2020 (5) TMI 666 - Tri - Insolvency and Bankruptcy

Validity of Provisional Attachment Order under PMLA upheld despite IBC moratorium

Raj Kumar Ralhan, Resolution Professional for Leo Meridian Infrastructure Projects & Hotels Limited and Ors. Versus Deputy Director, Enforcement Directorate and Ors.

The Tribunal held that the Provisional Attachment Order under PMLA was valid and unaffected by the moratorium under Section 14 of IBC. It determined that ... Removal of provisional attachment - attachment of assets of the corporate debtor, specifically the land, buildings, capital works in progress, plant, machinery, furniture, etc. - overriding effect of IBC over PMLA - contention of the learned counsel is that the effect of the Provisional Attachment Order is to create an encumbrance on the assets of the Corporate Debtor. The moratorium prohibits creation of any encumbrance over the assets of the Corporate Debtor - whether respondent no. 1 can issue Provisional Attachment Order against the assets of the Corporate Debtor during the currency of moratorium order passed under section 14 of the I&B Code? - section 5(1) of PMLA, 2002 - HELD THAT:- The admitted fact is that CIRP has commenced against the Corporate Debtor -company, viz. LMIPHL. The Provisional Attachment Order was issued on 30.12.2019 by attaching the assets of the Corporate Debtor under the relevant provisions of the PML Act. The attachment is challenged on the ground that the proceedings under the PML Act are of civil nature. Therefore, the proceedings are hit by moratorium order passed under section 14 of the I&B Code. The attachment will have effect on creating encumbrance over the assets of the Corporate Debtor which is prohibited by virtue of moratorium order. The Provisional Attachment Order is also challenged on the ground that the provisions of the I&B Code have overriding effect by virtue of section 238 of the I&B Code. So, any order passed under section 14 of the I&B Code will prevail against any order passed under the PML Act as regards the assets of the Corporate Debtor. The contention of the learned counsel is that the provisions of the I&B Code will have overriding effect over other laws. By virtue of section 238 of the I&B Code, when an order under section 14 of the I&B Code is passed, then attachment cannot be effected under the PML Act - As against this it is the contention of the learned counsel for the ED that the proceedings under the PML Act are different than the proceedings under the I&B Code. Proceedings are initiated under the PML Act in connection with involvement of proceeds of crime. Therefore, moratorium has no application. The applicant cannot take shelter under section 32A(2) of the I&B Code, because when Provisional Attachment Order was passed there was no resolution plan approved by the COC, which was confirmed by the Adjudicating Authority under section 31 of the I&B Code - In the present case, no Resolution Plan is approved by the COC as on the date of the Provisional Attachment Order. Therefore, section 32A(2) of the I&B Code will not apply to the Provisional Attachment Order passed by respondent no. 1. Application dismissed. Issues Involved:1. Validity of Provisional Attachment Order under PMLA during CIRP.2. Jurisdiction of NCLT over orders passed under PMLA.3. Applicability of moratorium under Section 14 of IBC to proceedings under PMLA.4. Overriding effect of IBC over PMLA.5. Interpretation of newly enacted Section 32A of IBC.Issue-wise Detailed Analysis:1. Validity of Provisional Attachment Order under PMLA during CIRP:The application was filed by the Resolution Professional seeking the removal of the Provisional Attachment Order imposed under PMLA. The corporate debtor was undergoing CIRP, and a moratorium was in effect. The Provisional Attachment Order was issued to attach the assets of the corporate debtor, including land, buildings, and machinery, under Section 5(1) of PMLA. The applicant contended that the attachment violated the moratorium under Section 14 of the IBC, which prohibits any transfer, encumbrance, or alienation of the assets of the corporate debtor.2. Jurisdiction of NCLT over orders passed under PMLA:The respondents contended that the NCLT does not have jurisdiction to interfere with the Provisional Attachment Order issued under PMLA. They argued that such orders could only be confirmed or set aside by the Adjudicating Authority under PMLA. The respondents further argued that the attachment process under PMLA is a quasi-criminal process and not purely civil in nature, thus falling outside the jurisdiction of NCLT.3. Applicability of moratorium under Section 14 of IBC to proceedings under PMLA:The applicant argued that the moratorium under Section 14 of IBC strictly prohibits any encumbrance on the assets of the corporate debtor, and the Provisional Attachment Order under PMLA violates this moratorium. The applicant relied on various decisions, including the Supreme Court's ruling in 'PR. COMMISSIONER OF INCOME TAX Vs. MONNET ISPAT AND ENERGY LTD.,' which upheld the overriding nature of IBC over other statutes. The respondents, however, relied on decisions like 'VARRSANA ISPAT LIMITED Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT,' where it was held that Section 14 of IBC does not apply to proceedings under PMLA as they relate to 'proceeds of crime.'4. Overriding effect of IBC over PMLA:The applicant contended that Section 238 of IBC provides an overriding effect over other laws, including PMLA. They argued that once a moratorium is declared under Section 14 of IBC, no proceedings, including those under PMLA, can be initiated against the corporate debtor's assets. The respondents countered this by stating that PMLA deals with 'proceeds of crime,' and its provisions operate independently and simultaneously with IBC, without one overriding the other.5. Interpretation of newly enacted Section 32A of IBC:The applicant also relied on Section 32A of IBC, which provides immunity to the corporate debtor's assets from actions related to offences committed prior to CIRP, once a resolution plan is approved. The respondents argued that Section 32A is applicable only after a resolution plan is approved by the Tribunal, which was not the case at the time of issuing the Provisional Attachment Order. They emphasized that the attachment under PMLA was valid as there was no approved resolution plan covering the attached assets.Conclusion:The Tribunal concluded that the Provisional Attachment Order under PMLA was valid and not affected by the moratorium under Section 14 of IBC. It held that the proceedings under PMLA relate to 'proceeds of crime' and operate independently of the IBC. The Tribunal also noted that Section 32A of IBC was not applicable as no resolution plan was approved at the time of the attachment. Consequently, the application seeking to set aside the Provisional Attachment Order was dismissed.