TaxTMI 
TaxTMI 
2022 (11) TMI 600
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.... orders came to be confirmed by the Adjudicating Authority, an amendment application was moved questioning the confirmation orders dated 01 January 2021 and 29 January 2021. The petition has been instituted by the Resolution Professional (RP) of Era Infra Engineering Limited (EIEL) which was admitted to insolvency proceedings under the provisions of the IBC. The challenge to the orders of attachment is essentially founded on the provisions of Section 14 of the aforesaid enactment with the petitioner contending that once the moratorium had come into effect, the ED stood denuded of jurisdiction to exercise powers under the PMLA. Before proceeding ahead to notice the submissions which have been addressed, it would be pertinent to notice the following essential facts. B. THE ESSENTIAL FACTS 2. On 19 April 2018, the ED proceeded to freeze 74 bank accounts of EIEL in purported exercise of powers conferred by Section 102 of the Code of Criminal Procedure, 1973 (CrPC). The insolvency proceedings would be deemed to have commenced on 08 May 2018 when the petition was admitted and it is this date which would thus constitute the date of commencement of the Corporate Insolvency Resolution Pro....
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..... It appears that in the meanwhile confusion reigned with respect to the income tax refund which had been received by the petitioner. That amount is stated to have been credited in the accounts of the corporate debtor maintained with Axis Bank. Since the petitioner was apprised by the Axis Bank of a restraint which operated on its right to deal with the income tax refunds which had been received, the petitioner preferred a contempt petition before this Court. In the said contempt petition, on 06 August 2020, counsels appearing for the respondent are stated to have taken time to obtain instructions and apprise the Court whether the income tax refund also stood attached in proceedings under the PMLA. The petitioner alleges that after the hearing on the aforesaid contempt petition had concluded, the petitioner was e-mailed a copy of yet another PAO dated 05 August 2020 in terms of which the income tax refund also stood attached. In view of the aforesaid development, the contempt petition came to be dismissed on 13 August 2020 with the petitioner being accorded the liberty to initiate appropriate steps in challenge to the PAO of 05 August 2020. In the meanwhile, on 11 August 2020, the ....
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....essed by Mr. Hossain was made without prejudice to his contention that the NCLT would have no jurisdiction to rule on the validity of the orders passed under the PMLA in light of the law as declared by the Supreme Court in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka 2019 SCC OnLine SC 1542. 7. On 10 May 2022 and upon hearing Mr. Vashisht, learned Senior Counsel appearing for the petitioner, at some length in response to the preliminary objections which had been noticed on the earlier occasion, the Court granted the prayer made on behalf of the petitioner to be accorded the liberty to move a formal application seeking addition of reliefs in the writ petition. The petitioner proceeded to move an application for amendment thereafter which came to be allowed on 12 May 2022. The respondent concluded their submissions on 29 August 2022 whereafter the matter was closed for judgement on 05 September 2022. While closing proceedings on the petition, the Court had also granted liberty as sought by learned counsels for parties to place their Brief Synopsis of Submissions on record. Pursuant to the liberty so granted, the petitioner submitted their written submissions on 23 ....
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.... for the petitioner also drew the attention of the Court to the conflicting views which had been rendered on the interplay between IBC and PMLA and referred to the decision in Directorate of Enforcement vs. Manoj Kumar Agarwal 2021 SCC OnLine NCLAT 121 which had held that the Enforcement Directorate would have no jurisdiction to interfere or interdict proceedings under the IBC once a moratorium came into effect. Learned counsel also invited the attention of the Court to the conflicting views which had been expressed in Varrsana Ispat Limited vs. Deputy Director of Enforcement 2019 SCC OnLine NCLAT 236 as well as Andhra Bank vs. Sterling Biotech Limited Company Appeal (AT) (Insolvency) No.601, 612, 527 of 2019, Rotomac Global Private Limited vs. Deputy Director, Directorate of Enforcement 2019 SCC OnLine NCLAT 961 on the one hand and Manoj Kumar Agarwal on the other and contended that in light of the flux in the legal position, it would but be appropriate for this Court to effectively rule upon the questions which arise. The attention of the Court was also drawn to the judgement rendered by a larger bench of the National Company Law Appellate Tribunal (NCLAT) in Kiran Shah v. Enforc....
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....t No. 7/2020 is concerned, its validity has also been questioned before the National Company Law Tribunal [NCLT] by the petitioner and before which Authority the matter is still pending. The last of the preliminary objection is addressed without prejudice to the contention of the Directorate that even the invocation of the jurisdiction of the NCLT would be barred by law and in light of the principles laid down by the Supreme Court in Embassy Property Development Pvt. Ltd. vs. State of Karnataka & Ors. [(2020) 13 SCC 308]. In view of the above, Mr. Hossain would contend that the petitioner cannot pursue parallel remedies. Bearing in mind the aforenoted preliminary objections that are raised, let Mr. Vasisht, learned Senior Counsel respond to the same." 11. In view of the stand as taken by and on behalf of the ED and so encapsulated in the order of 6 May 2022, the Court notes that the respondents cannot be permitted to approbate and reprobate. Having taken the stand that a challenge to orders of attachment made under the PMLA cannot be considered or ruled upon by the NCLT while discharging its functions under the IBC, the preliminary objections which are raised in this regard clea....
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....then to the admitted fact that both the IBC as well as the PMLA adopt and incorporate non obstante clauses in terms of Sections 238 and 71 respectively, it was argued on behalf of the petitioner that it would be the IBC and its provisions which would prevail. It was submitted that IBC being a later statute, would prevail and override the provisions of the PMLA. According to learned counsel, the attachment orders as made are thus liable to be tested on the aforesaid lines. 15. Turning then to the provisions contained in Section 14 of the IBC, learned counsel for the petitioner laid stress upon the fact that section 14(1)(a) places a complete embargo on continuation and institution of suits or "proceedings" against the corporate debtor and which may be pending before any court of law, tribunal, arbitration panel or other authority. It was urged on behalf of the petitioner that proceedings of attachment that may be initiated under the PMLA are inherently civil in nature. It was argued that the provisions contained in Chapter III of the PMLA and which deal with attachment of properties alleged to have been derived or obtained from proceeds of crime or value thereof are purely civil in....
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....tion as a going concern as well, which is likely to maximize value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it "facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate." 8.11. Further, the purpose of the moratorium is to keep the assets of the debtor together for successful insolvency resolution, and it does not bar all actions, especially where countervailing public policy concerns are involved. For instance, criminal proceedings are not considered to be barred by the moratorium, since they do not constitute "money claims or recovery" proceedings. In this regard, the Committee also noted that in some jurisdictions, laws allow "regulatory claims, such as those which are not designed to collect money for the estate but to protec....
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....unsustainable. E. CONTENTIONS OF THE ENFORCEMENT DIRECTORATE 19. Appearing for the respondents, Mr. Zoheb Hossain, learned counsel appearing for the ED argued that "proceeds of crime" as defined under Section 2(1)(u) of PMLA is not an operational debt as per the provisions of Section 5(21) of the IBC. It was submitted that ED would not fall within the definition of an operational creditor as defined by Section 5(20) of the IBC. Learned counsel submitted that when the ED proceeds to attach properties representing proceeds of crime, it is not doing so by virtue of being a creditor of the corporate debtor. Mr. Hossain submitted that while an operational debt would mean a debt arising under any law for the time being in force, proceeds of crimes stand on a completely different pedestal and relate to ill gotten assets derived or obtained from the commission of a scheduled offence. In view of the aforesaid, learned counsel would submit that it would be wholly incorrect to proceed on the basis that orders of attachment made in respect of properties which constitute proceeds of crime is akin to an action taken by a creditor against the assets of a debtor. Learned counsel submitted that w....
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.... illegitimately secured by proscribed criminal activity. xxx xxx xxx 143. The proceeds of crime, there is no doubt, are not even remotely covered by the expressions "revenues, taxes, cesses" or other "rates." The word "revenue" is the controlling word, the expressions following (taxes, cesses, rates) taking the colour from the same. The word revenue, in the context of Government is to be understood to be conveying taxation [Gopi Pershad v. State of Punjab, AIR 1957 Punjab 45 (DB)]. This is how the expression is defined by Black's Law Dictionary, Eighth Edition as also by Cambridge English Dictionary (accessible online). The reliance by the respondents on the use of the expression "non-tax revenue" with reference to PMLA under major accounting head "0047 Other Fiscal Services" in the list of Heads of Accounts of Union and States issued by Controller General of Accounts, Department of Expenditure in the Ministry of Finance, Government of India under the Government of India (Allocation of Business) Rules, 1961 is misplaced. The use of the expression for accounting purposes - to take care of receipts flowing into the Consolidated Fund - cannot give to the ....
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.... (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 ill-gotten 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 being to take away what has been illegitimately secured by proscribed criminal activity." (emphasis in original) This raison d'être is completely different from what has been advocated by Shri Mehta. The confiscation of the proceeds of crime is by the Government acting statutorily and not as a creditor. This judgment, again, does not further his case." 21. Learned counsel then submitted that a person who is engaged in or has committed the offence of money-laundering cannot be permitted to avail or enjoy the proceeds thereof under the garb of seeking a discharge of his civil liability owed to its creditors. It was submitted t....
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....he following observations as made by NCLAT in Andhra Bank v Sterling Biotech Limited (Company Appeal (AT) (Insolvency) No. 601, 612, 527 of 2019),: "15. In so far the assets of the 'Corporate Debtor' is concerned, if it is based on the proceeds of crime, it is always open to the 'Enforcement Directorate' to seize the assets of the 'Corporate Debtor' and act in accordance with the 'Prevention of Money-laundering Act, 2002' (for short, 'the PMLA')." Mr. Hossain further urged that the flux in the legal position that may have existed in light of the decisions rendered by the NCLT and NCLAT in different decisions, in any case stands laid to rest in light of the decision pronounced by the larger bench of NCLAT in Kiran Shah where the decision in Manoj Kumar Agarwal was held to have been rendered per incuriam and the Tribunal had held as follows: - "98. Although, Section 14 of I & B Code deals with 'moratorium', it is not a hindrance for the 'Authority' and the Officers under the 'Prevention of Money-laundering Act, 2002' to deny person of the tainted 'Proceeds of Crime'. Suffice it for this 'Tribunal' to point out that a person who is involved in 'Money-laundering' is not to be allo....
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....est. 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 responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process. xxx xxx xxx 144. The respondent have referred to the following observations of the Supreme Court in order dated 10.08.2018 in Special Leave to Appeal (Civil) No. 6483/2018, Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited:- "Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override anything inconsistent contained in any other enactment, including the Income-Tax Act. We may also refer in this connection to Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. (2000) 5 SCC 694 and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons." 145....
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....A by virtue of the provisions contained in Section 32A. It was submitted that the said provision was introduced essentially to fill "critical gaps" in the corporate insolvency framework. According to Mr. Hossain, the introduction of Section 32A throws light upon the scope of Section 14 in the sense of providing an indication of the terminal point whereafter no further steps can be taken with respect to the assets of the corporate debtor. Learned counsel submitted that this Court in Nitin Jain Liquidator of PSL Limited vs. Enforcement Directorate 2021 SCC OnLine Del 5281 had clearly enunciated the "trigger events" under the IBC which would constitute an embargo on attachment under the PMLA. Referring to the said decision, Mr. Hossain submitted that the Court had found that the provisions of Section 32A would come into play only upon a Resolution Plan being approved or a measure towards liquidation being adopted and those alone constituting the "defining moment" for the aforesaid purpose. Learned counsel referred to the following passages as appearing in the decision of the Court in Nitin Jain: - "96. While Mr. Malhotra, learned senior counsel appearing for the secured creditors, h....
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....liquidation reaches the stage of the Adjudicating Authority approving the course of action to be finally adopted in relation to the corporate debtor. Section 32A legislatively places vital import upon the decision of the Adjudicating Authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by Section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result in a right being recognised as inhering in the respondent to move against the properties of the corporate debtor even after their sale or transfer has been approved by the Adjudicating Authority. This would clearly militate against the very purpose and intent of Section 32A. It becomes pertinent to recollect that one of the primary objectives which informed the introduction of this provision was to assure the resolution applicant that its offer once accepted would stand sequestered from action for enforcement of outstanding ....
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....ate debtor in the 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." 29. According to Mr. Hossain, the power of attachment when viewed in juxtaposition of the measure which ultim....
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....he PMLA in aid of the fight against organised crime and money laundering would clearly be detrimental to the economic interests and international commitments of the country itself. 32. Mr. Hossain then submitted that the principal objective of the PMLA is to prevent money-laundering and to confiscate all properties that may have been derived or obtained from commission of the aforesaid offence. It was urged that investigation under the PMLA is primarily aimed at unearthing and attaching proceeds that may be gained from the commission of scheduled offences. According to Mr. Hossain, the power of provisional attachment aids the ultimate confiscation of properties that may have been obtained by committing the offence of money laundering. The IBC, on the other hand, according to Mr. Hossain is an umbrella legislation which deals with the subject of insolvency resolution. That statute, according to learned counsel, is primarily concerned with a revival of a corporate debtor and for the protection of its interests and those of its various creditors during the insolvency resolution process. According to Mr. Hossain, since the primary purpose of the IBC is restricted to facilitating lende....
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....nt or discontinuance of the proceedings, or when property of the person to whom the gift was made is subject to [a restraint order or a charging order made under or for the purposes of that Act]; and (b) any order made by virtue of those sections after the conclusion of the proceedings shall take into account any realisation under this Part of property held by the person to whom the gift was made]." 34. Mr. Hossain then referred to the decision of the Supreme Court in Biswanath Bhattacharya vs. Union of India (2014) 4 SCC 392 which had accorded a judicial seal of approval to the concept of civil forfeiture. Mr. Hossain referred to the following passages as appearing in the aforesaid decision: "39. If a subject acquires property by means which are not legally approved, the sovereign would be perfectly justified to deprive such persons of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot establish that they have legitimate sources to acquire the assets held by them do not enjoy such wealth. Such a deprivation, in our opinion, would certainly be consistent with the requirement of Articles 300-A and 14 of the Constitution which....
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....s important to bear in mind the purpose of civil recovery, namely, to establish as a matter of civil law that there is no right to enjoy property that derives from unlawful conduct.'" 41. Non-conviction based asset forfeiture model also known as Civil Forfeiture Legislation gained currency in various countries: the United States of America, Italy, Ireland, South Africa, UK, Australia and certain Provinces of Canada. 42. Anthony Kennedy conceptualised the civil forfeiture regime in the following words: "Civil forfeiture represents a move from a crime and punishment model of justice to a preventive model of justice. It seeks to take illegally obtained property out of the possession of organised crime figures so as to prevent them, first, from using it as working capital for future crimes and, secondly, from flaunting it in such a way as they become role models for others to follow into a lifestyle of acquisitive crime. Civil recovery is therefore not aimed at punishing behaviour but at removing the 'trophies' of past criminal behaviour and the means to commit future criminal behaviour. While it would clearly be more desirable if successful criminal proceedings could be institut....
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....ges, hypothecation and the like. A 'financial creditor' is defined in Section 5(7) to mean a person to whom a financial debt owed. A 'financial debt' is defined in Section 5(8) as follows: - "5(8). "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation.- For the purposes of this sub-clause,- (i) any amount raised from....
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....at an operational debt has remained unpaid, admit the application. Section 13 empowers the Adjudicating Authority to declare a moratorium for purposes specified in Section 14. Sections 13 and 14 of the IBC are extracted hereinbelow: - "13. Declaration of moratorium and public announcement. (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order- (a) declare a moratorium for the purposes referred to in section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and (c) appoint an interim resolution professional in the manner as laid down in section 16. (2) The public announcement referred to in clause (b) of subsection (1) shall be made immediately after the appointment of the interim resolution professional." "14. Moratorium- (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedi....
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....ther authority: (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be." 39. The IBC then obliges the Adjudicating Authority to make a public announcement with respect to the CIRP process in accordance with the provisions contained in Section 15. Section 16 empowers the Adjudicating Authority to appoint an Interim Resolution Professional. Section 17 charges the Interim Resolution Professional to manage the affairs of the corporate debtor in the interregnum and reads thus: - "17. Management of affairs of corporate debtor by interim resolution professional.- (1) From the date of appointment of the interim resolution professional,- a) the management of the a....
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....uant to the public announcement made under sections 13 and 15; c) constitute a committee of creditors; d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; e) file information collected with the information utility, if necessary; and f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including- (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movable or immovable; (iv) intangible assets including intellectual property; (v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies; (vi) assets subject to the determination of ownership by a court or authority; g) to perform such other duties as may be specified by the Board. Explana....
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....order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors." 42. Section 32A came to be introduced by virtue of the Insolvency and Bankruptcy (Amendment) Act No.1 of 2020 (Amending Act No. 1 of 2020) with retrospective effect from 28 December 2019 and re....
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....hority 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 or liquidation process....
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.... the course of action to be finally adopted in relation to the corporate debtor. Section 32A legislatively places vital import upon the decision of the Adjudicating Authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by Section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result in a right being recognised as inhering in the respondent to move against the properties of the corporate debtor even after their sale or transfer has been approved by the Adjudicating Authority. This would clearly militate against the very purpose and intent of Section 32A. It becomes pertinent to recollect that one of the primary objectives which informed the introduction of this provision was to assure the resolution applicant that its offer once accepted would stand sequestered from action for enforcement of outstanding claims against the corporate debtor or from penalties connected with ....
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....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. 47. Proceeding then to rule upon the validity of the provision itself the Supreme Court 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 extingu....
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....e 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 did not remind ourselves that attaining public welfare very often needs delicate balancing of conflicting interests. As to what priority must be accorded to which interest must remain a 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." 49. The learned Judges of the Supreme Court in Manish Kumar reiterated the principal objective of maximization of value under the IBC and the corresponding requirement of ensuring that the resolution applicant is freed of the ghost of past offenses committed by the corporate debtor. 50. Undisputedly and as has been explained in the decisions of the Supreme Court noticed above, maximization of value would be clearly impacted if a resolution applicant were aske....
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....and Reasons as appended to the Bill which was introduced in Parliament and the same is extracted hereinbelow: - "STATEMENT OF OBJECTS AND REASONS It is being realised, world over, that money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty. Some of the initiatives taken by the international community to obviate such threat are outlined below:- (a) the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, to which India is a party, calls for prevention of laundering of proceeds of drug crimes and other connected activities and confiscation of proceeds derived from such offence. (b) the Basle Statement of Principles, enunciated in 1989, outlined basic policies and procedures that banks should follow in order to assist the law enforcement agencies in tackling the problem of money-laundering. (c) the Financial Action Task Force established at the summit of seven major industrial nations, held in Paris from 14th to 16th July, 1989, to examine the problem of money-laundering has made forty recommendations, which provide the foundation material for comprehensive....
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....ermediaries; (f) a definite time-limit of 24 hours should be provided for producing a person about to be searched or arrested person before the Gazetted Officer or Magistrate; (g) the words "unless otherwise proved to the satisfaction of the authority concerned" may be inserted in clause 22 relating to presumption on inter-connected transactions; (h) vacancy in the office of the Chairperson of an Appellate Tribunal, by reason of his death, resignation or otherwise, the senior-most member shall act as the Chairperson till the date on which a new Chairperson appointed in accordance with the provisions of this Act to fill the vacancy, enters upon his office; (i) the appellant before the Appellate Tribunal may be authorised to engage any authorised representative as defined under section 288 of the Income-tax Act, 1961, (j) the punishment for vexatious search and for false information may be enhanced from three months imprisonment to two years imprisonment, or fine of rupees ten thousand to fine of rupees fifty thousand or both; (k) the word 'good faith' may be incorporated in the clause relating to Bar of legal proceedings. The Central Government have broadly accepted....
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....ver directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the [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 till 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 ....
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....r not below the rank of Deputy Director, shall, immediately after attachment under subsection (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, 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. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under subsection (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....
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....tice issued under subsection (1) are involved in money-laundering: PROVIDED that if the property is claimed by a person, other than a 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 subsection (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (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 criminal jurisdiction outside India, as the case may be; and (b) become final after an order of confiscation is passed under subsection (5) or sub-section (7) of section 8....
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....ty, 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." 53. The Adjudicating Authority upon receipt of the material under Section 5(5) or upon an application under Section 17(4) or Section 18(10) and upon formation of the belief that a person has committed an offence of money laundering and is in possession of proceeds of crime, is required to serve a notice on such person to show cause why such properties be not declared to be properties involved in money laundering and confiscated by the Union Government. In terms of Section 8(2) the Adjudicating Authority, after considering the replies if any received, hearing the aggrieved persons and upon taking into account all relevant....
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....er country 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 Central Government shall, on receipt of a letter of request from a court or authority in a contracting State requesting for confiscation or release of property, as the case may be, forward the same to the Director to move an application before the Special Court and upon such application the Special Court shall pass appropriate orders regarding confiscation or release of such property involved in the offence of money-laundering." 56. Section 60(2A) deals with consequences of a finding of guilt having been returned by a criminal court situate outside India and reads as follows: - "60. Attachment, seizure and confiscation, etc., of property in a contracting State or India (2A) Where on closure of the criminal case or conclusion of trial in a criminal court outside India under the corresponding law of any other country, such court finds that the offence of Money-laundering under the corresponding law of that country has been committed, the Special Court shall, on receipt of an applicatio....
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....d the basic ethos and objective of the PMLA. PMLA represents the commitment of India to the Vienna and Palermo Conventions and the global resolve to fight the scourge of money laundering. As would be evident from its Statement of Objects and Reasons, it is not just an act meant to punish perpetrators of the crime of money laundering but to also deprive and confiscate properties which may have been derived from the commission of that offence. That approach has been adopted globally in order to spread the message that crime would not pay, to disrupt criminal networks and markets, as also to strike at the very heart of criminal enterprise and the assets that they may have garnered from such activities. PMLA also incorporates collaborative and reciprocal measures in furtherance of the resolve of nations to tackle the menace of crime and wealth obtained therefrom unhindered by frontiers and borders. 60. The heart of the PMLA was captured in paragraphs 64 and 65 of the decision of the Court in Nitin Jain:- "64. 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 Polit....
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....... We are therefore of opinion that forfeiture provided in Section 13(3) in case of offences which involve the embezzlement, etc. of government money or property is really a speedier method of realising government money or property as compared to a suit which it is not disputed the Government could bring for realising the money or property and is not punishment or penalty within the meaning of Article 20(1). Such a suit could ordinarily be brought without in any way affecting the right to realise the fine that may have been imposed by a criminal court in connection with the offence."] 34. In Ajit Mills case [(1977) 4 SCC 98 : 1977 SCC (Tax) 536], the question was whether it was permissible for the State Legislature to enact that sums collected by dealers by way of sales tax but not exigible under the State law-indeed prohibited by it- shall be forfeited to the exchequer. The question whether such a forfeiture was a penalty violating Article 20 did not arise in the facts of that case. The discussion revolved around the question whether such a forfeiture is a penalty for the violation of a prohibition contained under Section 46 of the relevant Sales Tax Act? The contravention of S....
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....uld be interpreted widely so as to take in all matters which are of a character incidental to the topics mentioned therein. Even so, there is a limit to such incidental or ancillary power flowing from the legislative entries in the various Lists in the Seventh Schedule. These incidental and ancillary powers have to be exercised in aid of the main topic of legislation, which, in the present case, is a tax on sale or purchase of goods. All powers necessary for the levy and collection of the tax concerned and for seeing that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental. But where the legislation under the relevant entry proceeds on the basis that the amount concerned is not a tax exigible under the law made under that entry, but even so lays down that though it is not exigible under the law, it shall be paid over to the Government, merely because some dealers by mistake or otherwise have collected it as tax, it is difficult to see how such a provision can be ancillary or incidental to the collection of tax legitimately due under a law made under the relevant taxing entry. We do not think that the ambit of ancillary or inciden....
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....of the European Convention on Human Rights is: 'Everyone is entitled to own whatever property they have (lawfully) acquired....' hence implying that they do not have a right under Article 1 to own property which has been unlawfully acquired. This point was argued in the Irish High Court in Gilligan v. Criminal Assets Bureau, Galvin, Lanigan & Revenue Commissioners [(1994-97) 5 Irish Tax Reports 424], namely, that where a defendant is in possession or control over assets which directly or indirectly constitute the proceeds of crime, he has no property rights in those assets and no valid title to them, whether protected by the Irish Constitution or by any other law. A similar view seems to have been expressed earlier in a dissenting opinion in Welch v. United Kingdom [(1995) 20 EHRR 247] :'in my opinion, the confiscation of property acquired by crime, even without express prior legislation is not contrary to Article 7 of the Convention, nor to Article 1 of the First Protocol'. This principle has also been explored in US jurisprudence. In United States v. Van Horn [789 F 2d 1492 (1986)] a defendant convicted of fraud and money laundering was not entitled to the return of the s....
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....which now stands adopted the world over in the fight against organised crime and money laundering. These principles were also lucidly explained by the U.S. Supreme Court in Caplin & Drysdale, Chartered vs. United States 1989 SCC OnLine US SC 136. The Court deems it apposite to extract the following passages from the aforesaid decision:- "16. Petitioner seeks to distinguish such cases for Sixth Amendment purposes by arguing that the bank's claim to robbery proceeds rests on "pre-existing property rights," while the Government's claim to forfeitable assets rests on a "penal statute" which embodies the "fictive property-law concept of... relationback" and is merely "a mechanism for preventing fraudulent conveyances of the defendant's assets, not.. a device for determining true title to property." Brief for Petitioner 40-41. In light of this, petitioner contends, the burden placed on defendant's Sixth Amendment rights by the forfeiture statute outweighs the Government's interest in forfeiture. Ibid. The premises of petitioner's constitutional analysis are unsound in several respects. First, the property rights given the Government by virtue of the forfeiture s....
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....'s part to receive these assets, would be peculiar. 18. There is no constitutional principle that gives one person the right to give another's property to a third party, even where the person seeking to complete the exchange wishes to do so in order to exercise a constitutionally protected right. While petitioner and its supporting amici attempt to distinguish between the expenditure of forfeitable assets to exercise one's Sixth Amendment rights, and expenditures in the pursuit of other constitutionally protected freedoms, see, e.g., Brief for American Bar Association as Amicus Curiae 6, there is no such distinction between, or hierarchy among, constitutional rights. If defendants have a right to spend forfeitable assets on attorney's fees, why not on exercises of the right to speak, practice one's religion, or travel? The full exercise of these rights, too, depends in part on one's financial wherewithal; and forfeiture, or even the threat of forfeiture, may similarly prevent a defendant from enjoying these rights as fully as he might otherwise, Nonetheless, we are not about to recognize an antiforfeiture exception for the exercise of each such right; nor ....
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....303, 78 L.Ed.2d 17 (1983). This includes the use of such economic power to retain private counsel. As the Court of Appeals put it: "Congress has already underscored the compelling public interest in stripping criminals such as Reckmeyer of their undeserved economic power, and part of that undeserved power may be the ability to command high-priced legal talent." 837 F.2d, at 649. The notion that the Government has a legitimate interest in depriving criminals of economic power, even insofar as that power is used to retain counsel of choice, may be somewhat unsettling. See, e.g., Tr. of Oral Arg. 50-52. But when a defendant claims that he has suffered some substantial impairment of his Sixth Amendment rights by virtue of the seizure or forfeiture of assets in his possession, such a complaint is no more than the reflection of "the harsh reality that the quality of a criminal defendant's representation frequently may turn on his ability to retain the best counsel money can buy" Morris v. Slappy, 461 U.S. 1, 23 103 S.Ct. 1610, 1622, 75 L.Ed.2d 610 (1983) (BRENNAN, J., concurring in result). Again, the Court of Appeals put it aptly: "The modern day Jean Valjean must be satisfied with ....
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....that this contention adds anything to petitioner's Sixth Amendment claim, because, while "[t]he Constitution guarantees a fair trial through the Due Process Clauses... it defines the basic elements of a fair trial largely through the several provisions of the Sixth Amendment, "Strickland v. Washington, 466 U.S. 668, 684-685, 104 S.Ct. 2052, 2062-2063, 80 L.Ed.2d 674 (1984). We have concluded above that the Sixth Amendment is not offended by the forfeiture provisions at issue here. Even if, however, the Fifth Amendment provides some added protection not encompassed in the Sixth Amendment's more specific provisions, we find petitioner's claim based on the Fifth Amendment unavailing. 26. Forfeiture provisions are powerful weapons in the war on crime; like any such weapons, their impact can be devastating when used unjustly. But due process claims alleging such abuses are cognizable only in specific cases of prosecutorial misconduct (and petitioner has made no such allegation here) or when directed to a rule that is inherently unconstitutional. "The fact that the... Act might operate unconstitutionally under some conceivable set of circumstances is insufficient to render ....
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....T]he lack of historical precedent for the asset freeze here is "[p]erhaps the most telling indication of a severe constitutional problem.``` Free Enterprise Fund v. Public Company Accounting Oversight Bd., 561 U.S. 477, 505-506 (2010) (quoting Free Enterprise Fund v. Public Company Accounting Oversight Bd., 537 F. 3d 667, 699 (CADC 2008) (Ka-vanaugh, J., dissenting)). Indeed, blanket asset freezes are so tempting that the Government's "prolonged reticence would be amazing if [they] were not understood to be constitutionally proscribed." Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 230 (1995); see Printz v. United States, 521 U.S. 898, 907-908 (1997) (reasoning that the lack of early federal statutes commandeering state executive officers "suggests an assumed absence of such power" given "the attractiveness of that course to Congress"). The common law prohibited pretrial freezes of criminal defendants' untainted assets. As the plurality notes, ante, at 13, for in personam criminal forfeitures like that at issue here, any interference with a defendant's property traditionally required a conviction, Forfeiture was "a part, or at least a consequence, of the judgment of ....
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....r instrumentalities of crime. So the Government may freeze tainted assets before trial based on probable cause to believe that they are forfeitable. See United States v. Monsanto, 491 U.S. 600, 602-603, 615-616 (1989). Nevertheless, our precedents require "a nexus... between the item to be seized and criminal behavior." Warden, Md. Penitentiary v. Havden. 387 U.S. 294. 307 (1967). Untainted assets almost never have such a nexus. The only exception is that some property that is evidence of crime might technically qualify as "untainted" but nevertheless has a nexus to criminal behavior. See Ibid. Thus, untainted assets do not fall within the Fourth Amendment tradition either. It is certainly the case that some early American statutes did provide for civil forfeiture of untainted substitute property. See Registry Act, §12, 1 Stat. 293 (providing for forfeiture of a ship or "the value thereof "); Collection Act of July 31, 1789, §22, 1 Stat. 42 (similar for goods); United States v. Bajakajian, 524 U.S. 321, 341 (1998) (collecting statutes). These statutes grew out of a broader "six-century-long tradition of in personam customs fines equal to one, two, three, or even four ti....
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....ave been derived or obtained directly or indirectly while committing a scheduled offence, but also against property equivalent in value as would be evident from a reading of the expansive definition of the expression "proceeds of crime" in Section 2(1)(u). 65. It also becomes important to note that the provisions for a pre- conviction attachment of properties was consciously adopted and incorporated in the PMLA to strengthen the fight against the offence of money laundering. This is evident from the recordal of the following facts by the Supreme Court in Vijay Madan Lal Chaudhary & Ors. v. Union of India & Ors. 2022 SCC OnLine SC 929:- "292. The background in which the amendment of 2013 became necessary can be culled out from the Report titled "Anti-Money Laundering and Combating the Financing of Terrorism" dated 25.6.2010. The relevant paragraphs of the said report read thus: "143. It is no formal and express legal condition that a conviction for the predicate offence is required as a precondition to prosecute money laundering, although some practitioners the assessment team met with felt that only a conviction would satisfactorily meet the evidentiary requirements. The defin....
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....f all relevant proceeds of crime. * The present strict and formalistic interpretation of the evidentiary requirements in respect of the proof of the predicate offence should be put to the test of the courts to develop case law and receive direction on this fundamental legal issue. * The level of the maximum fine imposable on legal persons should be raised or left at the discretion of the court to ensure a more dissuasive effect. * The practice of making a conviction of legal persons contingent on the concurrent prosecution/conviction of a (responsible) natural person should be abandoned. * Consider the abolishment of the redundant section 8A NDPS Act drug-related ML offence or, if maintained, bring the sanctions at a level comparable to that of the PMLA offence. ********* 233. Confiscation under Chapter III of the PMLA is only possible when it relates to "proceeds of crime as defined in s. 2(1)(u), i.e. resulting from a scheduled offence, and when there is a conviction of such scheduled (predicate) offence. In addition, in such cases, only proceeds of the predicate offence can be confiscated and not the proceeds of the ML offence itself. 234. The predicate offence conv....
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....talities used in terrorist acts or funds collected to be used by terrorist individuals. * The UAPA and NDPS Act do not allow for property of corresponding value to be confiscated. * There are no clear provisions and procedures on how to deal with the assets in the case of criminal proceedings when the suspect died. * Concerns based on the limited number of confiscations in relation to ML/FT offences. 294. As a sequel to these recommendations of FATF and the observations in the stated Report, Section 5 came to be amended vide Act 2 of 2013. In this connection, it may be useful to refer to the Fifty Sixth Report of the Standing Committee on Finance relating to the 2011 Bill, which reads thus: "5. Amendment in provisions implemented by Enforcement Directorate: (i) Attachment of property : The present Act in section 5 stipulates that the person from whom property is attached must "have been charged of having committed a scheduled offence". It is proposed to be deleted as property may come to rest with someone, who has nothing to do with the scheduled offence or even the money-laundering offence. Procedure for attachment is at present done as provided in t....
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....crime. The precondition for being proceeds of crime is that the property has been derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence. The sweep of Section 5(1) is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime. Such a person besides facing the consequence of provisional attachment order, may end up in being named as accused in the complaint to be filed by the authorised officer concerning offence under Section 3 of the 2002 Act." 66. The PMLA is thus a distinct regime adopted by the Nation aimed to strengthen the arms of enforcement agencies in the fight against crime, representative of the new tools adopted across the world to force the perpetrators of crime to disgorge the benefits that may have been derived or obtained and thus stands on a pedestal distinct and different from the insolvency regimen which has come to be erected in terms of the IBC. The two statutes thus subserve completely differen....
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....uld not be covered under Section 14(1)(a). The Delhi High Court's reasoning is contained in paras 139 and 141, which are set out hereinbelow: (SCC OnLine Del) "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 responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process. *** 141. This Court finds it difficult to accept the proposition that the jurisdiction conferre....
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.... upon a probe. The crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude. The total wrongful gain from the criminal activity cannot be computed till the investigation is completed. The authority for "provisional" attachment of suspect assets is to ensure that the same remain within the reach of the law. xxx xxx xxx 161. The law conceives of possibility of third party interest in property of a person accused of money-laundering being created legitimately or, conversely, with ulterior 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 absol....
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.... latter action is not rendered irrelevant or unenforceable. To put it clearly, in such situations as above (third party interest being prior to criminal activity) the order of attachment under PMLA would remain valid and operative, even though the charge or encumbrance 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. 165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its cla....
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....olvency proceedings have thus been transformed into a collective engagement to examine whether there is a possibility for the revival of the debtor. J. THE IMPACT OF THE MORATORIUM 73. The moratorium provision incorporated in the IBC is fundamentally aimed at maximisation of value, preservation of the assets of the debtor while possibilities of its resurrection are explored and ensuring that its various creditors do not initiate individual actions which may hamper or impede the resolution process. It is essentially aimed at preserving the insolvency estate and the suspension of actions against the debtor. The moratorium order staves off actions that may be initiated for enforcing security interests, claims by individual creditors, a restraint against the dissipation of its assets while the process of its restructuring is explored. It essentially seeks to sequester the assets of the debtor from actions which may be initiated by its creditors. It is during this crucial period that the viability of the debtor is assessed during the CIRP. 74. The purpose of a moratorium provision was explained by the Viswanathan Committee in its Insolvency Committee Report, 2015 as follows:- "5.3.....
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.... as those which are not designed to collect money for the estate but to protect vital and urgent public interests, restraining activities causing environmental damage or activities that are detrimental to public health and safety" to be continued during the moratorium period." 76. The Notes on Clauses for Section 14 in the original Bill read as under:- "the purposes of the moratorium include keeping the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default and "the moratorium on initiation and continuation of legal proceedings, including debt enforcement action ensures a stand-still period during which creditors cannot resort to individual enforcement action which may frustrate the object of the corporate insolvency resolution process." 77. The United Nations Commission on International Trade Law (UNCITRAL), Legislative Guide on Insolvency Law, (2005) while speaking of a moratorium provision observes as under:- "34. Other insolvenc....
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....ly subserves the purpose of preservation of the assets of the debtor, enables all stakeholders to explore the possibility of its revitalisation and if ultimately those efforts fail, for its expeditious liquidation. The aforesaid objective would be clearly negated if individual creditors were granted the right to enforce their claims independently. That would not only result in a depletion of the insolvency estate, it would ultimately jeopardise the interests of the body of creditors as a whole. As was succinctly explained by the Supreme Court in P. Mohanraj, clauses (a) and (b) of Section 14(1) constitute a scheme which shields the corporate debtor from "pecuniary attacks". It is these imperatives which appear to inform the provisions of Section 14 of the IBC. 79. Regard must also be had to the fact that in P. Mohanraj, the Supreme Court had contrasted the breadth of the moratorium envisaged under Section 14 with that provided for in Sections 85 and 96 of the IBC. It had noted that the latter two provisions were concerned with a stay of proceedings "in respect of any debt". It was in that context observed that the moratorium provisioned for in Section 14(1)(a) would be far wider a....
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....y a person by commission of a crime and thus deriving a benefit which was otherwise if not impermissible, forbidden by law. Assets which may have been obtained by the commission of a scheduled offense thus cannot be accorded exemption or immunity from the rigours of the PMLA. Acceptance of such a contention would not only run contrary to the legislative policy but also undermine the efforts of the legislature to combat the offense of money laundering. In fact if Section 14 were to be interpreted in the manner as suggested by the petitioner, it would deprive the authorities charged with implementing the provisions of the PMLA of an essential weapon in their quest to confiscate proceeds of crime. It would be pertinent to note that the activity of money laundering is itself aimed at obfuscating the origins of property illegally derived from crime. It is a process which inherently entails the layering of proceeds which itself is a dynamic process. The power of attachment is thus an essential tool which is designed to ensure that the tainted asset is not transferred or alienated further and beyond the reach of the authorities itself. 82. The Court finds itself unable to accept the subm....
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....eration before the NCLT and the NCLAT on various occasions in the past. Since those decisions have also been cited before this Court, it would be apposite to briefly notice the principles laid down therein as well as to lend a quietus to the controversy which stands raised. 85. However, and before proceeding to do so, it would be pertinent to advert to certain decisions cited on behalf of the petitioner and who contended that they are authorities for the proposition that since proceedings of attachment under the PMLA are civil in character, they would fall within the ambit of the moratorium provision contained in Section 14 of the IBC. They had firstly relied upon a judgment rendered by the Andhra Pradesh High Court in B. Rama Raju vs. Union of India 2011 SCC OnLine AP 152. It becomes pertinent to note that B. Rama Raju was dealing with a batch of writ petitions which had laid challenge to the constitutionality of various provisions of the PMLA. This would be evident from a perusal of the issues which stood crystallized in paragraph 14 of the report. The said decision does not deal with the question of attachment and the scope or ambit of the moratorium under Section 14 at all. Si....
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....ted the position which had been elucidated in Varrsana Ispat and proceeded to dismiss the appeal. The sole discordant note which appears to have been struck by NCLAT was in the matter of Manoj Kumar Agarwal. It was in this decision that the NCLAT for the first time took the position that in light of the aims and objects of the IBC, it would be impermissible for the authorities under the PMLA being recognised to have a right to exercise the powers of attachment after a moratorium had come into effect. This is evident from the following conclusions which came to be recorded in that decision: - "56. Taking aid from this, it appears to us that after the attachment when matter goes before the Adjudicating Authority under PMLA, proceeding before Adjudicating Authority for confirmation would be civil in nature. That being so, Section 14 of IBC would be attracted and applies. In present matter, the Provisional Attachment took place on 29th May, 2018 and corrigendum was issued on 14th June, 2018. The CIRP started on 16th July, 2018. Once moratorium was ordered, even if the Appellant moved the Adjudicating Authority under PMLA, further action before Adjudicating Authority under PMLA must b....
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....s argued that PMLA is a special statute and has an overriding effect still Section 238 of IBC is also a special statute and which is subsequent statute. IBC has specific object, which is to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons and to promote entrepreneurship, availability of credit and balance the interest of all stakeholders including alteration in the order of priority of payment of Government dues. 60. Section 238 of IBC reads as under: "238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 61. If this Section is perused, the provisions of this Code would have effect notwithstanding anything inconsistent therewith contained "in any other law" for the time being in force. Section 238 of IBC does not give over riding effect merely to Section 14. The other provisions also are material, and will have effect if there is anything inconsistent therewi....
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....which had come to be recorded therein. It may only be observed that the previous judgment in Varrsana Ispat was perfunctorily dealt with and no cogent reasons assigned to doubt its correctness. The legal position up to the stage of the NCLT and NCLAT in any case ultimately came to be laid at rest by the larger Bench of the Appellate Tribunal in Kiran Shah. Kiran Shah after noticing the relevant statutory provisions which would apply as well as the earlier judgments rendered by the Tribunals in this respect while reiterating Varrsana Ispat held as under: - "98. Although, Section 14 of I&B Code deals with 'moratorium', it is not a hindrance for the 'Authority' and the Officers under the 'Prevention of Money Laundering Act, 2002' to deny a person of the tainted 'Proceeds of Crime'. Suffice it for this 'Tribunal' to point out that a person who is involved in 'Money Laundering' is not to be allowed to enjoy the fruits of 'Proceeds of Crime' with a view to ward off is Civil indebtedness, in respect of his Creditors. 99. As seen from the 'Prevention of Money Laundering Act, 2002', the purpose of the Act is to prevent 'Money Laundering' and it deals with confiscation of property derive....
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....ad been rendered by the Tribunals on the subject it may be noted that the Madras High Court in Joint Director, Directorate of Enforcement Vs. Asset Reconstruction Company India Ltd and others Writ Petition No.29970 of 2019 made the following pertinent observations: - "8. Section 14 of the IBC speaks of moratorium. A declaration has to be made through an order by the Adjudicatory Authority in this regard. If one carefully goes through the said section, there is no way professional attachment order passed under the provisions of the PMLA would automatically invite a moratorium. This provision only speaks about the consequence for institution of the suit, for continuance and other proceedings against the Corporate Debtor. Therefore, Section 14 of the IBC is consequent upon an order passed by the Adjudicative Authority declaring moratorium. This would not apply to a special enactment which travels on its own path. After all, one cannot presume a conflict between two enactments having it distinct roles with their objections. As stated, it only speaks about the follow up action over a property, which is subject matter of the proceedings before the National Company Law Tribunal under th....
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.... to secured creditors". Though Section 26-E of SARFAESI Act requires, as a condition precedent, "the registration of security interest", which is not requisite for Section 31-B of RDBA to operate, both provisions give precedence to realization of "debts due to" the "secured creditor", the clause in RDBA also clarifying it by additional words "payable to them by sale of assets over which security interest is created". Each of these provisions renders secondary "all other debts" and "revenues, taxes, cesses" and "rates" enforced by "the Central Government, State Government or local authority". Section 31-B of RDBA uses the expression "due to" while Section 26-E of SARFAESI Act uses the words "payable to" in relation to such debts, revenues, taxes, etc., the meaning being similar. 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....
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....which stands reserved and legislatively mandated to be exclusively controlled and governed by one of the competing statutes. The aspect of legislative fields of IBC and PMLA and the imperative to strike a correct balance was rightly noticed and answered by the learned Judge in Axis Bank." 93. On a consideration of the precedents which have come to be rendered on the aforesaid subject, this Court finds that both NCLT and NCLAT, have correctly taken the view that the moratorium would not prevent the authorities under the PMLA from exercising the powers conferred by Sections 5 and 8 notwithstanding the pendency of the CIRP. The view as taken and expressed in the decisions aforenoted clearly commends acceptance and reiteration for the reasons assigned in those decisions as well as those noted by this Court in paragraphs 78-83 of this decision. L. ATTACHMENT AND ITS EFFECT 94. The Court then deems it pertinent to observe that while proceeding to attach the tainted property, the respondents are not in essence effacing the property rights that may be claimed by an individual. It is a symbolic taking over of the custody of the property and for its preservation till such time as the proc....
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.... v. Bombay Life Assurance Co. Ltd. [AIR 1953 SC 385 : (1954) SCR 117 : (1954) 24 Com Cas 1] it has been laid down clearly that a Receiver appointed by a court in respect of certain shares which had not been duly entered in the Register of Members of the company concerned as belonging to him could not acquire certain newly issued shares which could be obtained by the members of the company. This Court observed at p. 143 thus: "Mr Pathak argued that the plaintiff was entitled to relief A and B, both in his suit as well as in the Receiver's suit and that the Receiver's suit was wrongly dismissed by the High Court. We are unable to agree. In our opinion, the High Court rightly held that the Receiver appointed in the suit of Sir Padampat could not acquire the newly issued shares in his name. That privilege was conferred by Section 105-C only on a person whose name was on the Register of Members. The Receiver's name admittedly was not in the register and the company was not bound to entertain that application. Mr Pathak argued that that may be so but the Receiver was not making an application in his individual right but he had been armed by the court with power to apply in ....
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...., the judgment-debtor retains title in the property attached. Under Rule 76 of Order 21 of the Code of Civil Procedure, 1908, the shares in a corporation which are attached may be sold through a broker. In the alternative such shares may be sold in public auction under Rule 77 thereof. On such sale either under Rule 76 or under Rule 77, the purchaser acquires title. Until such sale is effected, all other rights of the judgment-debtor remain unaffected even if the shares may have been seized by the officer of the Court under Rule 43 of Order 21 of the Code of Civil Procedure, 1908 for the purpose of effecting the attachment, or through a Receiver or though an order in terms of Rule 46 of Order 21 of the Code of Civil Procedure may have been served on the judgment-debtor or on the company concerned." 96. Similarly in Kerala State Financial Enterprises Ltd. vs. Official Liquidator (2006) 10 SCC 709 the Supreme Court explained the concept of attachment in the following terms: - "10. The expression "attachment" has no definite connotation. An order of attachment is passed for achieving a limited purpose. It is subject to further orders as also the provisions of other statute. 11. The....
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....rocedure and attachment for execution of a decree under Order 21 thereof. An order of attachment before judgment passed under Order 38 seeks to safeguard the interests of the plaintiff so that in the event a decree is passed, the same stands satisfied. On the other hand, the essential parties (sic purpose) of Order 21 is to see that the process of court is not defeated once execution starts, but the same would not mean that the provisions of the Companies Act become wholly inapplicable. [See Faqir Chand Gupta v. Tanwar Finance (P) Ltd. [(1981) 51 Comp Cas 60 (Del)] ]" 97. The aforesaid principles would establish that an attachment is essentially aimed at preventing private alienations. It does not confer a title on the authority which has taken that step. The attachment only enables the authorities under the act to restrain any further transactions with respect to the aforesaid property till such time as a trial with respect to the commission of an offence of money laundering comes to an end. Attachment under the PMLA does not result in an extinguishment or effacement of property rights. It is essentially a fetter placed upon the possessor of that property to deal with the same ti....
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....ns 5 and 8 remain orders of attachment. The passing of those orders neither result in confiscation of those properties nor do those properties come to vest in the Union Government upon such orders being made. As was noticed by the Court in the earlier parts of this decision, the properties come to be confiscated only after a Special Court proceed to render a finding of guilt and frame orders for the properties so attached being confiscated in favor of the Union Government. As would be evident from a perusal of Section 8(6) where a Special Court finds or comes to the conclusion that an offence of money-laundering has not been established, it is obliged to release the attached property to the person entitled to receive it. 101. The attached property comes to vest in the Union Government only upon the passing of such an order as may be passed by the special Court either under sub-Sections 5 or 7 of Section 8 or Sections 58B or Section 60(2)(a). The aforesaid discussion leads the Court to conclude that the provisional attachment of properties would in any case not violate the primary objectives of Section 14 of the IBC. M. NON OBSTANTE CLAUSE IN THE IBC AND PMLA 102. The Court had w....
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....ter enactment would prevail. The headnote which brings out succinctly the ratio of the said decision is as follows: 'Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the legislature was aware of the earlier legislation and its non obstante clause. If the legislature still confers the later enactment with a non obstante clause it means that the legislature wanted that enactment to prevail. If the legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply.' " (See also Engg. Kamgar Union v. Electro Steels Castings Ltd. [(2004) 6 SCC 36 : 2004 SCC (L&S) 782] )" 104. More importantly and while dealing with the question which arises for determination in this case, the Court would have to bear in mind the undisputed fact that while the PMLA was originally promulgated on 01 July 2005, the IBC came to be enforced with effect from 28 May 2016 and on subsequent dates when its various provisions were separately enforced. Section 238 of the IBC came to be energ....
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....tatute. Since both statutes contained non obstante clauses, ordinarily the 1985 Act would have had to yield being the statute promulgated prior in point of time. However, the answer to the issue raised in Ketan Parekh came to be impacted by the insertion of Section 9-A in the 1985 Act by virtue of an amending act introduced 1994. Dealing with the impact of that later amendment the Supreme Court observed thus:- "28. In the present case, both the two Acts i.e. the Act of 1992 and the Act of 1993 start with the non obstante clause. Section 34 of the Act of 1993 starts with non obstante clause, likewise Section 9-A (sic 13) of the Act of 1992. But incidentally, in this case Section 9A came subsequently i.e. it came on 25-1-1994. Therefore, it is a subsequent legislation which will have the overriding effect over the Act of 1993. But cases might arise where both the enactments have the non obstante clause then in that case, the proper perspective would be that one has to see the subject and the dominant purpose for which the special enactment was made and in case the dominant purpose is covered by that contingencies, then notwithstanding that the Act might have come at a later point o....
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....once granted, may be revoked if it is found that the promoter defaults in complying with the various statutory requirements or indulges in unfair practices or irregularities. Importantly, upon revocation of registration, the authority is to facilitate the remaining development work, which can then be carried out either by the "competent authority" as defined by RERA or by the association of allottees or otherwise. The promoter at the time of booking and issue of allotment letters has to make available to the allottees information, inter alia, as to the stage-wise time schedule of completion of the project. Deposits or advances beyond 10% of the estimated cost as advance payment cannot be taken without first entering into an agreement for sale. Importantly, the agreement for sale will now no longer be a one sided contract of adhesion, but in such form as may be prescribed, which balances the rights and obligations of both the promoter and the allottees. Importantly, under Section 18, if the promoter fails to complete or is unable to give possession of an apartment, plot or building in accordance with the terms of the agreement for sale, he must return the amount received by him in r....
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....Given these circumstances, it is a little difficult to accede to arguments made on behalf of the learned Senior Counsel for the petitioners, that RERA is a special enactment which deals with real estate development projects and must, therefore, be given precedence over the Code, which is only a general enactment dealing with insolvency generally. From the introduction of the Explanation to Section 5(8)(f) of the Code, it is clear that Parliament was aware of RERA, and applied some of its definition provisions so that they could apply when the Code is to be interpreted. The fact that RERA is in addition to and not in derogation of the provisions of any other law for the time being in force, also makes it clear that the remedies under RERA to allottees were intended to be additional and not exclusive remedies. Also, it is important to remember that as the authorities under RERA were to be set up within one year from 1-5-2016, remedies before those authorities would come into effect only on and from 1-5-2017 making it clear that the provisions of the Code, which came into force on 1-12-2016, would apply in addition to RERA." 108. On a consideration of the aforesaid, the Court comes t....
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....time and the various avenues which stand created under the PMLA itself for an aggrieved person to seek the release of attached properties. 111. Apart from the provision of an appeal that may be taken against the order passed by the Adjudicating Authority under Section 8 of the PMLA, the Court also takes note of sub-section (8) of Section 8 in terms of which an aggrieved party is granted a right to seek release of property even after it may have been confiscated in favor of the Union Government. The safeguards which stand created in respect of the third parties who may have bona fide obtained an interest in the attached properties was noticed and answered by Axis Bank as under:- "149. An order of attachment under PMLA, if it meets with the statutory pre-requisites, is as lawful as an action initiated by a bank or financial institution, or a secured creditor, for recovery of dues legitimately claimed or for enforcement of secured interest in accordance with RDBA or SARFAESI Act. An order of attachment under PMLA is not rendered illegal only because a secured creditor has a prior secured interest (charge) in the subject property. Conversely, mere issuance of an order of attachment ....
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....set 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 frustrate this law. In this view, it can be concluded that the date or period of the commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-....
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....the following terms: - "165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA." 113. Viewed in the aforenoted backdrop it is manifest that an order of attachment when made under the PMLA does not result in the corporate debtor or the Resolution Professional facing a fait accompli. The statutes provide adequate means and avenues for redressal of ....