Chandra Prakash IRP For MayFair Leisures Ltd. Vs. Director of Enforcement Department of Revenue - Thus, Section 14 would not bar a proceeding under the PMLA.

  NCLT Ahmedabad (06.03.2023) In Chandra Prakash IRP For MayFair Leisures Ltd. Vs. Director of Enforcement Department of Revenue  [IA 608 of 2020 in CP(IB) 213 of 2018 ] held that;

• Therefore, Section 14 of the IBC is consequent upon an order passed by the Adjudicative Authority declaring moratorium. This would not apply to a special enactment which travels on its own path. After all, one cannot presume a conflict between two enactments having it distinct roles with their objections. As stated, it only speaks about the follow up action over a property, which is subject matter of the proceedings before the National Company Law Tribunal under the IBC. Thus, Section 14 would not bar a proceeding under the PMLA.

Blogger’s Comments; All said and done, the principal objective of attachment & confiscation of tainted property in PMLA is that a person/company is not able to enjoy the proceeds of crime. Under IBC, as soon as the application under section 7, 9 or 10 is accepted, the control of the company is divested from its promoters/directors/existing management & the promoters/directors are prevented from taking back the control of the company (Section 29A & section 32A) either during insolvency proceedings or during liquidation process, thus fulfilling the principal objectives of PMLA.

Rather, attachment of company’s property (particularly liquid assets i.e. bank accounts etc.) under the provisions of PMLA, during insolvency/liquidation proceedings, will frustrate the principal objective of the IBC, i.e. to put the assets of insolvent companies in the beneficial use of the society. In contrast due  to protracted proceedings in PMLA the value of the assets gets diminished, which ultimately is the loss of the society.

Excerpts of the order; 

# 1. This application is filed by the Applicant under section 60(5) and 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 11 of NCLT Rules, 2016 (NCLT Rules) seeking release of attachment of property by the Enforcement Directorate, Ahmedabad. 

# 2. M/s. Mayfair Leisure Limited is the Corporate Debtor and was admitted in Corporate Insolvency Resolution Process (CIRP) vide order dated 02.06.2020 by this Adjudicating Authority in Petition No. CP (IB) 47 of 2017 filed by the Financial Creditor i.e. Bank of India under section 7 of the IBC. The Adjudicating Authority appointed the Applicant i.e. Mr. Chandra Prakash Jain as the Interim Resolution Professional (IRP). 

# 3. The Applicant issued public announcement in “Business Standard” (English) edition and “Gujarat Samachar” (Gujarati) edition on 13.06.2020 inviting claims from Creditors of the Corporate Debtor. The Applicant received claim from only one Financial Creditor i.e. Bank of India and thus constituted Committee of Creditors (CoC) consisting of one Financial Creditor. 

# 4. It is submitted by the Applicant that he received an email from Suspended Management on 22.06.2020 wherein it was informed that the property of the Corporate Debtor, situated at Survey No. 619, village Atladara, disctrict, Vadodara had been attached by Central Bureau of Investigation (CBI) on 05.04.2018 and the same was confirmed by the Hon’ble Gujarat High Court in 2019. It was further informed in the email dated 22.06.2020 that the property is also attached by the Enforcement Directorate (ED) vide its provisional attachment order dated 24.04.2018. The said order was confirmed by the Hon’ble PMLA Appellate Tribunal vide its order dated 03.12.2018. The Hon’ble PMLA Appellate Tribunal vide order dated 12.05.2020 had directed that the status of the property of the Corporate Debtor has to be maintained as it was on 07.04.2018 during the course of investigation of the money laundering under PMLA, 2002 which was initiated vide ECIR/AMZO/03/2018 based on CBI, ACB, Gandhinagar, FIR no. 029 2018 A 0006. 

# 5. It is further submitted by the Applicant that in view of order dated 12.05.2020 passed by Hon’ble PMLA Appellate Tribunal, he is not able to take the possession of the property nor he is able dispose it off. Further, the ED has not even filed its claim with the Applicant. Further, the Applicant submitted that vide letter dated 17.06.2020 he had intimated ED about initiation of CIRP of the Corporate Debtor. In response to the letter, ED confirmed vide letter dated 26.06.2020 that the immovable assets of the Corporate Debtor are attached by their office. The Applicant in response issued another letter dated 21.07.2020 and requested the ED to release the attached property in order to take charge of the Corporate Debtor. 

# 6. It is submitted by the Respondent that a money laundering case under ECIR/AMZO/03/2018 dated 05.04.2018 has been recorded by ED, Ahmedabad zonal office, on the basis of registration of FIR no. 0292018A0006 dated 26.03.2018 by the CBI, against M/s. Diamond Power Infrastructure Ltd. (DPIL), Shri Suresh Narain Bhatnagar, Founder of DPIL, Shri Amit Suresh Bhatnagar, Managing Director of DPIL, Shri Sumit Suresh Bhatnagar, joint Managing Director of DPIL, unknown public servants of various banks and unknown others for commission of offence under section 420, 467, 468, 471 read with 120-B of Indian Penal Code, 1860 and section 13(2) read with section 13(1)(d) of the Prevention of Corruption Act, 1998. Further, DPIL used its related parties including the Corporate Debtor i.e. M/s. Mayfair Leisures Ltd. by indulging in suspicious transactions during the period 2010-2011 to 2016-2017. The investigation indicated that these transactions were mere paper transactions without any transfer of goods in order to present false picture of their business health to the banks. DPIL and its related parties have diverted huge amount of funds received as loan/cash, credit to sister concern including M/s. Mayfair Leisures Ltd. and utilized these funds for real estate business of these companies. 

# 7. It is also submitted by the Respondent that the office of the Respondent traced immovable properties valued at Rs. 1122.72 crores and provisionally attached the same vide Provisional Attachment Order No. 02/2018 on 24.04.2018. Subsequently, a complaint was made before the Hon’ble Adjudicating Authority, PMLA, New Delhi for confirmation of the attachment. The Hon’ble Adjudicating Authority, PMLA, New Delhi confirmed the provisional attachment of the properties valued at Rs. 1122.72 crores vide order dated 01.10.2018. The Respondent has also filed a Prosecution Complaint (PC) no. 21 of 2018 in the designated Special Court under Prevention of Money Laundering Act, 2002 (PMLA). 

# 8. Further, it is also submitted by the Respondent that the money laundering case was recorded by ED on 05.04.2018 and the provisional attachment order of the immovable assets was issued on 24.04.2018, which is prior to the admission of the instant application before this Adjudicating Authority. Further, the moratorium vide directions issued by the Hon’ble Tribunal are in respect of proceedings of civil nature as well as disposal of the properties of the Corporate Debtor, whereas the action taken by the Directorate under PMLA, is a criminal matter as the said properties are derived from criminal activities. 

# 9. Moreover, it is submitted by the Respondent that a complaint has already been filed before Hon’ble Special Court vide PC No. 21 of 2018 and the immovable properties attached by the ED are required to be available before Hon’ble Special Court under PMLA for the purpose of confiscation of the same to the Central Government as well as for imposition of penal action against M/s. DPIL and its directors/responsible officers under the provisions of PMLA, 2002. 

# 10. It is also submitted by the Respondent that the objectives of PMLA, 2002 and IBC are different. The concerns of the Applicant regarding availability of the properties is already covered under the provisions of PMLA, 2002. Once it is established that the money involved in the case is laundered, the said properties which are provisionally attached will stand confiscated and will be dealt as per section 8(8) of PMLA, 2002. The claimants with a legitimate interest in the property may be considered during the proceedings before the Special Court under PMLA Act, 2002. Hence, the Respondent has submitted that the present application is not maintainable. 

# 11. Further, it is submitted by the Respondent that the Applicant has cited his inabilities in performing his duties on account of the attachment of property by the ED. However, the Applicant has failed to note that the Respondent has already submitted a prosecution complaint before Hon’ble Special PMLA Court, Ahmedabad in the instant case for confiscation of the properties and prosecution of the accused persons. Further, as per section 8 of the PMLA, 2002, the Applicant can submit their claims before the Hon’ble Special PMLA Court. 

# 12. We have heard the learned counsels of the Applicant and Respondents and perused the material on record. It has been noted that M/s. Mayfair Leisure Limited who is the Corporate Debtor was admitted in CIRP vide order dated 02.06.2020 by this Adjudicating Authority in Petition No. CP (IB) 47 of 2017 filed by the Financial Creditor i.e. Bank of India under section 7 of the IBC. However, the property was already attached by the ED vide its provisional attachment order dated 24.04.2018. The said order was confirmed by the Hon’ble PMLA Appellate Tribunal vide its order dated 03.12.2018. The Hon’ble PMLA Appellate Tribunal vide order dated 12.05.2020 had directed that the status of the property of the Corporate Debtor has to be maintained as it was on 07.04.2018 during the course of investigation of the money laundering under PMLA, 2002 which was initiated vide ECIR/AMZO/03/2018 based on CBI, ACB, Gandhinagar, FIR no. 029 2018 A 0006. 

# 13. Further, it is also noted that a complaint has already been filed before Hon’ble Special Court vide PC No. 21 of 2018 under PMLA, 2002 for confiscation of the attached properties and prosecution of the accused persons. Hence, criminal action under PMLA, 2002 was already taken by the Respondent on 24.04.2018 which is prior to the admission of the instant application by this Adjudicating Authority. 

# 14. The Hon’ble High Court of Madras in the matter of Deputy Director, office of the Joint Directorate of Enforcement vs. Asset Reconstruction Company of India Ltd. and others (Writ Petition No. 29970 of 2019 and WMP Nos. 29872 and 34971 of 2019) wherein, the Hon’ble High Court of Madras, observed that NCLT has no jurisdiction to go into the matters governed under the PMLA, 2002 and, therefore, section 14, having consequent upon an order passed by the Adjudicating Authority declaring moratorium, would not apply to the PMLA which is a distinct and special statute having its own objective and as such section 14 would not bar a proceeding under the Act. For benevolent reference the relevant extract of which is reproduced below: 

• “8. Section 14 of the IBC speaks of moratorium. A declaration has to be made through an order by the Adjudicatory Authority in this regard. If one carefully goes through the said section, there is no way professional attachment order passed under the provisions of the PMLA would automatically invite a moratorium. This provision only speaks about the consequence for institution of the suit, for continuance and other proceedings against the Corporate Debtor. Therefore, Section 14 of the IBC is consequent upon an order passed by the Adjudicative Authority declaring moratorium. This would not apply to a special enactment which travels on its own path. After all, one cannot presume a conflict between two enactments having it distinct roles with their objections. As stated, it only speaks about the follow up action over a property, which is subject matter of the proceedings before the National Company Law Tribunal under the IBC. Thus, Section 14 would not bar a proceeding under the PMLA.” 

# 15. It is clear that the proper recourse to be resorted by the ‘Corporate Debtor’ is to approach the ‘Competent Forum’ under the PMLA, 2002 to its logical end or any other ‘Jurisdictional Forum’ (other than the purview of IBC, 2016,) in the manner known to Law and in accordance with Law. 16. In view thereof, this application stands rejected.

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Sterling SEZ and Infrastructure Limited Vs. Dy. Director, Directorate of Enforcement, - Pre - Moratorium, Attachment of property by ED under PMLA

 NCLT Mumbai (12.02.2019) in Sterling SEZ and Infrastructure Limited Vs.  Dy. Director, Directorate of Enforcement, (PMLA) [M.A 1280/2018 in C.P. 405/ 2018] held that; the attachment order dated 29.05.2018 and the Corrigendum dated 14.06.2018 issued by Respondent and as confirmed by Adjudicating Authority under PMLA Court is a nullity and nonest in law in view of Sections 14(1)(a), 63 and 238 of IBC.

Excerpts of the order;

1. The Applicant is the resolution Professional of Sterling SEZ and Infrastructure Ltd. (hereinafter called “Corporate Debtor”) and has sought the following reliefs

• a. To direct the Enforcement Directorate to release the provisional (or final, if confirmed) attachment on all the assets and properties of the company and hand over the charge to the Resolution Professional

• b. To direct the sub-registrar at Jambusar to register and hand over the two Original lease deeds entered into between Sterling SEZ and Infrastructure Ltd. and P. I. Industries Ltd. on 28.08.2018 in respect of the following:

- i. All the piece and parcel of the land having Plot No. SPM-29/1 admeasuring 42,200 sqm. (10.43 acres) situated in Notified Sterling Multi Product SEZ comprising the survey no.”938 Paiki 1” at Sarod Village, Jambusar Taluka, Bharaj District; and

- ii. All the piece and parcel of the land having Plot No. SPM-29/2 admeasuring 87,300 sqm. (21.57 acres) situated in Notified Sterling Multi Product SEZ comprising the survey no.”938 Paiki 1” at Sarod Village, Jambusar Taluka, Bharaj District;

2. Facts of the case;

a. This Tribunal admitted a Section 7 petition against the Corporate Debtor on 16.07.2018 and appointed the Applicant herein as the Interim Resolution Professional who was subsequently confirmed as Resolution Professional.

b. The office of the Enforcement Directorate has provisionally attached the assets belonging to the Corporate Debtor vide order/notice dated 29.05.2018 and corrigendum dated 14.06.2018 as part of certain proceedings initiated by the office of the Enforcement Directorate against the Corporate Debtor.

c. On 05.09.2018, the Applicant intimated the Directorate of Enforcement about the initiation of CIRP and imposition of moratorium as mentioned in this Tribunal’s order. The Applicant also requested the Directorate of Enforcement to withdraw the attachment, if any, on the properties and assets of the company as the IRP is required to take charge and custody of the same under the provisions of the Code. 

Now the applicant came before this Tribunal for the above said reliefs.

# 3. The Applicant raised the following arguments;

a. As per the provisions of the Code, the entire management of the Corporate Debtor and the responsibility of running the business as a going concern vests with the Resolution Professional. Under Section 18 of the Code, an IRP is required to take control and custody of all the assets of the Corporate Debtor including those assets which may not be in the possession of the Corporate Debtor.

b. After admission of the petition under Section 7 of the Code a moratorium is imposed under Section 14 of the Code prohibiting institution of suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order of any court of law, tribunal or any other authority. The Applicant also referred to Section 238 of the Code which stipulates that the provisions of the Code shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force. The Applicant cited these sections to draw home the point that during CIRP, the Resolution Professional should decide how the properties and assets of the Corporate Debtor can be appropriated.

c. Further, the Applicant cited a judgment pronounced by the Hon’ble NCLT, Kolkata bench in Surendra Kumar Joshi v. REI Agro Limited, C.A (IB) No. 453/KB/2018 in C.P (IB) No. 73/KB/2017 wherein a liquidator had filed an application under Section 35(1) (n) of the Code seeking orders against the Directorate of Enforcement, New Delhi to release the attachment on the assets of the Corporate Debtor which was allowed.

f. The Applicant further contended that the properties attached cannot be said to be acquired by using proceeds of crime or by diversion of funds. All the properties which were attached were in the name of the company and they should be available for legitimate distribution to the various creditors for settlement, resolution or recovery of their claims.

g. The Applicant submits that unless the attachment is withdrawn and properties are set free, he cannot proceed with the CIRP process.

4. The Enforcement Directorate in its defense raised the following arguments;

h. The property in question constitute the value of proceeds of the crime as defined u/s 2(1)(u) of PMLA which provides that even if the direct link between the crime proceeds and the property is not available/determinable the value thereof (equivalent value of such proceeds of crimes) can be attached.

i. The properties provisionally attached constitute the value of such proceeds of crime. The PMLA is a special act and have overriding effects in terms of section 71 of the PMLA. The main object of Insolvency and Bankruptcy Code, 2016 (Code) and PMLA are different from each other. The Code being a civil law cannot be given precedence over PMLA, 2002 and hence NCLT lacks jurisdiction in the matter.

j. The moratorium declared by this adjudicating authority is not applicable to the criminal case initiated under the PMLA by the enforcement directorate and to the criminal case initiated by the CBI.

5. Submissions by Amicus-Curiae:

b. Overriding effect of IBC:- Section 238 of the Code provides for non obstante clause to the effect that “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 such law”. The Hon’ble Supreme Court in the case of Solidaire India Ltd. Vs. Fairgrowth Financial Services Pvt. Ltd. has held that where two statues contains non-obstante clause, latest statue would prevail. The aforesaid judgment of the Hon’ble Supreme Court has been followed in context of the Code having an overriding effect over the provisions of PMLA by NCLT, Kolkata Bench in the case of “Surender Kumar Joshi Vs. REI Agro Ltd.” and Code having an overriding effect over the provisions of UP Electricity Supply Code, 2005/UP Government Electrical Undertaking (Dues Recovery) Act, 1956 by NCLT, Allahabad in case of “Raman Ispat Pvt. Ltd. Vs Executive Engineer, Pashimanchal Vidyut Vitran Nigam Ltd.” In the case of Surender Kumar Joshi (supra), NCLT, Kolkata has directed ED to hand over the possession of the attached properties of the Corporate Debtor under liquidation to the liquidator along with the title deeds thereof. It is, however, clarified by the NCLT that the Court established under PMLA could decide whether the properties attached could said to be properties acquired out of proceeds of crime.

In the present MA, the Resolution Professional have sought release of attachments as well as handing over possession of the assets. However, there is nothing on record to indicate that the possession of these assets in question have been taken over by the ED under PMLA. In absence of such material, it is obligation/duty of the Resolution Professional to take control and custody of assets of the Corporate Debtor in terms of Section 18(1)(f) of the Code. However, it is required to be noted that the provisions of PMLA permit possession to be taken by the ED under Section 8(4) of the PMLA only after confirmation of the provisional order of attachment under Sub-Section 3 thereof. There is nothing on record to indicate that ED has taken any such steps after passing of the order of confirmation of attachment dated 20.11.2018. It is pertinent to note that the order dated 20.11.2018 passed by the Adjudicating Authority (under PMLA) has been passed after the order of admission of the Petition against the Corporate Debtor and during CIRP as well as moratorium. The issue as to whether the proceedings before the Adjudicating Authority under the PMLA would be stayed by virtue of Section 14 of the IBC has already been considered by the Appellate Tribunal under the PMLA Act in two recent judgments, one in the case of “Bank of India Vs Deputy Director, Enforcement Directorate” and another in the case of “Punjab National Bank Vs Deputy Director, Directorate of Enforcement, Raipur”. Hon’ble Justice Manmohan Singh speaking for the Appellate Tribunal in both the above cases has held as below:

• i. In view of the non-obstante clause contained in Section 238 of IBC, the Adjudicating Authority under the PMLA could not have continued with the attachment after declaration of moratorium.

• ii. The non-obstante clause contained in IBC, which is a later statute shall prevail over the non-obstante clause contained in Section 71 of PMLA.

• iii. The proceedings before the Adjudicating Authority under PMLA is civil in nature and hence, in view of Section 14 of IBC, the proceedings before the Adjudicating Authority of PMLA cannot continue.

• iv. In the case of Punjab National bank (supra), the Secured Creditor being lead Banker of Consortium of Banks had applied for raising of the attachment which was granted by the Appellate Tribunal. The facts of that case are similar to the case on hand except that the Secured Creditors in the present case have not filed any such application before the Adjudicating Authority under PMLA for raising attachment.

c. Provisional attachment under PMLA:- It is submitted that attachment under the provisions of PMLA cannot be raised by NCLT under the provisions of IBC. The attachment can only be raised in accordance with the procedures laid down in the concerned statue under which it was levied. The only exception to this is the constitutional courts i.e. the Hon’ble Supreme Court and High Court in exercise of power under Article 32 and 226 of the Constitution of India. However, there is precedent where NCLT, Allahabad in the case of Raman Ispat Pvt. Ltd. (Supra) has in exercise of power u/s 35(1)(n) of IBC directed the District Magistrate and Tehsildar, Muzaffarnagar to release the attached properties in favour of liquidator. However, in the present case the provisional attachments were levied prior to the commencement of CIRP. Also, Section 35(1) of the Code only applied in the case of liquidation and hence such recourse cannot be applied in the present case. The only other provisions which may be applicable for considering raising of attachment would be section 60 (5) of IBC where under NCLAT would have jurisdiction to pass appropriate orders and decide all such issues relating to the Corporate Debtor or as regards any claim against the same. It was further submitted that the Resolution Professional to take out an appropriate application before the adjudicating authority under PMLA for raising the attachment. However, in the interregnum the Resolution Professional can take physical possession of the properties attached in terms of Section 18(1)(f) of the Code. The Hon’ble Supreme Court and several High Courts have consistently held that an order of attachment is passed for achieving a limited purpose. The attachment is used for two purposes (1) to compel the appearance of the Defendant and (2) to cease and hold his property for the payment of debt. The Hon’ble High Court of Andhra Pradesh in W.P. No. 8560 of 2018 by an order dated 26.07.2018 held that a prior attachment under the Income tax Act long before the commencement of proceedings under IBC before NCLT would yield to the provisions of IBC.

Under the provisions of PMLA, there are three stages of attachment. Initially a provisional attachment is levied under Section 5(1), which is then confirmed after enquiry under Section 8(3). However, this attachment attains finality only after proceedings before Special Court are proved as per Section 8(5) thereof. Furthermore, Section 4 of PMLA provides for punishment of imprisonment and fine for money laundering. If charges of ED are proved, then, the Corporate Debtor being an artificial person would be awarded an appropriate fine, whereas Directors of the Corporate Debtor would be liable for imprisonment as well as fine. Assuming any such fine is imposed on the Corporate Debtor, the same can be recovered in accordance with Section 69 of PMLA which contemplates recovery in the manner as prescribed under Schedule 2 of the Income Tax Act. In case the Corporate Debtor is in CIRP/liquidation, ED be entitled to make necessary claims in before RP or the liquidator in case of liquidation.

6. It is to be noted that the Appellate Tribunal for PMLA in the case of Bank of India v. The Deputy Directorate of Enforcement of Mumbai MANU/ML/0040/2018 held in Para 43 and 44 as below:

• “43. The proceedings under PML Act before the Adjudicating Authority are civil in nature and not criminal. The provisions of Section 11 and Section 42 of the PMLA specifically confirms the said position and therefore the reliance placed by ED on the judgment passed by NCLT, Ahmadabad to contend non-applicability of moratorium on the proceedings before Adjudicating Authority is wholly misplaced. Rather the said judgment reinforces the correct position.

• 44. In view of aforesaid facts and circumstances and for reasons referred above, we set aside the Impugned Order dated 20.12.2017 and the Provisional Attachment Order dated 29.06.2017. The mortgaged properties attached under the PAO 05/2017, so far as, properties concern in this appeal are released from attachment forth with"

7. The Hon’ble Supreme Court in case of “Jaipur Metals & Electricals Employees Organization through General Secretary Mr. Tej Ram Meena Vs. Jaipur Metals & Electricals Ltd. through its Managing Director & Ors” held as below:

• “17. However, this does not end the matter. It is clear that Respondent No. 3 has filed a Section 7 application under the Code on 11.01.2018, on which an order has been passed admitting such application by the NCLT on 13.04.2018. This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding up proceedings before the High Court. It was open for Respondent No. 3 at any time before a winding up order is passed to apply under Section 7 of the Code. This is clear from a reading of Section 7 together with Section 238 of the Code which reads as follows:

- "238. Provisions of this Code to override other laws.- 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."

9. In view of the above discussion the attachment order dated 29.05.2018 and the Corrigendum dated 14.06.2018 issued by Respondent and as confirmed Adjudicating Authority under PMLA Court is a nullity and nonest in law in view of Sections 14(1)(a), 63 and 238 of IBC and the Resolution Professional can proceed to take charge of the properties and deal with them under IBC as if there is no attachment order. The concerned sub-registrars are directed to give effect to this order and remove their notings of attachment, if any, in their file in respect of properties belonging to the Corporate Debtor. It is needless to mention that the attachments in respect of the properties of the Corporate Debtor only are covered in this order.

10. Consequently, the sub-registrar at Jambusar is directed to register and hand over the two Original lease deeds entered into between Sterling SEZ and Infrastructure Ltd. and P. I. Industries Ltd. on 28.08.2018, as prayed for in this application.

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