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2019 (10) TMI 376
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....n filed under Section 7 of IBC against the Corporate 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 ....
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....mind and without consulting the facts and law. 65. It is a matter of fact that 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 t....
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....ed the impugned order by saying that it cannot "Concur" with the law laid down by this Tribunal. The appellant is 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." (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 ....
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.... 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 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....
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....rmediaries for BCEPL (Best & Crompton Engineering Project Ltd.) and Directorate of Enforcement vide impugned proceedings concluded that the crime proceeds is lying with M/s. Viceroy 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....
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....ul and legal right to recover the money advanced to the CDR for no fault of theirs. It is submitted that Court -Yard is situated and constructed over the properties that are attached by the ED and the same are run by the international 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.....
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....expedite the insolvency process and to secure maximization of value of assets of Corporate Debtor for distribution to all stakeholders and that PMLA contemplates restoration of confiscated property to the claimants who have legitimate interest. The Appellate 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....
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....claim in CA 250/18 with 24% simple interest to be calculated on straight line method. The BTA agreement and payment of advance were very much within the knowledge of the banks and other regulatory authorities such as SEBI, ROC and BSE etc. VHL being a Listed Company got the transaction 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 t....
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....nk initiated, IBC process even before SBI had filed cases against VHL under SARFAESI in DRT, Hyderabad, for recovery of the dues by sale of properties mortgaged to them. SBI and Canara Bank in the year 2016 and in 2017 tried to sell the properties under question through Public Auction. They 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 attachme....
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....ould come to the Mahal Hotels and its sister concern in the event of approval of the resolution by this Tribunal but not against the properties which are mortgaged to the nationalized banks. 2. Counters are filed by Enforcement Directorate in IA 413/2019 and in IA 287/2019. Similar contentions are raised in the 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 ....
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....Ex-MD of the Corporate Debtor Company on the utilization of crime proceeds by Corporate Debtor, the movable and immovable properties in possession of Corporate Debtor were identified as detailed in the 53rd Annual Report of Corporate Debtor for the FY 2017-18 and attached vide Provisional Attachment order. (7) Further it is averred that the immovable and 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 Co....
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....of crime" and the offence relates to "money-laundering resulting confiscation of property derived from, or involved in money-laundering and for matters connected therewith or incidental thereto. Thus, as the "prevention of money laundering Act, 2002" or provisions therein relates to "proceeds of crime, we hold that Section 14 of I&B Code is not applicable in such proceeding". (13) It is also contended 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 Reso....
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....ey Laundering Act, 2002 (hereinafter referred to as "PMLA" for brevity case). The Counsel contended, the 1st Respondent/Dy. Director Enforcement Directorate passed the order of provisional attachment dated 26.03.2019 over the assets of Corporate Debtor whose value is Rs. 315 crores. The Provisional attachment is for 180 days. The contention of the Counsel, all these attached properties are secured in favour of SBI and Canara 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 moratori....
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....relied on the decision of NCLT Mumbai Bench in matter of SREI Infrastructure Finance Ltd. (supra) wherein it was held that attachment was held to be nullity and non est in law. These are the points raised by the Applicant and contended the Applicant is a Secured Creditor and there is no connection with reference to the acquisition of properties now under attachment and alleged laundering of money through Mahal Hotels to Corporate 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, Ch....
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....orate Debtor equivalent to the money involved in the crime by virtue of Section 2(1)(u), 2(1)(5) of PMLA. The Enforcement Directorate is empowered to attach not only the property acquired from tainted money but also other assets equivalent to the money involved in the crime. Therefore, attachment is legal. Thus, the case of Enforcement Directorate that it is not necessary attachment to be made in respect of property stated to have been 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 ....
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....chment was effected on 26.03.2019 under PMLA. The value of attached properties is Rs. 315 crores. It is a provisional attachment for 180 days. The attached properties are secured assets which were mortgaged to the Banks. 12. The main allegation that the tainted money is processed through Mahal Hotels Private Limited to the Corporate Debtor. The main contention of the Financial Creditor as well as Resolution Professional that the properties attached 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 ....
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....t which is as follows:- 26 E: Priority to secured creditors - Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority. Learned Counsel further contended that the Financial Creditor is holding 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 t....
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.... where a person satisfies the adjudicating authority by relevant material and evidence having a probative value that his acquisition is bona fide, legitimate and for fair market value paid therefor, the adjudicating authority must carefully consider the material and evidence on record (including the reply furnished by a noticee in response to a notice issued under section 8(1) and the material or evidence furnished along therewith to establish his earnings, assets or means to 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 cri....
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.... by Section 14 as proceedings under IBC are having over-riding effect by virtue of Section 238 of the Code. Hon'ble NCLT Mumbai further held that by virtue of Section 63 of IBC no Civil Court shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code. Thus, Learned Counsel contended Provisional Attachment Order is illegal and liable to be raised/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 an....
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....ent Directorate is subject to the satisfaction of charge of bona fide third parties like secured creditors and restricted to the value of property as is in excess of the claims of secured creditors. In this connection, Learned Counsel has relied on the following paragraphs of the judgment: "171... (viii) The PMLA, RDBA, SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard 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 in....