THE MORATORIUM OVERRIDES THE PROVISIONS OF FOREIGN EXCHANGE MANAGEMENT ACT, 1999

In Anup Kumar Singh Versus Union of India & others - 2025 (5) TMI 659 - CALCUTTA HIGH COURT, a corporate insolvency resolution process was initiated against the corporate debtor Shree Ganesh Jewellery (I) Private Limited, by the financial creditor. The application was admitted on 12.02.2018 by the Adjudicating Authority. The Writ petitioner was appointed as Interim Resolution Professional and later on appointed as Resolution Professional. Since the process is not on the good way, the Committee of Creditors proposed for the liquidation of the corporate debtor. The writ petitioner was appointed as liquidator. While the corporate insolvency resolution process was in vogue the mortarium under section 14 of the Code would be applicable.

Section 33(5) provides that when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor. Secured credits are exempted from the said provision under section 52 of the Code.

Action was taken by the Enforcement Directorate (‘ED’ for short) under the provisions of Foreign Exchange Management Act, 1999 (‘FEMA’ for short) against the corporate debtor during the year 2016. Notices were issued by the ED for the provisional attachment of the properties of the corporate debtor. In this regard notices were issued to the Resolution professional on 30.12.2022 and 03.01.2023. Against these notices the Resolution Professional filed a writ petition before the High Court to quash the said notices.

 The writ petitioner submitted the following before the High Court-

• The writ petitioner was appointed as liquidator by the Adjudicating Authority for the liquidation of the corporate debtor.
• The petitioner was duty bound to complete liquidation process of the corporate debtor under the Code and within the timelines prescribed for the same.
• After liquidation order, the corporate debtor might be sold as a going concern or the assets might be sold.
• Therefore, once corporate insolvency resolution process is started the properties of the corporate debtor cannot be attached.
• In view of Section 32(A) of the Code the assets of the corporate debtor could not be made the subject matter of attachment.
• In this case the ED issued a notice for the attachment of the properties of the corporate debtor after the order of liquidation passed by the Adjudicating Authority.
• The ED attached the properties of the corporate debtor and the corporate debtor filed an appeal against the said order.
• The issuance of the Provisional Seizure Order was in complete disregard of the moratorium prescribed by Section 33(5) of the Code. 
• The ED issued a notice to the petitioner for the confirmation of the provisional attachment of properties of the corporate debtor which is against to the provisions of moratorium under Section 14 of the Code.
• During the pendency of the writ petition, the respondent no. 3 on 23.05.2023 confirmed the Provisional Seizure Order. The writ petitioner filed an appeal before the Appellate Authority against the said order.
• The order dated 23.05.2023 was subject to the result of the writ petition and was a lis pendens event. 
• The provisions of the Code override the provisions of the FEMA. Therefore, the moratorium under the Code overrides the provisions of FEMA.
• Section 238 of the Code clearly stated that the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of such law.
• The FEMA did not have any non-obstante clause.
• The Enforcement Directorate could not proceed against the corporate debtor as long as moratorium under the Code was in force.

Therefore, the writ petitioner prayed the High Court to set aside the attachment order of ED on the properties of the corporate debtor.

 The ED submitted the following before the High Court-

• In the present case, the accused/Corporate Debtor failed to realise export proceeds to the tune of Rs.7220,89,57,496/- and thereby contravened Section 4 of FEMA, 1999.
• The Authorised Officer seized 39 immovable properties of the accused/ Corporate Debtor, amongst total 49 immovable properties having market value of Rs.138,35,60,746 and 4 Bank Accounts, being movable properties of Accused/ Corporate Debtor having balance as on 16.04.2019 of Rs.3,40,23,401/-. 
• The petitioner prima facie could not have any jurisdiction even to pray for quashing and/or setting aside the whole which also involved seizure of immovable properties not belonging to the accused/ Corporate Debtor.
• The notice issued to the petitioner directing him to appear personally before the Authorities is a statutory compliance which cannot be questioned by the petitioner.
• The writ petition deserved to be dismissed on the ground of suppression of material fact that the proceeding instituted against the accused/Corporate Debtor under FEMA, 1999 vide File No. T-3/ Misc./37/ KOL/2016/AD(AKS) dated 15.11.2016 had been culminated into Complaint dated 06.07.2020 for contravention of provision of Sections 3(b), 4, 7 and 8 of FEMA, 1999 read with Regulation 8 and 9 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 read with Section 4 of FEMA, 1999 which attracted imposition of penalty under Section 13 of FEMA, 1999.
• The provisional attachment order as confirmed by the Adjudicating Authority is to protect the Interest of Revenue and the aggrieved person had always a right of appeal against the Order passed under Section 37A (3) of the FEMA.
• When the petitioner herein had already availed the statutory opportunity of appeal against the Order dated 23.05.2023 passed by the Competent Authority under Section 37A (3) of the FEMA, 1999 thereby confirming the Order of Seizure dated 30.11.2022, this Court should not entertain the writ petition on merits.
• The Liquidation Order was passed on 14.09.2018 by the NCLT, Kolkata Bench, whereas, the proceeding against Accused/Corporate Debtor under the FEMA, 1999 was initiated on 15.11.2016 i.e., much prior to such order of liquidation and hence, no bar u/s 33(5) of the Code was applicable in the present case.
• Section 32A (2) of the Code was disjunctive in nature with respect to the approved resolution plan and sale of liquidation assets to a person by the word ‘or’.

Thus, the ED contended that the action of respondent no. 2 could not be held as barred under section 32A of the Code.

 The High Court considered the submissions of the parties to the present writ petition. The High Court observed that the mere fact that the proceeding under the FEMA was initiated in 2016 before Section 14 of the IBC came into operation in 2018 would be irrelevant as Section 14 speaks not only about the initiation, but also about the continuation of pending suits or proceedings.  Section 33(5) provides that subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by the liquidator on behalf of the corporate debtor with the prior approval of the Adjudicating Authority. After liquidation order, the corporate debtor might be sold as a going concern or the assets might be sold. Therefore, once CIRP was admitted, the assets on corporate debtor could not be attached. They would be sold in CIRP or in liquidation.

The High Court relied on the judgment of Supreme Court in Ramsarup Industries Limited and others Versus Union of India and another -  2022 (8) TMI 1575 - CALCUTTA HIGH COURT in which it was held that  the provisions of the Code would override the provisions of the FEMA. Therefore, the moratorium under the Code would override the provisions of the FEMA.  Not only was the Code enacted while the FEMA was in existence, but Section 238 of the Code also clearly provided for a non-obstante clause. On the other hand, FEMA did not have such non-obstante clause.

 In view of the proceedings pending under the Code and the orders passed therein, the impugned provisional seizure order and the impugned notices could not have been issued. Therefore, the impugned notices are quashed. However, a proceeding can fairly be initiated against the erstwhile Director and the Officer of the corporate debtor, if they are found to be individually liable.