Legal clash: Attachment under PMLA vs. CIRP resolution plan

The court addressed the conflict between the provisional attachment under the Prevention of Money Laundering Act (PMLA) and the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). It noted that the Enforcement Directorate's (ED) attachment post-approval of the resolution plan contravened Section 32A of the IBC, emphasizing the plan's binding nature. The court granted interim relief, staying proceedings related to the attachment order, pending asset monetization details from the petitioner. The matter was scheduled for the next hearing on 18th May 2021 for further submissions and responses.

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Issues Involved:
1. Jurisdiction of the Court
2. Conflict between Provisional Attachment under PMLA and CIRP under IBC
3. Impact of ED’s Provisional Attachment on CIRP and Resolution Plan
4. Validity of Provisional Attachment Post-Approval of Resolution Plan

Detailed Analysis:

1. Jurisdiction of the Court:
The respondent's counsel argued that the Delhi High Court does not have jurisdiction to entertain the writ petition, citing the judgment in Aasma Mohammed Farooq v. UOI & Ors. The appropriate court would be the High Court of Andhra Pradesh. This objection will be addressed as a preliminary issue in the counter affidavit.

2. Conflict between Provisional Attachment under PMLA and CIRP under IBC:
The petitioner, Union Bank of India, challenged the provisional attachment order passed by the Directorate of Enforcement (ED) under the PMLA. The petitioner argued that such intervention by the ED negatively impacts the CIRP and the realization of the debt. The Ministry of Corporate Affairs had previously recognized that the rights of secured financial creditors should be protected during the resolution process and that the resolution plan, once approved, is binding on all stakeholders, including government agencies.

3. Impact of ED’s Provisional Attachment on CIRP and Resolution Plan:
The petitioner highlighted a similar case (JSW Steel Ltd. v. Mahender Kumar Khandelwal and Ors.), where it was established that the intervention by the ED would have a negative effect on the CIRP. The Ministry of Corporate Affairs had stated that after the approval of the resolution plan, there should be no attachment or confiscation of the corporate debtor's assets by enforcement agencies. The rationale is to protect the new management and ensure the revival of the company.

4. Validity of Provisional Attachment Post-Approval of Resolution Plan:
The court noted that the ED's provisional attachment order, passed after the approval of the resolution plan by the NCLT, prima facie, contravenes Section 32A of the IBC. The Supreme Court in Manish Kumar v. Union of India upheld the validity of Section 32A, emphasizing that once a resolution plan is approved, it is binding, and the new management cannot be held liable for past crimes. The provision aims to attract resolution applicants by ensuring that the corporate debtor and its assets are not subject to attachment post-resolution plan approval.

Interim Relief and Directions:
The court granted an interim stay on the proceedings arising from the provisional attachment order, subject to the petitioner providing details of steps taken to monetize the assets and any recovery made. The ED was directed to file a detailed counter affidavit, and the Ministry of Finance was asked to state its position on the issue. The petitioner was also instructed to submit a copy of the resolution plan.

Next Hearing:
The matter was listed for hearing on 18th May 2021, with directions for the filing of counter affidavits and rejoinders within specified timelines.

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