2025 (6) TMI 1436 - HC - Money Laundering

Vacation of attachment order - jurisdiction of NCLT to nullify sit over or set aside the orders and proceedings drawn under the PMLA 2002 - scope of the overriding clauses contained in Section 238 of the IB Code 2016 and Section 71 of the PMLA 2002 on conflicting orders - HELD THAT - The learned Single Judge though referred to detailed submissions of the learned counsel for the parties including specific ground challenging the very jurisdiction/authority of the NCLT to vacate the attachment orders issued by the E.D. which was earlier confirmed by the adjudicating authority and therefore on appeal having been filed status quo order was passed by the PMLA Appellate Tribunal as would be clear from the contents of paragraph 27 of the impugned order has recorded that the contention of the parties pertained to merit of the writ petition - All that has been said is that the Court refrains itself from giving such findings on merits at that stage which may affect the merits of the case and it would be considered and decided whenever occasion arise to hear the writ petition on merits. Without recording any prime facie view on the serious issue of jurisdiction of the NCLT learned Single Judge has exercised its discretion to vacate the interim order. Present is not a case where the appellant Union of India (E.D.) has confined challenge only to the correctness and validity of the order of the NCLT on alleged violation of the provisions of law but the appellant has called in question very jurisdiction of the NCLT to assume jurisdiction to vacate the orders passed by the competent authorities under the provisions of the PMLA 2002. The attachment of any property which is alleged to be involved in the offence of money laundering is provided under Section 5 of the PMLA 2002 which is subject to confirmation of the adjudication authority under Section 8 and in the event of its confirmation by the adjudicating authority under the PMLA a provision of appeal has also been made before the appellate tribunal. Therefore an order of attachment which has been confirmed by the adjudicating authority could be subjected to challenge only before the appellate tribunal created under the PMLA 2002 - the orders and proceedings of attachment under the Act are subject to orders that may be passed by the appellate authority. Therefore in case of attachment of any property which is alleged to be involved in money laundering PMLA 2002 is a self-contained Code. In the present case it is admitted position that the order of provisional attachment passed under Section 3 of the Act was confirmed by the adjudicating authority by passing an order under Section 8 and that order is under challenge before the appellate tribunal and it is on record that appellate tribunal has passed an order of status quo much before the order passed by the NCLT on 24.02.2022. Thus the order of NCLT nullifies the order of confirmation of the attachment by the adjudicating authority and even the status quo order passed by the tribunal. In other words the NCLT vide order impugned in the writ petition has brought the orders and proceedings under the PMLA 2002 to an end. The issue of jurisdiction of the NCLT which is a tribunal of limited jurisdiction indeed requires serious consideration - There is considerable force in the submission of the learned Additional Solicitor General that the NCLT lacks inherent jurisdiction in sitting over the orders and proceedings passed by the various authorities under the PMLA 2002. This aspect has not been dealt with by the learned Single Judge but left to be considered at the time of hearing on merits whereas at the stage of considering application for stay strong prima facie case is one of the most relevant consideration for exercise of discretion. The learned Single Judge without taking into consideration serious issue of jurisdiction of the NCLT raised by the appellant and that appellant suffered order without being impleaded as a party in the proceedings before the NCLT and without properly appreciating that there was status quo order passed by the NCLT Appellate Tribunal operating vacated the interim order. Moreover if the attachment is removed and the home buyers are allowed to take the property developed by the builder which is alleged to be involved in the offence of money laundering in the event of offence having been proved the property is liable for confiscation and the disputed property is subjected to liquidation process under the resolution plan - therefore the present was an appropriate case where status quo was required to be maintained as has already been ordered by the PMLA Appellate Tribunal on 15.10.2019. Conclusion - i) The NCLT being a tribunal of limited jurisdiction under the IB Code 2016 does not have plenary jurisdiction to quash or set aside orders passed by authorities under the PMLA 2002 which is a special enactment with a self-contained code for attachment and confiscation of properties involved in money laundering. ii) The overriding clause in Section 238 of the IB Code 2016 cannot be interpreted to confer jurisdiction on the NCLT to nullify or vacate attachment orders confirmed under the PMLA 2002 especially when such orders are under challenge before the PMLA Appellate Tribunal. iii) The Court set aside the order vacating the interim stay and confirmed the interim stay order restraining the operation of the NCLT order vacating the attachment thereby preserving the status quo pending final adjudication on merits. The order passed by the learned Single Judge vacating interim order is set aside and the interim order passed on 06.07.2023 is confirmed - Appeal allowed.

Summary

The core legal questions considered in this judgment revolve around the jurisdictional interplay between the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IB Code 2016) and authorities under the Prevention of Money Laundering Act, 2002 (PMLA 2002). Specifically, the issues include:

1. Whether the NCLT had jurisdiction to vacate or set aside the provisional attachment order and its confirmation passed under the PMLA 2002 in relation to properties involved in money laundering.

2. The effect and scope of the overriding clauses contained in Section 238 of the IB Code 2016 and Section 71 of the PMLA 2002 on conflicting orders passed under these statutes.

3. Whether the order of the NCLT approving the resolution plan under Section 31 of the IB Code 2016 could lawfully include properties provisionally attached under the PMLA 2002.

4. The maintainability of the writ petition challenging the NCLT order, considering the availability of alternative remedies and limitation periods.

5. Whether principles of natural justice were violated by the NCLT in passing the impugned order without impleading or affording an opportunity of hearing to the Enforcement Directorate (E.D.), the attachment authority under PMLA.

6. The consequences of allowing the resolution plan to proceed in respect of properties alleged to be involved in money laundering, particularly in light of pending appeals before the PMLA Appellate Tribunal.

Issue-wise Detailed Analysis

1. Jurisdiction of NCLT to Vacate Attachment Orders under PMLA 2002

The PMLA 2002 is a special legislation aimed at preventing money laundering, providing for attachment and confiscation of properties involved in such offences. Section 5 empowers the Enforcement Directorate (E.D.) to provisionally attach properties suspected to be involved in money laundering. Such attachment must be confirmed by the adjudicating authority under Section 8. Appeals against confirmation orders lie before the PMLA Appellate Tribunal under Section 26, with further appeals to the High Court under Section 42.

In contrast, the IB Code 2016 regulates insolvency resolution and liquidation processes for corporate debtors, with the NCLT empowered to approve resolution plans under Section 31. Section 238 contains an overriding clause stating that the IB Code shall prevail over any inconsistent laws.

The Court emphasized that both PMLA and IB Code are special enactments with overriding clauses but operate in distinct spheres. The NCLT is a tribunal of limited jurisdiction, empowered only to exercise authority conferred by the IB Code. It is not a plenary court and cannot assume jurisdiction to nullify or set aside orders passed under other statutes, including the PMLA 2002.

Applying this framework, the Court found that the NCLT order dated 24.02.2022 vacating the attachment order under PMLA was beyond its jurisdiction. The attachment had been provisionally made by the E.D. under Section 5 and confirmed by the adjudicating authority under Section 8 of the PMLA. The correctness and validity of that confirmation were under challenge before the PMLA Appellate Tribunal, which had passed a status quo order. The NCLT's order effectively nullified these proceedings and the status quo order, raising a serious jurisdictional question.

The Court held that the attachment and confirmation under PMLA form a self-contained code, and only the appellate mechanisms under PMLA are competent to entertain challenges. Therefore, the NCLT lacked inherent jurisdiction to vacate or set aside the attachment order passed under PMLA.

2. Effect of Overriding Clauses in IB Code and PMLA

Section 238 of the IB Code provides that its provisions shall have overriding effect notwithstanding anything inconsistent in other laws. Similarly, Section 71 of the PMLA declares that its provisions shall have overriding effect over other laws.

The Court observed that while both statutes contain overriding clauses, they apply in different fields-PMLA governs attachment and confiscation of proceeds of crime, while IB Code regulates insolvency resolution. The overriding clause in IB Code cannot be interpreted to confer plenary jurisdiction on NCLT to override or nullify orders passed under PMLA, especially when PMLA provides a special adjudicatory mechanism and appellate remedy.

The Court thus concluded that the overriding effect of IB Code does not extend to permitting NCLT to vacate attachment orders confirmed under PMLA, which is a special law with its own adjudicatory and appellate structure.

3. Maintainability of Writ Petition and Alternative Remedies

The respondents contended that the writ petition filed under Article 227 was not maintainable as the petitioner failed to challenge the NCLT order within the statutory limitation period by way of appeal before the National Company Law Appellate Tribunal (NCLAT). They argued that the petitioner had full notice of the NCLT proceedings but did not participate or avail statutory remedies timely.

The Court distinguished this case from others by noting that the challenge was not merely to the correctness of the NCLT order but to its very jurisdiction to pass the impugned order. When an order is challenged on the ground of inherent lack of jurisdiction, it goes to the root of the matter and is void ab initio. Such a challenge is maintainable notwithstanding failure to exhaust alternative remedies or limitation periods applicable to appeals on merits.

The Court thus held that the writ petition was maintainable on the ground of jurisdictional challenge despite the availability of alternative remedies.

4. Violation of Principles of Natural Justice

The petitioner argued that the NCLT passed the order vacating attachment without impleading the E.D. or affording it an opportunity of hearing, rendering the order void. The respondents countered that the petitioner had liberty to intervene in the proceedings and had received notices from the resolution professional.

The Court found that no notice was issued by the NCLT to the petitioner before passing the impugned order, and the petitioner was not made a party. Mere liberty to intervene does not substitute for formal impleadment and opportunity of hearing. An order passed without jurisdiction and without hearing the affected party is a nullity. Therefore, the NCLT order was liable to be set aside on this ground as well.

5. Consequences of Vacating Attachment and Approving Resolution Plan

The Court noted that allowing the resolution plan to proceed with the subject property, which is alleged to be involved in money laundering, risks frustrating the pending appeals before the PMLA Appellate Tribunal and the trial itself. The property could be sold or disposed of, defeating the purpose of attachment and confiscation under PMLA.

Given the status quo order already passed by the PMLA Appellate Tribunal, the Court found it appropriate to maintain the interim order preserving the attachment and restraining disposal of the property pending final adjudication.

6. Treatment of Competing Arguments and Precedents

The Court considered the submissions relying on the Supreme Court decision in Embassy Property Developments Private Limited, which emphasized the limited jurisdiction of tribunals and the need to respect the statutory schemes of different enactments.

It also referred to decisions like Manish Kumar and Welspun Steel Resources, noting that those cases did not address the specific jurisdictional conflict between PMLA and IB Code involved here.

The Court rejected the respondents' argument that non-participation by the petitioner in the NCLT proceedings barred challenge, emphasizing that jurisdictional challenges are exceptions to such procedural bars.

Conclusions

The Court concluded that the NCLT lacked jurisdiction to vacate the attachment order passed under PMLA 2002, especially when the attachment had been confirmed by the adjudicating authority and was under challenge before the PMLA Appellate Tribunal. The overriding clause in the IB Code does not empower the NCLT to nullify orders under PMLA. The failure to implead and hear the petitioner before passing the impugned order vitiated the order further. The writ petition challenging the NCLT order on jurisdictional grounds was maintainable despite alternative remedies and limitation periods. The interim order staying the NCLT order was rightly granted and ought not to have been vacated. The vacating order was set aside and the interim stay reinstated.

Significant Holdings

"The NCLT being a tribunal of limited jurisdiction under the IB Code 2016 does not have plenary jurisdiction to quash or set aside orders passed by authorities under the PMLA 2002, which is a special enactment with a self-contained code for attachment and confiscation of properties involved in money laundering."

"The overriding clause in Section 238 of the IB Code 2016 cannot be interpreted to confer jurisdiction on the NCLT to nullify or vacate attachment orders confirmed under the PMLA 2002, especially when such orders are under challenge before the PMLA Appellate Tribunal."

"An order passed without impleading the affected party and without affording opportunity of hearing is a nullity, and such procedural infirmity coupled with lack of jurisdiction renders the order void ab initio."

"Where a challenge is raised on the ground of inherent lack of jurisdiction, the writ petition is maintainable notwithstanding the availability of alternative remedies or limitation periods applicable to appeals on merits."

"Allowing disposal of property attached under PMLA in insolvency proceedings risks frustrating the purpose of the PMLA and pending appeals; therefore, interim preservation of status quo is necessary."

Accordingly, the Court set aside the order vacating the interim stay and confirmed the interim stay order restraining the operation of the NCLT order vacating the attachment, thereby preserving the status quo pending final adjudication on merits.