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2022 (8) TMI 1575 - HC - IBCProvisional attachment order - Mutual interplay between two statutes PMLA and IBC - whether the provisions of attachment under Section of the PMLA are circumscribed by the IBC in particular Section 32-A thereof? - HELD THAT - In the present case in view of the operation of Section 32-A(2)of the IBC no action can be taken against the property of a corporate debtor in relation to an offence committed prior to the commencement of the CIRP of the corporate debtor where such property is covered under a Resolution Plan approved by the Adjudicating Authority under Section 31 of the IBC which results in the change in control of the corporate debtor to a person or sale of liquidation assets to an entity who was not a promoter or in the management or control of the corporate debtor or is related to such person - The yardsticks of Section 32-A squarely apply to the present case since the petitioner no.2 the successful resolution applicant cannot be held liable as envisaged under Section 32-A of the IBC for any offence committed prior to the commencement of the CIRP. In the present case the allegations levelled against the corporate debtor (petitioner no.1) admittedly happened much prior to the commencement of the CIRP and as such fall within the specified exclusion contemplated in Section 32-A. As such it cannot but be observed that the provisional order of attachment dated February 16 2022 and all consequential actions including any order which might have been passed under Section 8(3) of the PMLA are prima facie vitiated and de hors the lawful authority of the respondents. The Supreme Court in Vijay M. Choudhary 2022 (7) TMI 1316 - SUPREME COURT (LB) which were specifically relied on by the Respondent/Enforcement Directorate in the instant lis deal with the interpretation of Sections 5 and 8 of the PMLA which is not a relevant consideration in the instant case since the vires of those Sections are not challenged - In the case at hand however the comparison is between the PMLA of 2002 and the subsequent IBC of 2016. Hence the analogy and precedentiary value of Vijay Madanlal Choudhary (supra) are entirely inapplicable to the instant case. Moreover Section 5 of the 1973 Code was considered by the Supreme Court. It envisages that nothing in the 1973 Code shall in the absence of a specific provision to the contrary affect any special or local law for the time being in force or any special jurisdiction or power conferred or any special form of procedure prescribed by any other law for the time being in force - Thus it cannot but be said that the reliance placed by the ED on the said decision is misplaced in the present context. Conclusion - The yardsticks of Section 32-A squarely apply to the present case since the petitioner no.2 the successful resolution applicant cannot be held liable as envisaged under Section 32-A of the IBC for any offence committed prior to the commencement of the CIRP. The writ petition is required to be heard on merits on the above questions.
The core legal questions considered by the Court revolve around the interplay and conflict between the Prevention of Money-Laundering Act, 2002 (PMLA) and the Insolvency and Bankruptcy Code, 2016 (IBC), specifically regarding the effect of attachment orders under the PMLA on a corporate debtor undergoing a corporate insolvency resolution process (CIRP) under the IBC. The issues include:
1. Whether the provisions of the IBC, particularly Section 32-A and Section 238, which contain non obstante clauses, override the provisions of the PMLA relating to attachment of property. 2. The legal effect of the approval of a resolution plan under the IBC on proceedings and actions initiated under the PMLA against the corporate debtor. 3. The maintainability of the writ petition challenging the provisional attachment order under the PMLA, considering the availability of alternative remedies under the PMLA. 4. The applicability and precedential value of the Supreme Court's decision in Vijay Madanlal Choudhary v. Union of India, which dealt with the PMLA's provisions and procedures, in the context of the present dispute involving the IBC. Issue-wise Detailed Analysis: 1. Interplay between the IBC and the PMLA regarding attachment of property The Court examined the legislative framework of both statutes. The PMLA, enacted in 2002, provides for attachment and confiscation of proceeds of crime, defining "proceeds of crime" under Section 2(1)(u). Section 5 of the PMLA authorizes provisional attachment of such property to prevent its concealment or transfer. The IBC, enacted later in 2016, governs the insolvency resolution process for corporate debtors. Section 238 of the IBC contains a non obstante clause that gives the IBC overriding effect over any other law in force at the time of its enactment. Further, Section 32-A of the IBC, also commencing with a non obstante clause, protects a corporate debtor from prosecution or action against its property for offences committed prior to the commencement of the CIRP, once a resolution plan has been approved by the adjudicating authority. The Court reasoned that since the IBC is a subsequent statute, the presumption is that the legislature was aware of the PMLA and intended the IBC's provisions, including its non obstante clauses, to prevail in case of conflict. The Court emphasized that Section 32-A(1) of the IBC explicitly overrides any contradictory provisions in the IBC or any other law, thereby giving precedence to the protection afforded to the corporate debtor and the resolution applicant post-approval of the resolution plan. In applying the law to the facts, the Court noted that the corporate insolvency resolution process began in January 2018, with the resolution plan approved in September 2019 and affirmed by appellate authorities, including the Supreme Court. The offences alleged against the corporate debtor occurred prior to the commencement of the CIRP. Therefore, Section 32-A's protection applies, barring any action against the corporate debtor's property related to such offences post-approval of the resolution plan. The Court rejected the argument that Section 71 of the PMLA, which also contains a non obstante clause, could override the IBC provisions. It distinguished that Section 71's overriding effect applies to laws in force at the time of the PMLA's enactment in 2002, whereas the IBC came into force later in 2016. Hence, the IBC's overriding provisions take precedence over the PMLA. 2. Effect of approval of the resolution plan on PMLA proceedings The Court highlighted that the Supreme Court has repeatedly held that upon approval of a resolution plan under the IBC, claims against the corporate debtor extinguish. Section 32-A reinforces this by protecting the corporate debtor and the successful resolution applicant from prosecution and actions related to offences committed before the CIRP. Applying this principle, the Court found that the provisional attachment order dated February 16, 2022, and any consequent actions under the PMLA, are prima facie without lawful authority, as they relate to offences predating the CIRP and the property is covered under the approved resolution plan. 3. Maintainability of the writ petition The respondents contended that the writ petition is not maintainable due to the availability of efficacious alternative remedies under the PMLA, specifically appeals before the Appellate Tribunal under Section 26 and further appeals under Section 42. They argued that interference under Article 226 of the Constitution at this stage would deprive the parties of these forums. However, the Court did not accept this as a bar to hearing the writ petition on merits. It noted that the issue of the interplay between the PMLA and the IBC and the validity of the attachment order in the context of the approved resolution plan is a substantial question warranting adjudication. The Court stayed the operation of the provisional attachment order and restrained the respondents from acting on it until further orders or November 30, 2022. 4. Applicability of the Supreme Court's decision in Vijay Madanlal Choudhary The respondents relied on the recent Supreme Court decision in Vijay Madanlal Choudhary, which interpreted certain provisions of the PMLA and the procedures followed by the Enforcement Directorate. The Court carefully analyzed the scope of that decision and found it inapposite to the present case. The Vijay Madanlal Choudhary case dealt primarily with the validity and interpretation of the PMLA's provisions and procedural safeguards, not with the conflict between the PMLA and a subsequent statute like the IBC. The Court noted that the issues in the present case concern the mutual operation of two Central Acts enacted at different times, with the IBC's non obstante clauses expressly overriding other laws. The Court also observed that the Vijay Madanlal Choudhary judgment dealt with the PMLA's primacy over the Criminal Procedure Code, which was already in force when the PMLA was enacted, unlike the IBC. Accordingly, the Court held that the precedential value of that decision is limited and does not affect the present dispute. Significant Holdings: "Section 32-A(1) of the IBC operates notwithstanding anything to the contrary contained in the IBC or any other law for the time being in force, thereby giving precedence to the protection afforded to the corporate debtor and the resolution applicant post-approval of the resolution plan." "The IBC, being a subsequent statute enacted in 2016, contains non obstante clauses which override the provisions of the PMLA, enacted in 2002, in respect of actions against the property of a corporate debtor covered under an approved resolution plan." "Upon approval of a resolution plan under the IBC, further claims or actions against the corporate debtor extinguish, including those under the PMLA for offences committed prior to the commencement of the CIRP." "The provisional attachment order dated February 16, 2022, and any consequential actions under the PMLA, insofar as they relate to the corporate debtor covered by the approved resolution plan, are prima facie without lawful authority and are stayed." "The Supreme Court's decision in Vijay Madanlal Choudhary, which deals with the PMLA's provisions and procedures, does not apply to the present case involving the subsequent enactment of the IBC and its overriding provisions." "The writ petition challenging the provisional attachment order is maintainable despite the availability of alternative remedies under the PMLA, given the substantial question of law regarding the mutual operation of the PMLA and the IBC."
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