Sp. Court (PMLA) Haryana (2024.12.07) in ED Vs. M/s Edusmart Services Pvt. Ltd. & Ors. [CNR No.HRPK01-003866-2023 Case No.COMA/32/2023 (IA 01/2024)] held that;
Accused No.4 is a body corporate and as such, a juristic person against whom, the Prosecution Complaint has been filed by arraigning it as one of the accused involved in the offence of Money Laundering.
Section 32A was introduced in the IBC effectively providing immunity to successful resolution applicants against the offences committed by the erstwhile management of the Corporate Debtor, subject to certain conditions.
Section 32-A further clarifies that if a prosecution is instituted during the CIRP against a Corporate Debtor, it shall stand discharged from the date of approval of the resolution plan.
Section 32-A(2) of the IBC also bars action against property of a Corporate Debtor in relation to an offence allegedly committed prior to commencement of CIRP, subject to similar conditions (as listed above)
In view of the discussion above, there remains no manner of doubt that a Corporate Debtor shall not be prosecuted for an offence committed by it prior to commencement of CIRP from the date of approval of resolution plan by the Adjudicating Authority under Section 31 subject to requirements of sub-section (1) of Section 32-A of IBC being fulfilled.
It is a well-recognized principle of law that when two non-obstante clauses in two special statutes clash, the statute which is later in time will prevail. Therefore, IBC being the later statute, will prevail over the PMLA.
after commence of CIRP, it is the Resolution Professional who takes charge of the affairs of the company whose most important function is to ensure the operations of the Corporate Debtor as a going concern and as such, even before a court of law, he has to act on behalf of the Corporate Debtor to protect its interests. In such circumstances, the Resolution Professional having not been formally appointed as a representative for the purpose of enquiry or trial as per Section 305(2) Cr.P.C., is hardly of any consequence.
Section 32-A of IBC speaks of a Corporate Debtor being relieved of criminal prosecution for any offence committed prior to commencement of CIRP on the mere approval of resolution plan.
No judgment was cited before me to the effect that Section 32-A of IBC is not applicable to the cases involving offence of money laundering or the same is applicable with certain exceptions. In view of that, the court while dealing with the point in issue, has to proceed as per the mandate of Section 32-A of IBC.
Excerpts of the Order;
This order shall dispose of an application filed on behalf of applicant-accused No.4 M/s Educomp Solutions Limited (ESL) through Resolution Professional/Caretaker Shri Mahender Khandelwal, seeking taking on record the facts and legal submissions; re-calling the order dated 12.07.2024 taking cognizance of offence under Section 4 of The Prevention of Money Laundering Act (PMLA) against the applicant accused No.4 and dropping the charges/prosecution against it, by the reason of applicability of Section 32-A of Insolvency & Bankruptcy Code, 2016 (“IBC”, in short).
# 2. Upon filing of Prosecution Complaint under Sections 44 & 45 of the PMLA on 05.09.2023 for commission of offence of money laundering under Section 4 of PMLA, by the order dated 12.07.2024,cognizance of offence of money laundering defined in Section 3 read with Section 70 of PMLA and punishable under Section 4 of PMLA was taken and process was ordered to be issued for summoning of the accused persons including applicant-accused No.4 M/s Educomp Solutions Limited (ESL).
# 3. On 13.08.2024, applicant-accused entered appearance through counsel Shri Mohit Uppal, Advocate, who had informed the court that the company was under CIRP and as such, was being represented by Shri Mohinder Khandelwal, Resolution Professional. On next date i.e. 10.09.2024, the instant application for dropping of proceedings against the applicant-accused came to be filed by Shri Himanshu Kohli, Advocate on the ground that the company was under CIRP and resolution plan had been approved and, therefore, Section 32-A of IBC had become applicable.
# 4. It is stated in the application that in 2017, ESL had to approach NCLT with a voluntary insolvency petition under Section 10 of the IBC. Vide order dated 30.05.2017, the said petition was admitted and Corporate Insolvency and Resolution Process (CIRP) of ESL was initiated. It underwent CIRP under the provisions of IBC and consequently, resolution plan was submitted by EBIX Singapore Pte. Ltd. which was approved by NCLT vide order dated 09.10.2023. It is submitted that Section 32-A of IBC clearly mandates that no action shall be taken against the Corporate Debtor once a Resolution Plan comes to be approved or the Corporate Debtor undergoes liquidation. Hence, ESL cannot be prosecuted and as such, by bringing these crucial facts and legal submissions on the record, applicant-accused No.4 is seeking dropping of criminal proceedings under Section 4 of the PMLA.
# 5. Counsel for the parties heard and file perused.
# 6. It was submitted by learned counsel for applicant-accused No.4 that since as per order dated 09.10.2023, NCLT, New Delhi has already approved the resolution plan and, therefore, CIRP of accused No.4 stands concluded, no action under the provisions of PMLA in the present Prosecution Complaint can be taken against the said accused in view of Section 32-A of IBC, which clearly mandates that no action shall be taken against the Corporate Debtor once a resolution plan comes to be approved and, therefore, there was no justification with the ED to file the Prosecution Complaint by arraigning the applicant as accused No.4. It was, therefore, submitted that liability of the Corporate Debtor for an offence committed prior to commencement of CIRP proceeding shall cease to exist and Corporate Debtor shall not be prosecuted for an offence so committed and further that there will be bar against taking action against the property of the Corporate Debtor. Ld. counsel invited my attention towards Section 238 of the IBC, which provides that IBC 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. Thus, it was submitted that provisions of the IBC are having over-riding effect upon any law including the PMLA and, therefore, Section 32-A is very much applicable to the applicant-accused No.4, which is currently undergoing corporate restructuring following approval of the resolution plan and hence, no cognizance in respect of any offence as alleged against it in the Prosecution Complaint could have been taken by this court and as such, by recalling the order dated 12.07.2024 taking cognizance, the charges/proceedings against the applicant-accused No.4 are liable to dropped. To support these submissions, reliance was placed upon Manish Kumar Vs. Union of India, (2021) 5 SCC 1; Nitin Jain Liquidator PSL Limited Vs. Enforcement Directorate, WP (C) 3261 of 2021 & Rajiv Chakraborty Resolution Professional of EIEL Vs. Directorate of Enforcement, WP (C) 9531/2021 decided on 11.11.2022 by Hon’ble Delhi High Court.
# 7. The application has been opposed by ED by filing reply. It was argued by Sh.Tarun Mehta, ld. Special PP appearing on behalf of respondent-ED that Resolution Professional on behalf of applicant accused No.4 has no right or authority to bring on record any facts to seek direction from the court in the proceeding commenced against it without having a representative appointed for the purpose of inquiry and trial as required under Section 305(2) Cr.P.C. It was further argued that respondent-complainant-ED has already filed a Prosecution Complaint before this court on 05.09.2023 much prior to the approval of resolution plan qua ESL vide order dated 09.10.2023 of NCLT and after due application of mind, this court vide order dated 12.07.2024 has taken cognizance of the said complaint on the ground of applicant-accused alongwith accused No.7 remaining involved in criminal activities connected with “scheduled offences” and hence, it cannot take advantage of its own wrong. It was contended that the application is not maintainable because trial has not yet commenced in the instant case as the charges are yet to be framed and since the case is still at an inquiry stage, the applicant-accused has no right to produce any material. In this connection, ld. Special PP cited judgments of Hon’ble Supreme Court of India in State of Orissa Vs. Debendra Nath Padhi, (2005) 1 SCC 568 and Nitya Dharmananda @ K.Lenin & Anr. Vs. Sri Gopal Sheelum Reddy Also Known As Nithya Bhaktananda & Anr., Law Finder Doc Id # 943121. It was further submitted that case of the applicant that it is immune from criminal prosecution in view of Section 32-A of IBC once Resolution Plan comes to be approved, is absolutely incorrect as Prosecution Complaint was instituted much before the alleged resolution plan approved by the NCLT and pendency of proceedings before NCLT under IBC does not bar the proceedings under PMLA, which are penal in nature and to support this submission, reliance was sought to be placed upon a judgment of Hon’ble Supreme Court of India in Ajay Kumar Radheyshyam Goenka Vs. Tourism Finance Corporation of India Limited, 2023 (2) RCR (Crl.) 161. It was urged that immunity provided under Section 32-A of IBC does not protect companies from the consequences of money laundering and hence, even after a resolution plan is approved, criminal actions involving “proceeds of crime” under PMLA are required to be prosecuted independently and, therefore, Section 32-A cannot shield ESL from criminal prosecution for its involvement in siphoning of funds and laundering them. Prayer for dismissal of the application was made.
# 8. After hearing learned counsel for the parties and having gone through the case file carefully, I am of the opinion that the application filed on behalf of accused No.4 deserves to be accepted for the following reasons:-
# 9. Accused No.4 is a body corporate and as such, a juristic person against whom, the Prosecution Complaint has been filed by arraigning it as one of the accused involved in the offence of Money Laundering.
# 10. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 was promulgated and published in the Gazette of India on 28.12.2019. Pursuant to Section 10 of the 2019 IBC Ordinance, Section 32A was introduced in the IBC effectively providing immunity to successful resolution applicants against the offences committed by the erstwhile management of the Corporate Debtor, subject to certain conditions.
# 11. Section 32-A (1) of IBC, is reproduced herein below for ready reference and perusal:-
“32A.(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date of resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not -
(a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:”
# 12. Section 32-A of the IBC expressly provides that a Corporate Debtor shall not be prosecuted for an offence committed prior to the Corporate Insolvency Resolution Process (CIRP), from the date on which a resolution plan is approved by the Adjudicating Authority, subject to certain conditions. Section 32-A further clarifies that if a prosecution is instituted during the CIRP against a Corporate Debtor, it shall stand discharged from the date of approval of the resolution plan. The exemptions from liability as mentioned earlier are subject to the following conditions:
1. The resolution plan approved should result in change of management or control of the Corporate Debtor to a person who was not a promoter or in management or control of the Corporate Debtor prior to the implementation of the resolution plan, or a related party of such a person; or
2. The relevant investigating authority should not have reason to believe, on the basis of any material in its possession, that the new persons in the management or control of the Corporate Debtor had abetted or conspired in the commission of the alleged offence with the erstwhile promoters or persons in management or control of the corporate debtor. The relevant investigating authority is required to file a report or complaint to the relevant statutory authority or court in relation to such abetment or conspiracy to continue with the prosecution against the Corporate Debtor.
3. The designated partner or officer in default who was in charge of, or responsible to the Corporate Debtor for conduct of its business or associated with the Corporate Debtor in any manner, or directly or indirectly involved in the commission of the offence according to the report/complaint filed by the investigating authority, would not be granted such immunity.
# 13. Section 32-A(2) of the IBC also bars action against property of a Corporate Debtor in relation to an offence allegedly committed prior to commencement of CIRP, subject to similar conditions (as listed above). Section 32-A(3) obligates the Corporate Debtor to extend all co-operation to investigating authorities for investigations relating to the period prior to the commencement of the insolvency.
# 14. In Manish Kumar (supra), Hon’ble Supreme Court while observing that the legislature ought be given freedom to experiment with economic laws and recognizing the imperative need for the IBC in the Indian context, held that the “extinguishment of 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 ”. Thus, Hon’ble Supreme Court issued an unequivocal declaration of the need to give the successful resolution applicant a fresh start.
# 15. In view of the discussion above, there remains no manner of doubt that a Corporate Debtor shall not be prosecuted for an offence committed by it prior to commencement of CIRP from the date of approval of resolution plan by the Adjudicating Authority under Section 31 subject to requirements of sub-section (1) of Section 32-A of IBC being fulfilled.
# 16. Now, therefore, adverting to the facts of the present case, admittedly, resolution plan has been approved by NCLT vide order dated 09.10.2023 Annexure P-2 and management/control of accused No.4 has gone into the hands of a new management. Thus, the resolution plan so approved has resulted in change of management or control of the Corporate Debtor to a person who was not a promoter or in management or control of the Corporate Debtor prior to the implementation of the resolution plan, or a related party of such a person. Further, there is nothing on the record that the relevant investigating authority i.e. ED in the present case, had any reason to believe, on the basis of any material in its possession, that the new persons in the management or control of the Corporate Debtor had abetted or conspired in the commission of the alleged offence with the erstwhile promoters or persons in management or control of the Corporate Debtor.
# 17. It is also relevant to note that Section 238 of the IBC provides for an overriding clause which states that the provisions of the IBC shall have full effect notwithstanding anything inconsistent therewith contained in any other law in force. It is a well-recognized principle of law that when two non-obstante clauses in two special statutes clash, the statute which is later in time will prevail. Therefore, IBC being the later statute, will prevail over the PMLA.
# 18. In this view of the matter, applicant-accused No.4 having gone into the hands of new management i.e. EBIX Singapore Pte. Ltd. and the concerned person of the new management having not been a promoter or in the management or control of the Corporate Debtor i.e. applicant-accused No.4 and he having not been proved to have abetted or conspired for the commission of any offence, it can be held unhesitatingly that prosecution of accused No.4 under PMLA is not maintainable whereas all those who were in charge of the affairs of accused No.4 at the time of commission of offence of Money Laundering shall not be immune from prosecution for the said offence.
# 19. There is no merit in the contention of ld. Special PP for respondent-ED that prosecution complaint having been filed on 05.09.2023 much prior to the approval of resolution plan by NCLT on 09.10.2023, is a ground to reject the present application inasmuch as the court while examining the point in issue, is only required to see if the conditions of Section 32-A of IBC stood satisfied or not. Once the said conditions are found to be satisfied, then benefit of Section 32-A of IBC has to be extended in favour of a Corporate Debtor. In present case, as discussed above, all the said conditions stand fully satisfied and hence, filing of prosecution complaint prior to the approval of resolution plan cannot be a ground to reject the instant application.
# 20. This case is at the charge framing stage and there is no doubt about the fact that at the said stage, the accused cannot be permitted to rely upon any documents or materials to seek his discharge from a criminal case. However, as held by Hon’ble Supreme Court in Nitya Dharmananda (supra), the court can rely upon a document/material even at the charge framing stage if the said document/material is of “sterling quality” or in other words, the same has crucial bearing on the issue of framing of charge. For facility of reference, the relevant portion of the ruling in Nitya Dharmananda (supra) is reproduced as under:-
6. It is settled law that at the stage of framing of charge, the accused cannot ordinarily invoke Section 91. However, the court being under the obligation to impart justice and to uphold the law, is not debarred from exercising its power, if the interest of justice in a given case so require, even if the accused may have no right to invoke Section 91. To exercise this power, the court is to be satisfied that the material available with the investigator, not made part of the chargesheet, has crucial bearing on the issue of framing of charge.
7. Xxxxx
8. Xxxxx
9. Thus, it is clear that the while ordinarily the court has to proceed on the basis of material produced with the chargesheet for dealing with the issue of charge but if the court is satisfied that there is material of sterling quality, which has been withheld by the investigator/prosecutor, the court is not debarred from summoning or relying upon the same, even if such document is not a part of the charge-sheet. It does not mean that the defence has a right to invoke Section 91 of Cr.P.C., 1973 de hors the satisfaction of the court, at the stage of charge.
# 21. That being the position in law, so far as present case is concerned, resolution plan in respect of applicant-accused No.4 having been approved by NCLT vide its order dated 09.10.2023 and all the conditions of Section 32-A of IBC having been fulfilled, there is no impediment in giving benefit of the provisions thereof to the applicant accused No.4 inasmuch as the order dated 09.10.2023 by virtue of which resolution plan submitted by EBIX Singapore Pte. Ltd. was approved by NCLT, New Delhi, has crucial bearing on the issue of framing charge. Hence, order dated 09.10.2023 is required to be looked into and cannot be ignored at this stage.
# 22. Contention of ld. Special PP for respondent-ED that Resolution Professional on behalf of applicant-accused No.4 had no right or authority to bring on record any fact or seek direction from the court without he having been appointed as a representative for the purpose of enquiry or trial as required under Section 305(2) Cr.P.C. and, therefore, the present application being not maintainable, too is bereft of merit because after commence of CIRP, it is the Resolution Professional who takes charge of the affairs of the company whose most important function is to ensure the operations of the Corporate Debtor as a going concern and as such, even before a court of law, he has to act on behalf of the Corporate Debtor to protect its interests. In such circumstances, the Resolution Professional having not been formally appointed as a representative for the purpose of enquiry or trial as per Section 305(2) Cr.P.C., is hardly of any consequence.
# 23. Another contention raised by ld. Special PP appearing on behalf of respondent-ED was that though resolution plan stood approved but process of transfer of the affairs of applicant-accused No.4 to the new management is still going on and unless the said process is fully completed, Section 32-A of IBC will not become applicable and in that sense, the present application is pre-mature as having been filed while the above process is yet to be completed and is still in progress.
# 24. This contention too is without merit inasmuch as what Section 32-A IBC provides is that the Corporate Debtor is not be prosecuted for any offence committed prior to the commencement of CIRP once the resolution plan comes to be approved. This is what has happened in the present case and hence, all the conditions of Section 32-A of IBC having been fulfilled, there is nothing which may stop this court from extending benefit of the same to the applicant-accused No.4. If contention of ld. Special PP for respondent-ED is accepted then that would completely frustrate the object and purpose of Section 32-A of IBC inasmuch as keeping the Corporate Debtor entangled in a criminal case even after approval of the resolution plan, will discourage the resolution applicant from taking over the Corporate Debtor and he may withdraw midway resulting into the process of CIRP being frustrated and leaving the Corporate Debtor in a state of fix. Only to avoid such a situation, Section 32-A of IBC speaks of a Corporate Debtor being relieved of criminal prosecution for any offence committed prior to commencement of CIRP on the mere approval of resolution plan.
# 25. Contention was raised on behalf of ED that there is no protection under Section 32-A of IBC to the victims of money laundering as they would neither come under the definition of the Operational Creditor nor the Financial Creditor and as such, the victims of money laundering are rendered remediless.
# 26. It may be so but we have to look at the law as it stands today. No judgment was cited before me to the effect that Section 32-A of IBC is not applicable to the cases involving offence of money laundering or the same is applicable with certain exceptions. In view of that, the court while dealing with the point in issue, has to proceed as per the mandate of Section 32-A of IBC.
# 27. As a result of the foregoing and reasons set out, the present application has merit and the same is allowed. Criminal proceedings qua offence of money laundering punishable under Section 4 of the PMLA against applicant-accused No.4 (ESL) shall stand dropped and it shall stand discharged from the present case.
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