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2025 (7) TMI 707
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....sional (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. 758,73,62,546/-. (ii) Following continuing defaults in repayment ....
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....uty 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. 122017 in F.No. ECIR/14/MZO/2013/PD Agro/1733, and (b) a direction to the Directorate of Enforcement to recall the p....
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....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 after the CIRP had commenced on 22.12.2017, and while the moratorium under Section 14 of the IBC was in full force. The Hon'ble Adjudicating Authority, while disposing of the Appellant....
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....ment 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 resolution. The act of attaching the Corporate Debtor's properties during CIRP frustrates this objective. 13. It was the submission of Ld. Counsel that the continuation of attachment, renders the Cor....
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....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 vide order dated 27.01.2021. 23. In view of the changes subsequent to filing of the appeal Ld. Counsel sought the following reliefs: (i) Declare that the provisions of the IBC, particularly Section 14 and Section 23....
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....nfirmed 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. 29. The Counsel for the Respondent submitted that the Prevention of Money Laundering Act, 2002 is a special legislation enacted to address the serious menace of money laundering and to provide for confiscation of property derived from or involved in mone....
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....d 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 invocation of Section 14 by the Appellant to shield assets that are alleged proceeds of crime is legally untenable. The moratorium under IBC is designed to preserve the economic value of the Corporate Debtor's bona fide assets for resolution-not to protect properties ac....
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....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 & Bankruptcy Board of India for their record and also return to the Resolution Applicant or New Promoters. Certified Copy of this Order be issued on demand to the concerned parties, upon due compliance. That liberty is hereby granted for moving any Miscellaneous Application if required in connection ....
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....urts: 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 Charan and Ors. versus Adjudicating Authority under the prevention of Money Laundering Act, 2002, Department of Revenue And Ors, Writ Petition (L) No. 9943, Hon'ble High Court of Judicature at Bombay, Para- 11, 14, 52. 46. Summing up his arguments Ld. Counsel state that in view of aforesaid facts and settled position of law as seen from cited judgments this App....
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....ent 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. This timeline clearly shows that the ED's action occurred after the moratorium had commenced. However, the mere temporal sequence is not determinative; the key issue is whether the ED's attachment under PMLA qualifies as a "proceeding" hit by the moratorium. 52. In 'Alchemist ARC v. Hotel Gaudavan Pvt. Ltd. [2017 SCC OnLine SC 1362]', Hon'ble Supreme Court unequivocally held that moratorium under Section 14 covers all legal proc....
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.... 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, according to the ED, operate in different domains; one deals with criminal proceeds; the other, with commercial insolvency. Where the asset is tainted as a "proceed of crime," it ceases to be a legitimate corporate asset and cannot be deployed for commercial resolution. In such cases, the PMLA must prevail in its domain. 59. Section 238 of the IBC is intended to ensure that the objects of the Code are not frustrated by competing statutory provisions. In 'Innoventive Industries Ltd. v. ICICI Bank,....
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.... 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. The Appellant has also placed reliance on Section 32A of the IBC (introduced in 2020), which grants immunity to the Corporate Debtor and its property post-resolution. Section 32 A has been extracted below: "Section 32A (1) states that once a resolution plan is approved and control passes to a new, unrelated management, the Corporate Debtor shall not be liable for offences committed prior to the commencement of CIRP. Section 32A (2) further provides that such property shall not be attached or confiscated." However, in the present case, the PAO was issued on 26.12.2017 and confirmed on 11.06.2018. The resolution plan was ....
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....e 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 and Steel Ltd and Others (Civil Appeal No. 1808 of 2020)' discussed the powers of NCLAT vis a vis provisions under PMLA 2002 and laid down the law in this regard. The relevant paras 24 -25 and 27-31 of the judgment are extracted below: "(V) POWERS OF NCLAT TO REVIEW THE DECISION OF STATUTORY AUTHORITY UNDER THE PMLA: - 24. This takes us to the issue as to whether the NCLAT had any powers of Judicial Review over the decision taken by the Statutory Authority under the PMLA? As per the chronology of events stated earlier, after the NCLT vide the Order dated 05.09.2019 approved the Resolution Plan of JSW, subject to the conditions mentioned in para 128 thereof, the Directorate of Enforce....
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....o 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 proposition of law, when the NCLT could not exercise the powers of judicial review falling outside the purview of the IBC, or falling within the purview of public law, the NCLAT also, being an Appellate Authority under Section 61 over the orders passed by the NCLT, could not exercise any power or jurisdiction beyond Section 61 of IBC. 29. As held by us earlier, a person aggrieved by an order of the Adjudicating Authority can prefer an Appeal to the NCLAT under Section 61(1), and that an Appeal against the order approving a Resolution Plan under Section 31 could be filed only on the grounds mentioned in clauses (i) to (v) of sub-section (3) of Section 61. Hence, for filing an Appeal under Section 61, there has to be an order pas....