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TMI Blog2024 (3) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC, 2016. The Corporate Debtor had been subjected to a Corporate Insolvency Resolution Process ( CIRP ) since 9th December, 2021 at the instance of a financial creditor. Eventually, a resolution plan propounded by Mr. Shiv Charan, Ms. Pushpalata Bai and Ms. Bharti Agarwal ( Resolution Applicants ) came to be approved by the Learned National Company Law Tribunal, Mumbai ( NCLT ) by an order dated 17th February, 2023 ( Approval Order ) passed under Section 31 of the IBC, 2016. 4. On 20th October, 2017 i.e. nearly four years prior to the commencement of the CIRP, various First Information Reports alleging, among others, offences of cheating and criminal breach of trust had been filed against the Corporate Debtor and its erstwhile promoters. The offences alleged, being scheduled offences under the Prevention of Money Laundering Act, 2002 (for short the PMLA, 2002 ), an Enforcement Case Information Report being ECIR/01/MBZO-II/2018 dated 8th March, 2018 ( ECIR ) came to be filed by the Directorate of Enforcement ( ED ). The ECIR estimated the proceeds of crime to be in the order of Rs. 8,522.27 crores. Pursuant to the ECIR, an original complaint being O.C. No. 1104/2019 came to be fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moratorium under Section 14 of the IBC, 2016 comes into effect (in this case, with effect from 9th December, 2021). The NCLT ruled in the April 2023 Order that once the moratorium commenced, the attachment must abate, but nevertheless took note of the final approval contained in the Approval Order, and ruled that by reason of Section 32A, the Attached Properties must be released. Contentions of the Parties: 7. Mr. Devang Vyas, the Ld. Additional Solicitor General, representing the ED (and the Adjudicating Authority under the PMLA, 2002) in both petitions, drew our attention to the prayers in the respective petitions to submit that the Resolution Applicants have other appropriate, alternate and efficacious remedies at their disposal and they ought not to have filed a writ petition. In contrast, he submitted, the ED did not have an alternate efficacious remedy since its challenge is to the April 2023 Order, on the premise of an evident and inherent lack of jurisdiction of the NCLT to opine on matters that have implications on the PMLA, 2002. Therefore, he submitted, the ED s writ petition would indeed be maintainable. 8. Mr. Vyas would also contend that the prayers of the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the PMLA, 2002. Mr. Vyas would argue that if the effect of a ruling on the IBC, 2016 by the NCLT could have implications for other special legislations such as the PMLA, 2002, the NCLT must refrain from ruling so, since it would indirectly be an interpretation of the provisions of the PMLA, 2002 and not just the provisions of the IBC, 2016; (iii) Even if we were to hold that Section 32A enables exercise of jurisdiction by the NCLT over IBC, 2016 matters and the effect of such exercise could intrude into the PMLA s domain, care should be taken to ensure that the power of the ED to attach assets is not sought to be trampled upon even before a resolution plan is approved. No party can be heard to argue that because a CIRP gets underway (triggering a moratorium), and because it may eventually lead to an approved resolution plan, the ED must be directed to release its attachment to enable an effective resolution of the Corporate Debtor. The note of caution that Mr. Vyas would sound is that the effect of Section 32A of the IBC, 2016 cannot stretch to curtailing the ED s powers to keep properties attached under the PMLA, 2002, after the CIRP starts and before a resolution plan i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 31 of the IBC, 2016, and already directed the ED to release the Attached Properties. Although the ED had originally not been a party to the CIRP, considering that IA 383 had made the ED a party, the ED clearly was a person aggrieved by the Approval Order, but chose not to challenge the Approval Order. Besides, even in WP 29111, the ED has not challenged the Approval Order but has only challenged the April 2023 Order. The controversy raised in IA 383 (whether the ED can continue its attachment upon the moratorium coming into effect) can be said to have become infructuous once the resolution plan got approved, and the Approval Order itself directed the ED to release the Attached Properties. Mr. Nankani would argue that even if the April 2023 Order were to be set aside, the ED would need to abide by the Approval Order. Core Issue: 11. The core issue that falls for our consideration is whether the NCLT had the jurisdiction to direct the ED to release the Attached Properties, invoking Section 32A of the IBC, 2016, since Section 32A provides that all attachments over properties of a corporate debtor would cease once a resolution plan in respect of the said corporate debtor is approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not - (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court: PROVIDED that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: PROVIDED FURTHER that every person who was a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or an officer who is in default , as defined in clause (60) of section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner in-ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. [Emphasis Supplied] 16. A plain reading of the forgoing would show that Section 32A is a non-obstante provision. Its jurisdiction is attracted only when a resolution plan gets approved under Section 31. Besides, the immunity conferred by Section 32A is available if and only if the approved resolution plan results in a complete change in the character of ownership and control of the corporate debtor. Explicitly, Section 32A(1) stipulates that the liability of the corporate debtor for an offense committed prior to commencement of the CIRP shall cease. The corporate debtor is explicitly protected from being prosecuted any further for such an offense, with effect from the approval of the resolution plan. Section 32A disentitles the corporate debtor from such immunity if the promoters or those in the management or control of the corporate debtor prior to the CIRP, or any related party of such persons, continues in management or control of the corporate debtor under the approved resolution plan. Likewise, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confiscation of such property under such law as applicable. The reference being to any action against the property under any law would evidently bring within its compass, attachments made under the PMLA, 2002. 19. Section 32A(2) also affords similar immunity without a successful resolution having been approved-where a successful sale of assets of the corporate debtor is effected to an unconnected purchaser in liquidation proceedings. In short, action against the property is prohibited so that the purchaser of the property in liquidation proceedings of the corporate debtor can enjoy it freely, and therefore pay the best value when bidding for it. Since that facet of the matter is not relevant to the facts at hand, we are not analysing it further. 20. Therefore, as a matter of law, once the resolution plan is approved with the attendant conditions set out in Section 32A being met, further prosecution against the corporate debtor and its properties, would cease. Section 32A(3) enjoins the corporate debtor to continue to cooperate with the enforcement agencies in the continued prosecution against the individuals in question. 21. Now, applying this position in law to the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors. [Emphasis Supplied] 24. As can be seen from the proviso to Section 31(1), the Adjudicating Authority (the NCLT) is enjoined with a duty to ensure that before passing any order for approval of the resolution plan, it should be satisfied that the resolution pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the insolvency resolution or liquidation proceedings of a corporate debtor. The relevant portion of Section 60(5) is extracted below:- Section 60. Adjudicating Authority for corporate persons. (1) to (4) ***** (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. [Emphasis Supplied] 27. A plain reading of the provision would show that Section 60(5) too is a non-obstante provison that confers on the NCLT, jurisdiction and powers to dispose of any question of law that arises in relation to the resolution proceedings. Parliament has explicitly conferred jurisdiction on the NCLT to entertain or dispose of any q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact and found that the ingredients of Section 32A of the IBC, 2016 are met, and therefore, disposed of the question of immunity contained in Section 32A as being available to the Corporate Debtor. The necessary corollary of such a declaration of law is that the ED must obey it to ensure that the rule of law is maintained. If a State agency does not discharge its duty as laid down in law, a writ would surely lie to direct such agency to adhere to the declaration of the law. Therefore, the argument that WP 9943 would not be maintainable is misconceived. Likewise, the argument that the April 2023 Order deserves to be quashed is also misconceived. 31. The facts at hand present a situation where a tribunal with explicit jurisdiction has duly and accurately exercised its powers, and an agency that is also duty-bound to follow the law as declared, has not discharged its duty, choosing to question the evident jurisdiction of the tribunal. Such a situation clearly lends itself to the parties affected by it, to invoke their constitutional remedy under Article 226 of the Constitution of India, seeking a direction that the agency must indeed comply with the law enshrined in Section 32A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that corporate debtors must get to begin with a clean slate under Section 32A, making a clean break from their past. In Manish Kumar Vs Union of India (2021) 5 SCC 1 (Manish Kumar), the Hon ble Supreme Court ruled that the immunity under Section 32A is a conscious and valid legislative conferment by Parliament. The Union of India had emphasized the vital need for introducing Section 32A and defended having piloted the provision through Parliament, giving insight into the legislative intent behind the provision, and that too when presented with how the provision would give immunity from an attachment under the PMLA, 2002. 34. Some extracts from Manish Kumar would bear iteration in the context of the case at hand, and hence are set out below: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision. 327. It must be remembered that the immunity is premised on various conditions being fulfilled. There must be a resolution plan. It must be approved. There must be a change in the control of the corporate debtor. The new management cannot be the disguised avatar of the old management. It cannot even be the related party of the corporate debtor. The new management cannot be the subject matter of an investigation which has resulted in material showing abetment or conspiracy for the commission of the offence and the report or complaint filed thereto. These ingredients are also insisted upon for claiming exemption of the bar from actions against the property. Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor. 328. The corporate debtor and its property in the context of the scheme of the code constitute a distinct sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich makes it clear that the law declared by the Hon ble Supreme Court would bind all courts in the territory of India. The process of adjudication by the Adjudicating Authority under Section 8 of the PMLA, 2002 is inherently a quasi-judicial activity, akin to the quasi-judicial process of adjudication by the NCLT (in fact, in the IBC, 2016 the NCLT is the Adjudicating Authority ). Once the law is declared by the Hon'ble Supreme Court, officers presiding over judicial proceedings must necessarily take judicial notice of the law as declared, and act in a manner consistent with the law as declared by the Hon'ble Supreme Court. If such Adjudicating Authority does not act in line with the law declared by the Hon ble Supreme Court, it would present a fit case for writ petitions to be considered by a constitutional court to issue an appropriate writ or direction to remedy the situation. 37. We have 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. We find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord (by taking judicial notice) or on the ED drawing its attention to the decision of the Hon ble Supreme Court, to release the attachment by operation of Section 32A of the IBC, 2016, the NCLT (the Adjudicating Authority under the IBC, 2016), is clothed with the explicit power to answer questions of law relating to the resolution (and that too notwithstanding anything contained in any other applicable law, which includes the PMLA, 2002. Section 60(5) clearly empowers the NCLT to answer the question of whether the statutory immunity under Section 32A has accrued to a corporate debtor. As a consequence, the NCLT is well within its jurisdiction and power to rule that prior attachment of the property of a corporate debtor that is subject matter of an approved resolution plan, must be released, if the jurisdictional facts for purposes of Section 32A exist. 41. We are unable to be persuaded by the argument made on behalf of the ED that the Corporate Debtor or the Resolution Applicants must necessarily be relegated to execution proceedings under Section 424 of the Companies Act, 2013 read with Rule 56 of the NCLT Rules. To begin with, every writ of mandamus directing an arm of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thers, the PMLA, 2002. Parliament was also aware that Section 60(5) was already in the IBC, 2016 and did not think it was necessary to carve out the provisions of the PMLA, 2002 from the scope of the other applicable law which the NCLT had jurisdiction to interpret. 44. The Resolution Applicants, in WP 9943 have indeed sought the quashing of the ECIR, the original complaint and the attachment orders insofar as they relate to the corporate debtor. We do not believe any measure of quashing is necessary in view of the explicit and clear statutory immunity for the corporate debtor and its properties by operation of law, as set out in Section 32A of the IBC, 2016. Such instruments of enforcement are simply rendered inoperative and ineffective insofar as they relate to the corporate debtor and its assets. No further act, deed or thing is required to be done, since the immunity fastens itself by operation of law from the point in time at which the resolution plan is approved. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PMLA, 2002 are wholly irrelevant. These are:- (i) Kiran Shah, Resolution Professional of KSL and Industries Ltd. Vs. Enforcement Directorate (Company Appeal (AT) (Insolvency) No. 817/2021; (ii) Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka Ors (2019 SCC OnLine SC 1542); (iii) Deputy Director, Office of the Joint Director, Directorate of Enforcement Vs. Asset Reconstruction Company India Ltd. Ors. (2020 SCC OnLine Mad 28090); (iv) Phoenix Tech Tower Ltd. Vs. AP Gems and Jewellery Park Pt. Ltd. (2020 SCC OnLine NCLT 12503); (v) Manohar Lal Vij Vs. The Directorate of Enforcement ([IB]-1205/[ND]/2019) 49. Likewise, the proposition that proceeds of crime cannot be an operational debt for the ED to stand as a creditor for purposes of IBC, 2016 is a complete distraction from the core issue at hand. At the heart of the two petitions is the implication of the immunity under Section 32A of the IBC, 2016 for an eligible corporate debtor. Once a corporate debtor is eligible for the immunity, the corporate debtor and its properties are outside the pale and reach of the ED s jurisdiction. By extinguishing any scope for continued action against the property of a corporate deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rai Foundation through its Trustee Vs. The Director, Directorate of Enforcement (WP (Crl.) No. 100/2015) decided on 20th February, 2015. 51. One judgement that each side in these proceedings has sought to draw our attention to is the case of P. Mohanraj (supra). This decision makes it clear that the Hon ble Supreme Court considered the interplay between Section 14 of the IBC, 2016 and Section 32A to note that the former only casts a shadow on enforcement against the corporate debtor while the latter brings a complete cessation of prosecution against the corporate debtor. It was held that Section 32A(1), operates only after the moratorium under Section 14 comes to an end, and cannot have any bearing on interpretation of Section 14. We have already opined above that the interplay between the operation of the moratorium under Section 14 of the IBC, 2016 and the power of attachment under the PMLA, 2002 became a redundant subject for purposes of these proceedings, once the resolution plan that qualifies for immunity under Section 32A was approved. We have consciously decided not to rule upon a question of law in a vacuum, when dealing with an issue that is of no relevance to dealing wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en there is no potential in law for an eventual confiscation, the attachment, which is only an interim measure in aid of the final measure of confiscation must necessarily abate and come to an end, since it cannot continue in a vacuum. v. We are not opining on the implications of Section 14 of the IBC, 2016 for continuation of a prior attachment during the course of a CIRP. In the facts at hand, the jurisdiction of Section 14 came to an end, and the jurisdiction of Section 32A commenced, on 17th February, 2023. Therefore, dealing with a conflict between the provisions of the PMLA, 2002 and Section 14 of the IBC, 2016 was rendered irrelevant with effect from 17th February, 2023; vi. As a consequence of Section 32A of the IBC, 2016, the ED must now necessarily release the attachment on the Attached Properties, without being bogged down by the question of how to interpret the continuation of attachment after the commencement of the CIRP and before the Approval Order, and the implications for the same under Section 14 of the IBC, 2016. We are not opining on this facet of the law as it is wholly unnecessary to dispose of the case at hand. It is trite law that no court should rule on que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would bind the quasi-judicial authorities. As required under Article 141 of the Constitution of India, such quasi-judicial authorities must act consistent with the law declared by the Hon ble Supreme Court rather than disobey the rule of law to give rise to avoidable litigation. 53. In the result, we rule that 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, and the ministerial act of communicating must be communicated by the Respondents in WP 9943 and the Petitioner in WP 29111 forthwith to the Corporate Debtor, marking a copy to the Petitioner in WP 9943, within a period of six weeks from the date of this judgement. Such a communication is necessary to enable the Attached Properties to be bankable assets that can be deployed into the revival of the Corporate Debtor in terms of the objective of resolution. 54. Rule is made absolute in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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