2021 (12) TMI 627 - HC - Money Laundering

Ruling: Liquidator authorized to proceed with liquidation under IBC, ED restrained.

The court ruled in favor of the Liquidator, allowing them to proceed with the liquidation process under the Insolvency and Bankruptcy Code (IBC). The ... Jurisdiction under PMLA vs IBC - power or authority to proceed against the properties of a corporate debtor once a liquidation measure has come to be approved in accordance with the provisions made in the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- The resolution plan essentially must make provision for the payment of debts of the corporate debtor owed to financial and operational creditors, workmen and others specified in Section 53 of the IBC. The resolution plans which may be received by the RP are then placed before the Committee of Creditors for their consideration. In terms of Sub-Section (4) of Section 30, a resolution plan may be approved if it is passed by a vote of not less than sixty percent of the voting share of the financial creditors in a meeting of the Committee of Creditors. The resolution plan as approved by the Committee of the Creditors is then placed before the Adjudicating Authority who upon being satisfied that the same meets the requirements as placed by Section 30(2) of the IBC, approve the same. By virtue of Amending Act 26 of 2019, a significant amendment came to be introduced in sub-Section (1) of Section 31 and in terms thereof, it now stands clarified that the plan as approved by the Adjudicating Authority, would also bind the Central and State Governments or any local authority to whom a debt is owed. The provisions as introduced and incorporated in terms of Act 26 of 2019 have been upheld and judicially recognised to be declaratory. Section 32A and the legislative intent - HELD THAT:- Maximization of value would be clearly impacted if a resolution applicant were asked to submit an offer in the face of various imponderables or unspecified liabilities. The amendment to sub-Section (1) of Section 31 and the introduction of Section 32A undoubtedly seek to allay such apprehensions and extend an assurance of the resolution applicant being entitled to take over the corporate debtor on a fresh slate. Section 32A assures the resolution applicant that it shall not be held liable for any offense that may have been committed by the corporate debtor prior to the initiation of the CIRP. It similarly extends that warranty in respect of the properties of the corporate debtor once a resolution plan stands approved or in case of a sale of liquidation assets. The Legislature in its wisdom has recognised a pressing and imperative need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the adjudicating authority approving the course of action to be finally adopted in relation to the corporate debtor. Liquidation under IBC - HELD THAT:- The Liquidator in terms of the provisions engrafted in Section 36 is obliged to form a corpus comprising of various assets of the corporate debtor which constitutes the “liquidation estate”. The Liquidator is then by law mandated to collect and consolidate all claims of creditors that may be received pursuant to the public announcement of its liquidation. The functions of the Liquidator and the various steps that he is obliged to take are more elaborately spelt out in the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Statutory provisions under PMLA - HELD THAT:- As is manifest from a reading of the long title of the PMLA, it has essentially been promulgated to prevent money laundering and to provide for confiscation of property derived from or involved in the crime of money laundering. The expression “proceeds of crime” has been defined in Section 2(u) of the PMLA to mean any property derived or obtained whether directly or indirectly by a person as a result of criminal activity relating to a scheduled offence or the value of any such property and where such property is taken or held outside the country, then property equivalent in value thereto - The word property has been defined to mean assets of every description whether corporeal or incorporeal, tangible or intangible, movable or immovable and includes deeds and instruments evidencing title to or interest in such property or assets wherever located. The scheduled offences stand enumerated in parts A and B of the Schedule appended to the enactment. All orders passed by the adjudicating authority can be assailed in appeal in terms of Section 25 which prescribes that the Appellate Tribunal constituted under SAFEMA shall also act as the Appellate Tribunal for the purposes of the PMLA. Any person aggrieved by a decision or order of the Appellate Tribunal has the right to appeal to the High Court in accordance with the provisions of Section 42. Offences committed under the PMLA are triable by Special Courts which may be constituted in accordance with the provisions made in Chapter VII. Section 71 engrafts a non-obstante clause by providing that the provisions of the PMLA shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Issue of primacy - HELD THAT:- It is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of debts of a corporate debtor, those under the PMLA are concerned with the criminality attached to the offense of money laundering and to move towards confiscation of properties that may be acquired by commission of offenses specified therein. The authorities under the aforementioned two statutes consequently must be accorded adequate and sufficient leeway to discharge their obligations and duties within the demarcated spheres of the two statutes - this Court is of the firm view that the issue of reconciliation between the IBC and the PMLA insofar as the present petition is concerned, needs to be answered solely on the anvil of Section 32A. Once the Legislature has chosen to step in and introduce a specific provision for cessation of liabilities and prosecution, it is that alone which must govern, resolve and determine the extent to which powers under the PMLA can be permitted in law to be exercised while a resolution or liquidation process is ongoing. The Resolution and Liquidation roadways - HELD THAT:- It is only once that resolution plan stands approved that the question of further steps for implementation of the mode adopted would logically arise. This is further buttressed from the provisions contained in Section 31(4) which makes provision for a situation where the mode of resolution accepted and approved may require approval under an independent statute. It is while factoring in that eventuality that sub section (4) proceeds to prescribe the outer timeline of one year from the date of approval of the resolution plan for obtaining all requisite approvals. A similar situation would obtain where a corporate debtor while in liquidation is sold as a going concern. Here also Regulation 44 of the Liquidation Regulations, 2016 provides for the completion of the liquidation process within one year from the date of its commencement or within further extended time as contemplated under the Proviso thereto and additionally under Regulation 44(2). The Court thus finds itself unable to accept the submission of Mr. Hossain that the on the date of approval of a resolution plan under Chapter II, the corporate debtor undergoes a transformational change or metamorphoses. In any case, it cannot be viewed as ceasing to exist in the eyes of law merely upon a resolution plan coming to be approved. Identically, where a corporate debtor undergoing liquidation under Chapter III, it continues to exist as an entity till such time as it is fundamentally rearranged or altered consequent to the implementation of the procedure of settlement of its affairs as contemplated under the plan approved by the Adjudicating Authority. Section 32A and the defining moment - HELD THAT:- This Court is of the opinion that the answer to determining when the bar under Section 32A would come into play must be answered bearing in mind the ethos of Section 32A and upon an interpretation of the provisions of the IBC and the Regulations framed thereunder. As is evident from a careful reading of Section 32A(2), the Legislature in its wisdom has provided that no action shall be taken against the properties of the corporate debtor in respect of an offense committed prior to the commencement of the CIRP and once either a resolution plan comes to be approved or when a sale of liquidation assets takes place - Section 32A in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect. Drawing sustenance from the same, this Court comes to the conclusion that the approval of the measure to be implemented in the liquidation process by the Adjudicating Authority must be held to constitute the trigger event for the statutory bar enshrined in Section 32A coming into effect. Petition allowed. Issues Involved:1. Jurisdiction of authorities under the Prevention of Money Laundering Act (PMLA) post-liquidation approval under the Insolvency and Bankruptcy Code (IBC).2. Primacy between IBC and PMLA.3. Interpretation and application of Section 32A of IBC.4. Rights and obligations of the Liquidator concerning cooperation with PMLA authorities.5. Validity and effect of provisional attachment orders under PMLA.Detailed Analysis:1. Jurisdiction of authorities under PMLA post-liquidation approval under IBC:The court examined whether authorities under PMLA retain jurisdiction over the properties of a corporate debtor once liquidation measures are approved under IBC. The petitioner, a Liquidator appointed by the National Company Law Tribunal (NCLT), sought relief from the court to restrain PMLA authorities from interfering with the liquidation process. The court noted that the Liquidator received summons from the Enforcement Directorate (ED) and was directed not to dispose of assets due to ongoing PMLA investigations. The court emphasized that no provisional attachment order had been issued against the corporate debtor, and thus, the impugned email and directions from ED were stayed. The court allowed the Liquidator to proceed with the liquidation process, provided the proceeds from asset sales were placed in a separate bank account.2. Primacy between IBC and PMLA:The court discussed the interplay between IBC and PMLA, noting that both statutes contain non-obstante clauses (Sections 238 of IBC and 71 of PMLA). The court highlighted that IBC is an economic measure aimed at insolvency resolution, while PMLA addresses money laundering and confiscation of proceeds of crime. The court concluded that both statutes operate in distinct spheres and must be harmonized. The court held that the issue of reconciliation between IBC and PMLA should be answered based on Section 32A of IBC, which provides for the cessation of liabilities and prosecution once a resolution plan is approved or liquidation assets are sold.3. Interpretation and application of Section 32A of IBC:The court examined the legislative intent behind Section 32A, which aims to insulate the resolution applicant from prosecution for offenses committed by the corporate debtor prior to the commencement of the Corporate Insolvency Resolution Process (CIRP). The court emphasized that Section 32A(2) bars actions against the property of the corporate debtor once a resolution plan is approved or liquidation assets are sold. The court clarified that the approval of the measure to be implemented in the liquidation process by the Adjudicating Authority constitutes the trigger event for the statutory bar under Section 32A. Consequently, the power to attach under PMLA ceases once the Adjudicating Authority approves the mode selected in the liquidation process.4. Rights and obligations of the Liquidator concerning cooperation with PMLA authorities:The court noted that the Liquidator, as the custodian of the corporate debtor's properties and documents, must cooperate with PMLA authorities. The Liquidator is obliged to provide material and information required by investigating authorities under PMLA. The court emphasized that the Liquidator cannot claim immunity from answering requests for information from PMLA authorities.5. Validity and effect of provisional attachment orders under PMLA:The court addressed the respondent's contention that the writ petition became infructuous due to the issuance of a provisional attachment order during the pendency of the petition. The court rejected this argument, stating that the challenge to the respondent's action on jurisdictional grounds remains valid. The court held that the power to attach under PMLA would cease to be exercisable once the Adjudicating Authority approves the liquidation measure. The court restrained the respondent from taking further action against the liquidation estate of the corporate debtor.Conclusion:The court allowed the writ petition, holding that the Liquidator is entitled to proceed with the liquidation process under IBC. The respondent (ED) was restrained from taking any further action against the liquidation estate of the corporate debtor. The court granted liberty to the petitioner to seek the release of amounts held in escrow and directed the Adjudicating Authority to dispose of such applications in line with the court's conclusions.