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TMI Blog2023 (2) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... n be said to be proceeds of crime . If the authorities were given a free hand to pass orders of attachment of properties which were acquired by a successful bidder in a liquidation process, on a presumption that such acquisition was as a result of a criminal activity, could be contrary to the interest of value maximization of the corporate debtor s assets by substantially reducing the chances of finding a willing resolution applicant or a bidder in liquidation. VIJAY MADANLAL CHOUDHARY ORS. VERSUS UNION OF INDIA ORS. [ 2022 (7) TMI 1316 - SUPREME COURT] was a case where the Apex Court was considering a batch of appeals concerning the validity and interpretation of certain provisions of the PMLA, where it was held that sub-section (1) delineates sufficient safeguards to be adhered to by the authorised officer before issuing provisional attachment order in respect of proceeds of crime. It is only upon recording satisfaction regarding the twin requirements referred to in sub-section (1), the authorised officer can proceed to issue order of provisional attachment of such proceeds of crime. Before issuing a formal order, the authorised officer has to form his opinion and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring a relief in exercise of powers under Article 226 of the Constitution of India. The order dated 21.09.2022 insofar as it attaches the specified assets of the petitioners as shown in the impugned order in the schedule of properties at Sr. Nos. 13, 14, 15, 17, 18, 19 and 20 shall be treated as assets not falling within the purview of and having acquired from proceeds of crime . The order holding so is without jurisdiction and the assets are directed to be released from such attachment - Petition allowed. - R/SPECIAL CIVIL APPLICATION NO. 19387 of 2022 - - - Dated:- 17-2-2023 - HONOURABLE MR. JUSTICE BIREN VAISHNAV For the Petitioner(s) No. 1,2,3,4 : MR MIHIR JOSHI, SENIOR ADVOCATE WITH MR JAY KANSARA AND MS ALISHA MEHTA, ADVOCATES FOR M/S WADIAGHANDY AND CO For the Respondent(s) No. 2 : MR SAURABH SOPARKAR, SENIOR ADVOCATE WITH MR MONAAL J DAVAWALA(6514) For the Respondent(s) No. 1 ; MR DEVANG VYAS, ASG WITH MR. PARTH H BHATT(6381) CAV JUDGMENT 1. The prayers in this petition read as under: a) Issue a Writ of Certiorari and/or a Writ in the nature of Certiorari and/or any other appropriate Writ/order inter alia quashing and setting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to complete the sale of assets on a composite basis. The National Company Law Appellate Tribunal (NCLAT) upheld the order of NCLT. 2.3 On a challenge before the Apex Court, the Apex Court upheld the power of the liquidator to sell the assets and pursuant thereto the liquidator resumes the sale process by amending the bid document. The petitioners were successful bidders. It appears that in the interregnum, State Bank of India who was one of the lenders filed a complaint against the corporate debtor and promoters with the CBI. On 07.02.2022, an FIR was registered pursuant to the complaint by the CBI. On 15.02.2022, an enforcement case was recorded under Section 3 of the Prevention of Money Laundering Act, 2022 (PMLA). 2.4 After the petitioners were declared as successful bidders and had paid their entire sale consideration for specified assets, on 21.09.2022, the liquidator informed the petitioners that the respondent no. 1 Deputy Director of Directorate of Enforcement had passed an order in respect of the assets that were sold to the petitioners. On 22.09.2022, a press note was published informing on its website that it had attached the assets of the corporate debtor. A c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d forming part of the assets sold to the petitioners are proceeds of crime . Reading the definition of the term proceeds of crime as defined in section 2(u) of the Act he would submit that if any property is derived or obtained directly or indirectly by any person as a result of criminal activity, the property so derived would be proceeds of crime . The petitioners have obtained the specified assets after a private sale conducted in accordance with the directions of the Apex Court and for which they have paid substantial amounts. Such properties therefore cannot be treated as property derived or obtained as a result of any criminal activity so as to be attached under Section 5 of the Act. Taking the court through the impugned order, he would submit that the case of the authority was that the ABG Shipyard had availed credit facility from consortium of banks and had diverted the funds so availed and used the funds for purchase of properties. The petitioners were in no manner concerned with the money trail as demonstrated in the impugned order and therefore the properties purchased through auction cannot be said to be properties derived from proceeds of crime. In coming to a concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] (i) CIT, West Bengal III amd Ors. vs. Oriental Rubber Works [(1984) 1 SCC 700] 3.5 Assailing the order of attachment, it was Mr. Joshi s submission that even the formation of an opinion must be based on tangible material. The subjective satisfaction as to the need for provisional attachment must be based on credible information and not on imaginary grounds and wishful thinking however laudable that may be. He relied on the following decisions (j) Radha Krishan Industries vs. State of Himachal Pradesh and Ors. [(2021) 6 SCC 771] 3.6 It is the submission of Mr. Joshi that what is pertinent to notice is that these assets were not procured pursuant to any criminal activity. The orders cannot be challenged except by filing the present petition as there is no efficacious alternative remedy challenging the order. Reading the provisions of Section 8 of the PMLA, Mr. Joshi would submit that after conclusion of the process under Section 5(5) of the Act, the matter is handed over to the adjudicating authorities under Section 8 and the onus would be on the petitioners to show-cause as to why the specified assets are not proceeds of crime. In support of the same, he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with law and in compliance of the Apex Court orders. 5. Mr. Devang Vyas, learned ASG appearing with Mr. Parth Bhatt, learned Standing Counsel for the respondent Union of India would take the court through the scheme of PMLA, especially reading sections 5, 8 and 42 thereof, and submit that the petition is not maintainable as not only the attachment is provisional and therefore the petitioner is at liberty to appear before the adjudicating authority under section 8 of the PMLA and satisfy the authority of the fact that the assets are not proceeds of crime. He would submit that in view of the investigation carried out under the provisions of PMLA what has been found is that the proceeds of the crime are to the tune of Rs.27,47,69,57,435/-. 5.1 Mr. Vyas would submit that the IBC would not prevail over PMLA since the objective is distinct from the purposes of other enactments. By virtue of Section 71 of the PMLA, it is apparent that the Act has an overriding effect. 5.2 Mr. Vyas would extensively read the contents of the order of attachment and submit that the same is in strict compliance of the Act and such reasons are recorded in writing as per the provisions. He wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor. This bar also contemplates the connection between the offence committed by the corporate debtor before the commencement of the CIRP and the property of the corporate debtor. This bar is conditional to the property being covered under the Resolution Plan. The further requirement is that a Resolution Plan must be approved by the Adjudicating Authority and, finally, the approved plan, must result in a change in control of the corporate debtor not to a person, who is already identified and described in sub- Section (1). In other words, the requirements for invoking the bar against proceeding against the property of the corporate debtor in relation to an offence committed before the commencement of the CIRP, are as follows: 320.1 There must be Resolution Plan, which is approved by the Adjudication Authority under Section 31 of the Code; 320.2 The approved Resolution Plan must result in the change in control of the corporate debtor to a person, who was not (a) a promoter; (b) in the management or control of the corporate debtor or (c) a related party of the corporate debtor; (d) a person with regard to whom the investigating authority, had, on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of the corporate debtor or any person, to whom immunity is provided under Section 32A, to provide all assistance to the Investigating Officer qua any offence committed prior to the commencement of the CIRP. 325. The contentions of the petitioners appear to be that this provision is constitutionally anathema as it confers an undeserved immunity for the property which would be acquired with the proceeds of a crime. The provisions of the Prevention of Money-Laundering Act, 2002 (for short, the PMLA) are pressed before us. It is contended that the prohibition against proceeding against the property, affects the interest of stakeholders like the petitioners who may be allottees or other creditors. In short, it appears to be their contention that the provisions cannot stand the scrutiny of the Court when tested on the anvil of Article 14 of the Constitution of India. The provision is projected as being manifestly arbitrary. To screen valuable properties from being proceeded against, result in the gravest 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant or a bidder in liquidation. 6.2 In the case of Rajiv Chakraborty (supra), while considering the provisions of IBC together with PMLA, the court in paras 102 to 109 held as under: 102. The Court had while noticing the submissions addressed on behalf of the petitioner taken note of the contention that Section 238 of the IBC would confer primacy upon the said statute and thus it would override the provisions of the PMLA bearing in mind that it was a special statute and had come to be promulgated later in point of time. 103. While there can be no doubt that where two special statutes incorporate non obstante clauses it is the later enactment which would ordinarily or normally prevail, the same cannot possibly be recognised as constituting the solitary principle of interpretation which would apply or an inviolable rule. It must be fundamentally borne in mind that a non obstante clause in any statute is looked at principally in case of an asserted irreconcilable conflict between statutes. However, that does not preclude courts from identifying or discerning the core objectives of the competing statutes. This would be manifest from the following pertinent observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that while the PMLA was originally promulgated on 01 July 2005, the IBC came to be enforced with effect from 28 May 2016 and on subsequent dates when its various provisions were separately enforced. Section 238 of the IBC came to be energised in terms of the notification dated 30 November 2016 and was ordained to come into effect from 01 December 2016. Section 32A of the IBC on the other was introduced by Amending Act No.1 of 2020 with retrospective effect from 28 December 2019. 105. The introduction of Section 32A constitutes an event of vital import since it embodies a provision which effectively shut out criminal proceedings including those under the PMLA upon the CIRP reaching the defining moment specified therein. However, when the Legislature introduced the said provision, it was conscious and aware of the fact that the provisions of the PMLA could be enforced against the properties of a corporate debtor notwithstanding the pendency of the CIRP. This the Court notes in light of the extent to which Section 14 could be recognised to legally operate under the statutory scheme and as has been explained hereinabove. Notwithstanding the above, the Legislature chose to st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93. But cases might arise where both the enactments have the non obstante clause then in that case, the proper perspective would be that one has to see the subject and the dominant purpose for which the special enactment was made and in case the dominant purpose is covered by that contingencies, then notwithstanding that the Act might have come at a later point of time still the intention can be ascertained by looking to the objects and reasons. However, so far as the present case is concerned, it is more than clear that Section 9-A of the Act of 1992 was amended on 25-1-1994 whereas the Act of 1993 came in 1993. Therefore, the Act of 1992 as amended to include Section 9-A in 1994 being subsequent legislation will prevail and not the provisions of the Act of 1993. Their Lordships in Ketan Parekh thus came to hold that notwithstanding the original statute having been promulgated in 1985, the provisions of Section 9A would not stand overridden by the 1993 statute since the former had come to be enforced later in point of time. 107. While the decision of the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India43 was also cited for the consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided contract of adhesion, but in such form as may be prescribed, which balances the rights and obligations of both the promoter and the allottees. Importantly, under Section 18, if the promoter fails to complete or is unable to give possession of an apartment, plot or building in accordance with the terms of the agreement for sale, he must return the amount received by him in respect of such apartment, etc. with such interest as may be prescribed and must, in addition, compensate the allottee in case of any loss caused to him. Under Section 19, the allottee shall be entitled to claim possession of the apartment, plot or building, as the case may be, or refund of amount paid along with interest in accordance with the terms of the agreement for sale. In addition, all allottees are to be responsible for making necessary payments in instalments within the time specified in the agreement for sale and shall be liable to pay interest at such rate as may be prescribed for any delay in such payment. Under Section 31, any aggrieved person may file a complaint with the authority or the adjudicating officers set up by such authority against any promoter, allottee or real estate agent, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edies. Also, it is important to remember that as the authorities under RERA were to be set up within one year from 1-5-2016, remedies before those authorities would come into effect only on and from 1-5-2017 making it clear that the provisions of the Code, which came into force on 1-12-2016, would apply in addition to RERA. 108. On a consideration of the aforesaid, the Court comes to the conclusion that Section 32A would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA. As has been observed hereinabove, while both IBC and the PMLA are special statutes in the generic sense, they both seek to subserve independent and separate legislative objectives. The subject matter and focus of the two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, it becomes the duty of the Court to discern the true intent and scope of the two legislations. Even though the IBC and Section 238 thereof constitute the later enactment when viewed against the PMLA which came to be enforced in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That is evident from the plain language of the inserted Explanation itself. The fact that it also includes any property which may, directly or indirectly, be derived as a result of any criminal activity relatable to scheduled offence does not transcend beyond the original provision. In that, the word relating to (associated with/has to do with) used in the main provision is a present participle of word relate and the word relatable is only an adjective. The thrust of the original provision itself is to indicate that any property is derived or obtained, directly or indirectly, as a result of criminal activity concerning the scheduled offence, the same be regarded as proceeds of crime. In other words, property in whatever form mentioned in Section 2(1)(v), is or can be linked to criminal activity relating to or relatable to scheduled offence, must be regarded as proceeds of crime for the purpose of the 2002 Act. It must follow that the Explanation inserted in 2019 is merely clarificatory and restatement of the position emerging from the principal provision [i.e., Section 2(1)(u)]. 251. The proceeds of crime being the core of the ingredients constituting the offence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other property which may not have been derived or obtained as a result of any criminal activity relatable to the scheduled offence. As noticed from the definition, it essentially refers to any property including abroad derived or obtained directly or indirectly. The Explanation added in 2019 in no way travels beyond that intent of tracking and reaching upto the property derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. Therefore, the Explanation is in the nature of clarification and not to increase the width of the main definition proceeds of crime . The definition of property also contains Explanation which is for the removal of doubts and to clarify that the term property includes property of any kind used in the commission of an offence under the 2002 Act or any of the scheduled offences. In the earlier part of this judgment, we have already noted that every crime property need not be termed as proceeds of crime but the converse may be true. Additionally, some other property is purchased or derived from the proceeds of crime even such subsequently acquired property must be regarded as tainted property and actionable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, the authorised officer may be advised to send information to the jurisdictional police (under Section 66(2) of the 2002 Act) for registration of a scheduled offence contemporaneously, including for further investigation in a pending case, if any. On receipt of such information, the jurisdictional police would be obliged to register the case by way of FIR if it is a cognizable offence or as a non-cognizable offence (NC case), as the case may be. If the offence so reported is a scheduled offence, only in that eventuality, the property recovered by the authorised officer would partake the colour of proceeds of crime under Section 2(1)(u) of the 2002 Act, enabling him to take further action under the Act in that regard. 283. Even though, the 2002 Act is a complete Code in itself, it is only in respect of matters connected with offence of money- laundering, and for that, existence of proceeds of crime within the meaning of Section 2(1)(u) of the Act is quintessential. Absent existence of proceeds of crime, as aforesaid, the authorities under the 2002 Act cannot step in or initiate any prosecution. 284. In other words, the Authority under the 2002 Act, is to prosecute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be: Provided further that, notwithstanding anything contained in clause (b), any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money- laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act. Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formal order, the authorised officer has to form his opinion and delineate the reasons for such belief to be recorded in writing, which indeed is not on the basis of assumption, but on the basis of material in his possession. The order of provisional attachment is, thus, the outcome of such satisfaction already recorded by the authorised officer. Notably, the provisional order of attachment operates for a fixed duration not exceeding one hundred and eighty days from the date of the order. This is yet another safeguard provisioned in the 2002 Act itself. 6.4 Therefore, what is clear is that it is only such property which is derived or obtained directly or indirectly as a result of a criminal activity can be regarded as proceeds of crime. In the facts of the case, obviously apparent it is that the only allegation and the gist that had been discussed is that the corporate debtor used the credit raised from the bank for purposes other than intended purposes to carry out circular transactions with various group companies and making overseas investments. There is no explanation as to how the properties standing in the name of corporate debtor and which form part of the assets sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s once the adjudicating authority decides to take action and therefore section 8 cannot be a ground on which the petitioner can be ousted from securing a relief in exercise of powers under Article 226 of the Constitution of India. 10. For the aforesaid reasons therefore, the petition is allowed. The order dated 21.09.2022 insofar as it attaches the specified assets of the petitioners as shown in para 12 of the impugned order in the schedule of properties at Sr. Nos. 13, 14, 15, 17, 18, 19 and 20 shall be treated as assets not falling within the purview of and having acquired from proceeds of crime . The order holding so is without jurisdiction and the assets are directed to be released from such attachment. Order accordingly. Rule is made absolute. No costs. (BIREN VAISHNAV, J) FURTHER ORDER After the above judgement was pronounced, Mr. Devang Vyas, learned ASG requests that since the order of attachment viz-a-viz the properties of petitioners has been quashed and set aside, the petitioners be directed to maintain status-quo which was prevailing for a further period of four weeks. Request is rejected. (BIREN VAISHNAV, J) - - TaxTMI - TMITax - Insolven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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