2019 (2) TMI 1710 - Tri - Money Laundering

Tribunal Rules Attachment Orders Void under PMLA, Empowers Resolution Professional

SREI Infrastructure Finance Limited Versus Sterling International Enterprises Limited and Sterling International Enterprises Limited Versus Deputy Director, Directorate of Enforcement,

The Tribunal held that the attachment orders by ED under PMLA are null and void due to the overriding effect of IBC provisions. The Resolution ... Release of provisional attachment of all the assets and properties of the company and hand over the charge to the Resolution Professional - whether properties were acquired out of proceeds of crime - HELD THAT:- The attachment order dated 29.05.2018 and the Corrigendum 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 - 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. Application disposed off. Issues Involved:1. Jurisdiction of NCLT vs. PMLA.2. Application of moratorium under Section 14 of IBC.3. Overriding effect of Section 238 of IBC.4. Attachment of assets by Enforcement Directorate.5. Role and responsibilities of Resolution Professional under IBC.6. Economic implications and timely resolution under IBC vs. PMLA.Issue-wise Detailed Analysis:1. Jurisdiction of NCLT vs. PMLA:The Tribunal considered whether NCLT has jurisdiction over matters involving the attachment of assets by the Enforcement Directorate (ED) under PMLA. It was argued that the proceedings under PMLA are civil in nature, and thus, the adjudicating authority under PMLA does not have jurisdiction to attach properties of a Corporate Debtor undergoing Corporate Insolvency Resolution Process (CIRP). This aligns with Section 63 of IBC, which restricts civil courts or authorities from entertaining suits or proceedings on matters under NCLT or NCLAT jurisdiction.2. Application of Moratorium under Section 14 of IBC:The Tribunal examined the imposition of a moratorium under Section 14 of IBC, which prohibits the institution of suits or proceedings against the Corporate Debtor. The moratorium aims to provide a breathing space for the Corporate Debtor to undergo resolution. The Tribunal held that the attachment order by the PMLA court is a legal proceeding falling under the ambit of Section 14, rendering the attachment order null and void during the moratorium period.3. Overriding Effect of Section 238 of IBC:The Tribunal emphasized the non-obstante clause in Section 238 of IBC, which states that the provisions of IBC shall prevail over any other inconsistent laws. Citing the Supreme Court's ruling in Solidaire India Ltd v. Fairgrowth Financial Services Pvt. Ltd., the Tribunal held that IBC, being the later statute, overrides PMLA. This was further supported by judgments from NCLT Kolkata and Allahabad, reinforcing that IBC provisions take precedence over conflicting laws.4. Attachment of Assets by Enforcement Directorate:The Tribunal addressed the provisional attachment of assets by the ED, which was part of proceedings under PMLA. The applicant argued that the properties attached were not acquired using proceeds of crime and should be available for distribution to creditors. The Tribunal noted that the attachment orders were issued before the confirmation of attachment under PMLA, and no steps were taken by ED to take possession of the assets post-confirmation. Consequently, the Tribunal declared the attachment orders null and void under IBC.5. Role and Responsibilities of Resolution Professional under IBC:The Tribunal reiterated that under Section 18 of IBC, the Resolution Professional (RP) is responsible for taking control and custody of all assets of the Corporate Debtor. The RP argued that the attachment by ED hindered the CIRP process, and without lifting the attachment, the RP could not proceed effectively. The Tribunal supported the RP's stance, emphasizing the RP's duty to manage the Corporate Debtor's assets during CIRP.6. Economic Implications and Timely Resolution under IBC vs. PMLA:The Tribunal highlighted the economic benefits of resolving matters under IBC compared to the prolonged process under PMLA. It was noted that the criminal proceedings under PMLA could take much longer, leading to erosion in the value of assets. IBC, with its defined timelines, aims to maximize the value for creditors and stakeholders. The Tribunal favored a resolution through IBC to expedite the process and unlock the value of the Corporate Debtor's assets.Conclusion:The Tribunal concluded that the attachment orders by ED under PMLA are null and void in light of Sections 14(1)(a), 63, and 238 of IBC. The Resolution Professional is authorized to take charge of the properties and proceed under IBC as if there is no attachment. The concerned sub-registrars are directed to remove any notings of attachment in their records. The application was ordered accordingly, with no costs. The Tribunal expressed gratitude to the amicus curiae for effective assistance in the matter.