TaxTMI 
TaxTMI 
2022 (11) TMI 600
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....5 August 2020, subsequently and since those 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 commence....
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....the proceedings before the NCLT under the IBC. 4. 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 Aug....
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....ursue parallel remedies. The said objection as was addressed 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, ....
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....ch stands conferred upon the ED under the PMLA. Learned counsel 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....
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.... It is lastly pointed out that insofar as the Provisional Order of Attachment 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 ....
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....provisions would have primacy over any other general statute including the PMLA. 14. Turning 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 al....
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....default." Keeping the corporate debtor running as a going concern during the CIRP helps in achieving resolution 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,....
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....xtension of the protection conferred by Section 14(1)(a) and, therefore, the impugned orders of attachment are rendered wholly 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 con....
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....e 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. 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) ....
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....t the proposition that the jurisdiction conferred on the State by PMLA to confiscate the "proceeds of crime" concerns a property the value whereof is "debt" due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of 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 com....
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....t only did the judgement of NCLAT stand merged, it also became the law of the land as declared by the Supreme Court and thus binding on all authorities in view of Article 141 of the Constitution. 23. Reliance was then placed on the 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 th....
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....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. 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....
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....Axis Bank and, more particularly, Para 146 of the report, the learned Judge had unequivocally held that a person indulging in money laundering cannot be permitted to avail of the proceeds of crime. 26. Mr. Hossain then submitted that the IBC creates a specific bar with respect to proceedings that may be initiated under the PMLA 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 a....
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....y envisages the process of resolution or liquidation to move forward unhindered. The Legislature in its wisdom has recognised a pressing and imperative need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the Adjudicating Authority approving the course of action to be finally adopted in relation to the corporate debtor. 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 ....
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....l. 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 29A, 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 corporate 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 ....
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....must be treated differently. He further argued that PMLA is a statute which has been enacted in light of the international obligations owed by India by virtue of being a signatory to various treaties and agreements. Learned counsel would submit that an interpretation of the IBC provisions in a manner which stifles or fetters the powers conferred upon authorities by the 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 whi....
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....ty for the time being subject to such restraint order.] [(4) Where a person is adjudged bankrupt and has directly or indirectly made a gift caught by this Part: (a) no order shall be made by virtue of sections [ ] of the [Bankruptcy Act] in respect of the making of the gift at any time when the person has been charged with a serious offence and the proceedings have not been concluded by the acquittal of the defendant 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 me....
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....e had no right to possess. In United States v. Dusenbery [34 F Supp 2d 602 (1999)] the Court held that, because the respondent conceded that he used drug proceeds to purchase a car and other personal property, he had no ownership interest in the property and thus could not seek a remedy against the Government's decision to destroy the property without recourse to formal forfeiture proceedings. The UK Government has impliedly adopted this perspective, stating that: '... It is 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 possessi....
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.... creditor an unsecured creditor and a decree holder. The word 'debt' is defined in section 3(11) to mean a liability or obligation in respect of a claim which is due from any person and includes a financial or an operational debt. A 'secured creditor' is defined in Section 3(30) to mean a creditor in whose favour a security interest stands created. The expression 'security interest' is defined in Section 3(31) to include transactions which secure payment or performance of an obligation and also include mortgages, charges, 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 instrumen....
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....th other financial creditors in terms of Section 7. As per Section 7(5) of the IBC where an Adjudicating Authority is satisfied that a default has occurred, it may proceed to admit the insolvency petition. Section 7(6) of the IBC stipulates that the CIRP shall commence from the date of admission of the application in terms of sub-section (5) noticed hereinabove. Section 8 of the IBC confers an identical right upon an operational creditor to initiate insolvency proceedings against a corporate debtor. In terms of Section 9(5) of the IBC, the Adjudicating Authority, may after due consideration and upon being satisfied that 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 corp....
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....lution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of sub-section (1) shall not apply to - (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other 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 liquid....
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....irements under any law for the time being in force on behalf of the corporate debtor." 40. The duties of an Interim Resolution Professional are set out in Section 18 which reads as follows: - "18. Duties of interim resolution professional.- The interim resolution professional shall perform the following duties, namely:- a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to- (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; b) receive and collate all the claims submitted by creditors to him, pursuant 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 c....
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....-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government of any local authority to whom a debt in respect of the payment of due4s arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this subsection, satisfy that the resolution plan has provisions for its effective implementation. (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all record....
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....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 (6 of 2009), or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013 (18 of 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-section. (2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person,....
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....f 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 clearly borne out from the Committee Reports as well as the SOA. 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. The Legislature in its wisdom has recognised a pressing and imperative need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the Adjudicating Authority approving the course of action to be finally adopted in rel....
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....n conditions." 45. 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 close reading of Section 32A (1) and (2) establishes that the legislature in its wisdom has erected two unfaltering barriers. It firstly prescribes that the offense, which may entail either prosecution of the debtor or proceedings against its properties, must be one which was committed prior to the commencement of the CIRP. Secondly the cessation of liability for the offense committed is to occur the moment when a resolution is approved by the Adjudicating Authority or upon sale of liquidation assets. The provision in unequivocal terms ter....
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.... of the old management. It cannot even be the related party of the corporate debtor. The new management cannot be the subject-matter of an investigation which has resulted in material showing abetment or conspiracy 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 subjectmatter 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 maximisatio....
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....52. The Legislature in its wisdom has recognised a pressing and imperative need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the adjudicating authority approving the course of action to be finally adopted in relation to the corporate debtor. The Supreme Court in Manish Kumar also took note of the sufficient safeguards and the prerequisite conditions that stand attached to the cessation of liabilities to ultimately come to the conclusion that the Legislature had undertaken a well-considered balancing exercise to ensure that larger public interest was subserved." 45. Section 238 of the IBC which embodies the non obstante clause reads thus: - "238. Provisions of this Code to override other laws. 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." G. PMLA AND THE PROCEEDS OF CRIME 46. Turning then to the provisions of the PMLA, the....
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....ther declaration regarding the need to combat money-laundering. India is a signatory to this declaration. 2. In view of an urgent need for the enactment or a comprehensive legislation inter alia for preventing money-laundering and connected activities confiscation of proceeds of crime, setting up of agencies and mechanisms for co-ordinating measures for combating money-laundering, etc., the Prevention of Money-laundering Bill, 1998 was introduced in the Lok Sabha on the 4th August, 1998. The Bill was referred to the Standing Committee on Finance, which presented its report on the 4th March, 1999 to the Lok Sabha. The recommendations of the Standing Committee accepted by the Central Government are that (a) the expressions "banking company" and "person" may be defined; (b) in Part I of the Schedule under Indian Penal Code the word offence under section 477A relating to falsification of accounts should be omitted; (c) 'knowingly' be inserted in clause 3(b) relating to the definition of money-laundering; (d) the banking companies financial institutions and intermediaries should be required to furnish information of transactions to the Direct....
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.... by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equivalent in value held within the country] [or abroad]; [Explanation: For the removal of doubts, it is hereby clarified that "proceeds of crime" include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence;]" 48. The word 'property' is defined in Section 2(1)(v) as follows: - "2(1)(v) "property" means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located; [Explanation: For the removal of doubts, it is hereby clarified that the term "property" includes property of any kind used in the commission of an offence under this Act or any of the scheduled offences;]" 49. The expression 'transfer' is defined in Section 2(1)(za)....
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....such property for a period not exceeding one hundred and eighty days from the date of the order, in such manner as may be prescribed: PROVIDED that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973, or a complaint has been filed by a person authorised to investigate the offence mentioned in that Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or a similar report or complaint has been made or filed under the corresponding law of any other country: PROVIDED FURTHER that, notwithstanding anything contained in first proviso, any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely t....
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.... "8. Adjudication.- (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under sub-section (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3 or is in possession of proceeds of crime, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized or frozen under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: PROVIDED that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: PROVIDED FURTHER that where such property is held jointly by more than one person,....
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....ay be prescribed: PROVIDED that if it is not practicable to take possession of a property frozen under sub-section (1A) of section 17, the order of confiscation shall have the same effect as if the property had been taken possession of. (5) Where on conclusion of a trial of an offence under this Act, the Special Court finds that the offence of money-laundering has been committed, it shall order that such property involved in the money-laundering or which has been used for commission of the offence of money-laundering shall stand confiscated to the Central Government. (6) Where on conclusion of a trial under this Act, the Special Court finds that the offence of money-laundering has not taken place or the property is not involved in money-laundering, it shall order release of such property to the person entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to posses....
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....en under Sections 17 or 18. Once such an order of confirmation is passed, the attachment, retention or freezing of property is to continue during the process of investigation for a period not exceeding 365 days or the pendency of proceedings that may have been initiated in respect of an offence under the PMLA before a court. The order passed by the Adjudicating Authority is conferred statutory finality upon an order of confiscation coming to be passed by the Special Court under sub-sections (5) or (7) of Section 8 or Section 58B or Section 60(2)(a). Sub-section (5) of Section 8 deals with the consequences of the Special Court, ultimately and upon conclusion of trial, coming to hold that the offence of money-laundering had in fact been committed. Upon such a conclusion being reached, the Special Court stands statutorily empowered to order confiscation of the property in favour of the Union Government. As per Section 8(7), where the trial under the aforesaid statute is not concluded on account of the death of the accused or the accused being declared a proclaimed offender or for any other reason, the Special Court may pass appropriate orders either for confiscation or for release of ....
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....ection (7) of section 8 or section 58B or subsection (2A) of section 60 in respect of any property of a person, all the rights and title in such property shall vest absolutely in the Central Government free from all encumbrances: PROVIDED that where the Special Court or the Adjudicating Authority, as the case may be, after giving an opportunity of being heard to any other person interested in the property attached under this Chapter, or seized 2 or frozen under Chapter V, is of the opinion that any encumbrance on the property or lease-hold interest has been created with a view to defeat the provisions of this Chapter, it may, by order, declare such encumbrance or lease-hold interest to be void and thereupon the aforesaid property shall vest in the Central Government free from such encumbrances or lease-hold interest: PROVIDED FURTHER that nothing in this section shall operate to discharge any person from any liability in respect of such encumbrances which may be enforced against such person by a suit for damages." 58. PMLA puts in place a structure of Special Courts for the purposes of trial of offences under the said statute. These are contained in Chapter VII....
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....ors of such action of the fruits derived from such activities, lead to the Government introducing the Prevention of Money-laundering Bill, 1998 in Parliament. The PMLA ultimately came to be enforced with effect from 1 July 2005. 65. As is manifest from a reading of the long title of the PMLA, it has essentially been promulgated to prevent money laundering and to provide for confiscation of property derived from or involved in the crime of money laundering. The expression "proceeds of crime" has been defined in Section 2(u) of the PMLA to mean any property derived or obtained whether directly or indirectly by a person as a result of criminal activity relating to a scheduled offence or the value of any such property and where such property is taken or held outside the country, then property equivalent in value thereto." 61. It is pertinent to note that while Section 3 creates the offence of money laundering, Section 4 of the PMLA prescribes the punishment for the aforesaid offence. The powers of attachment which stand comprised in Sections 5 and 8 are an adoption of the principles of civil forfeiture and are in implementation of the intent of the Legislature that perpetra....
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....77) 4 SCC 98 : 1977 SCC (Tax) 536] was - whether the State Legislature had necessary competence to provide for such forfeiture? The answer to the query depended upon whether such a forfeiture is a penalty for the violation of law made by the State for the levy and collection of sales tax. If it is not a penalty but a plain transfer of money (illegally collected by the dealer) to the State it would be incompetent for the legislature to make such a provision in the light of an earlier Constitution Bench decision of this Court in R. Abdul Quader & Co. v. STO [Abdul Quader case, AIR 1964 SC 922, pp. 923-24, para 4: "4. The first question therefore that falls for consideration is whether it was open to the State Legislature under its powers under List II Entry 54 to make a provision to the effect that money collected by way of tax, even though it was not due as a tax under the Act, shall be made over to the Government. Now it is clear that the sums so collected by way of tax are not in fact tax exigible under the Act. So it cannot be said that the State Legislature was directly legislating for the imposition of sales or purchase tax under List II Entry 54 when it made such a pr....
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....law, it will still be collected as if it was such a tax. This is what Section 11(2) has provided. Such a provision cannot in our opinion be treated as coming within incidental or ancillary powers which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible. We are therefore of opinion that the provision contained in Section 11(2) cannot be made under List II Entry 54 and cannot be justified even as an incidental or ancillary provision permitted under that entry."] . 36. As explained above, the issue and the ratio decidendi of Ajit Mills case [(1977) 4 SCC 98 : 1977 SCC (Tax) 536] is entirely different and has nothing to do with the application of Article 20 of the Constitution of India. 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 c....
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....urse to formal forfeiture proceedings. The UK Government has impliedly adopted this perspective, stating that: '... It is 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 beha....
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....2 ed., Supp. V). As Congress observed when the provision was adopted, this approach, known as the "taint theory," is one that "has long been recognized in forfeiture cases," including the decision in United States v. Stowell, 133 U.S. 1, 10 S.Ct. 244, 33 L.Ed. 555 (1890). See S.Rep. No. 98225, p. 200, and n. 27 (1983). In Stowell, the Court explained the operation of a similar forfeiture provision (for violations of the Internal Revenue Code) as follows: "As soon as [the possessor of the forfeitable asset committed the violation] of the internal revenue laws, the forfeiture under those laws took effect, and (though needing judicial condemnation to perfect it) operated from that time as a statutory conveyance to the United States of all the right, title and interest then remaining in the [possessor]; and was as valid and effectual, against all the world, as a recorded deed. The right so vested in the United States could not be defeated or impaired by any subsequent dealings of the... [possessor]," Stowell, supra, at 19, 10 S.Ct., at 248. 17. In sum, § 853(c) reflects the application of the long-recognized and lawful practice of vesting title to any forfeitable....
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.... from client to attorney, the principal ends of forfeiture have been achieved: dispossessing a drug dealer or racketeer of the proceeds of his wrong-doing. See Brief for Petitioner 39; see also 814 F.2d, at 924-925. We think that this view misses the mark for three reasons. 20. First, the Government has a pecuniary interest in forfeiture that goes beyond merely separating a criminal from his ill-gotten gains; that legitimate interest extends to recovering all forfeitable assets, for such assets are deposited in a Fund that supports law enforcement efforts in a variety of important and useful ways. See 28 U.S.C. § 524(c), which establishes the Department of Justice Assets Forfeiture Fund. The sums of money that can be raised for law-enforcement activities this way are substantial, and the Government's interest in using the profits of crime to fund these activities should not be discounted. 21. Second, the statute permits "rightful owners of forfeited assets to make claims for forfeited assets before they are retained by the Government. See 21 U.S.C. § 853 (n)(6)(A). The Government's interest in winning undiminished forfeiture thus includes the obj....
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....ong governmental interest in obtaining full recovery of all forfeitable assets, an interest that overrides any Sixth Amendment interest in permitting criminals to use assets adjudged forfeitable to pay for their defense. Otherwise, there would be an interference with a defendant's Sixth Amendment rights whenever the Government freezes or takes some property in a defendant's possession before, during, or after a criminal trial. So-called "jeopardy assessments Internal Revenue Service (IRS) seizures of assets to secure potential tax liabilities, see 26 U.S.C. § 6861-may impair a defendant's ability to retain counsel in a way similar to that complained of here. Yet these assessments have been upheld against constitutional attack, and we note that the respondent in Monsanto concedes their constitutionality, see Brief for Respondent in No. 88-454, p. 37, n. 20. Moreover, petitioner's claim to a share of the forfeited assets postconviction would suggest that the Government could never impose a burden on assets within a defendant's control that could be used to pay a lawyer. Criminal defendants, however, are not exempted from federal, state, and local taxation sim....
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....lates the rights of innocent persons. As the Court of Appeals put it, in rejecting this claim when advanced below: "Every criminal law carries with it the potential for abuse, but a potential for abuse does not require a finding of facial invalidity." 837 F.2d, at 648. 27. We rejected a claim similar to petitioner's last Term, in Wheat v. United States, 486 U.S. 153, 108 S.Ct. 1692, 100 L.Ed.2d 140 (1988). In Wheat, the petitioner argued that permitting a court to disqualify a defendant's chosen counsel because of conflicts of interest-over that defendant's objection to the disqualification would encourage the Government to "manufacture" such conflicts to deprive a defendant of his chosen attorney. Id., at 163, 108 S.Ct. at 1699. While acknowledging that this was possible, we declined to fashion the per se constitutional rule petitioner sought in Wheat, instead observing that "trial courts are undoubtedly aware of [the] possibility" of abuse, and would have to "take it into consideration," when dealing with disqualification motions. 28. A similar approach should be taken here. The Constitution does not forbid the imposition of an otherwise permissible ....
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....ly "to money as well as specific chattels," Id., at 736, And it was not limited to full-blown physical seizures, Although the defendant's goods could be appraised and inventoried before trial, he remained free to "sell any of them for his own support in prison, or that of his family, or to assist him in preparing for his defence on the trial." Id., at 737 (emphasis added). Blackstone likewise agreed that a defendant "may bona fide sell any of his chattels, real or personal, for the sustenance of himself and family between the [offense] and conviction." 4 Blackstone 380; see Fleet wood's Case, 8 Co. Rep. 171a, 171b, 77 Eng. Rep. 731, 732 (K.B. 1611) (endorsing this rule). At most, a court could unwind prejudgment fraudulent transfers after conviction. 4 Blackstone 381; see Jones v. Ashurt, Skin, 357, 357-358, 90 Eng. Rep. 159 (K.B. 1693) (unwinding a fraudulent sale after conviction because it was designed to defeat forfeiture). Numerous English authorities confirm these common law principles. Chitty, supra, at 736-737 (collecting sources). The common law did permit the Government, however, to seize tainted assets before trial. For example, "seizure of the res has l....
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....y. These fines in personam status strongly suggests that the Government did not collect them by seizing property at the outset of litigation. As described, that process was traditionally required for in rem forfeiture of tainted assets, See supra, at____ There appears to be scant historical evidence, however, that forfeiture ever involved seizure of untainted assets before trial and judgment, except in limited circumstances not relevant here. Such summary procedures were reserved for collecting taxes and seizures during war. See Phillips v Commissioner, 283 U.S. 589, 595 (1931); Miller v. United States, 11 Wall. 268, 304-306 (1871). The Government's right of action in tax and custom-fine cases may have been the same- "a civil action of debt." Bajakajian, supra, at 343, n, 18; Stockwell v. United States, 13 Wall. 531, 543 (1871); Adams v. Woods, 2 Cranch 336, 341 (1805). Even so, nothing suggests trial and judgment were expendable. See Miller, supra, at 304-305 (stating in dicta that confiscating Confederate property through in rem proceedings would have raised Fifth and Sixth Amendment concerns had they not been a war measure). The common law thus offers an administrab....
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.... of case law, it is generally interpreted as requiring at the very minimum positive proof of the specific predicate offence before a conviction for money laundering can be obtained, be it for third party or self-laundering. 144. Similarly, under section 8A of the NDPS Act, although it is debatable that the person charged with money laundering needs to have been convicted of a predicate offence, the positive and formal proof of a nexus with a drug related predicate offence is essential. ********* 168. The linkage and interaction of the ML offence with a specific predicate criminality is historically very tight in the Indian AML regime. The concept of stand-alone money laundering is quite strange to the practitioners, who cannot conceive pursuing money laundering as a sui generis autonomous offence. Some interlocutors were even of the (arguably erroneous) opinion that only a conviction for the predicate criminality would effectively satisfy the evidential requirements. As said, this attitude is largely due to the general practice in India to start a ML investigation only on the basis of a predicate offence case. Even if the ML investigation since recently can run....
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....of crime in the absence of a conviction of a predicate offence, particularly in a stand-alone ML case, where the laundered assets become the corpus delicti and should be forfeitable as such. In the international context, the predicate conviction requirement also seriously affects the capacity to recover criminal assets where the predicate offence has occurred outside India and the proceeds are subsequently laundered in India (see also comments in Section 2.1 above). 235. The definition of proceeds of crime and property in the PMLA are broad enough to allow for confiscation of property derived directly or indirectly from proceeds of crime relating to a scheduled (predicate) offence, including income, profits and other benefits from the proceeds of crime. These definitions also allow for value confiscation, regardless of whether the property is held or owned by a criminal or a third party. As section 65 of the PMLA refers to the rules in CrPC, instrumentalities and intended instrumentalities can be confiscated in accordance with section 102 and 451 of the CrPC. However, there is no case law in this respect. 236. Also, the procedural provisions of Chapter III make co....
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.... to the Income Tax Act, 196. Now it is proposed in section 5(1) that the procedure will be prescribed separately. Time for Adjudicating Authority to confirm attachment of property by ED has been proposed to be increased from 150 days to 180 days. (ii) **** (iii) Making confiscation independent of conviction : At present attachment of property becomes final under section 8(3) "after the guilt of the person is proved in the trial court and order of such trial court becomes final". Problems are faced in such cases where money-laundering has been done by a person who has not committed the scheduled offence or where property has come to rest with someone who has not committed any offence. Therefore, it is proposed to amend section 8(5) to provide for attachment and confiscation of the proceeds of crime, even if there is no conviction, so long as it is proved that predicate offence and money laundering offence have taken place and the property in question (i.e. the proceeds of crime) is involved in money laundering." ********* However, the MER 2010 highlighted certain deficiencies in the AML legislation which adversely affected the ratings on a few FATF reco....
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....The two statutes thus subserve completely different, divergent and distinct purposes. The objectives underlying the introduction of the PMLA, the international obligations of the country which lead to its promulgation based upon the views expressed by the Financial Action Task Force (FATF) and which have been elaborately noticed in Vijay Madanlal clearly lend credence to the aforesaid conclusion. H. ATTACHMENT NOT A DEBT RECOVERY ACTION 67. The Court also deems it apposite to observe that the Government while proceeding to act under the PMLA can also not be recognized to be acting as a creditor who seeks to enforce a debt. This is clearly evident from the definition of the words "creditor" and "debt" which is employed under the IBC. Its action to attach a property is not one which is taken by a person to whom a debt may be said to be owed. It would be relevant to note that when the ED moves to provisionally attach properties which constitute proceeds of crime, it does not do so acting as a creditor. The steps that are taken under the aforesaid provisions are aimed at principally attaching properties which have been determined as representing proceeds of crime and thus placing....
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....is Court finds it difficult to accept the proposition that the jurisdiction conferred on the State by PMLA to confiscate the "proceeds of crime" concerns a property the value whereof is "debt" due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of 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." 69. Regard must also be had to the fact t....
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....not result in the same being released from attachment, or escaping confiscation, since the law intends it to "vest absolutely in the Central Government free from all encumbrances", the right of such third party being restricted to sue the wrong-doer for damages, the encumbrance, if created with the objective of defeating the law, being treated as void (Section 9). 162. But, in case an otherwise untainted asset (i.e. deemed tainted property) is targeted by the enforcement authority for attachment under the second or third part of the definition of "proceeds of crime", for the reason that such asset is equivalent in value to the tainted asset that was derived or obtained by criminal activity but which cannot be traced, the third party having a legitimate interest may approach the adjudicating authority to seek its release by showing that the interest in 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. ....
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....A 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." 71. As would be evident from the aforesaid passages of that decision, the Court had while preserving the right of the competent authorities under the PMLA to provisionally attach properties notwithstanding independent proceedings that may have been initiated or would have been pending under the IBC at the relevant point of time, accorded no precedence to the claim of the ED over that of secured creditors or other bonafide third party claimants. It was pertinently observed that while an attachment under the PMLA would remain valid and operative, it would have to ultimately take a "back seat" allowing the secured creditor or a bonafide third party claimant to enforce its claim by disposal of the subject property and the remainder alone being made available for the purposes of the PMLA. 72. The IBC on the other hand is a compendious legislation which engrafts measures pertaining to resolution of claims wh....
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....he CIRP. 74. The purpose of a moratorium provision was explained by the Viswanathan Committee in its Insolvency Committee Report, 2015 as follows:- "5.3.1.1 Moratorium on debt recovery action The motivation behind the moratorium is that it is value maximizing for the entity to continue operations even as viability is being assessed during the IRP. There should be no additional stress on the business after the public announcement of the IRP. The order for the moratorium during the IRP imposes a stay not just on debt recovery actions, but also any claims or expected claims from old lawsuits, or on new lawsuits, for any manner of recovery from the entity. The moratorium will be active for the period over which the IRP is active. (Viswanathan Committee Report, 2015 para 5.3.1.1)" 75. The Court had already noticed the pertinent conclusions in the subsequent report which had explained the purpose behind a moratorium provision in the following terms:- "8.2. The moratorium under Section 14 is intended to keep "the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes env....
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....." 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 insolvency laws allow the commencement or continuation of legal proceedings (without leave of the court), but the application of the stay pre- vents enforcement of any resulting order. Some insolvency laws limit the actions that may be pursued and only specific actions, such as employee actions against the debtor, can be commenced or continued, but any enforcement action resulting from those proceedings will be stayed. In some insolvency laws a distinction is made between regulatory and pecuniary actions. Some laws allow claims of both a regulatory and pecuniary nature to be continued, others only regulatory claims, such 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. As a procedural matter, some insolvency laws limit the initial scope of acts and actions to which the stay applies on commencement, but p....
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....BC. 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 and would cover any legal proceedings "even indirectly relatable to recovery of any debt." P. Mohanraj was concerned with the question whether a Section 138 of the Negotiable Instruments Act proceeding would fall within the ambit of the expression "proceedings" as appearing in Section 14(1). The judgment in the aforesaid case is liable to be appreciated bearing in mind the fundamental fact that an action under Section 138 was recognised to be principally one for the recovery of a debt owed notwithstanding the proceedings being quasi criminal in character. The ratio of the aforesaid decision clearly appears to be that the word "proceedings" is not liable to draw colour or meaning from the words institution or continuation of suits and would thus cover all proceedings which could be viewed as being in relation to the enforcement or recovery of a debt that may be owed by the corporate debtor. 80. As would be evident from the aforesaid discussion, the primordial p....
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....ttachment 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 submission that the provisions of the PMLA are liable to be read as being subservient to the moratorium provision comprised in Section 14 of the IBC for the following additional reasons. PMLA seeks to subserve a larger public policy imperative. The enactment represents a larger public interest, namely the fight against crime and the debilitating impact that such activities ultimately have on the society and the economy of nations as a whole. Tainted assets are those which would have been obtained through surreptitious means and modes, through layered transactions aimed at obfuscating their origins. The legislation aims at denuding the perpetrators of crime of gains obtained from such activities. It is a reparation measure which seeks to strip and deprive criminals of benefits derived and retained by the adoption of illegal and dishonest action. The PMLA is an enactment which is aimed at affecting the disgorgement of illegal gains. The Court deems it apposite t....
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....his 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. Similarly, the decision of the Gujarat High Court in Foziya Godil vs. Union of India 2014 SCC OnLine Guj 3417 which was pressed into aid by the petitioner also does not consider the question which stands posited before this Court in the present writ petition. The same is the position with respect to the judgment rendered by the Appellate Tribunal for Prevention of Money Laundering handed down in Punjab National Bank vs. Deputy Director, Directorate of Enforcement [2019 SCC Online ATPMLA] 86. Turning then to the decisions rendered by the NCLAT on the subject, it appears that the question of the interplay between the provisions of the PMLA and Section 14 of the IBC firstly came to be considered in Varrsana Ispat. While dealing with the aforesaid issue, the NCLAT enunciated the legal position as follows: - "8. Section 14 is not applicable to the criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act havi....
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.... 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 be said to have been prohibited. Even if confirmation has been done as stated to have been done on 20th November, 2018, the same will have to be ignored. Section 14 of IBC will hit institution and continuation of proceedings before Adjudicating Authority under PMLA. The CIRP will of course not affect prosecution before Special Court, till contingencies under Section 32A of IBC occur. 57. In Judgment in the matter of "P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd." 2021 SCC OnLine SC 152, Hon'ble Supreme Court of India considered the provisions of Section 138 of the Negotiable Instrument Act and Liabilities of the Corporate Debtor and Directors in the light of Section 14 of IBC and observed in Paragraph 63 as under: "63. A conspectus of these judgments would show that the gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in or....
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....visions 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 therewith contained in any other law for the time being in force. Thus if the Authorities under PMLA on the basis of the attachment or seizure done or possession taken under the said Act resist handing over the properties of the Corporate Debtor to the IRP/RP/Liquidator the consequence of which will be hindrance for them to keep the Corporate Debtor a going concern till resolution takes place or liquidation proceedings are completed, the obstructions will have to be removed. We have already referred to the various Acts required to be performed by IRP/RP/Liquidator to achieve the aims and objects of IBC in time bound manner. If properties of Corporate Debtor would not be available to keep it a going concern, or to get the properties valued without which Resolution/Sale would not be possible, the obstruction will have to be removed. To take over properties of Corporate Debtor....
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.... 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 derived from or concerned with 'Money Laundering' etc. In fact, 'The Prevention of Money Laundering Act, 2002' is to fulfil our Country's obligation in adhering to the United Nations Resolutions and in regard to Assets/Properties being the 'Proceeds of Crime', it takes a 'primacy and precedence' over the 'Insolvency and Bankruptcy Code, 2016' which promotes "Resolution' as its objective over Liquidation in the considered opinion of this 'Tribunal'. 100. In the instant case, there is no 'Resolution Plan' as approved by the 'Tribunal' and further no Liquidation Proceedings had ended in the sale of Liquidation Assets of the 'Corporate Debtor'. 101. Besides this, the objective, purpose of two enactments (1) 'I & B Code' and (2) 'PMLA' even though at the first blush appear to be at logger heads, there is no repug....
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....ed 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 the IBC. Thus, Section 14 would not bar a proceeding under the PMLA. 9. Section 32-A of the IBC deals with the liability for prior offences. This provision would get attracted in a case where the resolution plan has been approved by the Adjudicating Authority under Section 31 of the IBC. Therefore, when no such approval has taken place, the Adjudicating Authority will not have any power or authority to exercise the power under Section 32-A of the IBC. We may note, this insertion by way of an amendment came into being with effect from 28.12.2019 onwards. 10. Section 60 of the IBC comes under Chapter VI. Chapter VI of the IBC deals with the Adjudicating Authority for corporate persons. Section 65 of the IBC gives jurisdiction to the Tribunal to entertain and dispose of an....
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....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 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." 92. This Court while dealing with the scope of the two enactments had in Nitin Jain observed as under: - "85. As would be evident upon a consideration of the decisions aforenoted, the IBC is primarily concerned with the subject of restructuring of indebted corporate debtors, adop....
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....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 proceedings that may be initiated under the PMLA come to a conclusion. Attachment thus is not liable to be viewed as an effacement of all rights that may exist or be claimed to be exercisable in respect of a property. Attachment essentially seeks to stamp the tainted property of having been found to represent proceeds of crime pursuant to the adjudicatory process which is undertaken under Sections 5 and 8 of the Act. It is essentially a seizure of property bringing it into the constructive possession of a court or as in this case, the authorities under the PMLA. Attachment under the PMLA, as was noted hereinabove, is not an attachment for debt but principally a measure to deprive an entity of property and assets which compri....
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.... 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 the right of the defendant Reddy. The fact however is that the Receiver made the application in his own name. Even if Mr Pathak's contention is right the company was no party to the suit filed by Sir Padampat against Reddy and that being so, no order could be issued to the company in that suit to recognize the Receiver as a share-holder in place of Reddy." 30. The consequence of attachment of certain shares of a company held by a share-holder for purposes of sale in a proceeding under Section 149 of the Land Revenue Act is more or less the same. The effect of an order of attachment is what Section 149 of the Land Revenue Act itself says. Such attachment is made according to the law in force f....
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.... 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 word "attachment" would only mean "taking into the custody of the law the person or property of one already before the court, or of one whom it is sought to bring before it". It is used for two purposes: (i) to compel the appearance of a defendant; and (ii) to seize and hold his property for the payment of the debt. It may also mean prohibition of transfer, conversion, disposition or movement of property by an order issued by the court. 12. In Sardar Govindrao Mahadik v. Devi Sahai [(1982) 1 SCC 237 : AIR 1982 SC 989] this Court held: (SCC p. 268, para 58) "58. What is the effect of attachment before judgment? Attachment before judgment is levied where ....
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....imed 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 till such time as proceedings under the aforesaid enactment come to a definitive conclusion on the question of confiscation. As was noted hereinabove, it is essentially an action aimed at bringing into the control of a court or an authority, property over which multiple claims may exist. In any case, since the act of attachment does not result in the effacement of rights in property, it would clearly stand and survive outside the scope of a moratorium or an action relating to an action in respect of a debt due or payable. 98. It may additionally be noted that an attachment that may be come to be made under Sections 5 and 8 of the PMLA are only tem....
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....s 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 while noticing the submissions addressed on behalf of the petitioner taken note of the contention that Section 238 of the IBC would confer primacy upon the said statute and thus it would override the provisions of the PMLA bearing in mind that it was a special statute and had come to be promulgated later in point of time. 103. While there can be no doubt that where two special statutes incorporate non obstante clauses it is the later enactment which would ordinarily or normally prevail, the same cannot possibly be recognised as constituting the solitary principle of interpretation which would apply or an inviolable rule. It must be fu....
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....actment 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 energised in terms of the notification dated 30 November 2016 and was ordained to come into effect from 01 December 2016. Section 32A of the IBC on the other was introduced by Amending Act No.1 of 2020 with retrospective effect from 28 December 2019. 105. The introduction of Section 32A constitutes an event of vital import since it embodies a provision which effectively shut out criminal proceedings including those under the PMLA upon the CIRP reaching the defining moment specified therein. However, when the Legislature introduced the said provision, it was conscious and aware of the fact that the provision....
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....ikewise 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 of time still the intention can be ascertained by looking to the objects and reasons. However, so far as the present case is concerned, it is more than clear that Section 9-A of the Act of 1992 was amended on 25-1-1994 whereas the Act of 1993 came in 1993. Therefore, the Act of 1992 as amended to include Section 9-A in 1994 being subsequent legislation will prevail and not the provisions of the Act of 1993." Their Lordships in Ketan Parekh thus came to hold that notwithstanding the original statute having been promulgated in 1985, the provisions of Section 9A would not stand overridden by the....
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....pletion 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 respect of such apartment, etc. with such interest as may be prescribed and must, in addition, compensate the allottee in case of any loss caused to him. Under Section 19, the allottee shall be entitled to claim possession of the apartment, plot or building, as the case may be, or refund of amount paid along with interest in accordance with the terms of the agreement for sale. In addition, all allottees are to be responsible for making necessary payments in instalments within the time specified in the agreement for sale and shall be liable to pay interest at such rate as may be prescr....
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....t 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 to the conclusion that Section 32A would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA. As has been observed hereinabove, while both IBC and the PMLA are special statutes in the generic sense, they both seek to subserve independent and separate legislative objectives. The subject matter and focus of the two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, ....
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....ay 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 under PMLA cannot, by itself, render illegal the prior charge or encumbrance of a secured creditor, this subject to such claim of the third party (secured creditor) being bonafide. In these conflicting claims, a balance has to be struck. On account of exercise of the prerogative of the State under PMLA, the lawful interest of a third party which may have acted bonafide, and with due diligence, cannot be put in jeopardy. The claim of bonafide third party claimant cannot be sacrificed or defeated. A contrary view would be unfair and unjust and, consequently, not....
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.... 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-off. From this, it naturally follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration, acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or frustrated by attachment of such property to such extent by the enforcement authority in exercise of its power under Section 8 PMLA. 164. Though the sequitur to the above conclusion is that the bonafide third party claimant has a le....