2025 (4) TMI 692 - AT - Money Laundering

Money Laundering - attachment of properties despite the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code 2016 (IBC) - offence under Section 120-B read with Section 420 of IPC and Section 13(2) read with Section 13(1)(d) of Prevention of Corruption Act 1988 - precedence of provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) over the PMLA - HELD THAT - Section 14 of IBC 2016 does not bar attachment of the property under the Act of 2002. It is not required to go deep on the issue because it has been settled by the Delhi High Court in the case of Rajiv Chakraborty Resolution Professional of EIEL Vs. Directorate of Enforcement 2022 (11) TMI 600 - DELHI HIGH COURT where it was held that moratorium under section 14 of IBC 2016 does not bar proceeding of attachment under the Act of 2002. Accordingly the issue raised by the appellant cannot be accepted. Perusal of Section 32A of the IBC 2016 reveals non- obstante clause to give overriding effect to the provision. Sub-Section (1) to Section 32A provides that liability of a corporate debtor for an offence committed prior to the commencement of Corporate Insolvency Resolution Process shall cease and the corporate debtor shall not be prosecuted for such an offence from the date of Resolution Plan is approved by the Adjudicating Authority under Section 31 if the resolution plan results in change in the management or control of the corporate debtors to other persons which has been narrated in sub-section(1) of Section 32A. The approval of the resolution plan should result in the change in control of the corporate debtor to a person who was not a promoter in management and control of corporate debtor or related party and a person with whom the relevant investigating authority has on the basis of material in their possession reason to believe that he had abetted or conspired for the commission of offence and has submitted or filed a report or a complaint to the relevant statutory authority or Court. If the change results in control of the corporate debtor to a related party then even approval of resolution plan under section 31 of IBC would not allow attachment of the property. We find no pleading or material to satisfy conditions given under clause (i) and (ii) to sub-section (2) of 32A of IBC to seek release of the property. Thus for these reasons it is found that without making out a case under Section 32A of the IBC a challenge is made to the attachment. A perusal of Section 26E of SARFAESI Act 2002 does not provide an overriding effect to all the statutes rather it is limited in operation. The provision does not refer to and bar action under the Act of 2002. The non-obstante clause otherwise apply when there is conflict between two provisions and not otherwise. The amending Act 2016 does not affect the proceedings under the Act of 2002. Thus we do not find any substance in the argument in reference to it also. In the light of discussions made above there are no reason to cause interference in the order. Conclusion - i) The moratorium under Section 14 of the IBC does not bar attachment proceedings under the PMLA as the two statutes serve different purposes. ii) Section 32A of the IBC provides immunity only when a resolution plan is approved and specific conditions are met which were not satisfied in this case. iii) Properties acquired before the crime can be attached under the PMLA if they are equivalent in value to the proceeds of crime. iv) The SARFAESI Act does not take precedence over the PMLA as the latter addresses the confiscation of proceeds of crime a distinct legislative objective. Appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the attachment of properties under the Prevention of Money Laundering Act, 2002 (PMLA) is permissible despite the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC).

2. Whether Section 32A of the IBC provides immunity from attachment under the PMLA for offenses committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP).

3. Whether the properties mortgaged to financial institutions, which were acquired prior to the commission of the alleged crime, can be considered "proceeds of crime" and thus subject to attachment under the PMLA.

4. Whether the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) take precedence over the PMLA.

ISSUE-WISE DETAILED ANALYSIS

1. Attachment of Properties under PMLA vs. IBC Moratorium

The Court examined whether the moratorium under Section 14 of the IBC bars the attachment of properties under the PMLA. The provision aims to preserve the debtor's assets during the CIRP, preventing actions that may impede the resolution process. However, the Court referred to precedents, notably the Delhi High Court's judgment in Rajiv Chakraborty Resolution Professional of EIEL Vs. Directorate of Enforcement, which clarified that the moratorium does not prevent PMLA proceedings. The PMLA's objective is distinct, focusing on confiscating proceeds of crime rather than debt recovery. Therefore, the Court held that the moratorium under the IBC does not bar attachment under the PMLA.

2. Immunity under Section 32A of IBC

The appellant argued that Section 32A of the IBC, introduced to provide immunity from prosecution for offenses committed before the CIRP, should prevent attachment under the PMLA. The Court clarified that Section 32A applies when a resolution plan is approved, resulting in a change of control of the corporate debtor. However, in this case, the appellant failed to provide evidence of an approved resolution plan. The Court emphasized that Section 32A(2) requires specific conditions to be met, which were not satisfied here. Thus, the argument for immunity under Section 32A was rejected.

3. Definition of "Proceeds of Crime"

The appellant contended that the properties were acquired before the alleged crime and thus should not be considered "proceeds of crime." The Court referred to the definition of "proceeds of crime" under the PMLA, which includes property derived or obtained directly or indirectly from criminal activity. The Court noted that if the actual tainted property is untraceable, properties equivalent in value can be attached. The judgment in Vijay Madanlal Choudhary was cited, emphasizing that the definition has multiple limbs, allowing attachment of properties equivalent in value to the proceeds of crime. Therefore, the Court held that the attachment was valid even for properties acquired before the crime if they are equivalent in value to the proceeds of crime.

4. Precedence of SARFAESI Act over PMLA

The appellant argued that the SARFAESI Act should take precedence over the PMLA due to its amendment in 2016, which gives priority to secured creditors. However, the Court clarified that the non-obstante clause in the SARFAESI Act does not override the PMLA. The PMLA serves a distinct legislative purpose, focusing on confiscating proceeds of crime. The Court found no conflict between the two statutes that would necessitate giving precedence to the SARFAESI Act. Thus, the argument was dismissed.

SIGNIFICANT HOLDINGS

The Court held that:

1. The moratorium under Section 14 of the IBC does not bar attachment proceedings under the PMLA, as the two statutes serve different purposes.

2. Section 32A of the IBC provides immunity only when a resolution plan is approved, and specific conditions are met, which were not satisfied in this case.

3. Properties acquired before the crime can be attached under the PMLA if they are equivalent in value to the proceeds of crime, following the definition's multiple limbs.

4. The SARFAESI Act does not take precedence over the PMLA, as the latter addresses the confiscation of proceeds of crime, a distinct legislative objective.

The appeals were dismissed, but the financial institutions retain the right to seek release of the properties under Sections 8(6) and 8(8) of the PMLA during the trial. The judgment underscores the distinct legislative purposes of the IBC, SARFAESI Act, and PMLA, emphasizing the importance of adhering to statutory provisions and precedents in resolving conflicts between them.

← Previous Next →