ED Cannot Attach Corporate Debtor's Properties under PMLA Once Liquidation Order Is Passed, Rules NCLT
Moneylife Digital Team 27 December 2022
In an important judgement, the Jaipur bench of the national company law tribunal (NCLT) ruled that once an order is passed for liquidation or a corporate debtor, the enforcement directorate (ED) cannot attach the company properties under the PMLA (Prevention of Money Laundering Act). The case is related to corporate debtor Emgee Cables and Communication Ltd and Packwell (India) Ltd, the operational creditor. 
 
In an order issued earlier this month, the bench of Deep Chandra Joshi (member - judicial) and  Prasanta Kumar Mohanty (member - technical), says, "...the Insolvency and Bankruptcy Code 2016 (IBC) creates a specific bar with respect to proceedings that may be initiated under the PMLA by virtue of the provisions contained in Section 32A. Moreover, Section 32A cannot possibly be read as being applicable prior to a resolution plan being approved or a liquidation measure being enforced. Further, it can therefore be construed that the objective and intention of the IBC is providing a free hand to the creditors if the properties of the corporate debtor are attached, then it will jeopardise the liquidation process."
 
NCLT, Jaipur, relied on a judgement by Delhi High Court (HC), in Rajiv Chakraborty, resolution professional (RP) of EIEL, vs ED. The HC has ruled, "The statutory injunct against the invocation or utilisation of the powers available under the PMLA was thus ordained to come into effect only once the trigger events envisaged under Section 32A came into effect. The legislature thus in its wisdom chose to place an embargo upon the continuance of criminal proceedings including action of attachment under the PMLA only once a resolution plan was approved or a measure in aid of liquidation had been adopted."
 
In the present case, NCLT in an order on 27 July 2018, commenced the corporate insolvency resolution process (CIRP) of Emgee Cables and Communication under Section 9 of the IBC. Resolution professional (RP) Pankaj Mahajan filed an application for the liquidation of the company. In an order on 25 September 2019, NLCT appointed Satyendra Khorania as liquidator for Emgee Cables and Communication.
 
In his interlocutory application (IA), Mr Khorania submitted that on 12 December 2019, the deputy director of ED passed a provisional attachment order about the properties of the company under Section 5(1) of the PMLA.
 
On 7 September 2020, NLCT set aside the order passed by ED. However, this order was challenged by ED before Rajasthan HC which is pending. 
 
During the hearing before the NCLT bench, ED contended that just because the corporate debtor's assets (Emgee Cables and Communication) are subject to a liquidation proceeding under IBC does not mean that the debtor can escape from its liability under PMLA. "...the PMLA is a special act and has overriding effects in terms of section 71 of the PMLA. The main objectives of IBC and PMLA are different from each other," ED stated.
 
After hearing both sides and perusing some orders passed by NCLAT (national company law appellate tribunal) and HCs, the bench says, "...the PMLA would cease to have the power to attach the property at this juncture when the order of the liquidation has already been passed. Further, the attachment of the properties of the corporate debtor under the PMLA has to be lifted in lieu of section 32A of the IBC."
 
The Tribunal then directed the liquidator to conduct an auction of Emgee Cables and Communication's properties in an open auction, preferably the Swiss challenge method, after due approval from the stakeholders. It also allowed ED to prefer their claim, if any, within three weeks.
 
(IA No15/JPR/2022 in CP No(IB) No601(ND)/2018  Date: 5 December 2022)
 
Comments
Array
Free Helpline
Legal Credit
Feedback