The NCLT Mumbai Bench has held that provisions of the Insolvency and Bankruptcy Code (IBC) will prevail over attachments ordered under provisions of the Prevention of Money Laundering Act (PMLA), 2002.
SREI Infrastructure Finance Limited(Financial Creditor) had triggered Corporate Insolvency Resolution Process (CIRP) against Sterling SEZ and Infrastructure Limited(Corporate Debtor) in July, 2018. The Resolution Professional (RP) of the Corporate Debtor approached the NCLT for an order to,
(a) direct the Enforcement Directorate (ED) to release the provisional attachment against properties of the Corporate Debtor and;
(b) to direct the sub-registrar at Jambusar to register and hand over two original lease deeds pertaining to the Corporate Debtor. The application was filed against an order of attachment passed by the ED under provisions of the PMLA and confirmed by the PMLA Court, subsequent to initiation of CIRP by the NCLT.
Submissions were made by the RP, the ED and an amicus curiae appointed by the NCLT. While the RP largely relied on Section 238 of the IBC which is an overriding provision, the ED argued that PMLA being a special statute, will not be overridden by the IBC since the IBC is a civil law, and the moratorium declared by the NCLT will not be applicable to a criminal case.
The amicus curiae submitted that since the ED has not taken possession over the attached assets, the RP should be allowed to take over. He further submitted that proceedings under PMLA would not sustain, especially when the order passed by PMLA Court is after an order of admission passed by the NCLT. He, however, also argued that, since the attachment order was passed under PMLA, the NCLT under the IBC cannot raise the order of attachment, but can only direct handing over of the physical possession. The amicus curiae also submitted that the ultimate beneficiaries under both laws are the secured creditors /financial creditors and to that extent, there is no conflict.
In order to settle the dispute, the NCLT relied on a precedent of Appellate Tribunal under PMLA, which held that proceedings before the PMLA Court are civil and not criminal. The NCLT eventually concluded that the objectives of both laws, in some ways, is similar. While IBC was enacted for maximising the value that can be received by creditors and other stakeholders, the PMLA’s objective was to recover properties from wrongdoers and compensate the affected parties by confiscation and sale of the assets of the wrongdoer.
The NCLT held:
“The criminal proceedings before PMLA will take a longer time and by the time there will be an erosion in the value of assets. However, considering the overriding provisions of Section 238 of IBC which is the later legislation, when compared to the earlier legislation of PMLA, the provisions of IBC will prevail and hence considering the economic interest of the beneficiaries, the IBC will provide solution at the earliest to the Corporate Debtor as well as to the Creditors.”
While observing the language of Section 14 of the IBC, the NCLT found that the moratorium is imposed on ‘any kind of proceedings’ and attachment is a legal proceeding which squarely falls under the Section 14. The NCLT further noted Section 63 of the IBC which ousts the jurisdiction of any other Civil Court or Authority for cases falling under the jurisdiction of NCLT and NCLAT. Since an attachment order is in the nature of a civil proceeding, the PMLA Court will not have jurisdiction to attach properties of a company undergoing CIRP, the NCLT held.
The attachment order passed by the ED and confirmed by the PMLA Court was thus found to be “a nullity and non est in law in view of Sections 14(1)(a), 63 and 238 of IBC”. The NCLT further directed that the RP can proceed to take charge of the properties and deal with them under IBC as if there is no attachment order. The NCLT also directed the sub-registrar to give effect to this order and remove their notings of attachment.
Source: Bar & Bench, February 18,2019