AI Drafter 
TaxTMI 
TaxTMI 
2024 (3) TMI 136
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....y Code, 2016 (for short, the "IBC, 2016") for corporate debtors and their assets, upon approval of resolutions, and indeed for enforcement agencies that have attached assets of such corporate debtors, fall for consideration in the captioned Writ Petitions. Section 32A of the IBC, 2016 provides for immunity to corporate debtors and their assets, upon approval of a resolution plan, subject to certain conditions stipulated in that provision. Factual Matrix: 3. The case at hand involves resolution of DSK Southern Projects Private Limited ("Corporate Debtor") under the IBC, 2016. The Corporate Debtor had been subjected to a Corporate Insolvency Resolution Process ("CIRP") since 9th December, 2021 at the instance of a financial creditor. Eventually, a resolution plan propounded by Mr. Shiv Charan, Ms. Pushpalata Bai and Ms. Bharti Agarwal ("Resolution Applicants") came to be approved by the Learned National Company Law Tribunal, Mumbai ("NCLT") by an order dated 17th February, 2023 ("Approval Order") passed under Section 31 of the IBC, 2016. 4. On 20th October, 2017 i.e. nearly four years prior to the commencement of the CIRP, various First Information Reports alleging, among ot....
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....nugatory, the PMLA, 2002 and its legislative objective. The ED did not seek quashing of the Approval Order, but has sought quashing of a subsequent order dated 28th April, 2023 ("April 2023 Order"), whereby, the NCLT directed the ED (yet again) to release the Attached Properties. The April 2023 Order disposed of an interim application being IA/383/2022 ("IA 383") that had been filed on 10th January 2022 (prior to the Approval Order) by the Resolution Professional, seeking a direction to the ED to release the Attached Properties on the premise that the attachment must come to an end once a moratorium under Section 14 of the IBC, 2016 comes into effect (in this case, with effect from 9th December, 2021). The NCLT ruled in the April 2023 Order that once the moratorium commenced, the attachment must abate, but nevertheless took note of the final approval contained in the Approval Order, and ruled that by reason of Section 32A, the Attached Properties must be released. Contentions of the Parties: 7. Mr. Devang Vyas, the Ld. Additional Solicitor General, representing the ED (and the Adjudicating Authority under the PMLA, 2002) in both petitions, drew our attention to the prayers in....
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.... of the avenues under Section 26(1) and Section 8(8) of the PMLA, 2002 was a distinct and specific alternate efficacious remedy available under the framework of the PMLA, 2002; (ii) Section 32A of the IBC, 2016, cannot be read in a manner that renders nugatory the special objectives for which the PMLA, 2002 has been enacted. Towards this end, he would argue, the jurisdiction of the NCLT under Section 60(5) of the IBC, 2016 is a jurisdiction relating to interpreting the IBC, 2016 alone. In exercise of such jurisdiction, the NCLT ought not to traverse beyond the IBC, 2016 and enter upon the domain covered by the provisions of the PMLA, 2002. Mr. Vyas would argue that if the effect of a ruling on the IBC, 2016 by the NCLT could have implications for other special legislations such as the PMLA, 2002, the NCLT must refrain from ruling so, since it would indirectly be an interpretation of the provisions of the PMLA, 2002 and not just the provisions of the IBC, 2016; (iii) Even if we were to hold that Section 32A enables exercise of jurisdiction by the NCLT over IBC, 2016 matters and the effect of such exercise could intrude into the PMLA's domain, care should be taken t....
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....ge in management and control of the Corporate Debtor in favour of persons unconnected with those in management and control of the Corporate Debtor when the alleged offense took place; (iii) Any attachment under the PMLA, 2002 can only be in the nature of an interim measure that would aid the final measure of confiscation under Section 8(5). Since by reason of Section 32A of the IBC, 2016, the ultimate end of confiscation is protected against, it is only natural that the interim measure of attachment must come to an end upon approval of a resolution plan; and (iv) The ED has not challenged the Approval Order, which approved the resolution plan under Section 31 of the IBC, 2016, and already directed the ED to release the Attached Properties. Although the ED had originally not been a party to the CIRP, considering that IA 383 had made the ED a party, the ED clearly was a person aggrieved by the Approval Order, but chose not to challenge the Approval Order. Besides, even in WP 29111, the ED has not challenged the Approval Order but has only challenged the April 2023 Order. The controversy raised in IA 383 (whether the ED can continue its attachment upon the moratorium....
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....so need to examine the scope and jurisdiction of Section 60(5) of the IBC, 2016, under which the NCLT rules on questions of fact and law in relation to resolution proceedings. Section 32A of the IBC, 2016: 15. For convenience, we first deal with Section 32A of the IBC, 2016, and the same is extracted below:- "32A. Liability for prior offences, etc.-- (1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not - (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had ....
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....the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process." [Emphasis Supplied] 16. A plain reading of the forgoing would show that Section 32A is a non-obstante provision. Its jurisdiction is attracted only when a resolution plan gets approved under S....
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....ilable. 18. Section 32A(2) goes a step further and also protects the property of the corporate debtor from any attachment and restraint in proceedings connected to the offense committed prior to the commencement of the CIRP. Once a resolution plan is approved under Section 31 and a change in control and management is effected under the resolution plan (the same ingredients as set out in Section 32A(1) are stipulated here too), the property of the corporate debtor would get immunity from further prosecution of proceedings. Clause (i) in the Explanation to Section 32A(2) removes all doubt about what the assets are given immunity from. The provision explicitly stipulates that an "action against the property" of the corporate debtor, from which immunity would be available, "shall include the attachment, seizure, retention or confiscation of such property under such law" as applicable. The reference being to any action against the property under any law would evidently bring within its compass, attachments made under the PMLA, 2002. 19. Section 32A(2) also affords similar immunity without a successful resolution having been approved-where a successful sale of assets of the corpora....
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....employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues 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 sub-section, 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 records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to t....
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....ble to contend that the NCLT, and which is the Adjudicating Authority constituted under the IBC, 2016, is incompetent and/or powerless to either interpret or to give effect to the provisions of the very Act under which it was constituted. 26. We are of the clear view that looking at the purpose and object of not only Section 31, but also Section 32A of the IBC, 2016, the NCLT had all powers to direct the ED to raise its attachment in relation to the attached properties of the corporate debtor once a resolution plan that qualifies for immunity under Section 32A was approved, and those very properties were the subject matter of the resolution plan. This is the clear mandate of the legislature as enshrined in Section 32A of the IBC, 2016. Section 60(5) of the IBC, 2016: This apart, even Section 60(5) of the IBC, 2016 empowers the NCLT to decide any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of a corporate debtor. The relevant portion of Section 60(5) is extracted below:- "Section 60. Adjudicating Authority for corporate persons. (1) to (4) ***** (5) No....
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.... attract the immunity under Section 32A exist, is a mixed question of fact and law that the NCLT was entitled to entertain and dispose of. Once the jurisdictional facts are found to exist, whether the immunity becomes available is a question of law which is clearly within the domain of the NCLT's jurisdiction. 29. It should not be forgotten that both Section 32A and Section 60(5) are non-obstante provisions that operate notwithstanding anything contained in any other law, including the PMLA, 2002. Therefore, there is no basis whatsoever to treat the provisions of attachment under the PMLA, 2002 as being uniquely carved out as an exception, when the legislature indeed chose to cover prosecution by, and attachment of assets, under the PMLA, 2002 as coming to an end by virtue of Section 32A of the IBC, 2016. 30. What is also evident is that the NCLT has not even interpreted or answered any question of law under the PMLA, 2002 in order to direct the release of the Attached Properties. The NCLT has answered questions of fact and found that the ingredients of Section 32A of the IBC, 2016 are met, and therefore, disposed of the question of immunity contained in Section 32A as being ....
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....6, the jurisdiction of Section 32A would not even be attracted. It would not be possible for any person to invoke Section 32A on the premise of the likelihood of an approval of a resolution plan under Section 31 that may emerge in future. It is only when a resolution plan is approved under Section 31 that the rights contained in Section 32A would start to flow. We are informed that the conflict between the Section 14 of the IBC, 2016 and the power of the ED to effect new attachments or continue old attachments under the PMLA, 2002 is the subject matter of litigation before various other courts. For the proceedings before us, it is wholly unnecessary to answer this issue. Manish Kumar and its import: 33. The Hon'ble Supreme Court has had occasion to deal with the legislative intent and purpose underlying Section 32A of the IBC, 2016, albeit when considering a challenge to the constitutional validity of Section 32A. In doing so, the Hon'ble Supreme Court had the benefit of the Union of India's clear explanation and support for the view that corporate debtors must get to begin with a clean slate under Section 32A, making a clean break from their past. In Manish Kumar Vs Union of....
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....ght 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 be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the interim resolution professional and thereafter into the hands of the resolution professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision. ....
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.... has been made clear in Manish Kumar not only by the Hon'ble Supreme Court but also by the Union of India. Such an exposition has made it rather easy for us to appreciate the provision in its letter and spirit, and to apply it to the facts at hand. 36. In our opinion, when a resolution plan with the ingredients that qualify for immunity under Section 32A comes to be approved, quasi-judicial authorities including the Adjudicating Authority under the PMLA, 2002 (Respondent No. 1 in WP 9943) must take judicial notice of the development and release their attachment on their own. This is the only means of ensuring that the rule of law as stipulated in Section 32A of the IBC, 2016 runs its course. The Adjudicating Authority under Section 8 of the PMLA, 2002 is a quasi-judicial officer with a judicial role. The judicial role of an Adjudicating Authority is different from the role of a prosecuting executive. In discharging such role, the Adjudicating Authority, clothed with the character of a judicial officer, must act judiciously and discharge the mandate of Article 141 of the Constitution of India, which makes it clear that the law declared by the Hon'ble Supreme Court would bind all ....
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....is obligated to issue a show-cause notice, provide an opportunity of being heard and pass a reasoned order. Evidently, orders passed by the Adjudicating Authority are appealable orders under Section 26 of the PMLA, 2002. To enable the Adjudicating Authority to discharge its quasi-judicial function, Section 11 of the PMLA, 2002 confers on the Adjudicating Authority the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 in respect of discovery; inspection; enforcing attendance of witnesses and examining them on oath; compelling production of records; receiving evidence on affidavits; issuing commissions for examination of witnesses and documents; and any other matter which may be prescribed by making rules. Lest there be any doubt, Section 11(3) of the PMLA, 2002 explicitly states that every proceeding under Section 11 would be deemed to be a judicial proceeding within the meaning of Section 193 and Section 228 of the Indian Penal Code, 1860. 40. Regardless of whether Respondent No. 1 in WP 9943 (the Adjudicating Authority under the PMLA, 2002) discharges it's duty on its own accord (by taking judicial notice) or on the ED drawing its attention to t....
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....aw Appellate Tribunal was available to it. The ED did not appeal the Approval Order either within the limitation period. Therefore, while one may raise technical grounds that alternate remedies may exist in the law, a constitutional court adjudicating the two competing writ petitions based on the same set of facts, is indeed an efficacious remedy. 43. Mr. Vyas has contended that the NCLT may indeed interpret the provisions of the IBC, 2016 but when such interpretation could have an effect on actions taken under the PMLA, 2002, it should hold its hands. In our view, such a submission is misconceived. Both Section 32A and Section 60(5) in the IBC, 2016 being non-obstante provisions, there is no question of an interpretation of the IBC, 2016 rendering the provisions of the PMLA, 2002 nugatory. Parliament, when legislating Section 32A, was fully aware of the provisions of the PMLA, 2002 and in fact, specially legislated that subject to the ingredients of Section 32A being met, the immunity must flow and the assets of the corporate debtor must get their full statutory protection, notwithstanding the provisions of, among others, the PMLA, 2002. Parliament was also aware that Section 6....
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....ed under the PMLA, 2002 - such as the provisional attachment order, the original complaint and the ECIR. We have already explained why we would not need to quash these instruments of enforcement. Such quashing is wholly necessary by the sheer formulation of Section 32A(1) and Section 32A(2) of the IBC, 2016. The position in law is that once Section 32A is attracted, such instruments of enforcement would continue in force, and would be pressed into service to prosecute the other accused and their properties - those other than the corporate debtors and properties of such accused, who do not enjoy immunity. Neither Paragraph 17(e) of the Approval Order nor the April 2023 Order purports to quash any of these instruments of enforcement deployed under the PMLA, 2002. We have explained above why the two orders of the NCLT are unexceptionable and present the accurate application of Section 32A to the corporate debtor and its assets. 48. Therefore, in our opinion, the judgements cited to buttress the proposition that the NCLT does not have jurisdiction to use its judicial discretion to adjudicate upon or to disturb enforcement actions taken under the PMLA, 2002 are wholly irrelevant. The....
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.... the IBC, 2016 was introduced with effect from 28th December, 2019. It was a material legislative intervention to provide a shield to from prosecution and continued attachment of the properties of a qualifying corporate debtor from antecedent proceedings under any other law in force. Therefore, it is inappropriate to cite judgements rendered before the introduction of Section 32A to argue how the PMLA, 2002 stands on a separate footing and how its interface with the IBC, 2016 should be reconciled. The introduction of Section 32A was a conscious shift with a specific and conscious adoption of the non-obstante provision, with a legislative intent to give primacy to the IBC, 2016 in respect of corporate debtors who qualify for the immunity under Section 32A. Therefore, citing judgements rendered before the introduction of Section 32A to canvass how to interpret Section 32A, is wholly inappropriate. In fact, such judgements declaring the law as they did, are addressed by the conscious departure by way of substantive legislative changes through Section 32A. Such judgements that would be inappropriate to cite are:- (i) Deputy Director of Enforcement, Delhi vs. Asix Bank & Ors - ....
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....ry ingredients to qualify for the immunity, namely, that there is a clean break with a change in ownership of, and control over, the corporate debtor; iii. IA 383 could be regarded as having become infructuous since the Approval Order had already, and rightly, protected the corporate debtor and the Attached Properties from continued prosecution of the scheduled offenses and the offense of alleged money laundering under the PMLA, 2002. However, the April 2023 Order that disposed of IA 383 was founded on applying the provisions of Section 32A to the facts of the case; iv. There is one other facet that makes the scheme and import of Section 32A of the IBC, 2016 clear, logical and reasonable. The attachment under Section 5 of the PMLA, 2002 is but a measure in aid of eventual potential confiscation under Section 8(5) of the PMLA, 2002. Confiscation of the property of the corporate debtor can only be effected upon conviction of the corporate debtor for an offence of money laundering. Where Section 32A(1) of the IBC, 2016 confers immunity to the corporate debtor from prosecution, there can be no conviction that can follow. Consequently, it is but logical that the proper....
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....ied them to the facts at hand, to declare that the attachment of the Attached Properties by the ED must come to an end. It is possible that in a given case, the application of Section 32A of the IBC, 2016 may have an effect on existing and intended attachments and prosecution by enforcement agencies operating under laws such as the PMLA, 2002. However, since both Section 32A and Section 60(5) are non-obstante provisions, they would prevail, with no room for concern, real or imagined, about any conflict between legislations. We, therefore, hold that the interpretation by the NCLT in both, the Approval Order, and the April 2023 Order, did not at all render nugatory, the provisions of the PMLA, 2002 or its legislative objectives. The NCLT has merely given effect to the provisions of Section 32A of the IBC, 2016 in its terms and that is an accurate decision, as explained by us above; and ix. Finally, quasi-judicial authorities wielding powers of a civil court in relation to the functioning of a State agency such as the ED, have a role that is distinct and separate from the executive authorities in the same agency. The former are inherently a statutory check and balance on the ....