TaxTMI 
TaxTMI 
2025 (7) TMI 707
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....de') by Mr. Anil Kohli, the Resolution Professional (RP) for Dunar Foods Limited (Corporate Debtor) challenging the refusal of the Adjudicating Authority to direct the Directorate of Enforcement (ED) to release the provisionally attached assets of the Corporate Debtor. 2. The Appellant/RP asserts that the continued attachment of properties under the Prevention of Money Laundering Act, 2002 (PMLA) violates the moratorium under Section 14 of the IBC and frustrates the CIRP objectives. This appeal raises substantial questions about the conflict between two central economic legislations viz. Insolvency & Bankruptcy Code 2016 and the Prevention of Money Laundering Act, 2002. Brief facts of the case 3. The brief facts of the case are as follows: (i) Dunar Foods Ltd. is a company engaged in the business of manufacturing, processing, and exporting basmati rice. It had availed substantial credit facilities from a consortium of banks led by the State Bank of India (SBI), along with Canara Bank, Bank of India, and other lenders. At the time of filing the Sec 7 petition under the Code in on 27.06.2017, the total dues owed by the Corporate Debtor to the Banks was Rs. 758,73,62....
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....Agroprocessors Pvt. Ltd. were proceeds of crime. (vii) Consequently, on 26.12.2017, the Deputy Director of the Directorate of Enforcement, Mumbai Zone, issued Provisional Attachment Order (PAO) No. 12/2017 under Section 5(1) of the PMLA, attaching various immovable and movable assets of Dunar Foods Ltd. The total value of attached assets amounted to Rs. 177,33,94,800/-. (viii) On 14.02.2018, the RP addressed written communications to the Directorate of Enforcement requesting immediate de-attachment of the provisionally attached properties. He explained that the moratorium under Section 14 of the IBC barred all proceedings including enforcement actions like attachment against the corporate debtor. He further referred to Section 238 of the IBC, which provides the Code with overriding effect over any other inconsistent law. However, the ED did not provide any relief or respond favorably. (ix) On 16.02.2018, in view of the deadlock, the RP filed Miscellaneous Application No. 129 of 2018 before the NCLT, Mumbai Bench, under Section 60(5) of the IBC. The application sought, inter alia, (a) quash the provisional attachment order dated 26.12.2017 being PAO No. 12....
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....se all provisionally attached properties valued at Rs. 177,33,94,800/-; c) a declaration that the IBC has overriding effect over the PMLA under Section 238, and that the attachment violates the moratorium under Section 14; and d) permission to use the attached properties for keeping the corporate debtor operational and ensuring a successful resolution under the IBC framework. Submissions of the Appellant 4. The Counsel for the Appellant submitted that the present appeal has been preferred under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('IBC' or the 'Code') against the order dated 19.05.2018 passed by the Hon'ble National Company Law Tribunal, Mumbai Bench ("Adjudicating Authority"), in MA No. 129 of 2018. The Appellant, who is the duly appointed Resolution Professional ("RP") for the Corporate Debtor, Dunar Foods Ltd., had approached the Adjudicating Authority seeking quashing or recall of the Provisional Attachment Order (PAO) dated 26.12.2017 passed by the Directorate of Enforcement ("Respondent") under Section 5(1) of the Prevention of Money Laundering Act, 2002 ("PMLA"). 5. Ld. Counsel stated that the said PAO was passed just four days a....
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....ust be given full effect to ensure that the Code achieves its legislative purpose. This principle has been consistently reaffirmed, including by this Hon'ble Tribunal in 'Directorate of Enforcement v. Manoj Kumar Agarwal & Ors., Company Appeal (AT) (Insolvency) No. 575 of 2019', where it was held that when there is a conflict between the IBC and the PMLA, the IBC will prevail. 11. The Counsel further submitted that in 'Solidaire India Ltd. v. Fairgrowth Financial Services Ltd., [AIR 2001 SC 958]', the Hon'ble Supreme Court held that where two enactments contain non-obstante clauses, the later in point of time will override the earlier. Since, the IBC was enacted subsequent to the PMLA, its non-obstante clause has superior legislative intent. Thus, counsel for appellant contended that any inconsistency between the IBC and PMLA must be resolved in favour of the IBC, especially in the context of moratorium and resolution. 12. The Counsel for the Appellant also submits that the objective of the IBC, as stated in its Preamble and consistently reiterated by the Hon'ble Supreme Court, is to maximize the value of the Corporate Debtor's assets and to ensure a time-bound insolvency res....
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....e validity of the Provisional Attachment Order in the context of IBC provisions, in particular Section 14 (moratorium) and Section 238 (overriding effect). It is distinct from any proceedings pending before the Appellate Tribunal under PMLA, which concern the substantive legality and confirmation of the PAO under the PMLA framework. 20. He further submitted that there is no duplication of relief or forum shopping, as the reliefs sought in the present appeal pertain only to the jurisdictional inconsistency and statutory conflict between IBC and PMLA. Both forums are approached under different legal bases and arise from separate causes of action. 21. Ld. Counsel further asserted that it is incorrect to contend that the Appellant is attempting to undermine the PMLA adjudicatory process by invoking the IBC framework. 22. Ld. Counsel further submitted that during the pendency of this appeal the Resolution Plan of the Corporate Debtor was approved by the Adjudicating Authority based on the application No. M.A. No. 2166 of 2019 on 26.11.2019. However, some inadvertent errors had crept in the order dated 26.11.2019, these were subsequently rectified by the adjudicating Authority v....
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....it abundantly clear that even if CIRP is pending, NCLT cannot usurp the jurisdiction conferred on other statutory forums. 27. The Counsel for the Respondent further submitted that once the Provisional Attachment Order (PAO) dated 26.12.2017 was confirmed by the Adjudicating Authority under PMLA on 11.06.2018, it acquired a degree of finality under the scheme of the PMLA. The confirmation order is a quasi- judicial determination of the legitimacy of the attachment and its nexus to alleged money laundering activity. The Resolution Professional's attempt to challenge this attachment before the NCLT, without appealing the confirmation order under Section 26 of PMLA, amounts to circumvention of due process. 28. Ld. Counsel submitted that the Resolution Professional cannot be permitted to re-litigate issues which have already been decided by the competent Adjudicating Authority under the PMLA, especially when such confirmation order has not been assailed before the proper appellate forum. The principle of statutory finality, judicial discipline, and the hierarchy of forums demand that the challenge be directed to the PMLA Appellate Tribunal and not before this Hon'ble Tribunal. ....
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....or offences. 34. In the present case, the attachment of the Corporate Debtor's properties by the ED occurred on 26.12.2017 and was confirmed on 11.06.2018, well before the approval of the resolution plan in November 2019. Therefore, Section 32A cannot be invoked retrospectively to invalidate actions lawfully taken by the ED in the performance of its statutory duty under PMLA. The assets were already in the custody of law under the PMLA framework before the CIRP reached the resolution stage. 35. Ld. Counsel claimed that this legal position is supported by 'P. Chidambaram v. Directorate of Enforcement, (2019) 9 SCC 24', wherein the Hon'ble Supreme Court upheld the preventive and punitive objectives of PMLA and declined to dilute its strict application in the face of overlapping legal provisions. Furthermore, in 'Varrsana Ispat Ltd. v. Deputy Director, Directorate of Enforcement, Company Appeal (AT) (Insolvency) No. 493 of 2018', this Hon'ble Appellate Tribunal, while dealing with similar facts, held that if the attachment under PMLA is pre-CIRP and confirmed, then such action is outside the purview of IBC interference. 36. The Counsel for the Respondent submitted that the in....
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....d the SRA in this appeal. 41. Ld. Counsel submitted that the NCLT, Mumbai while approving the resolution plan vide Order date 26.11.2019 was pleased to hold that the Respondent No.2/SRA shall not be held responsible for any statutory outstanding dues and other claims prior to the period of commencement of CIRP. Paragraph No.2-23 of the said Order dated 26.11.2019 are reproduced herein below: "21. As far as question of waiver of outstanding dues and other claims as on date of approval of the Resolution Plan is concerned, the Resolution Applicant, who will step into the shoes of corporate debtor subsequent to approval of Resolution Plan by the Bench shall not be held responsible for any outstanding statutory dues and other claims for the period before the Commencement of CIRP. 22. The Resolution Plan is binding on the Corporate Debtor and other stakeholders involved so that revival of the Debtor Company shall come into force with immediate effect and the "Moratorium" imposed under section 14 shall cease to have any effect henceforth. The Resolution Professional shall submit the records collected during the commencement of the Proceedings to the Insolvency & Bankr....
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....ons as envisaged under Section 32A of the Code, the assets/properties of the Corporate Debtor have not been transferred to SRA without any attachment, encumbrances, Lien etc. till date. In support of his submission, the Respondent has cited the following judgments of Hon'ble Supreme Court and Hon'ble High Courts: Judgments: (i) Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531: Para 66-67. (ii) Manish Kumar vs. Union of India (UOI) and Ors. (19.01.2021 SC): 2021 5 SSC 1, Para 246-247, 253-259 (iii) Arya Constructions through Mr. Amit Singh Yadav versus Punjab National Bank Ltd; W.P (C) No. 10768/2024, Hon'ble High Court of Delhi, Para 19,20,23 (iv) Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Ltd. & Ors, (2022) SCC 401, Para 122 (v) V Hotels Limited Vs. Directorate of Enforcement and Ors, Order Dated 28.11.2024 passed by the Hon'ble High Court of Bombay, Writ Petition (L) No. 32216 of 2024, Para 18-20. (vi) Ghanshyam Mishra and Sons Private Limited versus Edelweiss Assets Reconstruction Company 2021 SCC online SC 313, Para 95(I) (vii) Shiv....
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....ctive of their nature-civil, criminal, quasi-judicial or otherwise-and hence includes attachment actions under PMLA. It is further argued that such attachments impair the CIRP's viability, as the locked assets cannot be accessed or monetized. 50. Per contra, the Respondent argues that proceedings under the PMLA relate to criminal law enforcement and are not in the nature of recovery or enforcement proceedings contemplated under Section 14 of the IBC. It is further contended that the assets attached are not merely commercial assets, but are alleged "proceeds of crime", which under the scheme of the PMLA, are liable to be preserved, adjudicated and potentially confiscated in the interest of justice and public interest. 51. Based on the records, we find the following timeline of relevant events: • 22.12.2017 CIRP commences against Dunar Foods Ltd. By the order of the NCLT. • 26.12.2017, a Provisional Attachment Order was issued by the ED under Section 5(1) of the PMLA, linked to alleged tainted funds received by Dunar Foods Ltd. from PD Agro processors Pvt. Ltd. • 11.06.2018 The attachment order confirmed by the PMLA Adjudicating Authority.....
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...., particularly in the context of resolution processes involving tainted assets 56. Crux of this issue lies in a potential conflict between two central legislations viz. the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prevention of Money Laundering Act, 2002 (PMLA). The IBC is a commercial legislation aimed at facilitating time-bound insolvency resolution of financially distressed companies. On the other hand, the PMLA is a penal statute that seeks to identify, attach, and confiscate properties derived from criminal activities such as money laundering. Section 238 of the IBC states: "This is what is known in legal parlance as a non-obstante clause; a provision meant to give the statute overriding effect over any other law that contains inconsistent provisions." 57. The Appellant argues in view of the non-obstante clause and the fact that IBC is a later legislation, if the provisions of the PMLA in particular, the attachment of corporate debtor's assets, stand in the way of carrying out a successful insolvency resolution, such attachment must give way to the IBC. 58. The Respondent/ED, however, contends that there is no inconsistency. The PMLA and IBC, acc....
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....SCC OnLine Del 7854]' explicitly held that IBC and PMLA operate in different fields and must be harmoniously construed. Tainted assets cannot be considered part of the resolution estate under IBC. 65. A conflict may arise, when the ED attaches an asset during CIRP, rendering it unavailable for resolution. The Appellant contends that such action frustrates the Code's purpose of value maximization. While it is true that the IBC thrives on a free, unencumbered asset base to attract resolution applicants. If prime assets are rendered unusable due to attachment, the likelihood of resolution reduces. That, however, is not a sufficient ground to invalidate another statute's valid operation, especially when it relates to proceeds of crime. 66. Courts have consistently held that tainted assets are not protected under commercial laws. In 'Gautam Kundu v. ED, [(2015) 16 SCC 1]', the Hon'ble Supreme Court emphasized the importance of preserving penal provisions in the face of competing laws. Hon'ble court observed that Where money laundering is involved, courts must be cautious not to allow commercial or procedural mechanisms to defeat the legislative intent of penal enforcement. 67. ....
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....release of assets to ensure CIRP continuity and that there is no forum shopping. The Respondent on the other hand relies on the judgements of Hon'ble SC in 'Embassy Property (Supra)' and this Appellate Tribunal in 'Varrsana Ispat Ltd.(supra)' to argue that attachment orders confirmed under the PMLA fall exclusively within the PMLA statutory framework and not within the NCLT/NCLAT's jurisdiction. 73. Hon'ble Supreme Court in Embassy Property (supra) has categorically held that NCLT cannot interfere in decisions of statutory or quasi-judicial authorities functioning under special statutes like the Mines and Minerals Act. By extension this would automatically include a special statute like the PMLA. In the present case, the PAO was confirmed under Section 8(3) of the PMLA by its Adjudicating Authority. The proper remedy for the Appellant/ RP was to file an appeal under Section 26 of the PMLA before the Appellate Tribunal constituted thereunder. 74. We also note that subsequent to conclusion of hearing in this case, Hon'ble Supreme Court delivered a landmark judgment exactly on this issue. Hon'ble SC in its judgment dated 02.05.2025 in 'Kalyani Transco Vs. M/s. Bhusan Power an....
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.... far as NCLT is concerned, and under Section 61 of IBC so far as the NCLAT is concerned. Neither the NCLT nor the NCLAT is vested with the powers of judicial review over the decision taken by the Government or Statutory Authority in relation to a matter which is in the realm of Public Law. As held by a Three-judge Bench in case of Embassy Property Developments Private Limited vs. State of Karnataka & Ors., the Section 60(5) speaks about any question of law or fact, arising out of or in relation to insolvency resolution, but a decision taken by the Government or a statutory authority in relation to a matter which is in the realm of Public Law, cannot be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in Section 60(5)(C) IBC. It has been further held therein that in the light of the statutory scheme as culled out from the various provisions of the IBC, it is clear that wherever the Corporate Debtor has to exercise a right that falls outside the purview of the IBC, especially in the realm of the public law, they cannot take a bypass and go before NCLT for the enforcement of such a right. 28. In view of the settled p....