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TMI Blog2021 (4) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... has been filed by the Directorate of Enforcement being aggrieved by impugned order dated 12.02.2019 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench, Mumbai in MA No.1280 of 2018 in the matter of Sterling SEZ Infrastructure Ltd. (Corporate Debtor) through Resolution Professional Vs Deputy Director, Directorate of Enforcement, Headquarters Investigation Unit, New Delhi in Company Petition IB No.405/IB/2018. The Miscellaneous Application was filed by the Resolution Professional of the Corporate Debtor and after hearing the parties the Adjudicating Authority, NCLT, Mumbai by the impugned order directed that the attachment order dated 29.05.2018 and the Corrigendum dated 14.6.2018 issued by the deputy Director, Directorate of Enforcement, under the provisions of Prevention of Money Laundering Act, 2002 (PMLA in short) which has been confirmed by the Adjudicating Authority under PMLA was nullity and nonest in law in view of Sections 14(1)(a), 63 and 238 of Insolvency and Bankruptcy Code (IBC). By the impugned order the Adjudicating Authority, NCLT, Mumbai permitted the Resolution Professional to take charge of the properties and deal with them under IBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.490/MBH/2018 in the matter of Sterling Biotech Ltd Vs Andhra Bank where quashing of attachment was sought, the concerned Bench did not interfere and observed that the appeal could be filed only under the provisions of PMLA. It is claimed that there is no moratorium applicable in criminal proceedings. 5. The appellant claims and it is argued that CBI BS&FC New Delhi registered FIR No. RCBD1/2017/E/0007 on 25.10.2017 under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988 and Sections 120B read with section 420, 467,468 and 471 of the Indian Penal Code (IPC in short) against M/s Sterling Biotech Ltd and its promoters/directors for hatching a criminal conspiracy with the intention of cheating Andhra Bank and other public sector Banks. On the basis of the said FIR, the Directorate of Enforcement recorded ECIR/HQ/17/2017 dated 27.10.2017 and investigation under the PMLA was initiated. The competent authority under the PMLA issued a Provisional Attachment Order No.4/2018 dated 29.5.2018 read with Corrigendum dated 14.06.2018 under Section 5 of PMLA whereby properties worth Rs. 4702 crores (approx.) were provisionally attached. In the said attachment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation which is aimed at dealing with the offence of money laundering and, therefore, has primacy over the IBC in proceedings relating to money laundering. The mere fact that the assets of the Corporate Debtor are subject to resolution proceedings under IBC, the same cannot be an escape route for any action under the PMLA, as it would lead to abuse of the process of law by money launderers. It is also argued that IBC cannot be an amnesty route for accused under the PMLA, and entire confiscation regime under PMLA and its objects will be defeated if the Adjudicating Authority, NCLT starts interfering with the attachment orders without the authority of law. It is argued that PMLA is a complete Code and has provisions of effective remedial measures available to affected parties. If any person is aggrieved there are remedial measures available under Section 8, 26 and 42 of PMLA. It is also argued that later general rule cannot affect specifics of an earlier law. Imposing of moratorium under Section 14 of IBC does not take away the powers of the Enforcement Directorate to attach proceeds of crime in possession of the Corporate Debtor under PMLA. It is argued that a person in possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraphs 29, 30, 31, 42 and 43 reads as under: "29. The Respondent No. 3 company was incorporated in the year 2006 as Special Purpose Company for implementing the SEZ. The SEZ has been notified vide Notification dated 9th January, 2008. The Respondent No. 3 Company is setting up one of the largest multi product Special Economic Zones near Jambusar in Bharuch District, Gujarat. The attached assets were acquired in the year 2006 to 2008. 30. In the year 2008-2012, the Respondent No. 3 Company availed various financial facilities for consortium of banks in the form of Term Loan and other financial facilities and charge were created over the immovable assets in favour of the Banks against the loans obtained by it by depositing of title deeds vide the Memorandum of Deposit of Title Deeds, which was registered with the Sub- Registrar office on 19.12.2008 (Regn No. 2472). A deed of Hypothecation was also executed. The Charge was registered by the Registrar of Companies in favour of the SREI Infrastructure Finance Limited vide certificate dated 25.05.2012. 31. The Respondent No. 3 Company executed a Memorandum of Understanding ("MoU") dated 31.01.2015. Two plots of land, admeasuring a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n committed "2008 onward". According to the Appellant, the FIR was registered on 25.10.2017. Pursuant to the said FIR, Appellant recorded ECIR No. ECIR/HQ/17/2017 ON 27.10.2017(Annexure D) and investigation was started. In this ECIR (Annexure D Page 80) M/s. SBL is arrayed as suspected accused along with Directors and others. Competent Authority of PMLA issued Provisional Attachment Order (Annexure E) on 29.05.2018 and Corrigendum dated 14.06.2018 (Annexure E & F) Page 86 under Section 5 (1) of PMLA. It is stated that inter alia properties of Corporate Debtors in present matter were also attached. 16. 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. Provisional Attachment confirmed after date of CIRP 17. Subsequent to the Admission of the Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts raised by the amicus curiae which were as under: "5(b) .......................... In the present MA, the Resolution Professional have sought release of attachments as well as handing over possession of assets, there is nothing on record to indicate that the possession of these assets in question have been taken over by the ED under PMLA. In absence of such material, it is obligation/duty of the Resolution Professional to take control and custody of assets of the Corporate Debtor in terms of Section 18(1)(f) of the Code. However, it is required to be noted that the provisions of PMLA permit possession to be taken by the ED under Section 8 (4) of the PMLA only after confirmation of the provisional order of attachment under sub-section 3 thereof. There is nothing on record to indicate that ED has taken any such steps after passing of the order of confirmation of attachment dated 20.11.2018. It is pertinent to note that the order dated 20.11.2018 passed by the Adjudicating Authority (under PMLA) has been passed after the order of admission of the Petition against the Corporate Debtor and during CIRP as well as moratorium. The issue as to whether the proceedings before the Adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so far as, properties concern in this appeal are released from attachment forth with." ............................................................................... 8. This Bench has given serious consideration to the submissions made by the applicant, respondent and amicus curiae and gone through the pleadings and the judgments and is of the considered view that:- a. The purpose and object of IBC is for resolution of the Corporate Debtor by maximizing the value that can be received by the Creditors and stake holders. The IBC provides for timelines within which the resolution has to be arrived at. The PMLA's object is also to recover the property from wrong doers and compensate the affected parties by confiscation and sale of the assets of the wrong doer apart from imposing punishment. Here the beneficiaries are the creditors of the Corporate Debtor. The criminal proceedings before PMLA will take a longer time and by the time there will be an erosion in the value of Section 238 of IBC which is the later legislation, when compared to the earlier legislation of PMLA, the provisions of IBC will prevail and hence considering the economic interest of the beneficiaries, the IBC w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrigendum dated 14.06.2018 issued by Respondent and as confirmed Adjudicating Authority under PMLA Court is a nullity and nonest in law in view of Sections 14 (1) (a) 63 and 238 of IBC and the Resolution Professional can proceed to take charge of the properties and deal with them under IBC as if there is no attachment order. The concerned sub-registrars are directed to give effect to this order and remove their notings of attachment, if any, in their file in respect of properties belonging to the Corporate Debtor. It is needless to mention that the attachments in respect of the properties of the Corporate Debtor only are covered in this order. 10. Consequently, the sub-registrar at Jambusar is directed to register and hand over the two Original lease deeds entered into between Sterling SEZ and Infrastructure Ltd. and P.I. Industries Ltd. on 28.08.2018, as prayed for in this application." Thus for the above reasons, the Adjudicating Authority passed the Impugned Orders which are challenged before us. Clearly it is with regard to assets of Corporate Debtor only and not others. Power of Adjudicating Authority under Section 60(5) of IBC 19. The Learned Counsel for the Appellant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Chennai which passed ex-parte orders on 11th December, 2018 setting aside order of Government of Karnataka treating it in violation of moratorium under Section 14 of IBC. Adjudicating Authority directed0020Government of Karnataka to execute Supplement Lease Deeds. The Government filed Writ Petition No. 5002 OF 2019 before the High Court of Karnataka. Considering factor of ex-parte Order, the Hon'ble High Court remanded back the matter to NCLT, Chennai. The matter in M.A. No. 632 of 2018 was again heard by NCLT which passed order dated 3rd May, 2019 allowing the M.A. and rejected the defence of the Government of Karnataka. The Government was directed to execute Supplement Lease Deeds. The Government challenged this in the High Court again in Writ Petition No. 41029 of 2019. As the Resolution Professional moved for action of contempt, the Hon'ble High Court granted stay to the directions contained in the order of NCLT. The matter was then carried to the Hon'ble Supreme Court by RP and others. It is in the context of such facts that the Hon'ble Supreme Court considered jurisdiction and power of the Hon'ble High Courts under Article 226. The Hon'ble Supreme Court considered the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the Government an "operational creditor" in terms of Section 5(20). The moment the dues to the Government are crystallised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the Adjudicating Authority, namely the NCLT.) 38. It was argued by all the learned Senior Counsel on the side of the appellants that an Interim Resolution Professional is duty bound under Section 20(1) to preserve the value of the property of the Corporate Debtor and that the word "property" is interpreted in Section 3(27) to include even actionable claims as well as every description of interest, present or future or vested or contingent interest arising out of or incidental to property and that therefore the Interim Resolution Professional is entitled to move the NCLT for appropriate orders, on the basis that lease is a property right and NCLT has jurisdiction under Section 60(5) to entertain any claim by the Corporate Debtor. 39. But the said argument cannot be sustained for the simple reason that the duties of a resolution professional are entirely different from the jurisdiction and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Section 25(1) and 25(2)(b) reads as follows: "25. Duties of resolution professional - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of subsection (1), the resolution professional shall undertake the following actions: (a)............. (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi- judicial and arbitration proceedings." 41. This shows that wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot shortcircuit the same and bring a claim before NCLT taking advantage of Section 60(5). 42. Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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. The constitutional validity of Section 11 was challenged in the matter of "Manish Kumar vs. Union of India" (2021) SCC Online SC 30 and in Paragraphs 265 of the Judgment Hon'ble Supreme Court observed as under: "265..........The intention of the Legislature was always to target the corporate debtor only insofar as it purported to prohibit application by the corporate debtor against itself, to prevent abuse of the provisions of the Code. It could never had been the intention of the Legislature to create an obstacle in the path of the corporate debtor, in any of the circumstances contained in Section 11, from maximizing its assets by trying to recover the liabilities due to it from others. Not only does it go against the basic common sense view but it would frustrate the very object of the Code, if a corporate debtor is prevented from invoking the provisions of the Code either by itself or through his resolution professional, who at later stage, may, don the mantle of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Act, 2008, or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section. (2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not- (i) a promoter or in the management or control o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul resolution applicant starts of on a fresh slate. The relevant extracts of the Statement of Objects and Reasons relied upon by the Union of India are as follows: "STATEMENT OF OBJECTS AND REASONS xxx 2. A need was felt to give the highest priority in repayment to last mile funding to corporate debtors to prevent insolvency, in case the company goes into corporate insolvency resolution process or liquidation, to prevent potential abuse of the Code by certain classes of financial creditors, to provide immunity against prosecution of the corporate debtor and action against the property of the corporate debtor and the successful resolution applicant subject to fulfilment of certain conditions, and in order to fill the critical gaps in the corporate insolvency 69 framework, it has become necessary to amend certain provisions of the Insolvency and Bankruptcy Code, 2016. 3. The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, inter alia, provides for the following, namely:- xxx (vii) to insert a new section 32A so as to provide that the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the CIRP typically culminates in a change of control to resolution applicants who are unrelated to the old management of the corporate debtor and step in to resolve the insolvency of the corporate debtor following the approval of a resolution plan by the Adjudicating Authority". With regard to the actions against the property of the Corporate Debtor, Report of Insolvency Law Committee Para 17.9 to 17.11 read as under: "17.9. The Committee also noted that in furtherance of a criminal investigation and prosecution, the property of a company, which continues to exist after the resolution or liquidation of a corporate debtor, may have been liable to be attached, seized or confiscated. For instance, the property of a corporate debtor may have been at risk of attachment, seizure or confiscation where there was any suspicion that such property was derived out of proceeds of crime in an offence of money laundering. It was felt that taking actions against such property, after it is acquired by a resolution applicant, or a bidder in liquidation, could be contrary to the interest of value maximisation of the corporate debtor's assets, by substantially reducing the chances of finding a wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravest prejudice to the home buyers and other creditors. The stand of the Union of India is clear. The provision is born out of experience. The Code was enacted in the year 2016. In the course of its working, the experience it has produced, is that, resolution applicants are reticent in putting up a Resolution Plan, and even if it is forthcoming, it is not fair to the interest of the corporate debtor and the other stake holders. 280. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates to money laundering resulting into confiscation and thus the Act relates to proceeds of crime and so Section 14 of IBC is not applicable. The Learned Counsel referred to other Judgments to refer to the aims and objects of PMLA. 26. We have already noticed the amendment made to Section 32A and Judgment in the matter of "Manish Kumar" (Supra) and which shows the change of law. 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 27. It is clear that Section 32A gives protection to the property of the Corporate Debtor in relation to an offence committed prior to commencement of CIRP where such property is covered under a resolution plan, on compliance with conditions stated. But then the question which has arisen before us is that if during CIRP the properties remain under attachment or seizure etc. can the apprehensions of prospective resolution applicants be allayed if the properties continue to be under attachment, seizure etc. and are inaccessible to the IRP/RP. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 23 and 25. 30. 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 Apart from these Acts, the CIRP Regulations when considered, Regulation 27 requires the RP that he shall within 7 days of the appointment but not later than 47th day from Insolvency Commencement day appoint two registered valuers to determine the fair value and the liquidation value of the Corporate Debtor in accordance with the regulation 35. Earlier, under Regulation 36 of CIRP Regulations relating to information memorandum, the RP is required to submit information memorandum within two weeks of his appointment but not later than 44th day from insolvency commencement date, whichever is earlier. The information memorandum shall contain "Details" of the Corporate Debtor "assets and Liabilities" with such description, as on the insolvency commencement date, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered. Active Attachments, seizure etc. abstract acts as above 34. It appears to us 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 35. Coming to the question of moratorium, the Appellant is relying on the Judgment in the matter of "Varrsana Ispat Ltd." (Supra) which was passed by this Tribunal on 2nd May, 2019. Now Respondent Nos. 1 and 3 have referred to Judgment in the matter of "Pareena Swarup Vs. Union of India"; 2008 14 SCC 107 (Diary No. 25059) this was a matter where Ms. Pareena Swaru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 233(2), is that the person should have been an advocate "for not less than seven years" 2. PMLA is a specialised and new Act and District Judges may not be available with experience in related issues whereas advocates or officers of Indian Legal Service, who are eligible to be District Judges, may often have greater knowledge of its provisions and working. 3. The Adjudicating Authority is a body of experts from different fields to adjudicate on the issue of confirmation of provisional attachment of property involved in money laundering. The functions of Adjudicating Authority are civil in nature to the extent that it does not decide on the criminality of the offence nor does it have power to levy penalties or impose punishment. 4. Adjudication is a function which is performed by Executives under many statutes. The Competent Authority under NDPS/SAFEMA have been conducting Adjudication proceedings routinely since 1978 and in the last four years i.e. 2004-2008, competent authority has taken 1374 new cases, issued 275 SCNs, forfeited 162 properties and disposed of 30 properties without any judicial objections/ Similar adjudications are done by the Customs Authorities under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records; (d) receiving evidence on affidavits; (e) issuing commissions for examination of witnesses and documents; and (f) any other matter which may be prescribed. (2) All the persons so summoned shall be bound to attend in person or through authorised agents, as the Adjudicating Authority may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required. (3) Every proceeding under this section shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860). 41. Civil court not to have jurisdiction.-No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act." Section 41 does not refer to Special Courts which on the face of the provisions are Criminal Courts. Section 41 was requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 40. In Judgment in the matter of "P. Mohanraj & Ors. Vs. Shah Brothers Ispat Pvt. Ltd." (2021) SCC Online SC 152, Hon'ble Supreme Court of India considered the provisions of Section 138 of the Negotiable Instrument Act and Liabilities of the Corporate Debtor and Directors in the light of Section 14 of IBC and observed in Paragraph 63 as under: "63. A conspectus of these judgments would show that the gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply. We have already seen how it is the victim alone who can file the complaint which ordinarily culminates in the payment of fine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in any other law for the time being in force. Thus if the Authorities under PMLA on the basis of the attachment or seizure done or possession taken under the said Act resist handing over the properties of the Corporate Debtor to the IRP/RP/Liquidator the consequence of which will be hindrance for them to keep the Corporate Debtor a going concern till resolution takes place or liquidation proceedings are completed, the obstructions will have to be removed. We have already referred to the various Acts required to be performed by IRP/RP/Liquidator to achieve the aims and objects of IBC in time bound manner. If properties of Corporate Debtor would not be available to keep it a going concern, or to get the properties valued without which Resolution/Sale would not be possible, the obstruction will have to be removed. To take over properties of Corporate Debtor, and manage the same, and keep Corporate Debtor a going concern are acts which fall within purview of IBC. IRP/RP/Liquidator under IBC have duty and right to take over and manage assets of Corporate Debtor as long as the assets are property of the Corporate Debtor, so that the other duties conferred on them by the statute are pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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