NCLAT (09.04.2021) in The Directorate of Enforcement Vs Manoj Kumar Agarwal & Ors.. [Company Appeal (AT)(Insolvency) NO.575 & 576 of 2019] held that;
Taking aid from this, it appears to us that after the attachment when matter goes before the Adjudicating Authority under PMLA, proceeding before Adjudicating Authority for confirmation would be civil in nature. That being so, Section 14 of IBC would be attracted and applies.
Thus to quasi-criminal proceeding as regards Corporate Debtor, Section 14 applies has been found. Considering this as well as the nature of proceedings that takes place before the Adjudicating Authority under PMLA, it appears to us that even if the Authority issues order of provisional attachment, the institution and continuation of proceedings before the Adjudicating Authority for confirmation would be hit by Section 14 of IBC.
Thus if the Authorities under PMLA on the basis of the attachment or seizure done or possession taken under the said Act resist handing over the properties of the Corporate Debtor to the IRP/RP/Liquidator the consequence of which will be hindrance for them to keep the Corporate Debtor a going concern till resolution takes place or liquidation proceedings are completed, the obstructions will have to be removed.
In our view, there is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the Corporate Debtor, if CIRP is initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of liquidation asset occurs in terms of Section 32A.
Excerpts of the order;
Company Appeal (AT)(Insolvency) NO.575 of 2019
This appeal has been filed by the Directorate of Enforcement being aggrieved by impugned order dated 12.02.2019 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench, Mumbai in MA No.1280 of 2018 in the matter of Sterling SEZ Infrastructure Ltd. (Corporate Debtor) through Resolution Professional Vs Deputy Director, Directorate of Enforcement, Headquarters Investigation Unit, New Delhi in Company Petition IB No.405/IB/2018. The Miscellaneous Application was filed by the Resolution Professional of the Corporate Debtor and after hearing the parties the Adjudicating Authority, NCLT, Mumbai by the impugned order directed that the attachment order dated 29.05.2018 and the Corrigendum dated 14.6.2018 issued by the deputy Director, Directorate of Enforcement, under the provisions of Prevention of Money Laundering Act,2002 (PMLA in short) which has been confirmed by the Adjudicating Authority under PMLA was nullity and nonest in law in view of Sections 14(1)(a), 63 and 238 of Insolvency and Bankruptcy Code (IBC). By the impugned order the Adjudicating Authority, NCLT, Mumbai permitted the Resolution Professional to take charge of the properties and deal with them under IBC as if there is no attachment order. The concerned sub-registrars are also directed to give effect to this order. The Adjudicating Authority clarified that the attachment only in respect of the properties of Corporate Debtor were covered by this impugned order. Thus the present appeal
Company Appeal (AT)(Insolvency) NO.576 of 2019
# 2. This appeal relates to impugned order dated 12.02.2019 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai in the matter of SREI Infrastructure Finance Ltd Vs Sterling International Enterprises Ltd (Corporate Debtor) (represented by the Resolution Professional Mr. Vishal Ghisulal Jain) in MA No.1299/2018 in CP No. 402 of 2018. The Miscellaneous Application was filed by the Resolution Professional of Corporate Debtor-Sterling International Enterprises Ltd and the Adjudicating Authority, NCLT, Mumbai after hearing the parties directed that the attachment order dated 29.5.2018 and the Corrigendum dated 14.6.2018 issued by the Deputy Director, Directorate of Enforcement which was confirmed by the Adjudicating Authority under PMLA was nullity and nonest in law in view of Sections 14(1)(a), 63 and 238 of IBC. The Adjudicating Authority by impugned order allowed the Resolution Professional to take charge of the properties and deal with them under IBC as if there is no attachment. The concerned sub-registrars were also given directions to give effect to this order. The Adjudicating Authority clarified that the attachment in respect of the properties of Corporate Debtor only were covered by the impugned order. Thus the present appeal.
# 3. The above two appeals have been filed and the impugned order in both the appeals being similar and relating to the same group companies, similar issues are being raised in both the matters. For the sake of convenience, the Company Appeal (AT)(Insolvency) No.575/2019 is treated as lead appeal and the arguments and documents will be referred from the record of this appeal (unless mentioned otherwise). The arguments have also been advanced referring to record in Company Appeal (AT)(Insolvency) no.575/2019.
Active Attachments, seizure etc. abstract acts as above
# 34. It appears to us that if the aims and objects of IBC are to be achieved, and maximisation of value is material so as to reach a resolution, above acts in time bound manner are to be performed and there cannot be obstructions of attachments and seizures existing. If the property is under attachment or seizure, or possession is taken over, keeping the corporate debtor a going concern would be serious issues. Without the properties in possession of IRP/RP getting valuation done during CIRP or even liquidation stage, would be issues. Attachment remaining in force would affect value of the property and prospective applicants may not respond in the manner in which they would, if the property is not under active attachment or seizure.
Section 14 of IBC applies
# 35. Coming to the question of moratorium, the Appellant is relying on the Judgment in the matter of “Varrsana Ispat Ltd.” (Supra) which was passed by this Tribunal on 2nd May, 2019. Now Respondent Nos. 1 and 3 have referred to Judgment in the matter of “Pareena Swarup Vs. Union of India”; 2008 14 SCC 107 (Diary No. 25059) this was a matter where Ms. Pareena Swarup member of Bar had filed Writ Petition under Article 32 of the Constitution of India by way of Public Interest Litigation to declare various sections of PMLA such as Section 6 which deals with Adjudicating Authorities, composition, powers, etc. and other sections of PMLA as ultra vires of Articles 14, 19(1)(g), 21, 50, 323-B of Constitution of India. . . . . . .
# 36. The Learned Counsel for the Respondents are submitting that the Judgment shows that Government accepted that under PMLA, functions of Adjudicating Authority are civil in nature and not Criminal.
# 37. The Learned Counsel for the Appellant submitted that these were proposed provisions and thus the Judgment is not helpful. Having reproduced the relevant portions from the Judgment, what appears to us is that the Government did save Issue No. 7 dealing with attachment and confirmation of the same by the Adjudicating Authority by claiming that the acts were civil in nature. Provisions on this count were not proposed provisions as argued. This being so, it does appear to have been accepted that the proceedings before the Adjudicating Authority under PMLA are civil in nature. Apart from above Section 11 and Section 41 of PMLA also give insight. They read as under:
“11. Power regarding summons, production of documents and evidence, etc.—
(1) The Adjudicating Authority shall, for the purposes of this Act, have the same powers as are vested in a civil court under the Code of civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:—
(a) discovery and inspection;
(b) enforcing the attendance of any person, including any officer of a banking company or a financial institution or a company, and examining him on oath;
(c) compelling the production of records;
(d) receiving evidence on affidavits;
(e) issuing commissions for examination of witnesses and documents; and
(f) any other matter which may be prescribed.
(2) All the persons so summoned shall be bound to attend in person or through authorised agents, as the Adjudicating Authority may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required.
(3) Every proceeding under this section shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).
41. Civil court not to have jurisdiction.—No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.”
Section 41 does not refer to Special Courts which on the face of the provisions are Criminal Courts. Section 41 was required to protect actions of Director and adjudication before Adjudicating Authority and Appeal to Appellant Tribunal under PMLA, which are Civil in nature from being challenged in regular Civil Courts.
# 38. In PMLA offence of money laundering is defined and punishment prescribed in Chapter 2. Chapter 7 deals with special courts for trial of offence punishable under Section 4 which is found in Chapter 2. The offences are triable by Special Courts under Section 44 and the offence are cognizable and non-bailable as per Section 45. Section 46 applies Code of Criminal Procedure before Special Court. There is provision of Appeal and Revision to the High Courts under Section 47 of PMLA. Thus, there is demarcation with regard to the attachment of property done under Section 5 of PMLA which is to be adjudicated under Section 8 before the Adjudicating Authority who has to deal with confirmation of attachment under Section 8 (3) of PMLA. On confirmation, the attachment continues during investigation for a period not exceeding 365 days or pendency of the proceedings relating to the offence under PMLA before a Court or under the corresponding law of any other country or before the Competent Court of any jurisdiction outside India as the case may be. The attachment confirmed by Adjudicating Authority becomes final after an order of confiscation passed under sub-section 5 or sub-section 7 of Section 8 or Section 58B or sub-section (2-A) of Section 60 by the special Court. It appears that because of such demarcations, the Government stated before the Hon’ble Supreme Court of India that the functions as regards the Adjudicating Authority are civil in nature to the extent that it does not decide on the criminality of the offence nor does it has power to impose penalty or impose punishment.
# 39. Taking aid from this, it appears to us that after the attachment when matter goes before the Adjudicating Authority under PMLA, proceeding before Adjudicating Authority for confirmation would be civil in nature. That being so, Section 14 of IBC would be attracted and applies. In present matter, the Provisional Attachment took place on 29th May, 2018 and corrigendum was issued on 14th June, 2018. The CIRP started on 16th July, 2018. Once moratorium was ordered, even if the Appellant moved the Adjudicating Authority under PMLA, further action before Adjudicating Authority under PMLA must be said to have been prohibited. Even if confirmation has been done as stated to have been done on 20th November, 2018, the same will have to be ignored. Section 14 of IBC will hit institution and continuation of proceedings before Adjudicating Authority under PMLA. The CIRP will of course not affect prosecution before Special Court, till contingencies under Section 32A of IBC occur.
40. In Judgment in the matter of “P. Mohanraj & Ors. Vs. Shah Brothers Ispat Pvt. Ltd.” (2021) SCC Online SC 152, Hon’ble Supreme Court of India considered the provisions of Section 138 of the Negotiable Instrument Act and Liabilities of the Corporate Debtor and Directors in the light of Section 14 of IBC and observed in Paragraph 63 as under:
“63. A conspectus of these judgments would show that the gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply. We have already seen how it is the victim alone who can file the complaint which ordinarily culminates in the payment of fine as compensation which may extend to twice the amount of the cheque which would include the amount of the cheque and the interest and costs thereupon. Given our analysis of Chapter XVII of the Negotiable Instruments Act together with the amendments made thereto and the case law cited hereinabove, it is clear that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 of the IBC, amount to a “proceeding” within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding.”
Thus to quasi-criminal proceeding as regards Corporate Debtor, Section 14 applies has been found. Considering this as well as the nature of proceedings that takes place before the Adjudicating Authority under PMLA, it appears to us that even if the Authority issues order of provisional attachment, the institution and continuation of proceedings before the Adjudicating Authority for confirmation would be hit by Section 14 of IBC.
# 41. Alternatively, even if for any reason it was to be held that Section 14 of IBC would not help, it appears to us that Section 238 of IBC would still apply. Although it is argued that PMLA is a special statute and has an overriding effect still Section 238 of IBC is also a special statute and which is subsequent statute. IBC has specific object, which is to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons and to promote entrepreneurship, availability of credit and balance the interest of all stakeholders including alteration in the order of priority of payment of Government dues.
Section 238 of IBC reads as under:
“238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
If this Section is perused, the provisions of this Code would have effect notwithstanding anything inconsistent therewith contained “in any other law” for the time being in force. Section 238 of IBC does not give over riding effect merely to Section 14. The other provisions also are material, and will have effect if there is anything inconsistent therewith contained in any other law for the time being in force. Thus if the Authorities under PMLA on the basis of the attachment or seizure done or possession taken under the said Act resist handing over the properties of the Corporate Debtor to the IRP/RP/Liquidator the consequence of which will be hindrance for them to keep the Corporate Debtor a going concern till resolution takes place or liquidation proceedings are completed, the obstructions will have to be removed. We have already referred to the various Acts required to be performed by IRP/RP/Liquidator to achieve the aims and objects of IBC in time bound manner. If properties of Corporate Debtor would not be available to keep it a going concern, or to get the properties valued without which Resolution/Sale would not be possible, the obstruction will have to be removed. To take over properties of Corporate Debtor, and manage the same, and keep Corporate Debtor a going concern are acts which fall within purview of IBC. IRP/RP/Liquidator under IBC have duty and right to take over and manage assets of Corporate Debtor as long as the assets are property of the Corporate Debtor, so that the other duties conferred on them by the statute are performed. These are issues relating to resolution/liquidation. If hindrance is being created by the attachment or by taking over the possession, it would be a question of priority arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor and such question can be decided by the Adjudicating Authority under Section 60 (5) (c) of IBC which reads as under:
“60(5)(c) 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 the corporate debtor or corporate person under this Code.
42. In our view, there is no conflict between PMLA and IBC and even if a property has been attached in the PMLA which is belonging to the Corporate Debtor, if CIRP is initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of liquidation asset occurs in terms of Section 32A.
43. For the above reasons, we find no substance in these Appeals. We do not find any reason to interfere with the Impugned Order in both the Appeals.
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