TaxTMI 
TaxTMI 
2021 (12) TMI 627
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....NDENT DIRECTORATE 13-21 E THE PRELIMINARY OBJECTION 22-26 F SUBMISSIONS 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 ha....
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.... a case has been recorded under PMLA, 2002 against M/s. PSL Limited and Others. It has came to the notice of this office that you have been appointed as Official Liquidator of M/s PSL Limited and auctioning the assets of this company. 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) d....
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....sets are disposed of by the Liquidator, the monetary sums recovered from the same shall be placed in a separate bank account and an affidavit stating the recovered amount shall also be placed before this Court. If any amounts are to be disbursed to any of the creditors, an application shall be 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. ....
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.... to be accepted. On 15 January 2021, the Liquidator is stated to have received the first summons from the respondent. This was followed by an e-mail of 25 January 2021 which is impugned in the writ petition. A second summons came to be issued by the Enforcement Directorate on 27 January 2021. The writ petition came to be filed around 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....
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....ects and the same has been brought on the record by way of CM 41811/2021 7. Post the aforesaid developments taking place, the petition was called on subsequent dates and ultimately taken up for hearing on 24 November 2021 when upon hearing parties at some length, the matter was placed for further hearing on 03 December 2021. It becomes 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 respe....
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....dity of Section 32A has undisputedly been upheld by the Supreme Court in the matter of Manish Kumar v. Union of India (2021) 5 SCC 1. Mr. Uppal contends that the jurisdiction and authority of the respondent under the PMLA is legislatively mandated to cease once a resolution plan is approved by the Adjudicating Authority or the sale of liquidation assets commences. It is further contended 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 enforc....
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.... approved post or prior to the promulgation of the Ordinance. 45. Further, even prior to the passing of the Ordinance, the 3rd Respondent i.e. Union of India through Ministry of Corporate Affairs in its 'Affidavit in Reply' dated 10th October, 2019, had categorically stated that: "5) It is submitted that if any Corporate Debtor is undergoing investigation by the Central Bureau of Investigation ("CBI"), Serious Fraud 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 ....
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.... under the IBC. In so far as a Resolution Applicant is concerned, they would not be in wrongful enjoyment of any proceeds of crime after acquisition of the Corporate Debtor and its assets, as a Resolution Applicant would be a bona fide asset acquired through a legal process. Therefore, upon an acquisition under a CIR Process by a Resolution Applicant, the Corporate Debtor and its assets are not derived or obtained through proceeds of crime under the Prevention 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....
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....he IBC cannot be accorded any primacy over the PMLA and that, consequently, notwithstanding the steps taken under that enactment by the petitioner here, the right of the respondent as conferred by the PMLA to move against the assets of the corporate debtor, to follow the proceeds of crime and consequently confiscate properties stands preserved. 14. Mr. Hossain, learned counsel appearing for the Directorate, has at the outset, raised a preliminary objection to the maintainability 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 provision....
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.... contained in Sections 14 and 33(5) of the IBC. It was contended that prior to the insertion of Section 32A, the only restraint which operated in respect of institution of suits or continuation of suits and proceedings against a corporate debtor stood enshrined in Section 14. 17. Mr. Hossain drew the attention of the Court to Section 14 in this respect and highlighted that upon the commencement of CIRP, an omnibus restraint on the institution or continuation of suits and legal 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 t....
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.... offence and has submitted or filed a report before the relevant authority or the Court. This last limb may require a little more demystification. The person, who comes to acquire the management and control of the corporate person, must not be a person who has abetted or conspired for the commission of the offence committed by the corporate debtor prior to the commencement of the CIRP. Therefore, abetting or conspiracy by the person, who acquires management and control of the corporate debtor, under a resolution plan, 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 corporat....
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....the tainted property as the consideration (directly or indirectly). To illustrate, bribe or illegal gratification received by a public servant in form of money (cash) being undue advantage and dishonestly gained, is tainted property acquired "directly" by a scheduled offence and consequently "proceeds of crime". Any other property acquired using such bribe as consideration is also "proceeds of crime", it having been obtained "indirectly" from a prohibited criminal activity within the meaning of first limb of the definition. 112. Chronologically 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....
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....of such third party subsists but the State action would be restricted to such part of the value of the property as exceeds the claim of the third party. 167. As has been highlighted earlier, the provisional order of attachment is subject to confirmation by the adjudicating authority. The order of the adjudicating authority, in turn, is amenable to appeal to the appellate tribunal. The said forum (i.e. the appellate tribunal) may pass such orders as it thinks fit "confirming, modifying or setting aside the order appealed against" [Section 26(4)]. Undoubtedly, an aggrieved 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 ....
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....ing a statutory appeal under Section 260-A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results. [It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression "operational debt" under Section 5(21), making the Government an "operational creditor" in terms of Section 5(20). The moment the dues to the Government are 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, p....
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....and above the aforesaid, on any sums that may have been received as an outcome of the liquidation sale initiated and completed by the petitioner. E. THE PRELIMINARY OBJECTION 22. It would be apposite to pause here and deal with the preliminary objection which was raised at the outset. Insofar as the maintainability of the writ petition post the passing of the provisional attachment order is concerned, the Court takes note of the reliefs as claimed in the writ petition. It becomes pertinent to note that insofar as relief (4) is concerned, that appears to have rendered infructuous consequent to the respondent having passed an order 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 ....
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....mitted to continue notwithstanding the pendency of investigation and proceedings under the PMLA. It remains open for the petitioner to argue that once the sale of the liquidation assets stands approved by the Adjudicating Authority, the respondent stands denuded of the jurisdiction and authority to take coercive action under the PMLA against the properties of the corporate debtor including by way of attachment. In any case, the jurisdiction of this Court to rule on the aforesaid questions cannot be held to stand eclipsed merely on account of the issuance of a provisional order of attachment. 25. It also becomes pertinent to note that when 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 s....
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.... 93. The provision for "provisional attachment" and its confirmation, pending trial before court (wherein the issue of confiscation would come up at the time of determination of guilt in criminal case), is similar to the one for "attachment before judgment" in civil law. The law conceives of possibility of disposal of ill-gotten assets to "frustrate" the objective. The argument to the contrary is thus repelled. Ultimately, the confiscation is left to the special court. But then, the order to such effect only follows the determination of the guilt in the criminal trial on the charge for offence of money-laundering. This view is in sync with the rulings in the cases of 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. ....
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....y or indirectly, from proceeds of criminal activity constituting a scheduled offence - but also any other asset or property of equivalent value of the offender of money-laundering, the latter not bearing any taint but being alternative attachable property (or deemed tainted property) on account of its link or nexus with the offence (or offender) of money-laundering. (iv). If the "tainted property" respecting which there is evidence available to show the same to have been derived or obtained as a result of criminal activity relating to a scheduled offence is not traceable, or the same for some reason cannot be reached, or to the extent found is deficient, the empowered enforcement officer may attach any other asset ("the alternative 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 a....
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.... order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides. (xiii). 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 around or after the commission of the proscribed criminal activity, in order to establish a legitimate claim 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), s....
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....submits that an auction sale is substantially different from a private sale. It is submitted by him that under Section 32A(2) of the IBC, once the statutory authority confirms the sale, it must be construed that the sale stands completed. Referring to the different modes of sale as prescribed in Schedule 1, Mr. Malhotra places reliance on Clause 12 to contend that the power to cancel itself indicates that the sale is deemed to be complete and concluded. 30. Mr. Malhotra further submitted that a public sale conducted after due publicity and once confirmed, should not be interfered with. In support of his submission, he pressed in aid the decision of the Supreme Court in Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd (2008) 9 SCC 299 and to the following principles enunciated therein: - "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 hav....
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....am Khader Khan v. Pattam Sardar Khan (1996) 5 SCC 48 to submit that the sale certificate which is to be issued relates back to the date of confirmation of sale. He has referred to the following extracts of that decision: - "10. Now to the spirit of it. A court sale is a compulsory sale, conducted by or under orders of the court. The title to the property sold does not vest in the purchaser immediately on the sale thereof unlike in the case of a private sale. The law requires that it does not become absolute until sometime after the sale; a period of at least 30 days must expire from the date of sale before the sale can become absolute. In that while, the sale is susceptible of being set aside at the instance of the judgment-debtor on the ground of irregularity in publication or conduct of the sale or on defalcation as regards deposit of money etc., 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 cert....
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.... fact already accomplished, stating as to what stood sold. Such act of the court is pristinely a ministerial one and not judicial. It is in the nature of a formalisation of the obvious." G. SUBMISSIONS OF LUCKY HOLDINGS 33. Ms Maneesha Dhir, learned counsel appearing for M/s Lucky Holdings Pvt Ltd., referred to the order of the Adjudicating Authority of 08 September 2021 to submit that the objections urged by the respondent here have been duly considered and taken note of. She also laid emphasis on the fact that the aforesaid order has not been challenged by the respondent till date. It was submitted that once the sale is approved by the Adjudicating Authority, Sections 35(1)(n) read with Sec 60(5)(c) of the IBC come into play and the same consequently becomes binding on all stakeholders and the implementation process starts. It was argued that any interference 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 protectio....
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....P is required to collect all information relating to the assets, finances and operations of the corporate debtor, receive and collate claims submitted by creditors pursuant to the public announcement that is made, to constitute a Committee of Creditors and to manage and monitor the assets of the Corporate Debtor until a Resolution Professional is appointed by the Committee of Creditors. 37. The Committee of Creditors in its first meeting then proceeds to appoint a RP. From here onwards, it is the RP who is obliged to conduct the entire process of insolvency resolution and to manage the affairs of the Corporate Debtor during the CIRP. Section 25 of the IBC enjoins the RP to take immediate custody and control of the assets of the corporate debtor, represent and act on its behalf, prepare the information memorandum as contemplated in Section 29 and to invite prospective resolution 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 ....
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....tted 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: Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: Provided further that every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence 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-sect....
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....10 of the Insolvency and Bankruptcy Code [Second Amendment] Bill, 2019. The Standing Committee on Finance while dealing with that Bill and the proposed Section 32A noted as under: - "2.5. The Committee note that the Insolvency and Bankruptcy Code, 2016 (IBC) was promulgated on concepts such as promoting maximisation of value of assets, transparent and predictable insolvency resolution framework, avoiding destruction of value of the debtor, and recognising the difference between malfeasance and business failure. The Committee further note that even though the IBC has been globally recognized as a paradigm shift in India's insolvency resolution process, many areas have required judicial and legislative interventions to enable the process to achieve the desired results. The Committee understand that the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 seeks to remove some of these bottlenecks and streamline the corporate insolvency resolution process 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 proce....
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.... every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence 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 subsection. (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 provi....
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....a problem. 3.10. Further, the Ministry furnished the following comment on the above suggestion: "...this provision would only apply where the CIRP culminates in a change in control to a completely unconnected resolution applicant. As such, a resolution applicant has nothing to do with the commission of any pre-CIRP offence whatsoever, and the corporate debtor is now fundamentally not the same entity as the one that committed the crime. 3.11. The Committee are in agreement with the intent of this amendment to safeguard the position of the Resolution Applicant(s) by ring-fencing them from prosecution and liabilities under offences committed by erstwhile promoters etc. The Committee understand the need for treating the company or the Corporate Debtor as a cleansed entity for cases which result in change in the management or control of the corporate debtor to a person who was not a promotor or in the management control of the corporate debtor or related party of such person, or to a person against whom there are material evidence and pending complaint or report by the investigating authority filed in relation to the criminal offence. The Committee agree that ....
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....ul resolution applicant for fraud by previous promoters. So, I hope that is absolutely clear. I would want all the Hon'ble Members to recognise this message and communicate further that this Code, therefore, gives that comfort to all new bidders. So now, they need not be scared that the taxman will come after them for the faults of the earlier promoters. No. Once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company. So, that is very clear." 44. The SOA as well as the contemporaneous material referred to above, indubitably establish a conscious adoption of a legislative measure to insulate the resolution applicant from the prospect of prosecution in respect of offenses that may have been committed by the erstwhile management of the corporate debtor prior to commencement of the CIRP. This legislative guarantee stands enshrined in Section 32A (1). Similarly, the provision unmistakably also insulates the property of the corporate debtor from any action that may otherwise be taken in respect thereof for an offense committed prior to the commencement of the CIRP. A....
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.... enforcement action when taken by successful resolution applicant. Also, it was recommended that cooperation and assistance to authorities investigating the offences committed prior to commencement of CIRP shall be continued by any person who is required to provide such assistance under the applicable law. *** Chapter 1 : Recommendations Regarding the Corporate Insolvency Resolution Process *** 17. Liability of corporate debtor for offences committed prior to initiation of CIRP [ Recommendations contained herein have been implemented pursuant to Section 10 of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019.] 17.1. Section 17 of the Code provides that on commencement of the CIRP, the powers of management of the corporate debtor vest with the interim resolution professional. Further, the powers of the Board of Directors or partners of the corporate debtor stand suspended, and are to be exercised by the interim resolution professional. Thereafter, Section 29-A, read with Section 35(1)(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporat....
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....n, and lowered recoveries to creditors, including financial institutions who take recourse to the Code for resolution of the NPAs on their balance sheet. At the same time, the Committee was also conscious that authorities are duty bound to penalise the commission of any offence, especially in cases involving substantial public interest. Thus, two competing concerns need to be balanced. 17.5. The Committee noted that the proceedings under the Code, which are designed to ensure maximisation of value, generally require transfer of the corporate debtor to bona fide persons. In fact, Section 29-A casts a wide net that disallows any undesirable person, related party or defaulting entity from acquiring a corporate debtor. Further, the Code provides for an open process, in which transfers either require approval of the adjudicating authority, or can be challenged before it. Thus, the CIRP typically culminates in a change of control to resolution applicants who are unrelated to the old management of the corporate debtor and step in to resolve the insolvency of the corporate debtor following the approval of a resolution plan by the adjudicating authority. 17.6. Given this, ....
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....ime in an offence of money laundering. It was felt that taking actions against such property, after it is acquired by a resolution applicant, or a bidder in liquidation, could be contrary to the interest of value maximisation of the corporate debtor's assets, by substantially reducing the chances of finding a willing resolution applicant or bidder in liquidation, or lowering the price of bids, as discussed above. 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 Para 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 criminal offence. 17.11. By way of abundant caution, the Committee also recognised and agreed that in all such cases where the r....
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....rporate debtor is now fundamentally not the same entity as the one that committed the crime.' 3.11. The Committee is in agreement with the intent of this amendment to safeguard the position of the resolution applicant(s) by ring-fencing them from prosecution and liabilities under offences committed by erstwhile promoters, etc. The Committee understands the need for treating the company or the corporate debtor as a cleansed entity for cases which result in change in the management or control of the corporate debtor to a person who was not a promotor or in the management or control of the corporate debtor or related party of such person, or to a person against whom there is material evidence and pending complaint or report by the investigating authority filed in relation to the criminal offence. The Committee agrees 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 believes that this ring-fencing is essential to achieve revival or resolution without imposing additional liabilities on the resolution applicant, ....
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....for the commission of the offence and the report or complaint filed thereto. These ingredients are also insisted upon for claiming exemption of the bar from actions against the property. Significantly every person who was associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of the offence in terms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor. 328. The corporate debtor and its property in the context of the scheme of the Code constitute a distinct subject-matter justifying the special treatment accorded to them. Creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgment of the legislature. Erecting a bar against action against the property of the corporate debtor when viewed in the larger context of the objectives sought to be achieved at the forefront of which is maximisation of the value of the assets which again is to be achieved at the earliest point of time cannot become the subject of judicial veto on the ground of violation of Article 14. 329. We would be remiss if we d....
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....value would be clearly impacted if a resolution applicant were asked to submit an offer in the face of various imponderables or unspecified liabilities. The amendment to sub-Section (1) of Section 31 and the introduction of Section 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. 50. The principal consideration which appears to have weighed was the imperative need to ensure that neither the resolution nor the liquidation process once set into motion and fructifying and resulting in a particular mode of resolution coming to be duly accepted and approved, comes to be bogged down or clouded by unforeseen or unexpected claims or events. The IBC essentially envisages the process of resolution or liquidation to move for....
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....rame as prescribed in Chapter II or where a resolution plan has come to be rejected, the process of liquidation ensues against the corporate debtor. The Adjudicating Authority upon being moved by the RP in this respect and on being informed either that a resolution plan has not been received at all or that one that may have been received has come to be rejected or upon being apprised that the Committee of Creditors have opined that no resolution is possible, may proceed to pass an order of liquidation. The date on which such an order is passed is defined under Section 5(17) of the Act to mean the "liquidation commencement date". Amongst the various powers and duties that stand conferred upon the Liquidator, is the power to sell the moveable and immoveable assets of the corporate debtor. This power stands invested in the Liquidator by virtue of Section 35(1)(f), which reads thus: - "35. (1) Subject to the directions of the Adjudicating Authority, the Liquidator shall have the following powers and duties, namely:- (f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or pr....
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.... (1) The Liquidator shall make a public announcement in Form B of Schedule II within five days from his appointment. [(2) The public announcement shall- (a) call upon stakeholders to submit their claims or update their claims submitted during the corporate insolvency resolution process, as on the liquidation commencement date; and (b) provide the last date for submission or updation of claims, which shall be thirty days from the liquidation commencement date.] (3) The announcement shall be published- (a) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the Liquidator, the corporate debtor conducts material business operations; (b) on the website, if any, of the corporate debtor; and (c) on the website, if any, designated by the Board for this purpose." 56. Regulation 32 prescribes the various modes that may be explored and initiated in order to realise the assets of the corporate debtor facing liquidation. It reads as under: - "32. Sale....
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....edule I when- (a) the asset is perishable; (b) the asset is likely to deteriorate in value significantly if not sold immediately; (c) the asset is sold at a price higher than the reserve price of a failed auction; or (d) the prior permission of the Adjudicating Authority has been obtained for such sale: Provided that the Liquidator shall not sell the assets, without prior permission of the Adjudicating Authority, by way of private sale to- (a) a related party of the corporate debtor; (b) his related party; or (c) any professional appointed by him. (3) The Liquidator shall not proceed with the sale of an asset if he has reason to believe that there is any collusion between the buyers, or the corporate debtor's related parties and buyers, or the creditors and the buyer, and shall submit a report to the Adjudicating Authority in this regard, seeking appropriate orders against the colluding parties." 58. The subject of distribution of the proceeds that may be received upon the sale of the assets of the corporate debtor is provided for in Regulation 42 of the Liquidation Regulations, 2016 which reads as ....
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....2, 3) Public announcement in Form B Within 5 days of appointment of Liquidator. T + 5 3 Reg. 35 (2) Appointment of registered valuers Within 7 days of LCD T + 7 4 Section 38 (1) and (5), Reg. 17, 18 and 21A Submission of claims; Intimation of decision on relinquishment of security interest Within 30 days of LCD T + 30 5 Section 38 (5) Withdrawal/ modification of claim Within 14 days of submission of claim T + 44 6 Reg. 30 Verification of claims received under regulation 12(2)(b) Within 30 days from the last date for receipt of claims T + 60 7 Reg. 31A Constitution of SCC Within 60 days of LCD T + 60 8 Section 40 (2) Intimation about decision of acceptance/ rejection of claim Within 7 days of admission or rejection of claim T + 67 9 Reg.31(2) Filing the list of stakeholders and announcement to public Within 45 days from the last date of receipt of claims T + 75 10 Section 42 Appeal by a creditor against the decision of the Liquidator Within 14 days of receipt of such decision T + 81 11 Reg. 13 Preliminary report to the AA Within 75 days of L....
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....ay include- (a) releasing advertisements; (b) preparing information sheets for the asset; (c) preparing a notice of sale; and (d) liaising with agents. (3) The Liquidator shall prepare terms and conditions of sale, including reserve price, earnest money deposit as well as pre-bid qualifications, if any. (4) The reserve price shall be the value of the asset arrived at in accordance with regulation 35. (4A) Where an auction fails at the reserve price, the Liquidator may reduce the reserve price by up to twenty-five percent of such value to conduct subsequent auction. (4B) Where an auction fails at reduced price under clause (4A), the reserve price in subsequent auctions may be further reduced by not more than ten percent at a time. (5) The Liquidator shall make a public announcement of an auction in the manner specified in Regulation 12(3); Provided that the Liquidator may apply to Adjudicating Authority to dispense with the requirement of Regulation 12(3)(a) keeping in view the value of the asset intended to be sold by auction. (6) The Liquidator shall provide all assistance necessary for the c....
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....eans that is likely to maximize the realizations from the sale of assets. (4) The sale shall stand completed in accordance with the terms of sale. (5) Thereafter, the assets shall be delivered to the purchaser, on receipt of full consideration for the assets, in the manner specified in the terms of sale." K. STATUTORY PROVISIONS UNDER PMLA 62. Having traversed the IBC and the salient provisions of that code, it would now be pertinent to advert to the relevant provisions of the PMLA. 63. The PMLA essentially represents the commitment of the Union to frame a comprehensive legislation to deal with the pernicious crime of money laundering as flowing from the Political Declaration and Global Programme of Action as adopted by the General Assembly of the United Nations on 23 February 1990, the Political Declaration adopted in the Special Session of the U.N. between 8 to 10 June 1998, the Financial Action Task Force held in Paris from 14 to 16 July 1989. Taking cognizance of the scourge of money laundering faced by governments across the globe and the legitimization of moneys derived from criminal activities as well as the imperative need to deprive the perpetrat....
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....ill such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming it as untainted property in any manner whatsoever." 67. The punishment for the offence of money laundering is then specified in Section 4 which provides that a person who commits that offence shall be punishable with rigorous imprisonment for a term of not less than three years which may extend to seven years and shall also be liable to the imposition of a fine. Section 5 of PMLA incorporates provisions relating to attachment, adjudication and confiscation. That provision is in the following terms: - "5. Attachment of property involved in money-laundering. - [(1) Where the Director or any other officer not below the rank of Deputy Director authorised by the Director for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that- (a) any person is in possession of any proceeds of crime; and (b) such proceeds of crime are likely to be concealed, transferred or dealt ....
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....made under [sub-section (3)] of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation.-For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority." 68. As is evident from a reading of the aforesaid provision, the competent authority, if it has reason to believe that any person is in possession of proceeds of crime, and that such proceeds are likely to be concealed, transferred or dealt with so as to frustrate proceedings relating to confiscation, it may by an order, in writing, provisionally attach such property for a period not exceeding 180 days from the date of that order. The first Proviso to Section 5(1) of PMLA mandates that no order of p....
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....ll 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 issued under sub-section (1) are involved in money-laundering: Provided that if the property is claimed by a person, other than person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in money-laundering. (3) Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under subsection (1) of section 5 or retention of property or [record seized or frozen under section 17 or section 18 and record a finding to that effect, whereupon such attachment or retention or freezing of the seized or frozen property] or record shall- (a) continue during investigation for a period not exceeding three hundred and sixty-five days or the pendency of the proceedings relating to any offence under this Act before a court or under the corresponding law of any other country, before the competent court of cri....
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....nment 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 property, who may have suffered a quantifiable loss as a result of the offence of money laundering: Provided that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss despite having taken all reasonable precautions and is not involved in the offence of money laundering: Provided further that the Special Court may, if it thinks fit, consider the claim of the claimant for the purposes of restoration of such properties during the trial of the case in such manner as may be prescribed." 70. In terms of sub-Section (3) of Section 8, the adjudicating authority is obliged in law to confirm any provisional order of attachment that may have been made under Section 5(1) as also to direct the retention of property or record ceased or frozen under Sections 17 or 18 of the PMLA. The order of the Adjudicating Authority confirming the provisional order of attachment is to....
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....ledgment 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 seeing the passing of Finance (No.2) Act, 2019 and the IBC which was amended by virtue of Act 1 of 2020 pursuant to which Section 32A came to be included in the statute book. It, therefore, cannot possibly be presumed that the legislature was oblivious of the reach and ambit of the two enactments. The submissions canvassed by respective sides on this score must be evaluated firstly on the well settled precept of the Court identifying the core and fundamental purport and object of the statutes. This principle obliges the Court to examine and decipher the intent and objective of the statute, the essential subject of legislation and the field of activities that it seeks to regulate. While discharging that burden, especially when dealing with two statutes which may independently employ a legislative command for their provisions to have effect notwithstanding anything to the contrary contained in any other law, the....
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...." 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 and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme-....
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.... 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) Act, 1985, and which manifested a deep malaise, which impacted the economy itself. To put it shortly, the procedures involved under the Act, simply meant procrastination in matters, where speed and dynamic decisions were the crying need of the hour. The value of the assets of the company in distress, was wasted away both by the inexorable and swift passage of time and tardy rate at which the forums responded to the problem of financial distress. The Code was an imperative need for the nation to try and catch up with the rest of the world, be it in the matter of ease of doing business, elevating the rate of recovery of loans, maximisation of the assets of ailing concerns and also, balancing the interests of all stakeholders. The Code purports to achieve the object of maximisation of the assets of corporate bodies, inter alia, which have slipped into insolvency. Present a default....
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.... 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 interplay of the statutes concerned, the learned Judge held: - "139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, SARFAESI Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is "due" to the claimant i.e. the banks or the financial institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the respon....
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....is 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 prevalence of RDBA, SARFAESI Act and Insolvency Code over PMLA, the said laws (or similar other laws, some referred to above) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other, with regard to assets respecting which there is material available to show the same to have been "derived or obtained" as a result of "criminal activity relating to a scheduled offence" rendering the same "proceeds of crime", within the mischief of PMLA. The PMLA, declares, by virtue of Section 71, that it has over-riding effect over other existing laws, such provision containing non-obstante clause with regard to inconsistency apparently to be construed as referable to the dealings in "money-laundering" and "proceeds of crime" relating thereto. 149. An order of attachmen....
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....he 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 such property was acquired bona fide and for lawful (and adequate) consideration, there being no intent, while acquiring such interest or charge, to defeat or frustrate the law, neither the said property nor the person claiming such interest having any connection with or being privy to the offence of money-laundering. 163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot conceivably be on account of intent to defeat or frus....
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.... 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 properties and other related matters. It sets up Special Courts for trial of offenses and to bring the guilty to book. 85. 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 with the criminality attached to the offense of money laundering and to move towards confiscation of properties that may be acquired by commission of offenses specified therein. The authorities under the aforementioned two statutes consequently must be accorded adequate and sufficient leeway to discharge their obligations and duties within the demarcated spheres o....
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....ns, 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 liquidation assets" as occurring in Section 32A(2) must be understood and interpreted accordingly. M. THE RESOLUTION AND LIQUIDATION CAUSEWAYS 89. There cannot be any dispute with respect to the contention of Mr. Hossain that "resolution" and "liquidation" constitute two separate and distinct tracks under the IBC. While the former is governed by the provisions enshrined in Chapter II, the process of liquidation is to be initiated and completed in accordance with Chapter III. The process of resolution envisages the identification of a resolution applicant whose proposal is found viable to resurrect the corporate debtor and complies with the statutory prerequisites set forth in Section 30 of the IBC. The resolution plan must necessarily provide for the payment o....
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....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 resolution plan. The import of Section 31(4) shall be elaborated in the subsequent parts of this decision. 91. The conduct of the CIRP is further detailed in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The RP in terms of Regulation 36 of the Resolution Regulations, 2016 upon his appointment is required to firstly draw up an Information Memorandum containing particulars such as the assets and liabilities of the corporate debtor, its financial statements, its creditors and the number of workers and employees. Expressions of Interest are then invited in terms of Regulation 36A. Upon completion of a due diligence exercise, a provisional list of eligible r....
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....xpiry 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) the management and control of the business of the corporate debtor during its term; and (c) adequate means for supervising its implementation. (3) A resolution plan shall contain details of the resolution applicant and other connected persons to enable the committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval. Explanation : For the purposes of this sub-regulation,- (i) 'details' shall include the following in respect....
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....e 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 since the resolution plan is the repository of the steps or measures that are accepted and recommended by the Committee of Creditors and then placed for the approval of the Adjudicating Authority. It is only once that resolution plan stands approved that the question of further steps for implementation of the mode adopted would logically arise. This is further buttressed from the provisions contained in Section 31(4) which makes provision for a situatio....
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....ari 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 provided that no action shall be taken against the properties of the corporate debtor in respect of an offense committed prior to the commencement of the CIRP and once either a resolution plan comes to be approved or when a sale of liquidation assets takes place. The objective underlying the introduction of this provision has been eloquently explained by the Supreme Court in Manish Kumar. The intent of the mischief sought to be addressed is clearl....
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....as 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 Manish Kumar. 98. As was observed earlier, 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 c....
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....f 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 requests for information that may be directed towards him by the investigating authorities under the PMLA. P. SUMMATION 101. Upon a conspectus of the aforesaid discussion, the Court records the following conclusions: - A. The Court notes that the reliefs as framed in the writ petition essentially seek a restraint against the respondent from interfering in the liquidation process which had been set in motion. That challenge can....
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....n 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 with the criminality attached to the offense of money laundering and to move towards confiscation of properties that may be acquired by commission of offenses specified therein. The authorities under the aforementioned two statutes must be accorded sufficient leeway to discharge their obligations and duties within the spheres of the two statutes. G. In a case where in exercise of thei....
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....larly 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 into motion and fructifying and resulting in a particular mode of resolution coming to be duly accepted and approved, comes to be bogged down or clouded by unforeseen or unexpected claims or events. The IBC essentially envisages the process of resolution or liquidation to move forward unhindered. M. The Legislature in its wisdom has recogni....
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....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 Adjudicating Authority. S. The expression "sale of liquidation assets" must be construed accordingly. The power otherwise vested in the respondent under the PMLA to provisionally attach or move against the properties of the corporate debtor would stand foreclosed once the Adjudicating Authority comes to....