Appellate Tribunal rejects interim relief application against ED's notice to Empress Mall tenants for lease deposits

The Appellate Tribunal under SAFEMA dismissed the application for interim relief seeking stay of execution of ED's notice to tenants of Empress Mall for lease payment deposits. The appellant had previously approached NCLT and NCLAT with similar prayers, which were dismissed as the resolution plan was not approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, making Section 32A inapplicable. The Tribunal found the appellant failed to maintain clean hands by suppressing prior adverse orders and not disclosing ED's possession of the property since November 2021. The application was dismissed with directions for respondents to maintain the mall property.

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1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Tribunal include:

• Whether the appellant is entitled to interim relief to stay the execution and operation of the letter dated 15.12.2021 and the undated notice from the Enforcement Directorate regarding the collection of lease payments from tenants of Empress Mall.
• Whether the appellant can claim immunity under Section 32A of the Insolvency and Bankruptcy Code, 2016, from the attachment of property under the Prevention of Money Laundering Act, 2002 (PMLA).
• The impact of the appellant's non-disclosure of prior judgments and possession status on the application for interim relief.
• The relevance of the appellant's conduct, particularly the procurement and presentation of internal departmental correspondence, in determining entitlement to interim relief.

2. ISSUE-WISE DETAILED ANALYSIS

Interim Relief and Property Possession

The Tribunal considered whether interim relief should be granted to stay the execution of the Enforcement Directorate's directives. The appellant argued that without collecting lease payments, the maintenance of the Empress Mall would be compromised, affecting its value and the insolvency process. However, the Tribunal noted that the appellant had previously approached the NCLT and NCLAT with similar applications, which were dismissed. The Tribunal emphasized that the appellant had not disclosed these prior decisions, nor the fact that the Enforcement Directorate had taken possession of the property on 10.11.2021, to the High Court of Bombay or the Tribunal. This non-disclosure and the misleading of courts were significant factors in denying interim relief.

Legal Framework and Immunity under Section 32A

The appellant sought immunity under Section 32A of the Insolvency and Bankruptcy Code, 2016, which provides protection from attachment under the PMLA once a resolution plan is approved. However, the Tribunal found that the resolution plan had not been approved by the Adjudicating Authority under Section 31 of the Code, rendering Section 32A inapplicable. The Tribunal referenced the NCLAT's findings that without an approved resolution plan, the appellant could not invoke Section 32A to prevent attachment of the property under the PMLA.

Competing Arguments and Tribunal's Reasoning

The respondents argued that the appellant had approached the Tribunal with unclean hands, having failed to disclose material facts and prior adverse rulings. They emphasized that the Enforcement Directorate had possession of the property, and the appellant's conduct, including the unauthorized procurement of internal correspondence, further undermined their position. The Tribunal agreed, highlighting the appellant's failure to challenge the NCLAT's findings at the Apex Court, which had attained finality. The Tribunal also noted the distinct purposes of the Insolvency and Bankruptcy Code and the PMLA, with the latter taking precedence in matters of proceeds of crime.

Conclusions

The Tribunal concluded that the appellant was not entitled to interim relief due to the lack of an approved resolution plan, the non-disclosure of material facts, and the misleading of courts. The Tribunal also took a serious view of the appellant's conduct in obtaining and presenting internal departmental correspondence without proper disclosure.

3. SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

• The appellant's failure to disclose prior judgments and possession status constituted a lack of clean hands, precluding the grant of interim relief.
• Section 32A of the Insolvency and Bankruptcy Code, 2016, was inapplicable as the resolution plan had not been approved by the Adjudicating Authority.
• The Prevention of Money Laundering Act, 2002, takes precedence over the Insolvency and Bankruptcy Code in matters involving proceeds of crime.
• The Tribunal emphasized the importance of full disclosure and transparency in legal proceedings, criticizing the appellant's conduct in obtaining internal correspondence.

The Tribunal dismissed the application for interim relief and directed that the Mall property be maintained by the respondents. The appeal was scheduled for further proceedings on 16.10.2023.

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