2024 (3) TMI 136 - HC - Insolvency and Bankruptcy

Immunity to corporate debtors and their assets, upon approval of a resolution plan - jurisdiction of NCLT to release the attached properties by invoking Section 32A of the IBC, 2016? - HELD THAT - There are no hesitation in holding that there is no scope whatsoever for the attachment effected by the ED over the Attached Properties to continue once the Approval Order came to be passed. We are not opining on whether the attachment could have continued after commencement of the CIRP. The NCLT has simply answered the question of law arising in relation to the resolution of the corporate debtor and that too within the limits of the jurisdiction conferred on it. It is Section 32A of the IBC, 2016, on which the NCLT based its declaration that the Attached Properties must be released, and that is entirely correct. Whether the ED was right in continuing the attachment between the commencement of the CIRP and before the Approval Order, is also something that the April 2023 Order deals with, that issue has been overtaken, as explained earlier in this judgement. The Adjudicating Authority under Section 8 of the PMLA, 2002 has been given powers to conduct quasi-judicial proceedings before deciding to make any attachment. Towards this end, the Adjudicating Authority is obligated to issue a show-cause notice, provide an opportunity of being heard and pass a reasoned order. Evidently, orders passed by the Adjudicating Authority are appealable orders under Section 26 of the PMLA, 2002 - Section 11(3) of the PMLA, 2002 explicitly states that every proceeding under Section 11 would be deemed to be a judicial proceeding within the meaning of Section 193 and Section 228 of the Indian Penal Code, 1860. In the instant case, the NCLT has ruled on the import of Section 32A of the IBC, 2016 in the Approval Order. The NCLT has once again ruled in the April 2023 Order on the import of Section 32A. Both these orders, unexceptionable for the reasons stated above, have been ignored by the ED - The ED did not appeal the Approval Order either within the limitation period. Therefore, while one may raise technical grounds that alternate remedies may exist in the law, a constitutional court adjudicating the two competing writ petitions based on the same set of facts, is indeed an efficacious remedy. There is no requirement for any partial quashing of the instruments of enforcement under the PMLA, 2002. These instruments of enforcement would simply have no effect whatsoever against the corporate debtor to its detriment. The corporate debtor would indeed be obligated to cooperate in the investigation and prosecution that would continue against the other accused. The attachment by the ED over the Attached Properties, being the four bank accounts of the Corporate Debtor, (with aggregate balances to the tune of Rs. 3,55,298/- and any interest earned thereon) and the 14 flats constructed by the Corporate Debtor valued at Rs. 32,47,55,298/-, came to an end on 17th February, 2023. Such release has occurred by operation of Section 32A of the IBC, 2016. Petition disposed off.

Summary

Issues Involved:
1. Jurisdiction of NCLT to direct the ED to release attached properties under Section 32A of the IBC, 2016.
2. Conflict between Section 32A of the IBC, 2016 and the PMLA, 2002.
3. Validity and implications of the attachment of properties by the ED under the PMLA, 2002 post-approval of a resolution plan.

Summary of Judgment:

1. Jurisdiction of NCLT to Direct Release of Attached Properties:
- The NCLT had the jurisdiction to direct the ED to release the attached properties invoking Section 32A of the IBC, 2016. Section 32A provides immunity to corporate debtors and their assets from prosecution and attachment once a resolution plan is approved under Section 31 of the IBC, 2016.
- The NCLT's April 2023 Order, which directed the ED to release the attached properties, was based on the provisions of Section 32A and was within its jurisdiction.
- Section 60(5) of the IBC, 2016, empowers the NCLT to decide any question of law or fact arising out of or in relation to insolvency resolution or liquidation proceedings, including the implications of Section 32A.

2. Conflict Between Section 32A of the IBC, 2016 and the PMLA, 2002:
- Section 32A of the IBC, 2016, being a non-obstante provision, overrides the provisions of the PMLA, 2002. Once a resolution plan is approved, the immunity under Section 32A applies, and the corporate debtor and its properties are protected from further prosecution and attachment.
- The Hon'ble Supreme Court in Manish Kumar Vs. Union of India upheld the legislative intent behind Section 32A, emphasizing the need for corporate debtors to start with a clean slate post-resolution.
- The NCLT's interpretation of Section 32A does not render the provisions of the PMLA, 2002 nugatory but ensures that the legislative intent of providing immunity to corporate debtors under the IBC, 2016, is upheld.

3. Validity and Implications of the Attachment of Properties by the ED:
- The attachment by the ED over the properties of the corporate debtor, which was initially levied under the PMLA, 2002, came to an end upon the approval of the resolution plan on 17th February 2023, by operation of Section 32A of the IBC, 2016.
- The ED's continued attachment of properties post-approval of the resolution plan was contrary to the provisions of Section 32A.
- The ED must release the attached properties forthwith, as mandated by the NCLT's orders and the provisions of Section 32A.

Conclusion:
- The NCLT was within its jurisdiction to direct the ED to release the attached properties under Section 32A of the IBC, 2016.
- Section 32A of the IBC, 2016, overrides the provisions of the PMLA, 2002, providing immunity to corporate debtors and their properties post-approval of a resolution plan.
- The attachment by the ED over the properties of the corporate debtor must be released, and the properties should be communicated as bankable assets for the revival of the corporate debtor.