clarify that nothing in the Section shall prevent a Corporate Debtor referred to in clause (a) to (d) of the Section from initiating Corporate Insolvency Resolution Process against another Corporate Debtor - while Section 14 protects Corporate Debtor from actions, the Resolution Professional can pursue claims for the benefit of the Corporate Debtor - The observations of the Hon ble Supreme Court in the matter of Embassy Properties do not appear to be helpful to the Appellant with regard to the facts involved and the law. Section 32A of IBC - HELD THAT - The argument of the Learned Counsel for the Appellant is that Section 32 A of the Code is not helpful in the present case as the matter has not reached the stage of acceptance of Resolution Plan or the stage of liquidation. Secondly it is argued that PMLA is a special legislation with the aim of dealing with money laundering and that Section 71 of PMLA gives the provisions of the Act effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Reliance is placed on Judgment in the matter of THE DEPUTY DIRECTOR DIRECTORATE OF ENFORCEMENT DELHI, UNION OF INDIA VERSUS AXIS BANK ORS., STATE BANK OF INDIA ORS. IDBI BANK LTD., PUNJAB NATIONAL BANK 2019 (4) TMI 250 - DELHI HIGH COURT to submit that Hon ble High Court has held that IBC and PMLA operate in different fields and that the former cannot take primacy over the later - The reasons for bringing about such amendment are a matter of record. The aim of IBC is to find resolution to ailing corporate debtors and it was getting affected due to apprehension amongst potential resolution applicants. Aims and Objects to be achieved in IBC - HELD THAT - Under Section 20 of IBC, there is responsibility of IRP to make every endeavour to protect and preserve the value of the property of the Corporate Debtor and manage the operations of the Corporate Debtor as a going concern. When IRP is appointed as RP or is replaced by RP, even the RP has similar responsibility and powers as can be seen in Section 23 and 25 - Even on the stage of liquidation, under Section 34(2) of IBC all Powers of Directors etc. vest in the Liquidator. Under Section 35(1)(b), it is the duty of the liquidator to take into custody all the assets and properties of Corporate Debtor and also to carry on business of the Corporate Debtor for its beneficial liquidation as may be considered necessary by the Liquidator. Regulations to be complied - HELD THAT - Once CIRP starts, there may be a contingency of the admission order getting set aside in Appeal. There may be another contingency where under Section 12A of IBC withdrawal of the Application admitted under Section 7, 9 or 10 takes place. Apart from these two contingencies, the CIRP is bound to end into either in Resolution Plan getting accepted or the Corporate Debtor going into liquidation. These two contingencies are taken care of by Section 32 A which has been recently added in IBC. If the first two contingencies happen, the normal laws would naturally get attracted as there would be a reversal to management going back to earlier hands. However, when CIRP is pending and progressing with target of Resolution, whether the attachment or seizure can be made or continued of the properties of Corporate Debtor is required to be considered. Active Attachments, seizure etc. - HELD THAT - If the aims and objects of IBC are to be achieved, and maximisation of value is material so as to reach a resolution, above acts in time bound manner are to be performed and there cannot be obstructions of attachments and seizures existing. If the property is under attachment or seizure, or possession is taken over, keeping the corporate debtor a going concern would be serious issues. Without the properties in possession of IRP/RP getting valuation done during CIRP or even liquidation stage, would be issues. Attachment remaining in force would affect value of the property and prospective applicants may not respond in the manner in which they would, if the property is not under active attachment or seizure. Section 14 of IBC applies - HELD THAT - After the attachment when matter goes before the Adjudicating Authority under PMLA, proceeding before Adjudicating Authority for confirmation would be civil in nature. That being so, Section 14 of IBC would be attracted and applies. In present matter, the Provisional Attachment took place on 29th May, 2018 and corrigendum was issued on 14th June, 2018. The CIRP started on 16th July, 2018. Once moratorium was ordered, even if the Appellant moved the Adjudicating Authority under PMLA, further action before Adjudicating Authority under PMLA must be said to have been prohibited. Even if confirmation has been done as stated to have been done on 20th November, 2018, the same will have to be ignored. Section 14 of IBC will hit institution and continuation of proceedings before Adjudicating Authority under PMLA. The CIRP will of course not affect prosecution before Special Court, till contingencies under Section 32A of IBC occur. There is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the Corporate Debtor, if CIRP is initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of liquidation asset occurs in terms of Section 32A - there are no substance in these Appeals. Appeal dismissed.
Issues Involved:
1. Jurisdiction of NCLT to interfere with Provisional Attachment Orders under PMLA. 2. Applicability of moratorium under Section 14 of IBC to proceedings under PMLA. 3. Primacy of PMLA over IBC in cases of money laundering. 4. Impact of Section 32A of IBC on attachment orders under PMLA. 5. Nature of proceedings before the Adjudicating Authority under PMLA. Issue-wise Detailed Analysis: 1. Jurisdiction of NCLT to interfere with Provisional Attachment Orders under PMLA: The appellant argued that the NCLT did not have the jurisdiction to interfere with the Provisional Attachment Orders made by the Directorate of Enforcement under PMLA. It was contended that the Resolution Professional should have approached the Adjudicating Authority under PMLA or filed an appeal to the Appellate Tribunal under PMLA. The judgment in "Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka and Ors." was cited to support the argument that NCLT cannot short-circuit judicial or quasi-judicial proceedings by invoking Section 60(5) of IBC. However, the Tribunal distinguished the facts of the present case from "Embassy Property Developments," noting that Section 60(5)(c) of IBC is broad in its sweep and includes questions of law or fact arising out of or in relation to insolvency resolution. Therefore, the NCLT has jurisdiction to entertain the application of the Resolution Professional under IBC. 2. Applicability of moratorium under Section 14 of IBC to proceedings under PMLA: The appellant claimed that the moratorium under Section 14 of IBC does not apply to criminal proceedings, including those under PMLA. However, the Tribunal referred to the judgment in "P. Mohanraj & Ors. Vs. Shah Brothers Ispat Pvt. Ltd." where it was held that quasi-criminal proceedings under Section 138 of the Negotiable Instruments Act fall within the scope of Section 14 of IBC. The Tribunal concluded that proceedings before the Adjudicating Authority under PMLA, being civil in nature, are subject to the moratorium under Section 14 of IBC. 3. Primacy of PMLA over IBC in cases of money laundering: The appellant argued that PMLA, being a special legislation aimed at dealing with money laundering, has primacy over IBC. The Tribunal acknowledged that both PMLA and IBC are special statutes but emphasized that IBC, being a subsequent statute with a specific objective of insolvency resolution, has an overriding effect as per Section 238 of IBC. The Tribunal noted that the objective of IBC is to maximize the value of assets and ensure a time-bound resolution, which would be hindered if properties remain under attachment during CIRP. 4. Impact of Section 32A of IBC on attachment orders under PMLA: The Tribunal discussed the introduction of Section 32A of IBC, which provides immunity to the corporate debtor and its property from prosecution and attachment for offences committed prior to the commencement of CIRP, subject to certain conditions. The Tribunal noted that while Section 32A applies post-approval of the resolution plan, the principles underlying the provision support the release of attachments during CIRP to facilitate the resolution process. The Tribunal emphasized that the continuation of attachments would deter potential resolution applicants and undermine the objectives of IBC. 5. Nature of proceedings before the Adjudicating Authority under PMLA: The Tribunal referred to the Supreme Court judgment in "Pareena Swarup Vs. Union of India," where it was acknowledged that proceedings before the Adjudicating Authority under PMLA are civil in nature. The Tribunal concluded that since the proceedings before the Adjudicating Authority under PMLA are civil, they fall within the scope of the moratorium under Section 14 of IBC, which prohibits the continuation of such proceedings during CIRP. Conclusion: The Tribunal dismissed both appeals, upholding the NCLT's orders that declared the attachment orders under PMLA as null and void in view of Sections 14(1)(a), 63, and 238 of IBC. The Tribunal emphasized the need to balance the objectives of both PMLA and IBC, ensuring that the resolution process under IBC is not hindered by attachments under PMLA.
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