2023 (4) TMI 1407 - AT - Money Laundering

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

M/s. KSL & Industries Ltd. Versus The Joint Director Directorate of Enforcement, Kolkata

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 ... Application for grant of interim relief - seeking stay execution and operation of the letterof Deputy Director Enforcement Directorate, Nagpur and undated notice sent by Assistant Director to the tenants of Empress Mall, Nagpur for payment of lease amount to Deputy Director, Enforcement, Kolkata - Entitlement to the benefit under Section 32 A of the Code. Application for grant of interim relief - HELD THAT:- The notice was sent to the shopkeepers for deposit of lease amount to the respondents. An application was earlier moved by the appellant before the NCLT, which was dismissed by a detailed order. The appeal thereupon was filed but has been dismissed by NCLAT by its order dated 3rd January, 2022. Therein similar prayer was made by the appellant. The application was dismissed after recording finding that Resolution Plan has not been approved by the Adjudicating Authority, under Section 31 of the Code of 2016. In view of the above, the claim of the appellant was not found tenable in reference to Section 32A of the Code of 2016. The appellant suppressed aforesaid fact while moving application before this Tribunal in reference to the same property and almost for similar relief. The appellant has thus not approached this Tribunal with clean hands while maintaining the application. It is when the orders of NCLT and NCLAT are prior in time to the application for interim relief. The conduct of the appellant itself is sufficient to deny interim relief in reference to it. Entitlement to the benefit under Section 32 A of the Code - HELD THAT:- The prayer in reference to Section 31 and 32 A of the Code of 2016 was made even before the NCLT and NCLAT. It was not accepted finding that Insolvency Resolution has not been approved as yet by the Adjudicating Authority under Section 31 of the Code of 2016 rather same is still pending. The appellant was thus not found entitled to the benefit under Section 32 A of the Code of 2016. While pursuing the case before the High Court of Bombay at Nagpur, the fact regarding possession of the property by the ED on 10.11.2021 was not disclosed and brought to the notice of the Court which is reflected from the order. The information about the possession could not have been furnished by the learned ASG on the first date of hearing in absence of necessary instructions at that stage - the prayer of the appellant for grant of interim order ignoring the possession of the property with the ED cannot be accepted and no interim order against it. Conclusion - i) The appellant's failure to disclose prior judgments and possession status constituted a lack of clean hands, precluding the grant of interim relief. ii) Section 32A of the Insolvency and Bankruptcy Code, 2016, was inapplicable as the resolution plan had not been approved by the Adjudicating Authority. The application for interim relief dismissed and it is directed that the Mall property be maintained by the respondents - Let the appeal be posted now on16.10.2023 for further proceedings. 1. ISSUES PRESENTED and CONSIDEREDThe 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 ANALYSISInterim Relief and Property PossessionThe 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 32AThe 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 ReasoningThe 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.ConclusionsThe 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 HOLDINGSThe 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.