TMI Blog2020 (5) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... is challenged on the ground that the proceedings under the PML Act are of civil nature. Therefore, the proceedings are hit by moratorium order passed under section 14 of the I B Code. The attachment will have effect on creating encumbrance over the assets of the Corporate Debtor which is prohibited by virtue of moratorium order. The Provisional Attachment Order is also challenged on the ground that the provisions of the I B Code have overriding effect by virtue of section 238 of the I B Code. So, any order passed under section 14 of the I B Code will prevail against any order passed under the PML Act as regards the assets of the Corporate Debtor. The contention of the learned counsel is that the provisions of the I B Code will have overriding effect over other laws. By virtue of section 238 of the I B Code, when an order under section 14 of the I B Code is passed, then attachment cannot be effected under the PML Act - As against this it is the contention of the learned counsel for the ED that the proceedings under the PML Act are different than the proceedings under the I B Code. Proceedings are initiated under the PML Act in connection with involvement of proceeds of crime. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional under section 24 of I B Code. In its second meeting dated 22.05.2019, CoC approved appointment of Shri Raj Kumar Ralhan as Resolution Professional under section 22(2) of the I B Code and the Tribunal has confirmed the said appointment vide order dated 13.06.2019 (ANNEXURE-2). 2.3 It is averred in para 7 of the application that the Provisional Attachment Order No. 05/2019 in Ref. No. ECIR/05/HYZO/2015 dated 30.12.2019 (ANNEXURE-3) is primarily based under section 5(1) of Prevention of Money Laundering Act, 2002 ('PMLA'), to attach assets of the corporate debtor, specifically the land, buildings, capital works in progress, plant, machinery, furniture, etc. Such Provisional Attachment Order is valid for 180 days. 2.4 It is averred in para 8 of the application that the said Provisional Attachment Order has been passed by respondent no. 1 notwithstanding the corporate debtor undergoing CIRP vide order dated 09.04.2019 (Annexure-1). 2.5 The said Provisional Attachment Order is violative of the moratorium in the following terms: (A) That the Tribunal has declared moratorium with regard to corporate debtor under section 14 of the IBC. The moratorium was declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid corporate debtor. (iv) PUNJAB NATIONAL BANK Vs. DIRECTOR, DIRECTORATE OF ENFORCEMENT, RAIPUR, FPA-PMLA-2633/RP/2018, wherein the PMLA Appellate Tribunal held that, The proceeding before the Adjudicating Authority under PMLA is civil in nature and hence in view of section 14 of IBC, the proceedings before the Adjudicating Authority of PMLA cannot continue....This Tribunal is of the considered opinion that the proceeding u/s 8 of the PMLA, 2002 before the Adjudicating Authority is a civil proceeding and the Adjudicating Authority should have stayed the proceedings on passing of the moratorium order by the NCLT. (v) BANK OF INDIA Vs. THE DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, MUMBAI, FPA-PMLA- 2173/MUM/2018, wherein the PMLA Appellate Tribunal has reaffirmed the above view in the following terms: The proceedings under PML Act before the Adjudicating Authority are civil in nature and not criminal. (vi) SREI INFRASTRUCTURE FINANCE LIMITED Vs. STERLING SEZ AND INFRASTRUCUTURE LIMITED, M.A. 1280/2018 in C.P. 405/2018, NCLT, Mumbai has reiterated the nature of ED (sic) proceedings as 'civil' that are barred by the moratorium imposed under section 14 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. REPLY DATED 20.01.2020 ON BEHALF OF RESPONDENTS No. 1 2. 4.1 By way of preliminary objections it is contended that the Tribunal does not have jurisdiction to interfere with the Provisional Attachment Order issued under section 5 of PMLA by the competent authority under PMLA. Said order can only be confirmed under section 8 of PMLA by the Adjudicating Authority. Section 5(1) of PMLA reads thus, Attachment of property involved in money-laundering. 5(1) Where the Director; or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-- (a) any person is in possession of any proceeds of crime; (b) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding one hundred and eighty days from the date of the order.... 4.2 In para 14 of the Reply it is stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or attached by the Enforcement Directorate vide the impugned Provisional Attachment Order dated 30.12.2019. 7. In para 42 of the Reply the respondents relied on its own File No. ECIR/HYZO/5/2015 initiated on 28.05.2015 based on predicate FIR registered by CBI, BS FC, Bengaluru vide FIR No. RC-02(E)/2015 dated 23.02.2015, under section 120-B read with section 468 and 471 of the IPC, 1850 against certain accused persons/entities. Subsequently two more FIRs were registered. Details of all the three FIRs are given in a tabular form. Detailed analysis and critical appreciation of facts related to the said FIRs were given in the subsequent paras, viz. paras 43 to 57 of the Reply. The respondents reiterate their contention that the NCLT has no jurisdiction to entertain the application against the Attachment Order and it is only the Adjudicating Authority under PMLA who has overriding authority to entertain the issue in question. 8. In para 58(c) of the Reply too it is reiterated that the power of the Enforcement Directorate to attach property under section 5 cannot be trampled upon merely because CIRP process is underway or because moratorium has been imposed. In para 58(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the Provisional Attachment Order in question inasmuch as the relief sought for by the applicant relates to respondents no. 1 and 2 only. 11. WRITTEN SUBMISSIONS DATED 11.03.2020 FILED ON BEHALF OF RESPONDENTS No. 1 2. 11.1 The respondents have furnished the status of the cases cited by the applicant herein in para VI of the Written Submissions. It is averred that the out of 9 cases cited by the applicant the Enforcement Directorate has either filed appeal against the order cited or in the process of examining the appealability. Status of cases cited is as follows: Number of cases where appeal is preferred and the matter is pending. .. 3 Number of cases where appealability is being examined. .. 1 Number Of case laws cited by the Applicant which do not pertain to PMLA. .. 3 Number of cases where PMLA delivered Order and appeal is not preferred. .. 2 -- Total number Of cases cited by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble NCLAT decision in Andhra Bank Vs. Sterling Biotech, (para 15) ....if it is based on the proceeds of crime, it is always open to the 'Enforcement Directorate' to seize the assets of the 'Corporate Debtor' and act in accordance with PMLA. 2 8 Hon'ble Delhi High Court's decision in Deputy Director Vs. Axis Bank, (para 146) Role of the corporate debtor and risk in lifting an attachment order under PMLA. 3 9 The Hon'ble NCLAT decision in Global V. Deputy Director, (para 12) .... Thus, as the PMLA, 2002 or provisions therein relates to 'proceeds of crime' we hold that section 14 of 'I B Code' is not applicant to such proceeding. 3 11 Decision of the Hon'ble NCLAT in JSW Steel Vs. Mahender Kumar Khandelwal and others. (para 44) There cannot be any attachment/confiscation of assets of corporate debtor by Enforcement agencies after approval of Resolution Plan. E/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been reaffirmed by the PMLA Appellate Tribunal in PUNJAB NATIONAL BANK Vs. DEPUTY DIRECTOR. DIRECTORAE OF (sic) ENFORCEMENT, RAIPUR, FPA-PMLA-2633/RP/2018, wherein it was reaffirmed by the PMLA Appellate Tribunal that the proceedings before the Adjudicating Authority under PMLA are civil in nature. The same view is reaffirmed by the PMLA Appellate Tribunal in BANK OF INDIA Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, MUMBAI, FPA-PMLA-2173/MUM/2018. 12.3 It is thus submitted that it is of paramount significance to consider that the moratorium so declared strictly prohibits and bars any transfer, encumbrance, alienation or disposition of any corporate debtor's assets. 12.4 In paras 6 and 7 of the Written Submissions it is averred that section 238 of I B Code shall have overriding effect over other laws. The Hon'ble Supreme Court in PR. COMMISSIONER OF INCOME TAX Vs. MONNET ISPAT AND ENERGY LTD., MANU/SC/1018/2018 : , has held as follows: Given section 238 of the Insolvency and Bankruptcy Code, 2016 it is obvious that the Code will override anything inconsistent contained in any other enactment including the Income Tax Act. 12.5 In para 8 of the Written Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered by the Hon'ble NCLAT in JSW Steel Vs. Mahender Kumar Khandelwal and others, (para 44) emphasis is laid on two issues : (i) there is an approved resolution plan in JSW, which is not so in the present case, (ii) the Hon'ble NCLAT in the said case has held that: 151. However, the judgment passed by the Adjudicating Authority and this Appellate Tribunal will not come in the way of the Directorate of Enforcement or the 'Serious Fraud Investigation Office' or the Central Bureau of Investigation' to proceed with investigation or to take any action in accordance with law against erstwhile promoters, officers and other of the 'corporate debtor'. No costs. It is contended that in view of the above decision of the Hon'ble NCLAT the provisional attachment in question be removed with immediate effect. 12.10 In para 18 of the Written Submissions the applicant contended that the case of SARWAN SINGH AND Ors. Vs. KASTURI LAL, MANU/SC/0071/1976 : has no application to the facts of the present case. 13. The applicant submits that proceedings are of two kinds, viz. (i) Criminal proceedings against accused, (ii) Civil proceedings against the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. The learned counsel contended that the proceedings before the NCLT take precedence over the proceedings commenced by the authorities under the PMLA. In this connection the learned counsel relied on decision of the Appellate Tribunal under the PMLA in the case of PUNJAB NATIONAL BANK Vs. DIRECTOR, DIRECTORATE OF ENFORCEMENT, RAIPUR, FPA-PMLA-2633/RP/2018. The same view was also reaffirmed by the Appellate Tribunal under the PMLA in the case of BANK OF INDIA Vs. THE DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, MUMBAI, FPA-PMLA- 2173/MUM/2018. The learned counsel contended that the proceedings under the PMLA are of civil in nature. Therefore, such proceedings initiated against the Corporate Debtor are barred by moratorium order. In this connection, the learned counsel for Resolution Professional relied on the order passed by the NCLT, Mumbai in the case of SREI INFRASTRUCTURE FINANCE LIMITED Vs. (sic) AND INFRASTRUCTURE LIMITED, M.A. 1280/2018 in C.P. 405/2018. The learned counsel contended that the provisions of I B Code have over-riding effect by virtue of section 238 of the I B Code. Therefore, the attachment order issued under the PMLA is hit by section 14 of the I B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the NCLT is having jurisdiction to decide the disputes coming under the I B Code and not any dispute arising under the PML Act. The learned counsel contended that process of attachment is not completely of civil nature, but it is quasi criminal process. The learned counsel contended that the PML Act is a special enactment intended to prevent laundering of illegal money which is an economic offence. The learned counsel has relied on the decision of the Hon'ble Apex Court in the matter of ROHIT TANDON VS. THE ED AND Y.S. JAGAN MOHAN REDDY VS. CBI, MANU/SC/1403/2017 : (supra) and contended that the economic offence is to be viewed seriously and to be considered as a grave offence, thus, affecting the economy of the country. 19. The learned counsel for the Enforcement Directorate would contend that section 14 of the I B Code will not apply to the proceedings initiated under the PML Act. The learned counsel in this connection relied on a decision of the NCLAT in the case of ANDHRA BANK Vs. STERLING BIOTECH LTD., COMPANY APPEAL (AT) (INSOLVENCY) No. 601, 612, 527 of 2019, vide judgment dated 28.08.2019 (supra), whereby the Hon'ble NCLAT upheld the independence of the Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, judgment dated 02.05.2019 in COMPANY APPEAL (AT) (INSOLVENCY) No. 493 of 2018, rendered by NCLAT (surpa) and contended that the Hon'ble NCLAT has ruled that PML Act relates to 'proceeds of crime' and the offence relates to money-laundering resulting in confiscation of property derived therefrom and therefore, section 14 of the I B Code is not applicable to such proceeding. The learned counsel has relied on relevant para which is as follows: 12. From the aforesaid provisions, it is clear that the 'Prevention of Money-Laundering Act, 2002' relates to 'proceeds of crime' and the offence relates to 'money-laundering' resulting confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. Thus, as the 'Prevention of Money Laundering Act, 2002' or provisions therein relates to 'proceeds of crime', we hold that Section 14 of the 'I B 23. The learned counsel for Enforcement Directorate further contended that section 32A of the I B Code is not applicable to the facts of the present case since the COC has not yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re cannot be any attachment or confiscation of the assets of the Corporate Debtor by any enforcement agencies after approval of the Resolution Plan. 26. The learned counsel contended that the NCLAT also held that there cannot be attachment after approval of the Resolution Plan. 27. The learned counsel further relied on para 14 of the decision of the Hon'ble NCLAT in the matter of ROTOMAC GLOBAL PRIVATE LTD Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT (supra), which is as follows: 14. As the 'Prevention of Money Laundering Act, 2002' relates to different fields of penal action of proceeds of crime', it invokes simultaneously with the 'I B Code', having no overriding effect of one Act over the other including the 'I B Code', we find no merit in this appeal. It is accordingly dismissed. No costs. Thus, the learned counsel contended that attachment is valid and as such it cannot be set aside. Thus, the learned counsel would contend that the application deserves to be dismissed. 28. The short question for consideration is that whether respondent no. 1 can issue Provisional Attachment Order against the assets of the Corporate Debtor du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our consideration is the judgment dated 02.05.2019 passed by the Hon'ble NCLAT in the matter of VARRSANA ISPAT LIMITED Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT (supra), in COMPANY APPEAL (AT) (INSOLVENCY) No. 493 of 2018 (supra). The above order cited by the learned counsel is at pages 191-199 of Volume-2 of the Reply Affidavit filed by respondents no. 1 and 2. It is also the case of the learned counsel for respondent no. 1 that the order of the Hon'ble NCLAT was also confirmed by the Hon'ble Apex Court. The order of the Hon'ble Apex Court in Civil Appeal No. 5546 of 2019 is cited at pages 200-203 of Volume-2 of the Reply Affidavit. 34. It is an undisputed fact that when CIRP is pending against the Corporate Debtor the respondent no. 1 has issued Provisional Attachment the Corporate Debtor when moratorium order is in force. The issue involved is decided by the Hon'ble NCLAT in the case of VARRSANA ISPAT LIMITED Vs. DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, judgment dated 02.05.2019 in COMPANY APPEAL (AT) (INSOLVENCY) No. 493 of 2018 (supra). In para 12 the Hon'ble NCLAT held as follows: From the aforesaid provisions, it is clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any penal action taken pursuant to the criminal proceeding or any act having essence of crime or crime proceeds..... Thus, the Appellate Tribunal dismissed the appeal preferred by the Liquidator applying the principle laid down in the case of VARRSANA ISPAT LIMITED (supra). Thus, the PML Act relates to different fields of penal action of 'proceeds of crime', it invokes simultaneously with the 'I B Code', having no overriding effect of one Act over other laws including the I B Code. So, there is no question of overriding effect. As such the present application filed by the Provisional Attachment Order is not maintainable and is liable to be dismissed. 38. Section 32A of the I B Code was introduced in the I B Code by virtue of Amending Ordinance dated 28.12.2019. Subsection (2) of Section 32A of the I B Code reads as follows: 32A. (2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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