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2026 (5) TMI 66
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....a Enterprises Pvt. Ltd., but owned by M/s Viceroy Hotels Ltd., as the said properties stood transferred to M/s Viceroy Hoteles Ltd. through an Order dated 01.05.2007 of the Hon'ble Andhra Pradesh High Court. The CBI had registered FIRs and filed a chargesheet in the Ld. Court of Additional Chief Metropolitan Magistrate, Egmore, Chennai on 16.06.2017 against M/s Best & Crompton Engineering Project Ltd. (BCEPL) among other persons. The investigation by CBI was done on the basis of the complaint filed for the loss of Rs. 364 Crores caused to the consortium of the Banks including Central Bank of India, Andhra Bank and Corporation Bank. 2. Ld. Counsel for the Appellant filed an Application dated 07.02.2024 under Section 32A of the Insolvency and Bankruptcy Code, 2016 (IBC) in the said Appeal. Ld. Counsel stated that M/s Viceroy Hotels Limited ("VHL") had entered into a Business Transfer Agreement ("BTA") dated 02.04.2011 with M/s Mahal Hotels Pvt. Ltd. ("MHPL") towards the Chennai hotel and its business (along with the concomitant assets and liabilities). The total agreed consideration for the BTA was Rs. 480 Crores. The BTA stipulated a Long Stop Date of 30.06.2011 for completion of....
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.... the Ld. NCLT (IA No.413 of 2019 in CP/IB/219HDB/2017). Ld. Counsel for the Appellant further submitted that both the aforementioned applications were considered elaborately by the Ld. NCLT, which allowed the same vide order dated 11.07.2019. The Respondent Directorate challenged the order dated 11.07.2019 before the Hon'ble High Court of Madras in WP No. 29970 of 2019. The Hon'ble High Court, without going into the merits of the dispute decided the case on jurisdictional grounds. The Hon'ble High Court in its Order dated 02.06.2020 allowed the Writ Petition. The Hon'ble High Court also gave liberty to the Appellant to pursue the remedies under PMLA. By this date, the instant Appeal was filed before the Appellate Tribunal, which is now pending consideration. It is pertinent to note that that judgment dated 02.06.2020 passed by the Hon'ble Madras High Court in WP No. 29970 of 2019 is pending consideration before the Hon'ble Supreme Court in SLP (C) 8259 of 2020. 5. Ld. Counsel for the Appellant stated that in the year 2019, a Resolution Application was submitted. However, the same was rejected by the Ld. Adjudicating Authority on 01.09.2021 due to regulatory reaso....
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....al resolution amount, as per statutorily approved Resolution plan, has come into new management of the VHL. The new management of VHL herein does not come under either of the categories mentioned in Section 32A(1) or (2). The new management of VHL, being AAFL, is neither a promoter nor was in the management nor control of the corporate debtor nor a related party. The new management also does not come under Clause (b) of Section 32A(1) or (ii) of 32A(2). Therefore, the immunity under Section 32A is fully applicable to the facts of the present case. Ld. Counsel therefore pleaded that considering Section 32A of the IBC, the subject attachment cannot be continued against the new VHL, after CIRP. Apart from Section 32A, Section 31 of IBC also bars the continuance of any attachment in the instant case. The entire basis behind issuing the subject PAO against VHL is premised on the assertion that the amounts received as advances from MHPL are still owed by VHL to MHPL. Ld. Counsel stated that such advances cannot be claimed anymore as the same were specifically dealt with and rejected by the Ld. NCLT/NCLAT as elaborated herein above. Therefore, the entire basis to execute the attachment in....
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....unity to a corporate debtor undergoing insolvency resolution. However, this provision does not automatically override the provisions of PMLA. Section 32A(1) stipulates that immunity applies only when the new management is not linked to prior offences. In the present case: a) The alleged fraudulent funds were received by M/s Viceroy Hotels Limited, forming part of its assets. b) The new management under the resolution plan does not alter the fact that the attached property is derived from money laundering. c) The PAO was issued prior to the conclusion of the Corporate Insolvency Resolution Process (CIRP), and thus, Section 32A does not apply retrospectively to absolve past crimes. Ld. Counsel further submitted that the present case is not only limited to diversion of funds to the tune of Rs. 364 Crore but also of causing loss of Rs. 274.60 crores to the consortium of banks, the public financial institutions. 10. Ld. Counsel for the Respondent argued that the present Provisional Attachment Order No. 04/2019 dated 26.03.2019 is valid even if the company has undergone resolution as the attached properties are specifically classified as proceeds of crime. The investigation under....
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....report or a complaint to the relevant statutory authority or Court: Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: 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 in-charge 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 th....
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.... with the argument which are also being raised by the Respondent in the present case that the proceeds of crime went into the attached properties of Viceroy Hotels Ltd. through MHPL. The relevant paragraphs of the Judgment (supra) are as follows: "246. Section 32A is challenged by allottees in Writ Petition No. 75 of 2020. The Petitioners in Writ Petition No. 27 of 2020 and Writ Petition No. 579 of 2020, who are creditors (money lenders) also challenge Section 32A. 247. The Petitioners contend that immunity granted to the corporate debtors and its assets acquired from the proceeds of crimes and any criminal liability arising from the offences of the erstwhile management for the offences committed prior to initiation of CIRP and approval of the resolution plan by the adjudicating authority further jeopardizes the interest of the allottees/creditors. It will cause huge losses which is sought to be prevented under the provisions of the Prevention of Money Laundering Act, 2002. 248. Section 32A is arbitrary, ultra vires and violative of Article 300A and Articles 14, 19 and 21. 249. The stand of the Union, on the other hand, is as follows: Se....
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....te debtor is successfully resolved, it should not be held liable for any offence committed prior to the commencement of the CIRP, unless the successful resolution applicant was also involved in the commission of the offence, or was a related party, promoter or other person in management and control of the corporate debtor at the time of or any time following the commission of the offence. Notwithstanding this, those persons who were responsible to the corporate debtor for the conduct of its business at the time of the commission of such offence, should continue to be liable for such an offence, vicariously or otherwise. The newly inserted Section as mentioned above shall also include protection of property from enforcement action when taken by successful resolution applicant. Also, it was recommended that cooperation and assistance to authorities investigating the offences committed prior to commencement of CIRP shall be continued by any person who is required to provide such assistance under the applicable law. xxxxx Chapter 1: Recommendations regarding the Corporate Insolvency Resolution Process xxxxx 17. LIABILITY OF CORPORATE DEBTOR FOR OFFENCES COMMITTE....
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...., even where the corporate debtor did not commit any offence and was not subject to investigation, due to adverse selection by resolution applicants who might be apprehensive that they might be held liable for offences that they have not been able to detect due to information asymmetry. Thus, the threat of liability falling on bona fide persons who acquire the legal entity, could substantially lower the chances of its successful takeover by potential resolution applicants. 17.4. This could have substantially hampered the Code's goal of value maximisation, and lowered recoveries to creditors, including financial institutions who take recourse to the Code for resolution of the NPAs on their balance sheet. At the same time, the Committee was also conscious that authorities are duty bound to penalize the commission of any offence, especially in cases involving substantial public interest. Thus, two competing concerns need to be balanced. 17.5. The Committee noted that the proceedings under the Code, which are designed to ensure maximization of value, generally require transfer of the corporate debtor to bona fide persons. In fact, Section 29A casts a wide net that....
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.... corporate debtor's liability has ceased. Actions against the Property of the Corporate Debtor 17.9. The Committee also noted that in furtherance of a criminal investigation and prosecution, the property of a company, which continues to exist after the resolution or liquidation of a corporate debtor, may have been liable to be attached, seized or confiscated. For instance, the property of a corporate debtor may have been at risk of attachment, seizure or confiscation where there was any suspicion that such property was derived out of proceeds of crime in an offence of money laundering. It was felt that taking actions against such property, after it is acquired by a resolution applicant, or a bidder in liquidation, could be contrary to the interest of value maximisation of the corporate debtor's assets, by substantially reducing the chances of finding a willing resolution applicant or bidder in liquidation, or lowering the price of bids, as discussed above. 17.10. Thus, the Committee agreed that the property of a corporate debtor, when taken over by a successful resolution applicant, or when sold to a bona fide bidder in liquidation under the Code,....
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....ing the sitting held on 15th January, 2020 remarked: If the bidder, who is coming and participating under the court supervised competitive process, does not get security and is not indemnified, there may be a problem. 3.10 Further, the Ministry furnished the following comment on the above suggestion: ...this provision would only apply where the CIRP culminates in a change in control to a completely unconnected resolution applicant. As such, a resolution applicant has nothing to do with the commission of any pre- CIRP offence whatsoever, and the corporate debtor is now fundamentally not the same entity as the one that committed the crime. 3.11 The Committee are in agreement with the intent of this amendment to safeguard the position of the Resolution Applicant(s) by ring-fencing them from prosecution and liabilities under offences committed by erstwhile promoters etc. The Committee understand the need for treating the company or the Corporate Debtor as a cleansed entity for cases which result in change in the management or control of the corporate debtor to a person who was not a promoter or in the management control of the corporate debtor or rel....
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....orporate debtor against whom such an action may be taken under such law as may be applicable. v. Notwithstanding the immunity given under Section 32A, 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. 252. Section 32A has been divided into three parts consisting of Sub-sections (1) to (3). Under Sub-section (1), notwithstanding anything contained, either in the Code or in any other law, liability of a corporate debtor, for an offence committed prior to the commencement of the CIRP, shall cease. Further, the corporate debtor shall not be liable to be prosecuted for such an offence. Both, these immunities are subject to the following conditions: i. A Resolution Plan, in regard to the corporate debtor, must be approved by the Adjudicating Authority under Section 31 of the Code; ii. The Resolution Plan, so approved, must result in the change in the management or control of the corpor....
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....e commission of the offence, then, the prosecution, if it is instituted after the commencement of the CIRP and during its pendency, will stand discharged against the corporate debtor. Under the second proviso to Sub-section (1), however, the designated partner in respect of the liability partnership or the Officer in default, as defined under Section 2(60) of the Companies Act, 2013, or every person, who was, in any manner, in-charge or responsible to the corporate debtor for the conduct of its business, will continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor. This is despite the extinguishment of the criminal liability of the corporate debtor under Sub-section (1). Still further, every person, who was associated with the corporate debtor in any manner, and, who was directly or indirectly involved in the commission of such offence, in terms of the Report submitted and Report filed by the Investigating Authority, will continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor. Thus, the combined reading of the various limbs of Sub- section (1) would show that while, on the one hand, the cor....
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....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 (ii). 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. Thus, reading Sub-section (1) and Sub-section (2) together, two results emerge-(i) subject to the requirements embedded in Sub-section (1), the liability of the corporate, debtor for the offence committed under the CIRP, will cease; (ii) The property of the corporate debtor is protected from any l....
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....he 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 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....
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....ction on the ground that it violates Articles 19, 21 or 300A." 13. In view of the aforementioned citation from the Judgment (supra), we are unable to agree with the arguments made by the Respondent Directorate. It is also to be noted that the attempt made by MHPL to claim the status of the financial creditor has also been rejected in the Judgment dated 24.11.2023 passed by the NCLAT in Company Appeal (AT) (CH) (INS.) No. 225/2023 in the matter of Mahal Hotel Pvt. Ltd. vs. Dr. Govindarajula Venkata Narasimha Rao. Following conclusions of the said Judgment are reproduced below: "12. It is seen from the aforenoted observation that while allowing C.A. (AT) (Ins) 633/2018, this Tribunal noted that there is a dispute as to whether Mahal Hotel Pvt. Ltd. comes within the meaning of Financial Creditor' or not, and has concluded that further, once a decision was taken by the Committee of Creditors to call for a Meeting for removal of Mr. Koteswara Rao Karuchola as RP, it was improper for him to include Mahal Hotel Pvt. Ltd. as Financial Creditor of the Member of the Committee of Creditors. Further, money laundering case having been initiated against Mahal Hotel Pvt. Ltd., the....