TaxTMI 
TaxTMI 
2021 (12) TMI 627
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....MISSIONS OF THE SECURED CREDITORS 27-32 G SUBMISSIONS OF LUCKY HOLDINGS 33-34 H SCHEME OF THE IBC 35-39 I SECTION 32A AND THE LEGISLATIVE INTENT 40-51 J LIQUIDATION UNDER THE IBC 52-61 K STATUTORY PROVISIONS UNDER PMLA 62-72 L ISSUE OF PRIMACY 73-88 M THE RESOLUTION AND LIQUIDATION CAUSEWAYS 89-94 N SECTION 32A AND THE DEFINING MOMENT 95-98 O ANCILLARY ISSUES 99-100 P SUMMATION 101 Q OPERATIVE DIRECTIONS 102 A. PREFACE 1. The principal question which falls for determination in this writ petition is whether the authorities under the Prevention of Money Laundering Act, 2002 , would retain the jurisdiction or authority to proceed against the properties of a corporate debtor once a liquidation measure has come to be approved in accordance with the provisions made in the Insolvency and Bankruptcy Code, 2016 . The Petitioner is the Liquidator appointed by the National Company Law Tribunal [the Adjudicating Authority under the IBC] to administer the affairs and the estate of M/S PSL Ltd. The petition has been preferred seeking the following reliefs: - "1) Allow the present petition; 2) Issue a Writ of Mandamus of any other appropriate Writ, restrain....
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....y. You are hereby requested to not disposed off these assets as the matter is pending under PMLA, 2002 which has overriding effect over IPC (sic IBC) and other laws governing such transactions. Raju Prasad Mahawar Assistant Director (PMLA) Delhi Zonal Office." 4. The Petitioner, therefore, prays for setting aside the said directions of the ED. 5. Mr. Kirti Uppal, ld. Sr. Counsel submits that there is no proceeding presently pending against the Corporate Debtor or any of its promoters. There is not even a provisional attachment order (hereinafter, 'PAO') at this stage. Accordingly, the said notice is completely untenable, especially in light of the recent decision of the ld. Supreme Court in Opto Circuit India Ltd. v. Axis Bank & Ors., 2021 SCC OnLine SC 55. Mr. Zoheb Hossain, ld. Standing Counsel, confirms the fact that there is no PAO at this point. 6. Recently, the ld. Supreme Court in Opto Circuit (supra) dealing with the scheme of the Prevention of Money Laundering Act, 2002 (hereinafter, 'PMLA') observed as under:- "16 This Court has time and again emphasized that if a statute provides for a thing to be done in a particular manner, then it has to be done in that m....
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.... moved before this Court seeking permission to disburse. 8. The question as to whether the moveable/immovable assets of the Corporate Debtor and the sale thereof during the liquidation process would be permitted under Section 32A of the IBC, would require consideration by this Court. 9. Both parties are permitted to approach this Court if any further clarification is required. 10. Let the counter affidavit, along with a written note of arguments on the scheme of the IBC in respect of Section 32A and its applicability to the facts, be placed on record within four weeks, by both parties. Rejoinder, if any, be filed within four weeks thereafter. 11. List on 21st May, 2021." 3. The learned Judge noted the undisputed fact that although investigation was continuing under the PMLA, no provisional order of attachment had been issued against the corporate debtor. The Court accordingly proceeded to place the impugned e-mail and communications addressed by the respondent to the Liquidator in abeyance. While permitting the petitioner to continue with the liquidation process, it further provided that the proceeds received from any sale of movable or immovable assets of the corporate de....
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....round 5 March 2021. The interim order came to be passed on the petition on 17 March 2021. 6. Pursuant to the directions issued in the order of 17 March 2021, the petitioner moved CM Application No. 32220/2021 before this Court disclosing that the assets and properties of the corporate debtor were placed for disposal by way of an e-auction initiated in accordance with the provisions of the IBC and after due sanction of the Adjudicating Authority. The Liquidator apprised the Court that, amongst the various options of sale prescribed, the sale of the corporate debtor as a going concern was the recourse adopted. It was further disclosed that the first sale notice came to be issued on 27 November 2020. However, since no concrete offers were received, a revised sale Notice of 19 March 2021 came to be published and the same has also been placed on the record. In the sale which was ultimately conducted on 09 April 2021, a bid of Rs. 425.50 crores was received from M/s Lucky Holdings Private Limited which proposed to take over the assets of the corporate debtor and continue its functioning as a going concern. Upon finding that the said bid was the highest, a Letter of Intent came to be iss....
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....ecomes relevant to note that when the matter was taken up for consideration on 24 November 2021, till that date no order of provisional attachment had admittedly been issued. However, on 03 December 2021, the Court was apprised by Mr. Zoheb Hossain, learned counsel appearing for the Enforcement Directorate that an order of provisional attachment has come to be issued on 2 December 2021. It was further pointed out that the assets of the corporate debtor to the extent to Rs. 274.60 crores alone have been provisionally attached under the PMLA since upon investigation it was found that the same would represent proceeds of crime. On 03 December 2021, this Court passed the following order:- "Mr. Zoheb Hossain, learned counsel appearing for the Enforcement Directorate apprises the Court that a Provisional Attachment Order has now been issued with respect to the properties of the Corporate Debtor. Mr. Kirti Uppal, learned Senior Counsel appearing for the petitioner is instructed to state that the aforesaid order is taken under advisement and that in any case the passing thereof shall not affect the consideration of the reliefs that are sought in the present writ petition. List for fu....
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....that Section 32A clearly mandates that no action shall be taken against the properties of the corporate debtor, once a resolution plan comes to be approved or the corporate debtor undergoes liquidation. Mr. Uppal has also referred to the Report of the Insolvency and Law Committee and more particularly paragraphs 17.10 and 17.11 thereof in order to highlight the underlying objective of the introduction of Section 32A. Those paragraphs are extracted hereinbelow: - "G. That the Insolvency and Law Committee in its Report dated 20.02.2020 has observed that - 17.10. Thus, the Committee agreed that the property of a corporate debtor, when taken over by a successful resolution applicant, or when sold to a bona fide bidder in liquidation under the Code, should be protected from such enforcement action, and the new Section discussed in paragraph 17.7 should provide for the same. Here too, the Committee agreed that the protection given to the corporate debtor's assets should in no way prevent the relevant investigating authorities from taking action against the property of persons in the erstwhile management of the corporate debtor that may have been involved in the commission of such cri....
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....ud Investigation Office ("SFIO") and/ or the Directorate of Enforcement ("ED"), such investigations are separate and independent of the Corporate Insolvency Resolution Process ("CIR Process") under the IBC and both can run simultaneously and independent of each other. It is further submitted that the erstwhile management of a company would be held responsible for the crimes, if any, committed under their regime and the new management taking over the company after going through the IBC process cannot be held responsible for the acts of omission and commission of the previous management. In other words, no criminal liability can be fixed on the successful resolution applicant or its officials. 6) In so far as the corporate debtor of its assets are concerned, after the completion of the CIR process, i.e., a statutory process under the IBC, there cannot be any attachment of confiscation of the assets of the Corporate Debtor by any enforcement agencies after approval of the Resolution Plan. 7) Resolution Plan submitted by the interested Resolution Applicants are duly examined and validated by the Resolution Professional and the Committee of Creditors ("CoC"). Once the Resolution Pla....
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....n of Money Laundering Act, 2002 (PMLA") and need not be subject to attachment by the ED after approval of Resolution Plan by the Adjudicating Authorities." 46. The Union of India had unequivocally stated that after the completion of the 'Corporate Insolvency Resolution Process', there cannot be any threat of criminal proceedings against the 'Corporate Debtor', or attachment or confiscation of its assets by any investigating agency, after approval of the 'Resolution Plan. In any event, by virtue of Section 238 of the 'I&B Code', the 'I&B Code' has an overriding effect over anything inconsistent therewith in any other law. Accordingly, it is clear that subsequent promulgation of the Ordinance is merely a clarification in this respect. Therefore, it is ex facie evident that the Ordinance being clarification in nature, must be made applicable retrospectively." 12. Referring to the provisions engrafted in Section 238 of the IBC, Mr. Uppal contends that the resolution or liquidation of a corporate debtor would be subjects which must necessarily be recognized as being exclusively governed by the provisions of the IBC and consequently orders passed in connection with the aforesaid must ....
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....nability and continuance of the writ petition in the backdrop of the provisional order of attachment having come to be issued on 02 December 2021. Mr. Hossain contends that once the properties of the corporate debtor have come to be provisionally attached under the PMLA, the only recourse available to the petitioner here is to assail the same in accordance with the procedure prescribed under the PMLA. In any case, it was contended in the absence of a formal challenge to the provisional order of attachment, nothing further remains to be considered or decided on the writ petition which has for all purposes rendered infructuous. 15. Mr. Hossain has then taken the Court in some detail through the various provisions of the IBC for the scheme and its underlying objectives being appreciated. It was principally contended that the right of the statutory authorities under PMLA cannot be hindered by the provisions of the IBC bearing in mind the fact that both statutes operate in separate and distinct fields. Mr. Hossain contends that PMLA is essentially concerned with the investigation and trial of offences relating to money laundering. It was submitted that the powers of attachment and conf....
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.... proceedings comes into force and that it also bars any action to foreclose recover or enforce security interests created by the corporate debtor in respect of its property including any action in respect thereof under SARFAESI. Turning then to Section 33(5) of the IBC, Mr. Hossain submitted that the injunction against the institution of a suit or other legal proceeding against the corporate debtor would spring into operation only once an order of liquidation had come to be passed. Continuing further in this regard, it was then submitted that the moment a resolution plan comes to be approved, the Resolution Applicant steps into the shoes of the erstwhile management. Contrary to the above, it was submitted that sale of liquidation assets is not complete till such time as a sale certificate comes to be issued on payment of the entire sale consideration. It was submitted that as would be evident from the provisions made in the Liquidation Regulations, 2016 and Schedule 1 thereof, the liquidation of the assets of a corporate debtor was to proceed through various stages till the sale could be said to have fructified upon deposit of the entire sale consideration and a certificate in evid....
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....lan, which is approved under Section 31 of the Code and the filing of the report, would remove the protective umbrella or immunity erected by Section 32-A in regard to an offence committed by the corporate debtor before the commencement of the CIRP. To make it even more clear, if either of the conditions, namely, abetting or conspiring followed by the report, which have been mentioned as aforesaid, are present, then, the liability of the corporate debtor, for an offence committed prior to the commencement of the CIRP, will remain unaffected. 320. Coming to sub-section (2) of Section 32-A, it declares a bar against taking any action against property of the corporate debtor. This bar also contemplates the connection between the offence committed by the corporate debtor before the commencement of the CIRP and the property of the corporate debtor. This bar is conditional to the property being covered under the resolution plan. The further requirement is that a resolution plan must be approved by the adjudicating authority and, finally, the approved plan, must result in a change in control of the corporate debtor not to a person, who is already identified and described in sub-section ....
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....ologically speaking, RDBA (in its original form and moniker RDDBFI Act) was enacted in 1993, followed by SARFAESI Act coming on the statute book in 2002, the PMLA being enacted in 2002, commencing in 2005, the Insolvency Code being the latest legislation enforced in 2016. These laws, enacted for different objects and reasons, have come with provisions declaring each of them to have the "overriding effect". 141. This court finds it difficult to accept the proposition that the jurisdiction conferred on the State by PMLA to confiscate the "proceeds of crime" concerns a property the value whereof is "debt" due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of illgotten assets so as to be perceived to be sharing the loot, not the least so as to levy tax thereupon such as to give it a colour of legitimacy or lawful earning, the idea bei....
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....ed party is entitled in law to invoke the said jurisdiction of the appellate tribunal to bring a challenge to the orders of attachment (as confirmed) but, the law in PMLA, at the same time, also confers jurisdiction on the special court to entertain such claim for purposes of restoration of the property during the trial of the case [Section 8]. The jurisdiction to entertain objections to attachment conferred on the appellate tribunal on one hand and, on the special court, on the other, thus, may be coordinate, to an extent. 168. An argument, however, was raised, by the appellants that the respondent herein should have approached the special court, instead of the appellate tribunal, for consideration of their respective claims. 169. In view of above-noted legislative scheme, it must be clarified that if the order confirming the attachment has attained finality, or if the order of confiscation has been passed or, further if the trial of a case for the offence under Section 4 PMLA has commenced, the claim of a party asserting to have acted bonafideor having legitimate interest will have to be inquired into and adjudicated upon only by the special court." 19. Mr. Hossain then cont....
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....re crystallised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the adjudicating authority, namely, the NCLT.] 38. It was argued by all the learned Senior Counsel on the side of the appellants that an Interim Resolution Professional is duty-bound under Section 20(1) to preserve the value of the property of the corporate debtor and that the word "property" is interpreted in Section 3(27) to include even actionable claims as well as every description of interest, present or future or vested or contingent interest arising out of or incidental to property and that therefore the Interim Resolution Professional is entitled to move the NCLT for appropriate orders, on the basis that lease is a property right and NCLT has jurisdiction under Section 60(5) to entertain any claim by the corporate debtor." 20. Mr. Hossain has also referred to a decision of the NCLAT as rendered in Varrsana Ispat Limited vs. Deputy Director, Directorate of Enforcement 2019 SCC OnLine NCLAT 236:- "12. From the aforesaid provisions, it is clear that the 'Prevention of Money-Laundering Act, 2002....
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.... of attachment during the pendency of the writ petition. It is relevant to note that when the matter was heard on 24 November 2021 at that stage the admitted position was that no order of attachment had been passed and it was in the aforesaid backdrop that learned counsels for parties had proceeded to address submissions. The order of attachment admittedly came to be made only on 2 December 2021 just a day before the matter was posted for further hearing. It was only upon the passing of the order of attachment that Mr. Hossain contended that the writ petition is liable to be dismissed as having become infructuous and that in any case nothing further survived for consideration in the absence of a formal challenge being laid to the order of provisional attachment. Additionally, it was contended on behalf of the respondent that even if the order of attachment was to be assailed, it cannot be questioned directly by way of a writ petition since adequate alternative statutory remedies exist and the petitioner must be held liable to invoke the same if the order of attachment was chosen to be challenged. 23. Since the petitioner has chosen not to lay any formal challenge to the order of a....
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.... the writ petition was initially taken up for hearing, the principal question which arose was whether the prayers made in the miscellaneous applications for release of the sums received by the Liquidator to meet the dues of the workmen in the interim and in the absence of an order of provisional order of attachment could be stalled. It may be noted that at that stage it was candidly admitted by learned counsel for the respondent that an objection to an interim release may not sustain in the absence of a provisional attachment order having been served. For the sake of completeness of the record, it also becomes pertinent to note that initially the respondent appeared to labour under the impression that the interim order of 17 March 2021 restrained them from proceeding further under the PMLA. During the course of the initial hearing of the writ petition, this impression was dispelled upon the Court observing and drawing the attention of Mr. Hossain, learned counsel, to the terms of that order and pointing out that no such restraint had been entered by the learned Judge. It is only thereafter that the respondent appears to have proceeded to pass the provisional order of attachment. No....
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.... S.K. Ghosh (supra) and Biswanath Bhattacharya (supra) in context of Ordinance of 1944 and SAFEMA quoted above." 28. Mr. Malhotra has further contended that rights created in favour of the Enforcement Directorate must be recognised to be subject to the rights of secured creditors. It is submitted by learned senior counsel that on acquiring an interest in the property, any directions for attachment of property under the PMLA will be valid and operative subject to the satisfaction of the claims of such third parties. He further submits that the claim of the Directorate on that third party's property will be restricted to such part of the value of the property as in excess of the claim of the third party. In support of his submission learned senior counsel relied on the following observations as entered by the learned Judge in Axis Bank:- "FORFEITURE (CONFISCATION): CERTAIN OTHER LAWS 94. As was brought out at the hearing, similar provisions for attachment and forfeiture of property are also made in certain other enactments including Unlawful Activities (Prevention) Act, 1967 ("UAPA", for short), Narcotic Drugs and Psychotropic Substances Act, 1985 ("the NDPS Act", for short), th....
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....ternative attachable property" or "deemed tainted property") of the person accused of (or charged with) offence of money-laundering provided it is near or equivalent in value to the former, the order of confiscation being restricted to take over by the government of illicit gains of crime. (v). If the person accused of (or charged with) the offence of money-laundering objects to the attachment, his claim being that the property attached was not acquired or obtained (directly or indirectly) from criminal activity, the burden of proving facts in support of such claim is to be discharged by him. (vi). The objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former. (vii). The PMLA, by virtue of section 71, has the overriding effect over other existing laws in the matter of dealing with "money-laundering" and "proceeds of crime" relating thereto. (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 materia....
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....aim for its release from attachment it must additionally prove that it had taken "due diligence" (e.g. taking reasonable precautions and after due inquiry) to ensure that it was not a tainted asset and the transactions indulged in were legitimate at the time of acquisition of such interest. (xiv). If it is shown by cogent evidence by the bonafide third party claimant (as aforesaid), staking interest in an alternative attachable property (or deemed tainted property) claiming that it had acquired the same at a time anterior to the commission of the proscribed criminal activity, the property to the extent of such interest of the third party will not be subjected to confiscation so long as the charge or encumbrance of such third party subsists, the attachment under PMLA being valid or 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 party. (xv). If the bonafide 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 atta....
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.... "11. It may be noted that the auction-sale was done after adequate publicity in well-known newspapers. Hence, if anyone wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover, even after the auction the sale was confirmed by the High Court only on 30-7-2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction-sale will ever be complete. 28. If it is held that every confirmed sale can be set aside the result would be that no auction-sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction-sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction-sale is advertised in well-known newspapers having wide circulation, all eligible person....
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...., as envisaged in Rules 89 and 90 of Order 21. Where no such application is made, as is the case here, the court was required, as indeed it did, to make an order, confirming the sale and it is upon such confirmation that the sale becomes, and became, absolute in terms of Order 21 Rule 92. After the sale has become absolute, a certificate is required to be granted by the court to the purchaser, termed as "certificate of sale" in Order 21 Rule 94. Such certificate bears the date as on which the sale became absolute. It is on the sale becoming absolute that the property sold vests in the purchaser. The vesting of the property is thus made to relate back to the date of sale as required under Section 65 CPC. 11. Order 21 Rule 95 providing for the procedure for delivery of property in occupation of the judgment-debtor etc., requires an application being made by the purchaser for delivery of possession of property in respect of which a certificate has been granted under Rule 94 of Order 21. There is nothing in Rule 95 to make it incumbent for the purchaser to file the certificate along with the application. On the sale becoming absolute, it is obligatory on the court though, to issue th....
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.... with the implementation of the plan as approved if recognised to be permissible in law would cause irreparable loss and prejudice to the resolution applicant. Ms. Dhir has also placed reliance on the principles enunciated in Manish Kumar to submit that the action of the respondent is in clear violation of the protection accorded to the resolution applicant by Section 32A(2). 34. In order to appreciate the rival submissions which have been noticed above, it would be apposite to firstly notice the scheme and the relevant provisions of the IBC and the PMLA. This would also enable the Court to answer the question whether one of the two competing statutes must be recognised to prevail over the other and, if so, in which situations and eventualities. H. SCHEME OF THE IBC 35. As is manifest from a reading of the preamble of the IBC, the aforesaid enactment is guided by the aim to consolidate and amend all laws relating to reorganization and insolvency resolution of corporate persons. The resolution process commences upon the submission of an application either by a financial creditor whether acting together or with others, an operational creditor or the corporate debtor in accordance ....
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....tion applicants to present resolution plans which may resolve the insolvency faced by the corporate debtor. 38. The resolution plan essentially must make provision for the payment of debts of the corporate debtor owed to financial and operational creditors, workmen and others specified in Section 53 of the IBC. The resolution plans which may be received by the RP are then placed before the Committee of Creditors for their consideration. In terms of Sub-Section (4) of Section 30, a resolution plan may be approved if it is passed by a vote of not less than sixty percent of the voting share of the financial creditors in a meeting of the Committee of Creditors. The resolution plan as approved by the Committee of the Creditors is then placed before the Adjudicating Authority who upon being satisfied that the same meets the requirements as placed by Section 30(2) of the IBC, approve the same. Upon such a resolution plan as passed by the Committee of Creditors coming to be approved by the Adjudicating Authority, it binds the corporate debtor, its employees, members and other creditors. 39. By virtue of Amending Act 26 of 2019, a significant amendment came to be introduced in sub-Section....
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....as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section. (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....
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....further. 2.6. While acknowledging the role played by IBC in arresting the growth of NPAs, it is expected that effective measures within the ambit of IBC would be taken to realize better results from the process. The Committee note that out of claims of around Rs. 8.4 lakh crore, the realizable amount is around Rs. 3.57 lakh crore i.e. around 43% from the IBC process so far. Also, the average time taken for resolution has come down to 394 days. The Committee hope that the recovery percentage increases significantly in the near future and the time taken for resolution conforms to the timeline prescribed in the Code. The Committee would like to reiterate its recommendation made in previous reports about increasing the number of benches in National Company Law Tribunal (NCLT) and establishing e-courts for faster disposal of cases and speedy resolution. The Committee understand that a draft Bill on Cross Border Insolvency is in the pipeline. These types of cases have already resulted in uncertain recoveries for creditors. The Committee would like this Bill to be introduced in Parliament as soon as possible in order to further strengthen the insolvency framework. 3.7. Clause 10 reads....
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....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. "Explanation.-For the purposes 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....
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.... authority filed in relation to the criminal offence. The Committee agree that this provision is essential to provide the Resolution Applicant(s) a fair chance to revive the unit which otherwise would directly go into liquidation, which may not be as beneficial to the economy. The Committee believe that this ring-fencing is essential to achieve revival or resolution without imposing additional liabilities on the Resolution Applicant, arising from malafide acts of the previous promoter or management." 42. The SOA of Act 1 of 2020 also alludes to the need to ensure that the successful bidder is kept immune from the liabilities attached to the commission of an offense by the corporate debtor prior to the commencement of the CIRP under certain circumstances. The SOA in more explicit terms alludes to Section 32A when it records that it is intended "to provide immunity against prosecution of the corporate debtor and action against the property of the corporate debtor and the successful resolution applicant subject to fulfilment of certain conditions." 43. In Ghanashyam Mishra, the Supreme Court also took note of the statement of the Hon'ble Finance Minister in the Rajya Sabha on 29 Jul....
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.... offense committed prior to the commencement of the CIRP. A close reading of Section 32A (1) and (2) establishes that the legislature in its wisdom has erected two unfaltering barriers. It firstly prescribes that the offense, which may entail either prosecution of the debtor or proceedings against its properties, must be one which was committed prior to the commencement of the CIRP. Secondly the cessation of liability for the offense committed is to occur the moment when a resolution is approved by the Adjudicating Authority or upon sale of liquidation assets. The provision in unequivocal terms terminates the prospect of prosecution or coercive action against properties on the happening of either of two critical events: - (a) the date from which a resolution plan comes to be approved by the Adjudicating Authority, or (b) the sale of liquidation assets. 45. The constitutional validity of 32A came to be challenged before the Supreme Court in Manish Kumar. The Court while evaluating the merits of the challenge that was raised took note of the following contemporaneous material which was placed before it in order to discern the legislative policy and intent underlying the introduc....
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.... CIRP and liquidation process, respectively. Thus, in most cases, the provisions of the Code effectuate a change in control of the corporate debtor that results in a clean break of the corporate debtor from its erstwhile management. However, the legal form of the corporate debtor continues in the CIRP, and may be preserved in the resolution plan. Additionally, while the property of the corporate debtor may also change hands upon resolution or liquidation, such property also continues to exist, either as property of the corporate debtor, or in the hands of the purchaser. 17.2. However, even after commencement of CIRP or after its successful resolution or liquidation, the corporate debtor, along with its property, would be susceptible to investigations or proceedings related to criminal offences committed by it prior to the commencement of a CIRP, leading to the imposition of certain liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired by a resolution applicant or a successful bidder, respectively. LIABILITY WHERE A RESOLUTION PLAN HAS BEEN APPROVED 17.3. It was brought to the Committee that this had created apprehension ....
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....between the corporate debtor which may have committed offences under the control of its previous management, prior to the CIRP, and the corporate debtor that is resolved, and taken over by an unconnected resolution applicant. While the corporate debtor's actions prior to the commencement of the CIRP must be investigated and penalised, the liability must be affixed only upon those who were responsible for the corporate debtor's actions in this period. However, the new management of the corporate debtor, which has nothing to do with such past offences, should not be penalised for the actions of the erstwhile management of the corporate debtor, unless they themselves were involved in the commission of the offence, or were related parties, promoters or other persons in management and control of the corporate debtor at the time of or any time following the commission of the offence, and could acquire the corporate debtor, notwithstanding the prohibition under Section 29-A. 17.7. Thus, the Committee agreed that a new section should be inserted to provide that where the corporate debtor is successfully resolved, it should not be held liable for any offence committed prior to the....
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....quidation, such approved resolution plan or liquidation sale of the assets of the corporate debtor's assets would have to result in a change in control of the corporate debtor to a person who was not a related party of the corporate debtor at the time of commission of the offence, and was not involved in the commission of such criminal offence along with the corporate debtor. COOPERATION IN INVESTIGATION 17.12. While the Committee felt that the corporate debtor and bona fide purchasers of the corporate debtor or its property should not be held liable for offences committed prior to the commencement of insolvency, the Committee agreed that the corporate debtor and any person who may be required to provide assistance under the applicable law should continue to provide assistance and cooperation to the authorities investigating an offence committed prior to the commencement of the CIRP. Consequently, the Committee recommended the new section should provide for such continued cooperation and assistance.". 316.4. The Additional Solicitor General also places reliance on the Sixth Report of the Standing Committee of Lok Sabha made in March 2020. The relevant portions according to....
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....urt held: - "326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the Code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provisio....
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.... legislative value judgment and if seemingly the legislature in its pursuit of the greater good appears to jettison the interests of some, it cannot unless it strikingly ill squares with some constitutional mandate, suffer invalidation. 330. There is no basis at all to impugn the section on the ground that it violates Articles 19, 21 or 300-A." 47. It is equally important to recollect the doctrine of a "clean" or a "fresh slate" as was originally propounded by the Supreme Court in Committee of Creditors of Essar Steel Ltd Vs. Satish Kumar Gupta (2020) 8 SCC 531 in the following terms: - "107. For the same reason, the impugned Nclat judgment [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC OnLine NCLAT 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to ....
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....rom the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the adjudicating authority approving the course of action to be finally adopted in relation to the corporate debtor. The Supreme Court in Manish Kumar also took note of the sufficient safeguards and the prerequisite conditions that stand attached to the cessation of liabilities to ultimately come to the conclusion that the Legislature had undertaken a well-considered balancing exercise to ensure that larger public interest was subserved. J. LIQUIDATION UNDER THE IBC 52. IBC essentially seeks to put in place a unitary platform on which all matters relating to insolvency resolution of a corporate debtor may be decided. The legislation is a measure forged out of the experience of liquidation proceedings dragging on for years resulting in further losses to the creditors of the corporate debtor and deterioration in the value of the liquidation estate or even its dissipation. It was accordingly thought expedient to put in place a structured mechanism which would explore the possibility of revival of the corporate debtor, the liquidation of the liabilities of creditors and wo....
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....perty or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant." 54. The Liquidator in terms of the provisions engrafted in Section 36 is obliged to form a corpus comprising of various assets of the corporate debtor which constitutes the "liquidation estate". The Liquidator is then by law mandated to collect and consolidate all claims of creditors that may be received pursuant to the public announcement of its liquidation. The functions of the Liquidator and the various steps that he is obliged to take are more elaborately spelt out in the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 . Regulation 5 spells out the initial steps that the Liquidator is supposed to take upon being appointed as under:- "5. Reporting. (1) The Liquidator shall prepare and submit: (a) a preliminary report; (b) an asset memorandum; (c) progress report(s); (d) sale report(s); (e) minutes of consultation with stakeholders; and (f) the final report prior to dissolution to the Adjudicating Authority in the manner specified under these Regulations. (2) The Liquidator shall preserve a physical ....
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....ses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate." 57. Regulations 32(A) and 33 of the Liquidation Regulations, 2016 which deal with the mode of sale of the corporate debtor read as follows: - "32A. Sale as a going concern- (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the Liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses. (2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern. (3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Liquidator....
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....esent petition, it would be pertinent to note the provisions made in Regulation 44 which reads thus:- "44. Completion of liquidation. (1) The Liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date, notwithstanding pendency of any application for avoidance of transactions under Chapter III of Part II of the Code, before the Adjudicating Authority or any action thereof: Provided that where the sale is attempted under sub-regulation (1) of regulation 32A, the liquidation process may take an additional period up to ninety days. (2) If the Liquidator fails to liquidate the corporate debtor within 24[one year], he shall make an application to the Adjudicating Authority to continue such liquidation, along with a report explaining why the liquidation has not been completed and specifying the additional time that shall be required for liquidation." 60. Regulation 47 of the Liquidation Regulations, 2016 puts in place a model time frame for completion of the liquidation process. That Regulation is extracted hereunder:- "47. Model time-line for liquidation process- The following Table presents a model timeline of liquidat....
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....onths from the receipt of amount Date of Realisation + 90 17 Reg.10 (1) Application to AA for Disclaimer of onerous property Within 6 months from the LCD T + 6 months 18 Reg.10 (3) Notice to persons interested in the onerous property or contract At least 7 days before making an application to AA for disclosure. 19 Reg. 44 Liquidation of corporate debtor. Within one year T + 365 20 Reg. 46 Deposit the amount of unclaimed dividends and undistributed proceeds Before submission of application under sub-regulation (3) of regulation 45 21 Sch-1 Sl. No 12 Time period to H1 bidder to provide balance sale consideration Within 90 days of the date of invitation to provide the balance amount.] [AA: Adjudicating Authority, LCD: Liquidation Commencement Date, SCC: Stakeholders' Consultation Committee] 61. Since the principal submission advanced at the behest of the respondent has rested heavily on Schedule 1 of these Regulations, it would be pertinent to extract the same hereinbelow:- "SCHEDULE I MODE OF SALE (Under Regulation 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016) 1. AUCTION (1) Whe....
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....he may apply, in writing, to the Adjudicating Authority for its permission to conduct an auction in such manner. (11) If required, the Liquidator may conduct multiple rounds of auctions to maximize the realization from the sale of the assets, and to promote the best interests of the creditors. (12) On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days of the date of such demand: Provided that payments made after thirty days shall attract interest at the rate of 12%: Provided further that the sale shall be cancelled if the payment is not received within ninety days. (13) On payment of the full amount, the sale shall stand completed, the Liquidator shall execute certificate of sale or sale deed to transfer such assets and the assets shall be delivered to him in the manner specified in the terms of sale. 2. PRIVATE SALE (1) Where an asset is to be sold through private sale, a Liquidator shall conduct the sale in the manner specified herein (2) The Liquidator shall prepare a strategy to approach interested buyers for assets to be sold by private sale. (3) Private sale may be conducted through directl....
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.... enumerated in parts A and B of the Schedule appended to the enactment. 66. Section 3 of PMLA creates the offence of money laundering and reads as under: - "3. Offence of money-laundering.-Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. Explanation.-For the removal of doubts, it is hereby clarified that,- (i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or activity connected with proceeds of crime is a continuing activity and continues til....
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....possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the nonattachment of the property is likely to frustrate any proceeding under this Act.] [Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted.]; (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under [sub-section (3)] of section 8, whichever is earlier. ....
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....ome, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized [or frozen] under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: Provided that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under sub section(1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and (c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice is....
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....o the Central Government. (6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offence of money-laundering after having regard to the material before it. (8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the propert....
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....l orders passed by the adjudicating authority can be assailed in appeal in terms of Section 25 which prescribes that the Appellate Tribunal constituted under SAFEMA shall also act as the Appellate Tribunal for the purposes of the PMLA. Any person aggrieved by a decision or order of the Appellate Tribunal has the right to appeal to the High Court in accordance with the provisions of Section 42. Offences committed under the PMLA are triable by Special Courts which may be constituted in accordance with the provisions made in Chapter VII. Section 71 engrafts a non-obstante clause by providing that the provisions of the PMLA shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. L. ISSUE OF PRIMACY 73. The discussion on the issue of the overriding effect of the two competing statutes as urged by respective parties, must be prefaced with the acknowledgment of the fact that both the PMLA as well as IBC employ non obstante clauses by virtue of Sections 71 and 238 respectively. Both statutes, admittedly, are legislations promulgated by Parliament in 2005 and 2016. Both enactments have undergone recent amendments with PMLA ....
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....o achieve maximization of value with the assets of the debtor being taken over and being disposed of by adoption of fair and transparent means. These aspects were highlighted by the Supreme Court in Innoventive Industries Ltd. Vs. ICICI Bank (2018) 1 SCC 407 with the Court explaining the backdrop of the legislation as under: - "13. One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. As per the data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an average, which was much higher when compared with the United Kingdom (1 year), USA (1.5 years) and South Africa (2 years). The World Bank's Ease of Doing Business Index, 2015, ranked India as country number 135 out of 190 countries on the ease of resolving insolvency based on various indicia." 75. The principal objectives of the IBC were lucidly explained by the Supreme Court in Swiss Ribbons (P) Ltd. Vs. Union of India (2019) 4 SCC 17 as follows: - "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first an....
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.... adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 76. The primary objectives were again highlighted in two recent decisions of the Supreme Court and which would even otherwise be relevant for deciding the question that falls for our consideration here. The Court deems it apposite to extract the following parts of the decision of the Supreme Court in Manish Kumar and more particularly paragraph 237 of the report: - "237. The object of the law is clear. A radical departure was contemplated from the erstwhile regime, which was essentially contained in the Sick Industrial Companies (Special Provisions) A....
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....n approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt is owed in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities." 78. The interplay between the provisions of the IBC and PMLA and whether primacy could be accorded to one of the two enactments directly fell for consideration before a learned Judge of this Court in Directorate of Enforcement Vs. Axis Bank 2019 SCC OnLine DEL. 7854. The Court in that matter was dealing with appeals brought by the Enforcement Directorate against the decision delivered by the Appellate Tribunal under the PMLA which had held that the rights of banks and financial institutions as recognised under SARFESI, RDB or the IBC would rank superior and that the PMLA would have to take a back seat. While a number of other important aspects pertaining to the provisions of the PMLA have also been considered, we are, for the purposes of the present matter, concerned only insofar as the said decision deals with the question posited above. 79. Dealing with the interpl....
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....ction 14 of Insolvency Code cannot come in the way of the statutory authority conferred by PMLA on the enforcement officers for depriving a person (may be also a debtor) of the proceeds of crime. 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. 147. To sum up on the issue, the objective of the legislation in PMLA being distinct from the purposes of the three other enactments viz. RDBA, SARFAESI Act and Insolvency Code, the latter cannot prevail over the former. There is no inconsistency. The purpose, the text and context are different. This court thus rejects the argument of prevalence of the said laws over PMLA." 80. Dealing with the effect of an order of attachment on the rights of creditors or persons in whose favour interests in property may have been created bona fide, the learned Judge proceeded to hold as follows: - "148. In view of the conclusions reached as above, rejecting the argument of p....
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.... motive "to frustrate" or "to defeat" the objective of law against money-laundering. In case of tainted asset - that is to say a property acquired or obtained as a result of criminal activity - the interest acquired by a third party from person accused of money-laundering, even if bona fide, for lawful and adequate consideration, cannot result in the same being released from attachment, or escaping confiscation, since the law intends it to "vest absolutely in the Central Government free from all encumbrances", the right of such third party being restricted to sue the wrong-doer for damages, the encumbrance, if created with the objective of defeating the law, being treated as void (Section 9). 162. But, in case an otherwise untainted asset (i.e. deemed tainted property) is targeted by the enforcement authority for attachment under the second or third part of the definition of "proceeds of crime", for the reason that such asset is equivalent in value to the tainted asset that was derived or obtained by criminal activity but which cannot be traced, the third party having a legitimate interest may approach the adjudicating authority to seek its release by showing that the interest in....
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....mission of offense under PMLA can be safely treated as a "cut off" thus saving any third-party interests that may have stood created prior thereto. 83. Regard must be had to the fact that Axis Bank came to be decided prior to the insertion of Section 32A in the IBC. Therefore, the propositions and the tests enunciated in the aforesaid decision and reflected in paragraphs 162 to 164 of the report may have to yield to the extent that they now stand impacted or eclipsed by Section 32A. 84. As would be evident upon a consideration of the decisions aforenoted, the IBC is primarily concerned with the subject of restructuring of indebted corporate debtors, adoption of means for their revival, securing the interests of creditors and for adoption of steps for effective and timely resolution of corporate insolvency. The PMLA, on the other hand, is a statute fundamentally concerned with trying offenses relating to money laundering, following the proceeds of crime and for confiscation of properties obtained in the course of commission of those offenses or connected therewith. It sets up an investigative and adjudicatory mechanism in respect of offenses committed, attachment of tainted proper....
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....he exercise of power otherwise vesting in them in terms of the PMLA. Mr. Hossain learned counsel appearing for the respondent concedes that a provisional order of attachment cannot be issued under PMLA once a resolution plan comes to be approved in terms of the provisions contained in Chapter II of the IBC. The submission, however, was that in a case where the corporate debtor is undergoing liquidation, the power to attach provisionally can be exercised till such time as the sale becomes final. Mr. Hossain would contend that a distinction must clearly be drawn between the processes envisaged under Chapters II and Chapter III of the IBC. According to learned counsel, a comprehensive reading of the aforesaid Chapters in the IBC together with the Liquidation Regulations, 2016 would establish that a sale is complete only when a certificate in respect thereof comes to be issued upon payment of the entire consideration. According to learned counsel, since the sale is not liable to be viewed as having reached fruition till such time as that certificate is issued, the right of the respondent to invoke Section 5 of the PMLA stands secured. According to Mr. Hossain, the expression "sale of l....
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....e recorded on its database." 90. As would be evident upon a reading of the aforesaid section, the Adjudicating Authority, upon being satisfied that the plan is compliant with the provisions of Section 30(2), shall approve the same. That plan upon being accorded the seal of approval, comes to bind the corporate debtor, its employees, members, creditors as well as the appropriate governments and local authorities. The approval of the resolution plan also brings the moratorium order to an end. This would necessarily, as was highlighted by Mr. Hossain, also result in the restraint against institution or continuation of suits and legal proceeding involving the corporate debtor, the statutory injunct against the transfer, alienation or disposal of assets of the corporate debtor and the action to foreclose, recover or enforce a security interest, ceasing to operate. Of some significance for our purpose is sub section (4) of Section 31 which mandates that the resolution applicant shall, within a period of 1 year or within such extended period as may be permissible in law, obtain all approvals as may be independently required in respect of the various measures forming part of the resolutio....
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....oduced or rendered by the corporate debtor; (l) obtaining necessary approvals from the Central and State Governments and other authorities. 38. Mandatory contents of the resolution plan. (1) A resolution plan shall identify specific sources of funds that will be used to pay the - (a) insolvency resolution process costs and provide that the insolvency resolution process costs will be paid in priority to any other creditor; (b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and (c) liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan. (1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. (2) A resolution plan shall provide: (a) the term of the plan and its implementation schedule; (b) th....
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....ertaken under the erstwhile company legislations which contemplated a mere sale of assets of the corporate debtor and its ultimate dissolution, the Liquidation Regulations 2016, not only make provision for its sale as a going concern but also lay emphasis on that possibility being explored before steps for sale of assets is attempted as per Regulation 32A. If the corporate debtor facing liquidation be sold as a going concern, it would not be liable to be dissolved. 93. In any case, what needs to be appreciated and highlighted is that under both sets of regulations noticed above, the measures to be adopted under Regulation 32 or 37 in order to liquidate the debts of the corporate entity and to revive it if possible, cannot be accomplished or completed on the mere approval of the resolution plan or acceptance of one of the methods permissible under those Regulations. The sale of the whole or part of the assets, the restructuring of the corporate debtor, the acquisition or transfer of its shares, its merger or consolidation are neither envisaged nor mandated to be measures which must stand completed or accomplished on the date when the resolution plan is approved. This necessarily si....
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....r the secured creditors, has sought to invoke and draw sustenance from the provisions of Order XXI Rule 92 and 94 of the Civil Procedure Code to contend that the confirmation of the proposal for the settlement of the affairs of the corporate debtor should be held to be the determinative, the Court while not rejecting that submission completely is of the opinion that the answer to the same cannot rest on the pedestal of Order XXI. This since no pari materia provision stands engrafted in the IBC. It becomes apposite to note that Order XXI Rule 92 of the Civil Procedure Code unequivocally spells out and mandates that the sale shall become absolute upon its confirmation. The decisions cited by Mr. Malhotra in this respect are also not consequently being elaborately dealt with for the purposes of answering this particular issue. 96. This Court is of the opinion that the answer to determining when the bar under Section 32A would come into play must be answered bearing in mind the ethos of Section 32A and upon an interpretation of the provisions of the IBC and the Regulations framed thereunder. As is evident from a careful reading of Section 32A(2), the Legislature in its wisdom has prov....
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....forcement of outstanding claims against the corporate debtor or from penalties connected with offenses committed prior thereto. The imperative for the extension of this legislative guarantee subserves the vital aspect of maximization of value. 97. The issue of creation of an offense or its nullification is a matter of legislative policy. An offense or a crime, on a jurisprudential or foundational plane, must be founded in law. Manoj Kumar has duly taken note of this aspect when it held that the creation or cessation of an offense is ultimately an issue of legislative policy. The Parliament upon due consideration deemed it appropriate and expedient to infuse the clean slate doctrine bearing in mind the larger economic realities of today. Regard must also be had to the fact the cessation of prosecution stands restricted to the corporate debtor and not the individuals in charge of its affairs. The PMLA as well as the IBC for that matter stand steadfast against its dilution against persons who were in control of the corporate debtor in respect of offenses committed prior to the commencement of the CIRP. It was this delicate balance struck by the Legislature which met with approval in ....
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....uring the pendency of proceedings under the PMLA and notwithstanding the issuance of an order of attachment. The objections which are alluded to by the respondent are and shall remain available to be addressed before the competent forum in accordance with law. 100. In closing, it may be additionally noted that the Liquidator though obliged to administer and oversee the affairs of the corporate debtor in accordance with the provisions of the IBC, cannot strike a position of not cooperating with the competent authorities under the PMLA. Regard must be had to the fact that upon appointment, the Liquidator steps into the shoes of the erstwhile management and is the custodian of the properties and all relevant papers and documents relating to the corporate debtor. That material and any other information that may be gathered and collated by the Liquidator may be of significance and import to the investigation being undertaken under the PMLA. Viewed in that background, it would be necessary to recognize the obligation of the Liquidator to provide such material and other information that may be required. The Liquidator cannot strike the position of being immune from answering to the reques....
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....f the indebted entity as it sunk deeper into debt, now became liable to be removed from control and the corporate debtor taken over by a professional who would take over the management and administration of the debtor pending its insolvency resolution. The third important objective of the IBC was to achieve maximization of value with the assets of the debtor being taken over and being disposed by adoption of fair and transparent means within strict and regimented time lines. E. The PMLA on the other hand is a statute fundamentally concerned with trying offenses relating to money laundering, following the proceeds of crime and for confiscation of properties obtained in the course of commission of those offenses or connected therewith. It sets up an investigative and adjudicatory mechanism in respect of offenses committed, attachment of tainted properties and other related matters. F. Viewed in that backdrop, it is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of debts of a corporate debtor, those under the PMLA are concerned wit....
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....ction 32A undoubtedly seek to allay such apprehensions and extend an assurance of the resolution applicant being entitled to take over the corporate debtor on a fresh slate. Section 32A assures the resolution applicant that it shall not be held liable for any offense that may have been committed by the corporate debtor prior to the initiation of the CIRP. It similarly extends that warranty in respect of the properties of the corporate debtor once a resolution plan stands approved or in case of a sale of liquidation assets. K. A close reading of Section 32A (1) and (2) establishes that the legislature in its wisdom has erected two unfaltering barriers. It firstly prescribes that the offense, which may entail either prosecution of the debtor or proceedings against its properties, must be one which was committed prior to the commencement of the CIRP. Secondly the cessation of liability for the offense committed is to occur the moment a resolution is approved by the Adjudicating Authority or upon sale of liquidation assets. L. The principal consideration which appears to have weighed was the imperative need to ensure that neither the resolution nor the liquidation process once set ....
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....conomic realities of today. Q. Regard must also be had to the fact the cessation of prosecution stands restricted to the corporate debtor and not the individuals in charge of its affairs. The PMLA and its provisions stand steadfast and do not stand diluted in their rigour and application against persons who were in control of the corporate debtor. It was this delicate balance struck by the Legislature which met approval in Manish Kumar. R. Section 32A in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect. Drawing sustenance from the same, this Court comes to the conclusion that the approval of the measure to be implemented in the liquidation process by the Adjudicating Authority must be held to constitute the trigger event for the statutory bar enshrined in Section 32A coming into effect. It must consequently be held that the power to attach as conferred by Section 5 of the PMLA would cease to be exercisable once any one of the measures specified in Regulation 32 of the Liquidation Regulations 2016 comes to be adopted and approved by the Adju....