TaxTMI 
TaxTMI 
2020 (12) TMI 816
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 32A(2) of the Insolvency and Bankruptcy Code, 2016 as also the order dated 14.10.2019 passed by the National Company Law Appellate Tribunal, New Delhi (NCLAT) in Company Appeal (AT) (Insolvency) No. 957/2019, titled JSW Steel Limited v. Mahender Kumar Khandelwal & Anr., submits that once the Corporate Debtor proceeds of liquidation, the attachment order passed under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA) cannot continue. He submits that the National Company Law Tribunal (NCLT) is to consider the application for proceeding the Corporate Debtor into liquidation on 22.01.2020. The present petition is disposed of granting liberty to the petitioner to move the Appellate Tribunal under PMLA to seek early consideration of the appeal filed by the petitioner before it on the order of liquidation of the corporate debtor being passed by the NCLT. The application/appeal filed by the petitioner shall expeditiously considered by the Appellate Tribunal preferably within eight weeks of moving such application. It is made clear that this court has not expressed any opinion on the merits of the submissions made by the learned Sr. Counsel for th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct vide "THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2020" No. 1 of 2020 dated 13th March, 2020 with effect from 28.12.2019. The provision of Section 32A(2) of said Ordinance which is relevant for the purpose is reproduced below:- "(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not- (i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....20 and that the NCLT passed order of Liquidation of DSK Motors on 17.03.2020. It is further submitted by the appellant/applicant through written synopsis, for the purpose of the short question heard for a decision. The portions which are relevant for the purpose of deciding the aforesaid short questions are reproduced from the written synopsis of the appellant. The same are as follows: (i). That in view of the aforesaid amendment to the Code, it is clear that properties of the corporate debtor forming part of the resolution/liquidation process, which are subject to attachment under any other prevailing law, are liable to be released from attachment forthwith to aid and assist the resolution/liquidation process. (ii). That, vide Order dated 17th March, 2020, the Hon'ble National Company Law Tribunal, Mumbai directed the liquidation of DSK Motors and as such, DSK Motors has been in liquidation since 17 March 2020. Therefore, in view of the express provisions of Section 32A, the JMFARC Mortgaged Properties are liable to be released from attachment under PMLA, such that the same can be dealt with in accordance with the provisions of the Code. (iii). That the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... SARFAESI Act and has also initiated proceedings under the Recovery of Debts and Bankruptcy Act, 1993, for recovery of its secured debt before issuance of the PAO and also duly participated in the Corporate Insolvency Resolution Process under the provisions of the Code and the rights of the secured creditor cannot be superseded by attachment under PMLA. (vii). That the JMFARC Mortgaged Properties being attached under PMLA essentially scuttles the procedure established by law insofar as the rights of secured creditors under SARFAESI Act, Recovery of Debts and Bankruptcy Act, 1993 and the Code are concerned. Since the action under the SARFAESI Act as well as Recovery of Debts and Bankruptcy Act, 1993 initiated by the Appellant predates even registration of the Complaint by the Enforcement Directorate, it is trite law that the attachment under PMLA should take a back seat to the rights of the secured creditors, who have been repeatedly recognised as victims of crime by a plethora of judgments. And it is submitted by the learned counsel for the appellant that in view of the said provisions, no action, including attachment, can be taken over the assets of any corporate debto....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Maharashtra Protection of Interests of Depositors (MPID) Act, 1999. 3. Investigations revealed that (1) Deepak S Kulkarni, Chairman and Managing Director of D S Kulkarni Developers Limited (DSKDL) and promoter of DSK Group, (2) Mrs. Hemanti Deepak Kulkarni, Group President and Power of Attorney holder of DSKDL and Director/partner of DSK Group of Companies (3) Shirish D Kulkarni Executive Director of DSKDL and Director/partner in many DSK group of companies / firms, (4) other Promoters / Directors / Partners of DSK group of companies, with dishonest, fraudulent and common intention, formed eight partnership firms viz. (i) D S Kulkarni and Company, (ii) D S Kulkarni and Associates, (iii) D S Kulkarni and Brothers, (iv) D S Kulkarni & Sons, (v) DSK & Sons, (vi) DSK & Asso, (vii) DSK Construction and (viii) DSK Enterprises under the veil of DSKDL, with the sole motive to collect the funds from gullible public based in Mumbai, Pune, Kolhapur, and other cities of Maharashtra; 4. That to lure the general public, they systematically, step by step projected that the DSKDL, a public limited company is taking FDs/unsecured loans and all the partnership firms are part and parcel of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TACHMENT ORDER, PROVISION OF NEW INSERTED SECTION 32(A)(2) OF IBC. 9.1. That the PMLA is a specific/special Act (Penal Law) enacted by the parliament to prevent money laundering and to provide for confiscation derived from or involved, in money laundering and no exceptions can be made to it unless specifically provided for by the Parliament. 9.2. That merely because the assets are subject to a resolution proceeding under the IBC, it cannot be an escape route for any action under the PMLA, as it would lead to abuse of the process of law by money-launderers. In this regard, it is relevant to place reliance on the judgment of the Hon'ble Court in the case of Deputy Director, Directorate of Enforcement Delhi v. Axis Bank & Ors. 2019 SCC Online Del 7854, wherein the Hon'ble Court was pleased to hold as follows: "146...A view to the contrary, if taken, would defeat the objective of PMLA by opening an escape route. After all, a person indulging in money-laundering cannot be permitted to avail of the proceeds of crime to get a discharge for his civil liability towards his creditors for the simple reason such assets are not lawfully his to claim." 9.3. That the IB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....LA will be defeated if tainted property is allowed to be projected as "untainted property" under the protective umbrella of orders passed by the Hon'ble NCLT purportedly to implement the provisions of the IBC. 9.8. That the Hon'ble Supreme Court of India has held in several decisions that economic offences are a class of its own. In Y.S. Jagan Mohan Reddy v. Central Bureau of Investigation, (2013) 7 SCC 439, Hon'ble Supreme Court has observed that the economic offences having deep rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of country. 9.9. That the Preamble to the PMLA states as follows: "An Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto." The PMLA was also enacted in furtherance of India's International obligations to implement the UN resolutions calling upon Member States to adopt national money-laundering legislation and programmes. This is ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....being in force." 9.13. That, investigation under PMLA is primarily aimed at unearthing & attaching the money/proceeds arising out of the commission of scheduled offences. The power of investigation is supplemented by way of passing provisional attachment orders under Section 5 of the PMLA and followed by filing a prosecution complaint for the offence of money laundering as defined under Section 3 punishable under Section 4. A PAO under PMLA is passed by an officer empowered to investigate crime u/s. 5(1) of the act and the attachment is done based on his reasons to believe and to be recorded, while investigating a criminal case, instituted by a criminal investigation report and with an objective to enable confiscation after conviction in a criminal trial. Therefore, the process of attachment is not completely a civil process but a quasi-criminal process, as the ultimate object is confiscation which is done after a criminal trial and hence the attachment is merely a 'step-in-aid' to achieve the object of PMLA,2002. Whereas, the primary purpose of IBC is to aid lenders in effective and timely recovery or restructuring of defaulted assets. Further, proceedings under the PMLA, attai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssence of crime or crime proceeds. The object of the 'Prevention of Money Laundering Act, 2002' is to prevent the money laundering and to provide confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. ..12. From the aforesaid provisions, it is clear that the 'Prevention of Money-Laundering Act, 2002' relates to 'proceeds 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 the 'I&B Code' is not applicable to such proceeding. ..14. As the 'Prevention of Money Laundering Act, 2002' relates to different fields of penal action of 'proceeds of crime', it invokes simultaneously with the 'I&B Code', having no overriding effect of one Act over the other including the 'I&B Code', we find no merit in this appeal. It is accordingly dismissed. No costs. " 9.16. That, the Hon'ble Supreme Court has upheld the judgme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rcumstances of urgency that might necessitate such power to be resorted to. A person engaged in criminal activity intending to convert the proceeds of crime into assets that can be projected as legitimate (or untainted) would generally be in a hurry to render the same unavailable. The entire contours of the crime may not be known when it comes to light and the enforcement authority embarks upon a probe. The crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude. The total wrongful gain from the criminal activity cannot be computed till the investigation is completed. The authority for "provisional" attachment of suspect assets is to ensure that the same remain within the reach of the law. ******************************************************* 143. The proceeds of crime, there is no doubt, are not even remotely covered by the expressions "revenues, taxes, cesses" or other "rates". The word "revenue" is the controlling word, the expre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it is this, that where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier and special legislation indirectly repealed, altered, or derogated from merely by force of such general words, without any indication of a particular intention to do so." The question in Seward v. Owner of the "Vera Cruz'' was whether Section 7 of the Admiralty Court Act of 1861, which gave jurisdiction to that Court over "any claim for damage done by any ship" also gave jurisdiction over claims for loss of life which would otherwise come under the Fatal Accidents Act. It was held that the general words of Section 7 of the Admiralty Court Act did not exclude the applicability of the Fatal Accidents Act and therefore, the Admiralty Court had no jurisdiction to entertain a claim for damages for loss of life. 9. The reason for the rule that a general provision should yield to a specific provision is this: In passing a special Act, Parliament devotes its entire consideration to a particular subject. When a general Act is subsequently passed, it is lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also contains a similar non- obstante clause under S. 71 of PMLA. 9.24. Therefore, it is respectfully submitted that, PMLA being a special law to tackle and curb money laundering - enacted to implement India's international obligations under the UN resolutions should receive precedence over the IBC only to the extent of properties or assets which are the "proceeds of crime". 9.25. That, vide Gazette Notification dated 28th December 2019 the Government of India has issued the Insolvency and Bankruptcy (Amendment) Ordinance, 2019 whereby the new provision of section 32A has been introduced in the Insolvency and Bankruptcy Code, 2016 (hereinafter "IBC") which reads as follows: "32A. (1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date of the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court. Explanation. - For the purpose of this sub-section, it is hereby clarified that, - (i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this Section, against whom such an action may be taken under such law as may be applicable. (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority invest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9, has held that section 14 of the IBC is not applicable to proceedings under the Prevention of Money laundering Act, 2002 (hereinafter "PMLA"). The relevant paragraph from Varsanna Ispat (Supra) is extracted hereunder: "12. From the aforesaid provisions, it is clear that the 'Prevention of Money-Laundering Act, 2002' relates to 'proceeds 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 the 'I&B Code' is not applicable to such proceeding." (emphasis added) 9.31. That, the decision of the Hon'ble NCLAT in Varsanna Ispat (supra) was subsequently followed by in the case of Rotomac Global Private ltd. vs. Deputy Director, Directorate of Enforcement, Company Appeal (AT) (Insolvency) No. 140 of 2019. 9.32. That, the Hon'ble High Court of Delhi in the case of Deputy Director, Directorate of Enforcement vs. Axis Bank 2019 SCC OnLine Del 7854 has also held that a moratorium in terms of section 14....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ttachment Order passed by respondent no.1. Thus, the present application filed by the Resolution Professional on behalf of the Corporate Debtor is liable to be dismissed." In addition to the above, it is submitted by the respondent that, the present appellant who is a secured creditor and at this stage when the company has gone into liquidation, the appellant - JMFRC along with other creditors is subject to provisions of IBC for disposal / distribution of assets of the company and cannot take an escape route by seeking an order from this Hon'ble tribunal for de attaching and releasing the properties in its favor. 9.35. And that, attention is invited to Order dated 4.9.2020 passed by High Court of Kolkata in IA CAN 1 of 2020 ( Old CAN No. 5363 of 2020) in Writ Petition 6575/2020 Directorate of Enforcement vs. Anil Goel & Anr. Wherein the order dated 12.3.2020 passed by NCLT Kolkata Bench wherein it was held as under: "Heard the appearing parties. The petitioners raise a fundamental question of jurisdiction exercised by the National Company Law Tribunal (NCLT), Kolkata Bench vide its order dated 12th March, 2020 concerning the Respondent No.2/the Company in liquidation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ral Government. The interest of the Central Government through the Respondent is required to be safeguarded for confiscation of property involved in money laundering which shall be in the overall interest and financial growth of the country and standard of living of innocent citizens of the country. During the course of hearing, the learned counsel for the Respondent submitted that the Liquidator appointed by NCLT ought to have approached this Tribunal for the purpose of deciding the appeal/application as the Liquidator has stepped into the shoe of the Corporate Debtor. The Liquidator on liquidation of assets/properties involved in the present proceedings would distribute the proceeds to the Financial Creditors. Therefore, Liquidator is a necessary party in the appeal as well as in the application to decide the question raised in the appeal and in the application. Heard both sides on the question whether the Liquidator is a necessary party to decide the present application. It is seen from the record that subsequent to the coming into the force of the I&BC (Amendment) Act, 2020 the NCLT, Court-III, Mumbai Bench vide order dated 17.03.2020 in the matter of M.A. No. 3348 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rect public announcement of such liquidation as under Section 33(1)(b)(ii) of the Insolvency and Bankruptcy Code, 2016." 2. The Adjudicating Authority vide its order dated 09.04.2019 on a Petition filed by the Operational Creditor under Section 9 of the Code directed initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor namely M/s. DSK Motors Pvt. Ltd. wherein Mr. Rajkumar Mahto, was appointed as Interim Resolution Professional (IRP). Thereafter in the 1st meeting of the Committee of Creditors (CoC) Mr. Snehal Arvind Kamdar, was appointed as Resolution Professional (RP) and the same was approved by this Bench by an order dated 01.07.2019. 3. The CoC in its 3rd meeting held on 16.07.2019 decided to appointed Valuers. The RP accordingly appointed two registered valuers as required under Regulation 27 of the IBBI (IRP for Corporate Persons) Regulations, 2016 and the Information Memorandum was prepared as provided under Regulation 36(1) of the Code. 4. The RP submits that the public announcement was made on 20.04.2019 for submitting the claims. It is further submitted than an advertisement, inviting Expression of Intere....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... f. that the Corporate Debtor to be liquidated in the manner as laid down in the Chapter by issuing Public Notice stating that the Corporate Debtor is in liquidation with a direction to the Liquidator to send this order to the ROC under which this Company has been registered. g. all the powers of the Board of Directors, key managerial persons, the partners of the Corporate Debtor hereafter ceased to exist. All these powers henceforth vest with the Liquidator. h. that the personnel of the Corporate Debtor are directed to extend all co-operation to the Liquidator as required by him in managing the liquidation process of the Corporate Debtor. i. that upon having initiated liquidation process, subject to section 52 of the Code, no suit or other legal proceeding shall be instituted by or against the Corporate Debtor save and except the liberty to the liquidator to institute suit or other legal proceeding on behalf of the corporate debtor with prior approval of this Adjudicating Authority. j. That this order for liquidation under this Section shall be deemed to be a notice of discharge to the officers, employees and workmen of the Corporate Debtor exce....