2025 (10) TMI 1078 - AT - IBC

Section 32A IBC activates on approved resolution plan; provisional ED attachment before CIRP ceases, no separate PMLA release needed

Vantage Point Asset Management Pte. Ltd. Versus Gaurav Misra Resolution Professional of Alchemist Infra Reality Ltd. & Anr.

NCLAT (PB) held that assets provisionally attached by ED before CIRP could be included in the information memorandum and resolution plan despite a prior ... Refusal to enlarge the protection of Section 32A of IBC to uplift the attachment by Enforcement Directorate over the properties - inclusion of provisionally attached assets in the assets of the CD in the Information Memorandum or could be part of the Resolution Plan - assets of CD could be made part of the Information Memorandum, or could have been dealt in the Resolution Plan, due to restraint order passed by the Delhi High Court - entitlemnet to the benefit of Section 32A of the IBC, consequent to the approval of Resolution Plan - the findings requiring the SRA to resort to appropriate proceedings to seek release of the attachment, is in accordance with the statutory scheme - effect and consequence of approval of Resolution Plan of the CD. Whether due to provisional attachment of the assets of the CD vide order dated 24.01.2019, the assets could not have been included in the assets of the CD in the Information Memorandum nor could be part of the Resolution Plan? - HELD THAT:- Information memorandum was required to mention details of all assets which belong to the corporate debtor. In the present case, there is no case of the respondent that asset do not belong to the corporate debtor, nor it claim that appellant has been divested with its ownership on account of provisional attachment under PMLA. Due to provisional attachment of the assets of the corporate debtor vide order dated 24.01.2019, the assets could very well be included in the assets of the corporate debtor in the information memorandum and could be part of the resolution plan. Whether due to restraint order passed by the Delhi High Court dated 13.02.2019 passed in LPA No.104 of 2019, assets of CD could not be made part of the Information Memorandum, nor could have been dealt in the Resolution Plan? - HELD THAT:- The LPA, which arose out of which order dated 22.01.2019, which was order passed under Writ Petition filed by the corporate debtor, the restraint order was passed on the corporate debtor not to alienate the property. Order of status quo which was directed with regard to the property in question where the status quo to be maintained both by corporate debtor as well as the Directorate of Enforcement. The order dated 13.02.2019, was passed much before initiation of CIRP, which commenced only on 23.03.2022. The interim direction passed by the High Court was only with respect to the corporate debtor and the Directorate of Enforcement, the said order 13.02.2019 cannot be interpreted to mean that it prohibited the IRP/RP to include the asset in the information memorandum or to deal with the same in the resolution plan. It is not on the record that after the commencement of CIRP, any further directions were sought from the Delhi High Court, either by Directorate of Enforcement or by the RP or any clarification has been sought. The order was passed by Delhi High Court on 13.02.2019, and CIRP commenced after 3 years from the said order, and no further order having been obtained by either of the parties from the Delhi High Court, the order dated 13.02.2019 cannot be held to be restraint on the assets to be included in the information memorandum or in the resolution process. Due to restraint order passed by the Delhi High Court dated 13.02.2019 passed in LPA No.104/2019, the assets of the corporate debtor could have very well be included in the information memorandum and made part of the resolution process. Whether the Appellant is not entitled to the benefit of Section 32A of the IBC, consequent to the approval of Resolution Plan dated 04.07.2024 by the Adjudicating Authority, due to the reason that provisional attachment order was issued by the ED on 24.01.2019, much prior to initiation of CIRP on 23.03.2022? - HELD THAT:- Insertion of Section 32A in the IBC was preceded with Insolvency Law Committee (ILC) Report as well as the Report of the Standing Committee of Lok Sabha. Section 32A as inserted by Act No.01 of 2020, came to be challenged before the Hon’ble Supreme Court by means of Writ Petition under Article 32 of the Constitution of India, which challenge was decided by the Hon’ble Supreme Court in Manish Kumar vs. Union of India and Anr. [2021 (1) TMI 802 - SUPREME COURT] The Hon’ble Supreme Court in the said judgment in context of challenge to the provision has elaborately noticed the Insolvency Law Committee Report as well as Report of the Standing Committee of the Lok Sabha. The Hon’ble Supreme Court having already considered Section 32A, it is necessary to notice the judgment of the Hon’ble Supreme Court, which has authoritatively pronounced the law on the subject, which is binding on all. It is relevant to notice that the Petitioner challenging the provision of Section 32A before the Hon’ble Supreme Court has contended that immunity granted to the CD and its assets acquired from the proceeds of crimes and any criminal liability arising from the offences, will jeopardize the interest of the allottes/ creditors. Reliance was also placed on the Prevention of Money Laundering Act, 2002. The judgment of this Tribunal in Varrsana Ispat Limited Vs. Deputy Director, Directorate of Enforcement [2019 (5) TMI 1468 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI] have been relied. It is submitted that in the above case this Tribunal held that proceeding under PMLA are independent and not overridden by the IBC. In the above case, Directorate had attached the properties of Varrsana Ispat Limited. RP filed an application before the adjudicating authority for releasing the attachment of the certain assets of the corporate debtor. Attachment Order was issued on 10.07.2017, prior to the order of the declaration of moratorium. Application was held not maintainable against which the appeal was filed. This Tribunal had occasion to consider Section 14 of the IBC and certain provisions of the PMLA Act, 2002. It was held by this Tribunal that Section 14 of the IBC are not applicable to the proceedings under PMLA. Whether the findings and observations of the Adjudicating Authority as contained in paragraphs 60 and 61 of the impugned order requiring the SRA to resort to appropriate proceedings to seek release of the attachment, is in accordance with the statutory scheme as delineated under Section 32A of the IBC? - What is the effect and consequence of approval of Resolution Plan of the CD by order dated 04.07.2024 on the provisional attachment made by ED by order dated 24.01.2019? - HELD THAT:- Section 32A which was inserted by Act No. 01/2020 in the IBC was brought by legislature providing for certain immunity from the liability from prior offences to a new management of the corporate debtor, which has come into existence after approval of the resolution plan, which result in change in the management or control of the corporate debtor. Section 32A only give immunity to the new management of the corporate debtor and conditions which are mentioned in Section 32A(a) and (b) has to be fulfilled, that is the new management who has come into control of the corporate debtor is not a promoter or in the management or control of the corporate debtor or related party of such person or person with regard to whom investigation authority on the basis of material has reason to believe that he has awaited conspire omission of offence - The provision of Section 32A itself does contemplate initiation of proceeding under the PMLA prior to CIRP commencement or even during CIRP commencement. Thus, Section 32A carve not garb out any exception for applicability of Section 32A in a case where Provisional Attachment Order has been passed prior to initiation of CIRP. Thus, the submission of the counsel for the Enforcement Directorate is correct that trigger event under 32A happens when resolution plan is approved, and at that time when Provisional Attachment Order was passed under PMLA, the Directorate of Enforcement was fully competent to exercise its power. When the Section 32A itself contemplate cessation of liability and injunction not to prosecute for any offence after approval of resolution plan and to discharge the corporate debtor, we fail to see any purpose and object of continuing the Provisional Attachment affecting the resolution process which has undergone and attained finality under IBC. The Provisional Attachment Order shall cease to operate after resolution plan is approved, bringing into effect Section 32A. In the present case conditions under Section 32A for extending the benefit to appellant are fulfilled and it is not the case of either of the parties that the SRA does not fulfil the condition contemplated under Section 32A. We thus are of the view that Provisional Attachment Order has to be treated to cease by virtue of legislative scheme under Section 32A and there is no necessity to obtain any order by the SRA from the adjudicating authority under the PMLA. The appellant is entitled for the relief holding that appellant is entitled for the benefit of Section 32A and further there is no requirement in law by the SRA to file an application before the adjudicating authority of the PMLA for release of the asset. The appellant is entitled for the benefit of Section 32A on approval of resolution plan - Due to the legislative scheme under Section 32A there is no re- quirement of appellant in the facts of the present case to resort to the proceeding for release of the assets from attachment by En- forcement Directorate. The provisional attachment order dated 24.01.2019 has to be treated to have ceased after the approval of the resolution plan. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether assets provisionally attached by an investigating agency under the Prevention of Money Laundering framework prior to commencement of CIRP could be included in the Information Memorandum and form part of a resolution plan. 2. Whether an interim restraint/status-quo order of a High Court passed prior to commencement of CIRP precluded inclusion of provisionally attached assets in the Information Memorandum or their treatment in the resolution process. 3. Whether a successful resolution applicant (SRA) whose plan is approved is entitled to the benefit of Section 32A of the Insolvency and Bankruptcy Code (IBC) when provisional attachment under PMLA was made before commencement of CIRP, and if so, the effect of Section 32A on such prior provisional attachment. 4. Whether directions of the Adjudicating Authority requiring the SRA to seek release of prior provisional attachment from the PMLA adjudicating authority are consistent with the statutory scheme of Section 32A. 5. The relief, if any, available to the SRA in light of the above questions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Inclusion of provisionally attached assets in Information Memorandum and Resolution Plan Legal framework: PMLA provisions governing provisional attachment (Section 5) and definition of attachment; IBC provisions requiring preparation of Information Memorandum (Section 29) and CIRP Regulations / Regulation 36(2)(a) (assets and liabilities as on insolvency commencement date); duties of IRP/RP under Section 18(1)(f) (take control/custody of assets over which CD has ownership rights). Precedent treatment: Tribunal and judicial authorities have held that provisional attachment under the PMLA does not, by itself, divest ownership or enjoyment of immovable property (PMLA s.5(4) and case-law noted by parties). Relevant administrative and appellate decisions confirm that mere attachment is a protective/investigative measure and does not necessarily alter title. Interpretation and reasoning: Section 5(4) of PMLA explicitly preserves the right of the person interested in enjoyment of immovable property despite provisional attachment. The Information Memorandum must contain assets belonging to the corporate debtor as on the insolvency commencement date; neither the PMLA attachment nor the High Court interim order had, on the record, divested ownership or established that the assets did not belong to the corporate debtor. Thus the RP was entitled to disclose and include such assets in the Information Memorandum. Ratio vs. Obiter: Ratio - provisional attachment under PMLA does not automatically prevent inclusion of the attached assets in the Information Memorandum or their consideration in the resolution plan when ownership is not shown to have been divested. Obiter - discussion of comparative policy considerations between insolvency value maximization and criminal enforcement schemes. Conclusion: Assets provisionally attached on 24.01.2019 could lawfully be included in the Information Memorandum and form part of the resolution plan. Issue 2 - Effect of High Court's interim restraint/status-quo order on resolution treatment of attached assets Legal framework: The interim order of the High Court stayed certain PMLA proceedings and directed the corporate debtor not to alienate property and to maintain status quo vis-à-vis those properties. Precedent treatment: Interim restraint orders are binding between the parties and may operate to preserve status quo; but absence of subsequent, specific directions obtained after commencement of CIRP limits their continuing operability vis-à-vis the CIRP participants. Interpretation and reasoning: The Division Bench order dated 13.02.2019 maintained status quo but was directed at the parties to that writ/appeal. CIRP in this matter began years later; no further or clarificatory orders were obtained from the High Court post-commencement of CIRP. The interim direction therefore did not, on the record, operate as an enduring bar preventing the IRP/RP from recording the asset in the Information Memorandum or dealing with it in the approved resolution plan. Ratio vs. Obiter: Ratio - an interim High Court restraint, absent further or continuing directions obtained during CIRP, does not ipso facto preclude inclusion of assets in the Information Memorandum or their being part of an approved resolution plan. Obiter - general observations on interplay between interim orders and subsequent insolvency proceedings. Conclusion: The restraint/status-quo order did not prevent inclusion of the attached assets in the Information Memorandum or their treatment in the resolution process on the facts before the Tribunal. Issue 3 - Applicability and effect of Section 32A on pre-CIRP provisional attachment Legal framework: Section 32A IBC (inserted by amendment effective 28.12.2019) - (1) cessation of corporate debtor's liability for pre-CIRP offences upon approval of a qualifying resolution plan effecting a change in management/control to an unrelated person and (2) bar on action against property of the corporate debtor in relation to such offences where property is covered under an approved plan, with an Explanation clarifying that 'action' includes attachment, seizure, retention or confiscation under any applicable law; Section 5 & Section 8 PMLA (provisional attachment, adjudication and confiscation mechanism). Precedent treatment: The Supreme Court in Manish Kumar has authoritatively construed Section 32A's object, scope and conditions; other tribunals and High Courts have reached differing conclusions on interplay between IBC and PMLA (some holding Section 32A protective once plan is approved; other precedents said NCLT/NCLAT cannot adjudicate PMLA attachment validity). Recent decisions (including those of this Tribunal and certain High Courts) differ on whether Section 32A operates to vacate pre-existing attachments upon plan approval; some three-member Bench decisions addressed related but distinct questions (jurisdiction under Section 60(5)). Interpretation and reasoning: Section 32A's trigger is the approval of a qualifying resolution plan; its language is non-obstante and expressly contemplates cessation of liability and a bar on action against property (including attachment) where the property is covered by the approved plan and the plan effects the requisite change in control to a qualifying person. The legislative history and committee reports show object of providing a 'clean slate' to bona fide SRAs to enable revival and value maximization, and to protect assets acquired under resolution from subsequent enforcement action that would nullify the plan. The provision contains no carve-out excluding attachments made prior to CIRP; rather the immunity is expressly structured to operate from the approval of plan. Where conditions of Section 32A are satisfied, continuation of provisional attachment that would frustrate the efficacy of the approved plan is inconsistent with the statutory scheme. The PMLA attachment regime remains competent prior to these trigger events, but cannot be used to defeat the protective wall erected by Section 32A once its conditions are met. The Tribunal therefore read Section 32A and PMLA together: pre-CIRP provisional attachment was valid when made but ceases to have effect in relation to the corporate debtor's property once Section 32A protection is engaged by an approved qualifying plan. Ratio vs. Obiter: Ratio - upon approval of a qualifying resolution plan satisfying Section 32A(1)/(2) conditions, the corporate debtor (and persons acquiring its property under the plan) are entitled to statutory immunity such that prior provisional attachment of those properties (if covered by the plan) shall cease and no further action (attachment/seizure/retention/confiscation) may be taken in relation to those properties under PMLA; hence there is no requirement for the SRA to separately seek release from the PMLA adjudicating authority. Obiter - commentary on competing precedents and on policy balance between criminal enforcement and insolvency value maximization. Conclusion: The SRA is entitled to benefit of Section 32A upon approval of a qualifying resolution plan; the provisional attachment dated 24.01.2019 ceased to have effect insofar as it affected the assets covered by the approved plan and the SRA need not resort to separate PMLA proceedings for release. Issue 4 - Validity of Adjudicating Authority's directions requiring SRA to seek PMLA release Legal framework: Section 32A IBC and the explanation thereto which expressly includes attachment as an action against property; PMLA adjudicatory process (Section 8) and remedies. Precedent treatment: Adjudicating Authority had directed SRA to resort to PMLA remedies; some tribunals/High Courts have accepted NCLT/NCLAT jurisdiction to apply Section 32A and direct release; other authorities have held NCLT cannot adjudicate PMLA attachment validity. Manish Kumar and committee reports support statutory operation of Section 32A. Interpretation and reasoning: Given Section 32A's statutory bar on action against property where the plan qualifies, directing the SRA to initiate separate PMLA proceedings to obtain release is inconsistent with the protective operation of Section 32A and is unnecessary where conditions for immunity are satisfied and plan has been approved. That direction imposed an avoidable procedural burden and failed to give effect to the legislative scheme which makes the bar operate upon plan approval. Ratio vs. Obiter: Ratio - requiring an SRA to pursue PMLA adjudicatory remedies post-approval where statutory immunity under Section 32A applies is unnecessary and inconsistent with Section 32A's operation. Obiter - analysis of limits of NCLT/NCLAT jurisdiction vis-à-vis PMLA authorities in other factual matrices. Conclusion: The Adjudicating Authority's directions that the SRA must seek release of attachment from PMLA authorities were unnecessary and not in accordance with Section 32A. Issue 5 - Reliefs available Legal framework & reasoning: Where an approved qualifying resolution plan effects change in management/control to an unrelated person and satisfies Section 32A conditions, statutory immunity and protection for property arise automatically upon approval; attached properties covered by the plan cease to be subject to PMLA attachment insofar as they relate to the corporate debtor's liability for pre-CIRP offences. Conclusion: The SRA is entitled to Section 32A relief on approval of the resolution plan; the provisional attachment dated 24.01.2019 must be treated as having ceased in relation to the covered properties and the SRA need not file a separate application before the PMLA adjudicating authority for release. OVERALL CONCLUSION The Tribunal holds that (i) provisional attachment under PMLA does not ipso facto prevent inclusion of the attached assets in the Information Memorandum or their being part of a resolution plan; (ii) the interim High Court restraint did not, on the facts before the Tribunal, preclude inclusion of the assets in the resolution process; (iii) upon approval of a qualifying resolution plan meeting Section 32A conditions, the corporate debtor and property covered by the plan obtain statutory immunity and prior provisional attachment ceases to have effect in relation to those assets; and (iv) the Adjudicating Authority's directions requiring the SRA to pursue PMLA remedies for release were unnecessary and inconsistent with Section 32A, entitling the SRA to relief without further PMLA proceedings.