TaxTMI 
TaxTMI 
2019 (10) TMI 376
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....te Debtor on 12.03.2018 and appointed Respondent No.3 herein as Interim Resolution Professional who was later confirmed as Resolution Professional. Moratorium in terms of Section 14 came into force w.e.f. 12.03.2018. The resolution plan was approved by the CoC with 89.15% voting share and the same is filed for approval of this Tribunal in terms of Section 30(6) of the Code. (2) That the CIRP ended on March 26, 2019. During the course of CIRP, the Committee of Creditors (CoC) approved a Resolution Plan submitted by one of the Resolution Applicants pursuant to which the RP filed an Application vide IA. No. 281 of 2019 seeking approval of the said Resolution Plan by this Tribunal. (3) Meanwhile the Resolution Professional came to know that the Enforcement Director, Respondent No.1 herein provisionally attached the assets belonging to the Corporate Debtor valued at Rs. 315 crores for a period of 180 days vide proceedings initiated under File No. ECIR/CEZO/05/2016, dated 26.03.2019 under Section 5(1) of Prevention of Money Laundering Act, 2002 (herein referred to as PMLA). The immovable properties that are attached and detailed in the Schedule to the Impugned Order which belong to C....
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....t ED has registered the ECIR and passed the provisional attachment order after the moratorium order is passed by the NCLT. Thus, on the face of record, it is evident that the ED and the Adjudicating Authority have not understood the legal issues involved rather they have ignored the settled law and passed the impugned order. The serious situation is that ED has registered ECIR on the basis of FIR which was registered at the request of banks' complaint as borrowers who failed to pay the loan amount. The banks have now become victim. Therefore, both the impugned order and provisional attachment order are set-aside qua the appellant bank. 66. The period of continuation of proceedings before the Adjudicating Authority, PMLA, and before this Tribunal till the passing of the present judgment and order, from the date of commencement of the moratorium order, be treated as excluded while calculating limitation of the period of completion of the Corporate Insolvency Resolution Process." (5) It is contended, Respondent No.1 ought not to have attached the properties being aware that the same are mortgaged/secured in favour of various financial creditors and that the dues of secured c....
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....ic Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers which may take many years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the commercial market. The trial may continue against the borrowers. One is failed to understand why the bank loan amount be blocked in view of settled law." (7) The Applicant further submits that the Properties attached by Respondent No.1 Authority are not derived out of alleged proceeds of crime. Further it is clear that none of the persons summoned by Respondent No.1 could satisfactorily explain as to how the alleged crime proceeds derived by BCEPL and routed through various intermediaries and finally paid to Corporate Debtor has been utilized. As the Respondent No.1 itself could not ascertain as to how the proceeds of crime derived by BCEPL were utilized, it ought not to have held that the Secured Assets are derived out of the crime proceeds and attach the same. The Impugned Order further states that the Secured Assets are considered as the equivalent value of the crime proceeds and hence the same are attached by Respond....
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....ent of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime and has passed on hands to the number of purchasers which includes the bona fide purchaser without notice, the said purchaser who is not having any knowledge about the involvement of the said property with the proceeds of the crime nor being the participant in the said transaction ever, cannot be penalized for no fault of his. Therefore, it cannot be the Scheme of the Act whereby bona fide person without having any direct/indirect involvement in the proceeds of the crime or its dealings can be made to suffer by mere attachment of the property at the initial stage and later on its confirmation on the basis of mere suspicion when the element of men....
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.... Hotels Pvt. Ltd. i.e. an amount of Rs. 134.65 crores during 2011-2013 from the bank accounts of Sujana Group of Companies, Viz., Bhagyanagar Investment & Trading Private Limited-Rs. 11.77 crores, Ganga Industrial Corporation -Rs. 0.65 crores, Mahal Hotel Private limited Rs. 122.23 crores all towards Business Transaction Agreement which was given as loan. (13) The ED attached the properties as stated under Schedule-I pertaining to the corporate debtor under provisions of section 5(1) r/w 2(1)(v) r/w 2(1)(u) of PMLA, 2002, to a tune of Rs. 32,35,18,340/- valued as on 31-3-2018. (14) Despite Moratorium in force and Enforcement Directorate being aware about initiation of CIRP against Corporate Debtor, it took action of attaching the properties of the Corporate Debtor. (15) Under Section 18 of the Code, the IRP to take control and custody of all the assets of the Corporate Debtor and thereon till this date resolution professional is managing the same and running the business of the corporate debtor as a going concern. (16) Further Resolution Plan submitted by M/s. CGM Asset Reconstructions Pvt. Ltd. was approved by CoC with 89.15% of voting share and the same is filed before th....
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....nternational chain of hotels Marriot. The banks have proceeded under the SARFAESI Act and tried to auction the properties prior to the commencement of the CIRP. (19) It is the case of Applicant that unless the attachment is withdrawn and properties are set free, the entire CIRP process becomes a futile exercise and there is every possibility that the resolution applicant would back out. In the event the CIRP fails. The financial creditors would suffer irreparable loss and grave prejudice would be caused to the financial and operational creditors for no fault on their behalf. (20) The other reason given by the Enforcement directorate for attaching the schedule properties is that as the same are equal to the proceeds of the crime. This justification is prima facie illegal and arbitrary. The Applicant avers if at all the ED wants to attach the properties then it ought to have attached the proceeds that would be derived by M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial corporation and Bhagyanagar Investment & Trading Private Limited out of the approval of the resolution plan which fell to their share in the event the resolution plan is approved by this Tribunal. (21) The Applican....
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....te Tribunal for PMLA in the case of Punjab National Bank (supra) held that in the case of "a public Sector Bank. The money must come to the public forthwith not after the trial of criminal case against the borrowers which may take many years. The banks are in crisis, no attempt should be made to block the loan amount in order to avoid worsen positions in the commercial market. The trial may continue against the borrowers. One is failed to understand why the Bank loan amount be blocked in view of settled law." In the event the attachment is not withdrawn the public sector banks and the financial creditors would suffer and grave prejudice would be caused to them. (24) It is averred considering the overriding provisions of Section 238 of IBC which is the later legislation, when compared to the earlier legislation of PMLA, the provisions of IBC will prevail and hence considering the economic interest of the beneficiaries, the IBC will provide solution at the earliest to the Corporate Debtor as well as to the Creditors. The case laws cited above also favours a resolution by IBC instead of waiting for a long period to get the benefit under the PMLA. Further, the quantum of amount lock....
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....ransaction approved and ratified by the shareholders in AGM and EGMs from time to time. As per the terms of BTA, Viceroy Hotels Ltd. was under an obligation to refund the amount with interest. Therefore, this Tribunal held that RP had rightly allowed the claim of Mahal Hotels Ltd. This Tribunal had only disallowed compounding interest and held that 24% per annum in a straight line method can be allowed and directed RP to re-work out the Further aggrieved by the order this Tribunal passed in IA 250/18, ARCIL filed an appeal before NCLAT, Delhi, and Mahal Hotels Ltd. also preferred an appeal before NCLAT to the extent of disallowing compounding interest and both these appeals are pending in NCLAT. Most part of the provisional attachment of ED is devoted to the transactions of Sujana Group and its associated groups. The main allegation made in the attachment order is that BCEPL routed the money availed from bank through their numerous shell companies and finally they reached Mahal Hotels Ltd. and Mahal Hotels Ltd. in turn utilized that money to pay to VHL for purchasing their Chennai Hotel as per the BTA agreement. (27) That VHL sold one of its properties, Chennai JW Marriott in a ....
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....hey further obtained orders from Chief Metropolitan Magistrate in 2016 for taking over the possession of the Courtyard Hotel which are attached by ED by the impugned proceedings. (29) Moreover, Corporate Insolvency Resolution Process is initiated against VHL and Final Resolution Plan is approved and recommended by CoC for pending final approval by this Tribunal. M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial Corporation and Bhagyanagar Investment & Trading Private Limited were also shown as one of the unsecured creditors. In the plan certain amount was earmarked for M/s. Mahal Hotels Pvt. Ltd., Ganga Industrial Corporation and Bhagyanagar Investment & Trading Private Limited as an unsecured creditors. At best ED can ask for attachment of the money that will finally flow to Mahal Hotels Ltd. and its associated companies as per the final orders of Hon'ble NCLT and that the provisional attachment has a huge potential to derail the entire Resolution Process which has come to the final stage of resolution as a going concern and there is a real threat of the Successful Resolution Applicant back tracking bringing 12 months Resolution Process to a naught. (30) That the Impugned order ....
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....both these Applications. The contentions in brief are:- (1) Respondent No.1 narrated the facts of the case, leading to issuance of provisional Attachment order No. 04/2019. Respondent No.2 reiterated that the findings in PAO are tracing the proceeds of crime, which are in possession of the Corporate Debtor after laundering the same. Further investigation under the provisions of PMLA, 2002 revealed that the crime proceeds derived by BCEPL were routed through various intermediary companies of Sujana Group and finally paid to M/s. Viceroy Hotels Ltd. as an amount of Advance of Rs. 134.65 crores during 2011-2013 from the bank accounts of Sujana Group Companies, all towards a Business Transaction Agreement for acquiring a hotel JM Marriot at Chennai and that since the transaction was not through the BTA was terminated in 2013. But till the money is stated to have not been returned to Sujana Group by Corporate Debtor. This transaction was stated to have been evidenced by the Application filed by M/s. Mahal Hotels Pvt. Ltd. in IA 309/2018 filed before this Tribunal which was allowed on 29.08.2018. (2) The 53rd Annual Report of Corporate Debtor for the FY 2017-18 also reflected the sam....
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.... movable properties held in the name of Corporate Debtor are considered as equivalent value to the tune of Rs. 401 crores towards the amount payable to M/s. Mahal Hotel Pvt. Ltd. derived out of crime proceeds. (8) It is the case of Respondent No.1 that Hon'ble High Court of Delhi set aside several decisions of the Appellate Tribunal involving attachment of property by the 10 u/s. 5 of PMLA vide order dated 02.04.2019 and Hon'ble High Court of Delhi while allowing the Appeal of the ED has also laid down several legal principals relating to attachment of the property u/s. 5 of PMLA. Further it is contended the process of attachment of Proceeds of Crime (PoC) under PMLA is in nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money laundering. The Hon'ble High Court of Delhi also summarized the ratio decidendi relating to attachment of property in paragraph 171 of the said order. It is further stated the proceedings under PMLA, 2002 is independent and that all mechanism under principles of natural justice were followed under the provisions of PMLA, 2002 which gives power only to the "Adjudicating Authority" to decide the confir....
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....ntended that the offence of money-laundering is punishable with rigorous imprisonment which is not less than 3 years and it not applicable to "Corporate Debtor" but applicable to individual which includes Ex-Directors and shareholders of the "Corporate Debtor" and they cannot be given protection from the "Prevention of Money Laundering Act, 2002" and that such individuals cannot take any advantage of Section 14 of IBC. (14) It is further stated that Hon'ble NCLT Division Bench, Chennai in MA/423/2018 in CP/129/IB/2018 in the matter of Nathella Jewellery (P.) Ltd. v. Jt. Director of Enforcement, Chennai wherein an Application filed by Resolution Professional seeking vacation of the attachment passed by the Authority under PMLA over the assets of the Corporate Debtor, the Resolution Professional reported that the RP has no objection for dismissal of that Application as withdrawn. Further, the Respondent No.2 also relied on Company Appeal (AT) (Insolvency) No. 493 of 2018 in the matter of Varrsana Ispat Ltd. in the matter of Anil Goel v. Dy. Director, Directorate of Enforcement wherein Hon'ble NCLAT held that "9. Section 2(1)(u) of the "Prevention of Money Laundering Act, 2002" defi....
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....anara Bank (henceforth called as secured assets or attached properties). The FIR bearing RC No. 4(E)/2016 was registered by CBI against persons named there in as accused alleging those persons committed Scheduled Offences under PMLA. The contention of the Learned Counsel that Dy. Director, Enforcement Directorate passed PAO on the ground that the assets were acquired out of the "proceeds of crime" of the Scheduled Offence under PMLA. The contention of Learned Counsel, there was moratorium which was in force passed by this Tribunal under Section 14 of IBC, 2016. The Resolution Plan was submitted to the Tribunal for approval. The Application is pending before this Tribunal for approval. In the meantime, the Dy. Director, Enforcement Directorate passed PAO when moratorium is in force. The contention of the Counsel, the moratorium will continue till the Resolution Plan is approved by the Tribunal. Thus, the Learned Counsel contended that no proceedings to be initiated against Corporate Debtor during moratorium either against Corporate Debtor or against its properties. 5. The second contention of the Learned Counsel for Applicant that proceedings under PMLA are of civil nature and mor....
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....porate Debtor. In this connection, Learned Counsel relied on Section 2(u) of PMLA and other relevant provisions. 8. Per contra the Learned Counsel for Deputy Director, Enforcement Directorate contended, the attachment order was passed by the Enforcement Directorate dated 26.03.2019 and a criminal case bearing No. FIR RC No. 4 (E)/2016 was registered by CBI, BS & FC Bangalore against officials of M/s. Best Crompton Engineering Project Ltd. (BCEPL) who entered into criminal conspiracy and cheated the Bankers and availed loans through illegal means. Thus, criminal action was initiated against BCEPL and its key officials and investigation is going on and a criminal complaint is also filed in the Hon'ble Court of Additional Chief Metropolitan Magistrate, Egmore, Chennai on 16.06.2018. Counsel contended forensic audit was conducted in respect of BCEPL and it was noticed, transfer of money to Corporate Debtor through Mahal Hotels Pvt. Limited. The Learned Counsel quoted several provisions of BTA between M/s. Mahal Hotels Private Limited and the Corporate Debtor and the money transferred to the Corporate debtor by M/s. Mahal Hotels Private Limited and its two other subsidiaries. The money....
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.... acquired from out of the proceeds of crime. However, property equivalent to the same can be attached. The Learned Counsel has relied on the decisions of Hon'ble NCLAT in Company Appeal (AT)(Insolvency) No. 493/2018 that individuals cannot take any advantage of Section 14 of IBC. So the main contention of the Learned Counsel that money was laundered through M/s. Mahal Hotels Pvt. Ltd. to Corporate Debtor which is not accounted till date. The Counsel also relied on Section 23 of PMLA which deals with presumption in inter-connected transactions. Section 23 is reproduced below:- "Where money-laundering involves two or more inter-connected transactions and one or more such transaction is or are proved to be involved in money-laundering, then for the purpose of adjudication or confiscation under Section 8 or for the trial of the money-laundering offence, it shall unless otherwise prove to the satisfaction of the Adjudicating Authority or the Special Court be presumed that the remaining transactions form part of such inter-connected transactions". The Learned Counsel further contended that the promoter Mr. Prabhakar Reddy of Corporate Debtor has not co-operated with the Enforcement Di....
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....ed were not acquired with the proceeds of crime. It is the case of Applicants in both the Applications that these were the properties acquired by the Corporate Debtor long prior to the alleged laundering of money through Mahal Hotel Private Limited to the Corporate Debtor. It is not in dispute that the properties under Provisional Attachment Order were acquired long prior to the alleged transfer of proceeds of crime through Mahal Hotels Private Limited to Corporate Debtor. There is no dispute, even otherwise these were the properties which were given as security to the banks while loans were availed in the years 2008 & 2009. It can be safely held that the alleged tainted money can never be utilized for acquiring these properties because the mortgage of secured assets to the banks was in the years 2008 and 2009 while alleged transfer of proceeds of crime through BTA entered into between Mahal Hotels Private Limited and the Corporate Debtor in the year 2011 which is stated to have been in force till 2013. Interestingly, Mahal Hotels Private Limited made a claim before the RP for Rs. 401 crores payable by Corporate Debtor to it and that the said claim is admitted by Resolution Profess....
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....g security and the dues of secured creditors will have priority over Government dues and Counsel further relied on Section 31B of Recovery of Debts due to Banks and Financial Institutions Act, 1993 and also contended the rights of security creditors are protected and that the Secured Creditors shall have priority and shall be paid in priority over other Government dues. The Learned Counsel contended the properties, if confiscated will go to the Central Government. So the dues to the Central Government is secondary to the secured interest in favour of Financial Creditor. No doubt it is true in the two enactments relied by the Counsel that Secured Creditors will have priority over the Government dues. The contention of the Learned Counsel, even Section 53 of IBC also provides that secured creditors are given priority over unsecured creditors and Government dues. The contention of the Learned Counsel, when CoC approved the Resolution Plan then it is not correct on the part of the Dy. Director, Enforcement Directorate to attach the assets of the Corporate Debtor. The entire CIRP process become futile. In this connection Learned Counsel relied on the decision of Adjudicating Authority u....
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.... justify the bona fides in the acquisition of the property); and if satisfied as to the bona fide acquisition of the property, relieve such property from provisional attachment by declining to pass an order of confirmation of the provisional attachment; 18. Similarly, Learned Counsel also relied on the decision of Hon'ble Appellate Tribunal under PMLA in the matter of Punjab National Bank (supra) wherein it is held as follows "59: These are four ingredients which are determinative factors on the basis of which it can be said that whether any person or any property is involved in money laundering or not. If there is no direct/indirect involvement of any person or property with the proceeds of the crime nor there is any aspect of knowledge in any person with respect to involvement or assistance nor the said person is party to the said transaction, then it cannot be said that the said person is connected with any activity or process with the proceeds of the crime. The same principle should be applied while judging the involvement of any property of any person in money laundering. This is due to the reason that if the property has no direct involvement in the proceeds of the crime ....
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....sed/vacated. 19. On the other hand, the contention of the Learned Counsel for Enforcement Directorate that BCEPL (Best & Crompton Engineering Project Ltd.) is involved in the offence and money availed from the banks is being routed through its various subsidiaries including Mahal Hotel Private Limited. The money reached the Corporate Debtor through Mahal Hotel Private Limited. The Corporate Debtor is involved in money laundering and case has been registered and charge sheet is also filed and case is also pending. The contention of the Learned Counsel that money received by Corporate Debtor is used for various other purposes and that not only the properties acquired with the proceeds of crime but any other property held by the person who received the money involved in the crime can be attached. 20. The contention of the Learned Counsel for Enforcement Directorate that properties equivalent to the value of money involved in the laundering can be attached. This is covered under Section 2(1)(u) of PMLA. The counsel contended, BCEPL has availed loans from the Banks and by fraudulent means diverted the money for unlawful gains. The Learned Counsel for Enforcement Directorate also rel....
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....ard to the assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a Scheduled Offence" and consequently being "proceeds of crime" within the mischief of PMLA. (xv) If the bona fide third party claimant (as aforesaid) is a "secured creditor", pursuing enforcement of "security interest" in the property (secured asset) sought to be attached, it being an alternative attachable property (or deemed tainted property) it having acquired such interest from person(s) accursed of (or charged with) the offence of money-laundering (or his abettor) or from any other person through such transaction (or interconnected transactions) as involve(s) criminal activity relating to a Scheduled Offence, such third party (secured Creditor) having initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the directions of such attachment under PMLA shall be valid and operative subject to satisfaction of the charge or encumbrance of such third party and restricted to such part of the value of the property as is in excess of the claim of the said third pa....