AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 1048
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appropriate Writ/order inter alia to declare and order that the right, title and interest of the Petitioners to the Specified Assets sold to the Petitioners will not be affected in any manner by any action taken/to be taken by Respondent No. 1 under the provisions of the Prevention of Money Laundering Act against the Corporate Debtor or the Corporate Debtor's promoters;" 2. Facts in brief are as under: 2.1 The petitioners namely (I) Welspun Steel Resources Private Limited (II) Welspun Corp Limited (III) Rank Real Estate and Infra Developers Private Limited and (IV) Mauyaan Shipyard Private Limited have approached this court challenging the provisional attachment order no. 8/22 dated 21.09.2022. ABG Shipyard Limited (the corporate debtor) was in the business of ship building in Dahej, Gujarat. An application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by the ICICI Bank against the Corporate Debtor which was admitted by the National Company Law Tribunal, Ahmedabad (NCLT). The respondent no. 2, after passing of an order on admission was appointed as an Interim Resolution Professional (IRP) and was subsequently confirmed as RP (Resolution Professi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ended purposes and that the corporate debtor was carrying out circular transactions with various group companies and making overseas investment. The petitioners being successful bidders of the specified assets which they had purchased pursuant to the auction proceedings conducted under the orders of the Apex Court the petitioners on 21.09.2022, paid the entire sale consideration of Rs.676 crores plus applicable taxes aggregating to Rs.789,05,00,000/- to the liquidator and who in turn issued sale certificates to the petitioners in respect of the specified assets put up for sale. For the purposes of purchase of these assets, the petitioners have availed of a loan of Rs.400 crores from the Indusind Bank and the primary security for the loans is the assets of the corporate debtor. It is these very assets which by the impugned order have been attached by the respondent no. 1. 3. Mr. Mihir Joshi, learned Senior Advocate assisted by Mr. Jay Kansara and Ms. Alisha Mehta, learned advocates for the petitioners would submit that Section 32(A) of the IBC creates a bar and the respondent no. 1 therefore was wholly divested of all jurisdiction to take any action against the specified assets w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....' that these assets are acquired from the proceeds of crime. 3.2 Mr. Joshi would submit that the expression 'reason to believe' does not mean purely subjective satisfaction. The reasons for the belief must have a rational connection or a relevant bearing to the formation of belief. It must be that one honest and a reasonable person based upon a reasonable ground. The reason to believe cannot arise from mere suspicion, gossip or rumour. The order suffers from non-application of mind as there are no objective reasons to believe recorded in the order. For a property to be a 'proceed of crime' must be derived and obtained directly or indirectly as a result of any criminal activity. Reason to believe is not bonafide and is not based on jurisdictional facts. 3.3 The petitioners, in Mr. Joshi's submission cannot invoke any other remedy than that of filing the present petition as 'reason to believe' is a jurisdictional fact which must be determined prior to assuming jurisdiction. In support of his submission, Mr. Joshi would rely on the following decisions: (a) Vijay Madanlal Choudhary vs. Union of India [2022 SCC OnLine SC 929]; (b) Madhya Pradesh Industries Ltd. v....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3.7 Mr. Joshi would submit that the consequences of provisional attachment are drastic and extraordinary and in absence of any cogent and credible material which constitute malice in law. 3.8 Making a fine distinction between a jurisdictional fact and an adjudicatory fact, Mr. Joshi would submit that a jurisdictional fact is a fact which must exist before a court or an authority assumes jurisdiction over a particular matter. If a jurisdictional fact does not exist, the court, authority or officer cannot act. Such an order therefore can be questioned by a writ of certiorari. The principle is that by erroneously assuming existence of a jurisdictional fact no authority can confer upon itself jurisdiction which it otherwise does not possess. Absence of jurisdiction is an exception and an alternative remedy cannot oust the jurisdiction of this court to exercise discretion in favour of the petitioners. 3.9 Mr. Joshi further pointed out that the original complainant, the State Bank of India was already a part of the SCC during the liquidation process and no objection was raised by the bank with respect to sale of assets by the petitioner and therefore when the complainant itself....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entions, Mr. Vyas would rely on the following decisions: (i) Farida Begum Biswas vs. Union of India reported in 2015 SCC online Del 11834; (ii) The State of Maharashtra and Others vs. Greatship (India) Limited [Civil Appeal No. 4956 of 2022]; (iii) Nitin Hasmukhlal Shah vs. Union of India [Special Civil Application No. 9946 of 2020]; (iv) G. Gopalkrishnan vs. Deputy Director, Directorate of Enforcement and other [WP (MD) No. 11454 of 2018]; (v) Kiran Shah vs. Enforcement Directorate, Kolkata reported in 2022 SCC Online NCLAT 2]; (vi) Apex Laboratories Private Ltd. vs. Deputy Commissioner of Income Tax reported in (2022) 7 SCC 98; (vii) Varsana Ispat Limited vs. Deputy Director, Directorate of Enforcement NCLAT [Company Appeal (AT) (Insolvency) No. 493 of 2018] 6. Having considered the submissions made by the learned advocates for the respective parties, the legality of the order under challenge has to be addressed from the point of view whether the assets acquired by the petitioners can at all be said to be 'proceeds of crime'. This is not only in light of the manner and the method in which the specified assets have ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovided that no action can be taken against the property of the corporate debtor in connection with the offence; 321. The Explanation to sub-Section (2) has clarified that the words "an action against the property of the corporate debtor in relation to an offence", would include the attachment, seizure, retention or confiscation of such property under the law applicable to the corporate debtor. Since the word "include" is used under sub-clause (i) of the Explanation, the word "action" against the property of the corporate debtor is intended to have the widest possible amplitude. There is a clear nexus with the object of the Code. The other part of the clarification, under the Explanation, is found in the second sub-clause of the Explanation 322. Under the second limb of the Explanation, the Law Giver has clearly articulated the point that as far as the property of any person, other than the corporate debtor or any person who had acquired the property of the corporate debtor through the CIRP or liquidation process under the Code and who otherwise fulfil the requirement under Section 32A, action can be taken against the property of such other person. 323. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest of the corporate debtor and the other stake holders. 326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. 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 this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stante clauses are special statutes, an endeavour should be made to give effect to both of them. In case of conflict, the later shall prevail. 42. In Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [(2001) 3 SCC 71] it is stated: (SCC pp. 73-74, paras 9-10) "9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd. [(1993) 2 SCC 144] ; Sarwan Singh v. Kasturi Lal [(1977) 1 SCC 750] ; Allahabad Bank v. Canara Bank [(2000) 4 SCC 406] and Ram Narain v. Simla Banking & Industrial Co. Ltd. [1956 SCR 603 : AIR 1956 SC 614] 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. [(1997) 89 Comp Cas 547 (Special Court)] it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this contention, the Special Court had come to the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....approved or where a measure towards liquidation had been adopted. The statutory injunct against the invocation or utilisation of the powers available under the PMLA was thus ordained to come into effect only once the trigger events envisaged under Section 32A came into effect. The Legislature thus in its wisdom chose to place an embargo upon the Signature Not Verified Digitally Signed By:NEHA Signing Date:11.11.2022 15:55:22 Neutral Citation Number: 2022/DHC/004739 continuance of criminal proceedings including action of attachment under the PMLA only once a Resolution Plan were approved or a measure in aid of liquidation had been adopted. 106. Section 32A which came to be introduced in 2020 in the IBC also represents the "later" enactment for the purposes of evaluating the non obstante clause argument as canvassed on behalf of the petitioner. It would be pertinent to observe that subsequent amendments in an existing statute have also been recognised to be viewed as later acts for the purposes of answering the import of a non obstante clause. In Bank of India Vs. Ketan Parekh42, one of the questions which arose was whether the provisions of the Special Courts (Trial of Offe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....timately answered based upon Section 88 of RERA which provided that its provisions would be in addition to and not in derogation of other statutes. This would be evident from the following observations as they appear in paragraphs 23 and 25 of the report:- "23. A perusal of the aforesaid provisions would show that, on and from the coming into force of RERA, all real estate projects (as defined) would first have to be registered with the Real Estate Regulatory Authority, which, before registering such projects, would look into all relevant details, including delay in completion of other projects by the developer. Importantly, the promoter is now to make a declaration supported by an affidavit, that he undertakes to complete the project within a certain time period, and that 70% of the amounts realised for the project from allottees, from time to time, shall be deposited in a separate account, which would be spent only to defray the cost of construction and land cost for that particular project. Registration is granted by the authority only when it is satisfied that the promoter is a bona fide promoter who is likely to perform his part of the bargain satisfactorily. Registra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r real estate agent fails to pay interest, penalty or compensation imposed on him by the authorities under RERA, the same shall be recoverable as arrears of land revenue. Appeals may be filed to the Real Estate Appellate Tribunal against decisions or orders of the authority or the adjudicating officer. From orders of the Appellate Tribunal, appeals may thereafter be filed to the High Court. Stiff penalties are to be awarded for breach and/or contravention of the provisions of RERA. Importantly, under Section 72, the adjudicating officer must first determine that the complainant has established "default" on the part of the respondent, after which consequential orders may then follow. Under Section 88, the provisions of RERA are in addition to and not in derogation of the provisions of any other law for time being in force and under Section 89, RERA is to have effect notwithstanding anything inconsistent contained in any other law for the time being in force. 25. It is significant to note that there is no provision similar to that of Section 88 of RERA in the Code, which is meant to be a complete and exhaustive statement of the law insofar as its subject- matter is concerned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....st be answered on the basis of Section 32A. The introduction of that provision in 2020 represents the last expression of intent of the Legislature and thus the embodiment of the extent to which the provisions of the PMLA are to give way to proceedings initiated under the IBC. 109. The Court has independently come to the conclusion that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to the erection of an impregnable wall which cannot be breached by invocation of the provisions of the PMLA. The non obstante clause finding place in the IBC thus can neither be interpreted nor countenanced to have an impact far greater than that envisaged in Section 32A. The aforesaid issue stands answered accordingly." 6.3 Vijay Mohanlal Chaudhary (supra) was a case where the Apex Court was considering a batch of appeals concerning the validity and interpretation of certain provisions of the PMLA. Relevant paras read as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence, cannot be wholly or partly regarded as proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act - so long as the whole or some portion of the property has been derived or obtained by any person "as a result of" criminal activity relating to the stated scheduled offence. To be proceeds of crime, therefore, the property must be derived or obtained, directly or indirectly, "as a result of" criminal activity relating to a scheduled offence. To put it differently, the vehicle used in commission of scheduled offence may be attached as property in the concerned case (crime), it may still not be proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act. Similarly, possession of unaccounted property acquired by legal means may be actionable for tax violation and yet, will not be regarded as proceeds of crime unless the concerned tax legislation prescribes such violation a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mission of offence of moneylaundering. Such purposive interpretation would be necessary to uphold the purposes and objects for enactment of 2002 Act. 253. Tersely put, it is only such property which is derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence can be regarded as proceeds of crime. The authorities under the 2002 Act cannot resort to action against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. For, the expression "derived or obtained" is indicative of criminal activity relating to a scheduled offence already accomplished. Similarly, in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against him/her, there can be no action for money-laundering against such a person or person c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng that the person is in possession of "proceeds of crime". Only if that belief is further supported by tangible and credible evidence indicative of involvement of the person concerned in any process or activity connected with the proceeds of crime, action under the Act can be taken forward for attachment and confiscation of proceeds of crime and until vesting thereof in the Central Government, such process initiated would be a standalone process. SECTION 5 OF THE 2002 ACT 285. Section 5 forms part of Chapter III dealing with attachment, adjudication and confiscation. This provision empowers the Director or officer not below the rank of Deputy Director authorised by the Director for the purposes of attachment of property involved in moneylaundering. Such authorised officer is expected to act only if he has reason to believe that any person is in possession of proceeds of crime. This belief has to be formed on the basis of material in his possession and the reasons therefor are required to be recorded in writing. In addition, he must be convinced that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which is likely to resul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder shall be counted.] (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed. (3) Every order of attachment made under subsection (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 493[subsection (3)] of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation.-For the purposes of this subsection, "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 subsection (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ets are neither overseas assets or that of the group companies. 7. Sine qua non to arrive at a determination that the assets are proceeds of crime, the foremost requirement is that the author has to have 'reason to believe' on the basis of material in his possession. 'Reason to believe' cannot arise from mere suspicion, gossip or rumour. Merely because the impugned order records alleged fraudulent transactions and diversion of funds, it cannot automatically lead to a conclusion that the properties acquired by the petitioners are proceeds of crime. In order to arrive at a conclusion that 'reason to believe' exists, there must be some material to suggest such formation of opinion. The decisions in the cases of Madhya Pradesh Industries Ltd.(supra), S. Ganga Saran and Sons (Pvt.) Ltd. (supra), Sheo Nath Singh (supra), Radha Krishan Industries (supra), Calcutta Discount Co. Ltd. (supra) and Lakhmani Mewal Das (supra) have set out principles where the courts have held that reason to believe must be founded on sufficient material. It cannot be founded on mere suspicion but based on evidence. It must be held in good faith, cannot be merely a pretense. It is always open for the court to....