Alleged bank-director collusion unresolved; liquidator may seek leave under s.8(7) PMLA to auction property, deposit surplus as FDR

AT held that alleged collusion between bank officials and company directors is not foreclosed and must be determined by the Special Judge, PMLA Court. The tribunal directed that, despite PMLA proceedings, the liquidator may seek leave under s.8(7) PMLA to auction the specified property to satisfy the consortium of banks and other creditors, provided any sale surplus is deposited with ED as an FDR; the Special Judge will dispose of that FDR after conclusion of the PMLA trial. The appeal was disposed of.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the immovable property of the company confirmed for attachment by the Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (PMLA) constitutes "proceeds of crime" within the meaning of Section 2(1)(u) of the PMLA.

2. Whether the Insolvency and Bankruptcy Code, 2016 (IBC) (specifically Section 238) has overriding effect over the PMLA (specifically Section 71) such that liquidation proceedings and the liquidator's powers to realise assets prevail over PMLA attachment and restraint.

3. Whether, and on what terms, the liquidator may be permitted to realise/auction attached property to satisfy the claims of secured and unsecured creditors while preserving the ED's (Enforcement Directorate's) rights under PMLA and the criminal trial.

4. Whether the material placed before the Adjudicating Authority (including statements recorded under Section 50 and documentary material) was sufficient to form a "reasonable belief" for confirmation of the Provisional Attachment Order (PAO), and what issues remain for determination by the Special Judge in the criminal trial (including alleged collusion of bank officials).

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Whether the attached property is "proceeds of crime" under PMLA

Legal framework: PMLA defines "proceeds of crime" in Section 2(1)(u) and allows provisional attachment under Section 17 and confirmation by Adjudicating Authority where reasonable belief exists that property represents proceeds of crime; Adjudicating Authority must be satisfied on material produced.

Precedent Treatment: The judgment relies on the Adjudicating Authority's exercise of forming reasonable belief on the basis of investigation material and recorded statements; no earlier binding authority is expressly relied upon to alter the standard of proof for confirmation.

Interpretation and reasoning: The Court notes that investigation by competent agencies produced documentary material, searches and recovered incriminating documents at several premises; statements under Section 50 were recorded; and an extensive finance trail and modus operandi (false stock statements, diversion of CC limits to group companies, bogus invoices to avail CENVAT etc.) were alleged pointing to diversion/misuse of bank funds and fictitious transactions. The Adjudicating Authority's confirmation was based on such material leading to a reasonable belief that identified assets were value-equivalent to proceeds of crime.

Ratio vs. Obiter: Ratio - where credible investigative material, including statements and documentary records, indicate diversion of bank funds and fictitious transactions causing large bank losses, an Adjudicating Authority may form a reasonable belief to confirm provisional attachment; the sufficiency is a matter for the Authority and ultimately for the criminal court to decide on merits. Obiter - detailed evaluation of whether each identified property individually constitutes proceeds of crime is reserved for trial.

Conclusions: The Court accepts that the Adjudicating Authority was entitled to form a reasonable belief on the material before it and to confirm the PAO; however, ultimate determination of guilt, pinpointing of proceeds and issues such as collusion remain for the Special Judge in criminal proceedings.

Issue 2 - Conflict of laws: supremacy of IBC (Section 238) vis-à-vis PMLA (Section 71)

Legal framework: PMLA contains Section 71 providing non-obstante clause giving PMLA effect notwithstanding inconsistency with other laws; IBC contains Section 238 providing similar non-obstante effect for the Code. General principle invoked: where two later-enacted statutes contain similar overriding clauses and are otherwise inconsistent, the provisions of the later Act prevail to the extent of inconsistency.

Precedent Treatment (followed/distinguished): The Tribunal refers to a Supreme Court direction in Sterling Biotech context (sale in liquidation on a clean-slate basis) to conclude the position that the IBC framework may, in appropriate circumstances, supersede inconsistent earlier provisions; the Tribunal treats that decision as supporting the proposition that later enactments prevail in absence of express saving clauses.

Interpretation and reasoning: Both statutes contain identical non-obstante language; the Tribunal reasons that where an inconsistency exists and there is no saving clause, the later-enacted statute (IBC) will prevail. The practical effect, in the Tribunal's view, is that the liquidator's statutory duty to realise assets for distribution under the IBC cannot be completely frustrated by PMLA attachment; instead, a mechanism compatible with PMLA rights must be adopted to protect victims/creditors while preserving ED's interest and criminal process.

Ratio vs. Obiter: Ratio - where the IBC (a later Act) contains a general overriding provision and there is inconsistency with an earlier special Act's non-obstante clause, the later provision will prevail to the extent of conflict, permitting the liquidator to take steps under the IBC subject to protective measures for the PMLA authority. Obiter - the Tribunal's remarks as to broader precedence of IBC in all circumstances are qualified by requirement of reconciliation and by the absence of a final criminal determination.

Conclusions: The Tribunal holds that IBC's provisions have effect notwithstanding inconsistency and that this legal position permits the liquidator to seek to realise assets under IBC processes, subject to appropriate safeguards to protect the PMLA authority's claim (deposit of excess with ED in FDR and adjudication by Special Judge thereafter).

Issue 3 - Whether liquidator may auction attached property and the terms/conditions

Legal framework: IBC provides the liquidator powers to realise assets to satisfy creditor claims; PMLA allows attachment and confiscation processes and preservation of assets pending adjudication. Section 8(7) of PMLA (application to Special Judge) and the Court's power to permit steps subject to protective undertakings are invoked.

Precedent Treatment: The Tribunal relies on the interplay between statutes and the principle permitting limited relief to liquidator where later act prevails; the Tribunal treats the Sterling Biotech outcome as supportive of sale in liquidation subject to the criminal proceedings.

Interpretation and reasoning: Balancing creditors' rights under IBC and enforcement interest under PMLA, the Tribunal permits the liquidator to move the Special Judge under Section 8(7) of PMLA for auction sale of the attached property, subject to an undertaking to deposit any excess sale proceeds (if any) with ED in the form of an FDR. The Tribunal reasons this mechanism protects the ED's claim (value equivalent of proceeds) while enabling satisfaction of secured and unsecured creditors and is consistent with the later-enacted IBC.

Ratio vs. Obiter: Ratio - the liquidator may be permitted to seek auction of attached assets under the IBC mechanism, provided a judicially supervised undertaking is given to secure excess proceeds with the enforcement authority pending trial, and the Special Judge can dispose of the FDR after conclusion of trial as per law. Obiter - procedural specifics of auction conduct and distribution priorities are left to the IBC framework and the Special Judge's directions.

Conclusions: The Tribunal authorises the liquidator to apply to the Special Judge under Section 8(7) PMLA for auction sale, on condition of depositing any excess with ED as FDR, which will be disposed by the Special Judge after trial - thereby reconciling creditor-realisation with preservation of PMLA rights.

Issue 4 - Sufficiency of material for confirmation of PAO and matters reserved for trial (including alleged bank collusion)

Legal framework: Adjudicating Authority under PMLA may confirm PAO on reasonable belief supported by material; criminal court (Special Judge) determines guilt and issues like collusion and detailed tracing of proceeds; accused has right to contest in trial.

Precedent Treatment: The Tribunal accepts the Adjudicating Authority's role in forming reasonable belief on available material; simultaneous or subsequent criminal adjudication remains separate.

Interpretation and reasoning: The Tribunal records that the Adjudicating Authority was satisfied by the investigative material (statements, recovered documents, show-cause notices, CENVAT irregularities, diversion of funds, bogus invoices) to confirm the PAO. However, whether bank officials colluded or were complicit in sanctioning/releasing loans and taking title deeds is a factual and legal issue appropriate for trial before the Special Judge, not for resolution on the present appeal.

Ratio vs. Obiter: Ratio - confirmation of PAO requires only reasonable belief based on material; ultimate issues such as collusion and whether specific properties are proceeds of crime are matters for trial. Obiter - the Tribunal's observation that collusion "is not ruled out" and must be decided at trial is prospective guidance, not a final finding.

Conclusions: The Tribunal upholds that the Adjudicating Authority's confirmation of PAO was supportable on the material produced, but leaves all contested factual and legal determinations (including alleged collusion and tracing of proceeds) to the Special Judge in the criminal proceedings.

Disposition and Ancillary Directions (consequential to the above conclusions)

1. The liquidator is permitted to approach the Special Judge, PMLA Court, under Section 8(7) for auction of the attached property to satisfy creditor claims under IBC, subject to an undertaking to deposit any excess sale proceeds with ED in the form of an FDR.

2. The deposited FDR (if any) will be dealt with by the Special Judge after conclusion of the PMLA trial as per law; nothing in this order affects either party's rights in the criminal trials.

3. Final adjudication on guilt, tracing of proceeds, and issues such as bank collusion remain for the Special Judge and are not determined by the present appellate order.

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