TMI Blog2022 (11) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... t is essentially a seizure of property bringing it into the constructive possession of a court or as in this case, the authorities under the PMLA. An attachment is essentially aimed at preventing private alienations. It does not confer a title on the authority which has taken that step. The attachment only enables the authorities under the act to restrain any further transactions with respect to the aforesaid property till such time as a trial with respect to the commission of an offence of money laundering comes to an end. Attachment under the PMLA does not result in an extinguishment or effacement of property rights. It is essentially a fetter placed upon the possessor of that property to deal with the same till such time as proceedings under the aforesaid enactment come to a definitive conclusion on the question of confiscation - it is essentially an action aimed at bringing into the control of a court or an authority, property over which multiple claims may exist. In any case, since the act of attachment does not result in the effacement of rights in property, it would clearly stand and survive outside the scope of a moratorium or an action relating to an action in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the conclusion that Section 32A would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA - while both IBC and the PMLA are special statutes in the generic sense, they both seek to subserve independent and separate legislative objectives. The subject matter and focus of the two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, it becomes the duty of the Court to discern the true intent and scope of the two legislations. Even though the IBC and Section 238 thereof constitute the later enactment when viewed against the PMLA which came to be enforced in 2005, the Court is of the considered opinion that the extent to which the latter was intended to capitulate to the IBC is an issue which must be answered on the basis of Section 32A. The introduction of that provision in 2020 represents the last expression of intent of the Legislature and thus the embodiment of the extent to which the provisions of the PMLA are to give way to proceedings initiated under the IBC. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was moved questioning the confirmation orders dated 01 January 2021 and 29 January 2021. The petition has been instituted by the Resolution Professional ( RP ) of Era Infra Engineering Limited ( EIEL ) which was admitted to insolvency proceedings under the provisions of the IBC. The challenge to the orders of attachment is essentially founded on the provisions of Section 14 of the aforesaid enactment with the petitioner contending that once the moratorium had come into effect, the ED stood denuded of jurisdiction to exercise powers under the PMLA. Before proceeding ahead to notice the submissions which have been addressed, it would be pertinent to notice the following essential facts. B. THE ESSENTIAL FACTS 2. On 19 April 2018, the ED proceeded to freeze 74 bank accounts of EIEL in purported exercise of powers conferred by Section 102 of the Code of Criminal Procedure, 1973 ( CrPC ). The insolvency proceedings would be deemed to have commenced on 08 May 2018 when the petition was admitted and it is this date which would thus constitute the date of commencement of the Corporate Insolvency Resolution Process ( CIRP ). Assailing the action initiated by the respondent unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the income tax refund which had been received by the petitioner. That amount is stated to have been credited in the accounts of the corporate debtor maintained with Axis Bank. Since the petitioner was apprised by the Axis Bank of a restraint which operated on its right to deal with the income tax refunds which had been received, the petitioner preferred a contempt petition before this Court. In the said contempt petition, on 06 August 2020, counsels appearing for the respondent are stated to have taken time to obtain instructions and apprise the Court whether the income tax refund also stood attached in proceedings under the PMLA. The petitioner alleges that after the hearing on the aforesaid contempt petition had concluded, the petitioner was e-mailed a copy of yet another PAO dated 05 August 2020 in terms of which the income tax refund also stood attached. In view of the aforesaid development, the contempt petition came to be dismissed on 13 August 2020 with the petitioner being accorded the liberty to initiate appropriate steps in challenge to the PAO of 05 August 2020. In the meanwhile, on 11 August 2020, the Supreme Court while dealing with a civil appeal preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention that the NCLT would have no jurisdiction to rule on the validity of the orders passed under the PMLA in light of the law as declared by the Supreme Court in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka 2019 SCC OnLine SC 1542. 7. On 10 May 2022 and upon hearing Mr. Vashisht, learned Senior Counsel appearing for the petitioner, at some length in response to the preliminary objections which had been noticed on the earlier occasion, the Court granted the prayer made on behalf of the petitioner to be accorded the liberty to move a formal application seeking addition of reliefs in the writ petition. The petitioner proceeded to move an application for amendment thereafter which came to be allowed on 12 May 2022. The respondent concluded their submissions on 29 August 2022 whereafter the matter was closed for judgement on 05 September 2022. While closing proceedings on the petition, the Court had also granted liberty as sought by learned counsels for parties to place their Brief Synopsis of Submissions on record. Pursuant to the liberty so granted, the petitioner submitted their written submissions on 23 September 2022 and the respondent on 07 Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the Court to the conflicting views which had been rendered on the interplay between IBC and PMLA and referred to the decision in Directorate of Enforcement vs. Manoj Kumar Agarwal 2021 SCC OnLine NCLAT 121 which had held that the Enforcement Directorate would have no jurisdiction to interfere or interdict proceedings under the IBC once a moratorium came into effect. Learned counsel also invited the attention of the Court to the conflicting views which had been expressed in Varrsana Ispat Limited vs. Deputy Director of Enforcement 2019 SCC OnLine NCLAT 236 as well as Andhra Bank vs. Sterling Biotech Limited Company Appeal (AT) (Insolvency) No.601, 612, 527 of 2019, Rotomac Global Private Limited vs. Deputy Director, Directorate of Enforcement 2019 SCC OnLine NCLAT 961 on the one hand and Manoj Kumar Agarwal on the other and contended that in light of the flux in the legal position, it would but be appropriate for this Court to effectively rule upon the questions which arise. The attention of the Court was also drawn to the judgement rendered by a larger bench of the National Company Law Appellate Tribunal (NCLAT) in Kiran Shah v. Enforcement Directorate 2022 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, its validity has also been questioned before the National Company Law Tribunal [NCLT] by the petitioner and before which Authority the matter is still pending. The last of the preliminary objection is addressed without prejudice to the contention of the Directorate that even the invocation of the jurisdiction of the NCLT would be barred by law and in light of the principles laid down by the Supreme Court in Embassy Property Development Pvt. Ltd. vs. State of Karnataka Ors. [(2020) 13 SCC 308]. In view of the above, Mr. Hossain would contend that the petitioner cannot pursue parallel remedies. Bearing in mind the aforenoted preliminary objections that are raised, let Mr. Vasisht, learned Senior Counsel respond to the same. 11. In view of the stand as taken by and on behalf of the ED and so encapsulated in the order of 6 May 2022, the Court notes that the respondents cannot be permitted to approbate and reprobate. Having taken the stand that a challenge to orders of attachment made under the PMLA cannot be considered or ruled upon by the NCLT while discharging its functions under the IBC, the preliminary objections which are raised in this regard clearly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Turning then to the admitted fact that both the IBC as well as the PMLA adopt and incorporate non obstante clauses in terms of Sections 238 and 71 respectively, it was argued on behalf of the petitioner that it would be the IBC and its provisions which would prevail. It was submitted that IBC being a later statute, would prevail and override the provisions of the PMLA. According to learned counsel, the attachment orders as made are thus liable to be tested on the aforesaid lines. 15. Turning then to the provisions contained in Section 14 of the IBC, learned counsel for the petitioner laid stress upon the fact that section 14(1)(a) places a complete embargo on continuation and institution of suits or proceedings against the corporate debtor and which may be pending before any court of law, tribunal, arbitration panel or other authority. It was urged on behalf of the petitioner that proceedings of attachment that may be initiated under the PMLA are inherently civil in nature. It was argued that the provisions contained in Chapter III of the PMLA and which deal with attachment of properties alleged to have been derived or obtained from proceeds of crime or value thereof are pure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieving resolution as a going concern as well, which is likely to maximize value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate. 8.11. Further, the purpose of the moratorium is to keep the assets of the debtor together for successful insolvency resolution, and it does not bar all actions, especially where countervailing public policy concerns are involved. For instance, criminal proceedings are not considered to be barred by the moratorium, since they do not constitute money claims or recovery proceedings. In this regard, the Committee also noted that in some jurisdictions, laws allow regulatory claims, such as those which are not designed to collect money for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of attachment are rendered wholly unsustainable. E. CONTENTIONS OF THE ENFORCEMENT DIRECTORATE 19. Appearing for the respondents, Mr. Zoheb Hossain, learned counsel appearing for the ED argued that proceeds of crime as defined under Section 2(1)(u) of PMLA is not an operational debt as per the provisions of Section 5(21) of the IBC. It was submitted that ED would not fall within the definition of an operational creditor as defined by Section 5(20) of the IBC. Learned counsel submitted that when the ED proceeds to attach properties representing proceeds of crime, it is not doing so by virtue of being a creditor of the corporate debtor. Mr. Hossain submitted that while an operational debt would mean a debt arising under any law for the time being in force, proceeds of crimes stand on a completely different pedestal and relate to ill gotten assets derived or obtained from the commission of a scheduled offence. In view of the aforesaid, learned counsel would submit that it would be wholly incorrect to proceed on the basis that orders of attachment made in respect of properties which constitute proceeds of crime is akin to an action taken by a creditor against the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l earning, the idea being to take away what has been illegitimately secured by proscribed criminal activity. xxx xxx xxx 143. The proceeds of crime, there is no doubt, are not even remotely covered by the expressions revenues, taxes, cesses or other rates. The word revenue is the controlling word, the expressions following (taxes, cesses, rates) taking the colour from the same. The word revenue, in the context of Government is to be understood to be conveying taxation [ Gopi Pershad v. State of Punjab, AIR 1957 Punjab 45 (DB)]. This is how the expression is defined by Black's Law Dictionary, Eighth Edition as also by Cambridge English Dictionary (accessible online). The reliance by the respondents on the use of the expression non-tax revenue with reference to PMLA under major accounting head 0047 Other Fiscal Services in the list of Heads of Accounts of Union and States issued by Controller General of Accounts, Department of Expenditure in the Ministry of Finance, Government of India under the Government of India (Allocation of Business) Rules, 1961 is misplaced. The use of the expression for accounting purposes - to take care of receipts flowing into the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue whereof is debt due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of ill-gotten assets so as to be perceived to be sharing the loot, not the least so as to levy tax thereupon such as to give it a colour of legitimacy or lawful earning, the idea being to take away what has been illegitimately secured by proscribed criminal activity. (emphasis in original) This raison d' tre is completely different from what has been advocated by Shri Mehta. The confiscation of the proceeds of crime is by the Government acting statutorily and not as a creditor. This judgment, again, does not further his case. 21. Learned counsel then submitted that a person who is engaged in or has committed the offence of money-laundering cannot be permitted to avail or enjoy the proceeds thereof under the garb of seeking a discharge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of Article 141 of the Constitution. 23. Reliance was then placed on the following observations as made by NCLAT in Andhra Bank v Sterling Biotech Limited ( Company Appeal (AT) (Insolvency) No. 601, 612, 527 of 2019),: 15. In so far the assets of the Corporate Debtor is concerned, 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 the Prevention of Money-laundering Act, 2002 (for short, the PMLA ). Mr. Hossain further urged that the flux in the legal position that may have existed in light of the decisions rendered by the NCLT and NCLAT in different decisions, in any case stands laid to rest in light of the decision pronounced by the larger bench of NCLAT in Kiran Shah where the decision in Manoj Kumar Agarwal was held to have been rendered per incuriam and the Tribunal had held as follows: - 98. Although, Section 14 of I B Code deals with moratorium , it is not a hindrance for the Authority and the Officers under the Prevention of Money-laundering Act, 2002 to deny person of the tainted Proceeds of Crime . Suffice it for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is due to the claimant i.e. the banks or the financial institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process. xxx xxx xxx 144. The respondent have referred to the following observations of the Supreme Court in order dated 10.08.2018 in Special Leave to Appeal (Civil) No. 6483/2018, Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited :- 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. We may also refer in this connection to Dena Bank v. Bhikhabhai Prabhudas Parekh and Co. (2000) 5 SCC 694 and its progeny, making it clear that income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 26. Mr. Hossain then submitted that the 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. It was submitted that the said provision was introduced essentially to fill critical gaps in the corporate insolvency framework. According to Mr. Hossain, the introduction of Section 32A throws light upon the scope of Section 14 in the sense of providing an indication of the terminal point whereafter no further steps can be taken with respect to the assets of the corporate debtor. Learned counsel submitted that this Court in Nitin Jain Liquidator of PSL Limited vs. Enforcement Directorate 2021 SCC OnLine Del 5281 had clearly enunciated the trigger events under the IBC which would constitute an embargo on attachment under the PMLA. Referring to the said decision, Mr. Hossain submitted that the Court had found that the provisions of Section 32A would come into play only upon a Resolution Plan being approved or a measure towards liquidation being adopted and those alone constituting the defining moment for the aforesaid purpose. Learned counsel referred to the following passages as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the Adjudicating Authority approving the course of action to be finally adopted in relation to the corporate debtor. Section 32A legislatively places vital import upon the decision of the Adjudicating Authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by Section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result in a right being recognised as inhering in the respondent to move against the properties of the corporate debtor even after their sale or transfer has been approved by the Adjudicating Authority. This would clearly militate against the very purpose and intent of Section 32A. It becomes pertinent to recollect that one of the primary objectives which informed the introduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29A, read with Section 35(1)(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporate debtor in the CIRP and liquidation process, respectively. Thus, in most cases, the provisions of the Code effectuate a change in control of the corporate debtor that results in a clean break of the corporate debtor from its erstwhile management. However, the legal form of the corporate debtor continues in the CIRP, and may be preserved in the resolution plan. Additionally, while the property of the corporate debtor may also change hands upon resolution or liquidation, such property also continues to exist, either as property of the corporate debtor, or in the hands of the purchaser. 17.2. However, even after commencement of CIRP or after its successful resolution or liquidation, the corporate debtor, along with its property, would be susceptible to investigations or proceedings related to criminal offences committed by it prior to the commencement of a CIRP, leading to the imposition of certain liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us treaties and agreements. Learned counsel would submit that an interpretation of the IBC provisions in a manner which stifles or fetters the powers conferred upon authorities by the PMLA in aid of the fight against organised crime and money laundering would clearly be detrimental to the economic interests and international commitments of the country itself. 32. Mr. Hossain then submitted that the principal objective of the PMLA is to prevent money-laundering and to confiscate all properties that may have been derived or obtained from commission of the aforesaid offence. It was urged that investigation under the PMLA is primarily aimed at unearthing and attaching proceeds that may be gained from the commission of scheduled offences. According to Mr. Hossain, the power of provisional attachment aids the ultimate confiscation of properties that may have been obtained by committing the offence of money laundering. The IBC, on the other hand, according to Mr. Hossain is an umbrella legislation which deals with the subject of insolvency resolution. That statute, according to learned counsel, is primarily concerned with a revival of a corporate debtor and for the protection of its in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of sections [ ] of the [Bankruptcy Act] in respect of the making of the gift at any time when the person has been charged with a serious offence and the proceedings have not been concluded by the acquittal of the defendant or discontinuance of the proceedings, or when property of the person to whom the gift was made is subject to [a restraint order or a charging order made under or for the purposes of that Act]; and (b) any order made by virtue of those sections after the conclusion of the proceedings shall take into account any realisation under this Part of property held by the person to whom the gift was made]. 34. Mr. Hossain then referred to the decision of the Supreme Court in Biswanath Bhattacharya vs. Union of India (2014) 4 SCC 392 which had accorded a judicial seal of approval to the concept of civil forfeiture. Mr. Hossain referred to the following passages as appearing in the aforesaid decision: 39. If a subject acquires property by means which are not legally approved, the sovereign would be perfectly justified to deprive such persons of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnership interest in the property and thus could not seek a remedy against the Government s decision to destroy the property without recourse to formal forfeiture proceedings. The UK Government has impliedly adopted this perspective, stating that: It is important to bear in mind the purpose of civil recovery, namely, to establish as a matter of civil law that there is no right to enjoy property that derives from unlawful conduct. 41. Non-conviction based asset forfeiture model also known as Civil Forfeiture Legislation gained currency in various countries: the United States of America, Italy, Ireland, South Africa, UK, Australia and certain Provinces of Canada. 42. Anthony Kennedy conceptualised the civil forfeiture regime in the following words: Civil forfeiture represents a move from a crime and punishment model of justice to a preventive model of justice. It seeks to take illegally obtained property out of the possession of organised crime figures so as to prevent them, first, from using it as working capital for future crimes and, secondly, from flaunting it in such a way as they become role models for others to follow into a lifestyle of acquisitive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red creditor is defined in Section 3(30) to mean a creditor in whose favour a security interest stands created. The expression security interest is defined in Section 3(31) to include transactions which secure payment or performance of an obligation and also include mortgages, charges, hypothecation and the like. A financial creditor is defined in Section 5(7) to mean a person to whom a financial debt owed. A financial debt is defined in Section 5(8) as follows: - 5(8). financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes- (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the application in terms of sub-section (5) noticed hereinabove. Section 8 of the IBC confers an identical right upon an operational creditor to initiate insolvency proceedings against a corporate debtor. In terms of Section 9(5) of the IBC, the Adjudicating Authority, may after due consideration and upon being satisfied that an operational debt has remained unpaid, admit the application. Section 13 empowers the Adjudicating Authority to declare a moratorium for purposes specified in Section 14. Sections 13 and 14 of the IBC are extracted hereinbelow: - 13. Declaration of moratorium and public announcement. (1) The Adjudicating Authority, after admission of the application under section 7 or section 9 or section 10, shall, by an order- (a) declare a moratorium for the purposes referred to in section 14; (b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and (c) appoint an interim resolution professional in the manner as laid down in section 16. (2) The public announcement referred to in clause (b) of subsection (1) shall be made immediately after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of sub-section (1) shall not apply to - (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority: (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 39. The IBC then obliges the Adjudicating Authority to make a public announcement with respect to the CIRP process in accordance with the provisions contained in Section 15. Section 16 empowers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to- (i) business operations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15; c) constitute a committee of creditors; d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; e) file information collected with the information utility, if necessary; and f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including- (i) assets over which the corporate debtor has ownership rights which may be located in a foreign cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this subsection, satisfy that the resolution plan has provisions for its effective implementation. (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor s liability has ceased under this sub-section. (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 results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not- (i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esulting in a particular mode of resolution coming to be duly accepted and approved, comes to be bogged down or clouded by unforeseen or unexpected claims or events. The IBC essentially envisages the process of resolution or liquidation to move forward unhindered. The Legislature in its wisdom has recognised a pressing and imperative need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the Adjudicating Authority approving the course of action to be finally adopted in relation to the corporate debtor. Section 32A legislatively places vital import upon the decision of the Adjudicating Authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by Section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise be taken in respect thereof for an offense committed prior to the commencement of the CIRP. A close reading of Section 32A (1) and (2) establishes that the legislature in its wisdom has erected two unfaltering barriers. It firstly prescribes that the offense, which may entail either prosecution of the debtor or proceedings against its properties, must be one which was committed prior to the commencement of the CIRP. Secondly the cessation of liability for the offense committed is to occur the moment when a resolution is approved by the Adjudicating Authority or upon sale of liquidation assets. The provision in unequivocal terms terminates the prospect of prosecution or coercive action against properties on the happening of either of two critical events: - (a) the date from which a resolution plan comes to be approved by the Adjudicating Authority, or (b) the sale of liquidation assets. 47. Proceeding then to rule upon the validity of the provision itself the Supreme Court held: - 326. We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. The boundaries of this Court's jurisdiction are clear. The wisdom of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the report submitted continues to be liable to be prosecuted and punished for the offence committed by the corporate debtor. 328. The corporate debtor and its property in the context of the scheme of the Code constitute a distinct subjectmatter justifying the special treatment accorded to them. Creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgment of the legislature. Erecting a bar against action against the property of the corporate debtor when viewed in the larger context of the objectives sought to be achieved at the forefront of which is maximisation of the value of the assets which again is to be achieved at the earliest point of time cannot become the subject of judicial veto on the ground of violation of Article 14. 329. We would be remiss if we did not remind ourselves that attaining public welfare very often needs delicate balancing of conflicting interests. As to what priority must be accorded to which interest must remain a legislative value judgment and if seemingly the legislature in its pursuit of the greater good appears to jettison the interests of some, it cannot unless it strikingly ill squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tely come to the conclusion that the Legislature had undertaken a well-considered balancing exercise to ensure that larger public interest was subserved. 45. Section 238 of the IBC which embodies the non obstante clause reads thus: - 238. Provisions of this Code to override other laws. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. G. PMLA AND THE PROCEEDS OF CRIME 46. Turning then to the provisions of the PMLA, the Court deems it apposite to firstly notice its Statements of Objects and Reasons as appended to the Bill which was introduced in Parliament and the same is extracted hereinbelow: - STATEMENT OF OBJECTS AND REASONS It is being realised, world over, that money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty . Some of the initiatives taken by the international community to obviate such threat are outlined below:- (a) the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Ps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recommendations of the Standing Committee accepted by the Central Government are that (a) the expressions banking company and person may be defined; (b) in Part I of the Schedule under Indian Penal Code the word offence under section 477A relating to falsification of accounts should be omitted; (c) knowingly be inserted in clause 3(b) relating to the definition of money-laundering; (d) the banking companies financial institutions and intermediaries should be required to furnish information of transactions to the Director instead of Commissioner of Income-tax (e) the banking companies should also be brought within the ambit of clause II relating to obligations of financial institutions and intermediaries; (f) a definite time-limit of 24 hours should be provided for producing a person about to be searched or arrested person before the Gazetted Officer or Magistrate; (g) the words unless otherwise proved to the satisfaction of the authority concerned may be inserted in clause 22 relating to presumption on inter-connected transactions; (h) vacancy in the office of the Chairperson of an Appellate Tribunal, by reason of his death, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located; [ Explanation : For the removal of doubts, it is hereby clarified that the term property includes property of any kind used in the commission of an offence under this Act or any of the scheduled offences;] 49. The expression transfer is defined in Section 2(1)(za) as under: - 2(1)(za) transfer includes sale, purchase, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien; 50. Section 3 defines the offence of money laundering and reads thus:- 3. Offence of money-laundering Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. [ Explanation : For the removal of doubts, it is hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty of any person may be attached under this section if 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 reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act: PROVIDED ALSO that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted.; (2) The Director, or any other officer not below the rank of Deputy Director, shall, immediately after attachment under subsection (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, the manner as may be prescribed and such Adjudicating Authority shall keep such orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government: PROVIDED that where a notice under this sub-section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person: PROVIDED FURTHER that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property. (2) The Adjudicating Authority shall, after- (a) considering the reply, if any, to the notice issued under sub-section (1); (b) hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and (c) taking into account all relevant materials placed on record before him, by an order, record a finding whether all or any of the properties referred to in the notice issued under subsection (1) are involved in money-laundering: PROVIDED that if the property is claimed by a person, other than a person to whom the notice had been issued, such person shall also be given an opportunity of being heard to prove that the property is not involved in mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson entitled to receive it. (7) Where the trial under this Act cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Special Court shall, on an application moved by the Director or a person claiming to be entitled to possession of a property in respect of which an order has been passed under sub-section (3) of section 8, pass appropriate orders regarding confiscation or release of the property, as the case may be, involved in the offence of money-laundering after having regard to the material before it. (8) Where a property stands confiscated to the Central Government under sub-section (5), the Special Court, in such manner as may be prescribed, may also direct the Central Government to restore such confiscated property or part thereof of a claimant with a legitimate interest in the property, who may have suffered a quantifiable loss as a result of the offence of Money-laundering : PROVIDED that the Special Court shall not consider such claim unless it is satisfied that the claimant has acted in good faith and has suffered the loss des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der confiscation of the property in favour of the Union Government. As per Section 8(7), where the trial under the aforesaid statute is not concluded on account of the death of the accused or the accused being declared a proclaimed offender or for any other reason, the Special Court may pass appropriate orders either for confiscation or for release of the property. 54. Section 8(8) confer the power on the Special Court to direct restoration of confiscated property on an application of a claimant who is able to establish that he had acquired a legitimate interest in the same and who may have suffered a quantifiable loss as a result of the commission of the offence of the money-laundering. 55. Section 58B which is a provision which is also noticed in Section 8(3)(a) reads as follows: - 58B. Letter of request of a contracting State or authority for confiscation or release the property Where the trial under the corresponding law of any other country cannot be conducted by reason of the death of the accused or the accused being declared a proclaimed offender or for any other reason or having commenced but could not be concluded, the Central Government shall, on receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing in this section shall operate to discharge any person from any liability in respect of such encumbrances which may be enforced against such person by a suit for damages. 58. PMLA puts in place a structure of Special Courts for the purposes of trial of offences under the said statute. These are contained in Chapter VII thereof. The provisions of the PMLA are accorded overriding effect in terms of Section 71, reads as under: - 71. Act to have overriding effect The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. It may while closing the discussion on the respective provisions of the two competing statues, be additionally noted, that although PMLA was a statute which was passed by Parliament on 17 January 2003, it came to be ultimately enforced with effect from 01 July 2005. 59. In order to answer the questions that stands posited, it would be pertinent to firstly understand the basic ethos and objective of the PMLA. PMLA represents the commitment of India to the Vienna and Palermo Conventions and the global resolve to fight the scourge of money laundering. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Section 3 creates the offence of money laundering, Section 4 of the PMLA prescribes the punishment for the aforesaid offence. The powers of attachment which stand comprised in Sections 5 and 8 are an adoption of the principles of civil forfeiture and are in implementation of the intent of the Legislature that perpetrators of money-laundering offences are not permitted to enjoy the fruits thereof. The principle of civil forfeiture was duly explained by the Supreme Court in Biswanath Bhattachrya as would be evident from the following passages of that decision which read thus: - 33. Dealing with the question - whether such forfeiture (in the factual setting of the case) violated Article 20 of the Constitution of India, a Constitution Bench of this Court held that the forfeiture contemplated in the Ordinance was not a penalty within the meaning of Article 20 but it is only a speedier mode of recovery of the money embezzled by the accused. [State of W.B. v. S.K. Ghosh, AIR 1963 SC 255, p. 263, para 15: 15. We are therefore of opinion that forfeiture provided in Section 13(3) in case of offences which involve the embezzlement, etc. of government money or property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, shall be made over to the Government. Now it is clear that the sums so collected by way of tax are not in fact tax exigible under the Act. So it cannot be said that the State Legislature was directly legislating for the imposition of sales or purchase tax under List II Entry 54 when it made such a provision, for on the face of the provision, the amount, though collected by way of tax, was not exigible as tax under the law. The provision however is attempted to be justified on the ground that though it may not be open to a State Legislature to make provision for the recovery of an amount which is not a tax under List II Entry 54 in a law made for that purpose, it would still be open to the legislature to provide for paying over all the amounts collected by way of tax by persons, even though they really are not exigible as tax, as part of the incidental and ancillary power to make provision for the levy and collection of such tax. Now there is no dispute that the heads of legislation in the various Lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topics mentioned therein. Even so, there is a limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e perfectly justified to deprive such persons of the enjoyment of such ill-gotten wealth. There is a public interest in ensuring that persons who cannot establish that they have legitimate sources to acquire the assets held by them do not enjoy such wealth. Such a deprivation, in our opinion, would certainly be consistent with the requirement of Articles 300-A and 14 of the Constitution which prevent the State from arbitrarily depriving a subject of his property. 40. Whether there is a right to hold property which is the product of crime is a question examined in many jurisdictions. To understand the substance of such examination, we can profitably extract from an article published in the Journal of Financial Crime, 2004 by Anthony Kennedy. [ Head of Legal Casework, Northern Ireland for the Assets Recovery Agency in his article Justifying the Civil Recovery of Criminal Proceeds published in the Journal of Financial Crime, 2004, Vol. 12, Issue 1.] It has been suggested that a logical interpretation of Article 1 of the First Protocol of the European Convention on Human Rights is: Everyone is entitled to own whatever property they have (lawfully) acquired . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for future crimes and, secondly, from flaunting it in such a way as they become role models for others to follow into a lifestyle of acquisitive crime. Civil recovery is therefore not aimed at punishing behaviour but at removing the trophies of past criminal behaviour and the means to commit future criminal behaviour. While it would clearly be more desirable if successful criminal proceedings could be instituted, the operative theory is that half a loaf is better than no bread . 43. For all the abovementioned reasons, we are of the opinion that the Act is not violative of Article 20 of the Constitution. Even otherwise, as was rightly pointed out by the learned Additional Solicitor General, in view of its inclusion in the Ninth Schedule, the Act is immune from attack on the ground that it violates any of the rights guaranteed under Part III of the Constitution by virtue of the declaration under Article 31-B. 62. The provisions thus incorporated in Sections 5 and 8 of the PMLA are in essence the adoption of the non-conviction based asset forfeiture model which now stands adopted the world over in the fight against organised crime and money laundering. These principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feated or impaired by any subsequent dealings of the... [possessor], Stowell, supra, at 19, 10 S.Ct., at 248. 17 . In sum, 853(c) reflects the application of the long-recognized and lawful practice of vesting title to any forfeitable assets, in the United States, at the time of the criminal act giving rise to forfeiture. Concluding that Reckmeyer cannot give good title to such property to petitioner because he did not hold good title is neither extraordinary or novel. Nor does petitioner claim, as a general proposition that the relation-back provision is unconstitutional, or that Congress cannot, as a general matter, vest title to assets derived from the crime in the Government, as of the date of the criminal act in question. Petitioner's claim is that whatever part of the assets that is necessary to pay attorney's fees cannot be subjected to forfeiture. But given the Government's title to Reckmeyer's assets upon conviction, to hold that the Sixth Amendment creates some right in Reckmeyer to alienate such assets, or creates a right on petitioner's part to receive these assets, would be peculiar. 18. There is no constitutional principle that gives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of forfeited assets to make claims for forfeited assets before they are retained by the Government. See 21 U.S.C. 853 (n)(6)(A). The Government's interest in winning undiminished forfeiture thus includes the objective of returning property, in full, to those wrongfully deprived or defrauded of it. Where the Government pursues this restitutionary end, the Government's interest in forfeiture is virtually indistinguishable from its interest in returning to a bank the proceeds of a bank robbery; and a forfeiture defendant's claim of right to use such assets to hire an attorney, instead of having them returned to their rightful owners, is no more persuasive than a bank robber's similar claim. 22. Finally, as we have recognized previously, a major purpose motivating congressional adoption and continued refinement of the racketeer influenced and corrupt organizations (RICO) and CCE forfeiture provisions has been the desire to lessen the economic power of organized crime and drug enterprises. See Russello v United States, 464 U.S. 16, 27-28, 104 S.Ct. 296, 302-303, 78 L.Ed.2d 17 (1983). This includes the use of such economic power to retain private counsel. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Government could never impose a burden on assets within a defendant's control that could be used to pay a lawyer. Criminal defendants, however, are not exempted from federal, state, and local taxation simply because these financial levies may deprive them of resources that could be used to hire an attorney. 24. We therefore reject petitioner's claim of a Sixth Amendment right of criminal defendants to use assets that are the Government's-assets adjudged forfeitable, as Reckmeyer's were-to pay attorneys' fees, merely because those assets are in their possession. See also Monsanto, 491 U.S., at 613, 109 S.Ct., at 2665, which rejects a similar claim with respect to pretrial orders and assets not yet judged forfeitable. 25. Petitioner's second constitutional claim is that the forfeiture statute is invalid under the Due Process Clause of the Fifth Amendment because it permits the Government to upset the balance of forces between the accused and his accuser. Wardius v. Oregon, 412 U.S. 470, 474, 93 S.Ct. 2208, 2212, 37 L.Ed.2d 82 (1973). We are not sure that this contention adds anything to petitioner's Sixth Amendment claim, because, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke it into consideration, when dealing with disqualification motions. 28. A similar approach should be taken here. The Constitution does not forbid the imposition of an otherwise permissible criminal sanction, such as forfeiture, merely because in some cases prosecutors may abuse the processes available to them, e.g., by attempting to impose them on persons who should not be subjected to that punishment. Cf. Brady v. United States, 397 U.S. 742, 751, and n. 8, 90 S.Ct. 1463, 1470, and n. 8, 25 L.Ed.2d 747 (1970). Cases involving particular abuses can be dealt with individually by the lower courts, when (and if) any such cases arise. IV 29. For the reasons given above, we find that petitioner's statutory and constitutional challenges to the forfeiture imposed here are without merit. The judgment of the Court of Appeals is therefore 30. Affirmed. 63. While explaining the aforesaid decision, the U .S. Supreme Court in Sila Luis vs. United States 2016 SCC OnLine US SC 4 observed as under: - Pretrial freezes of untainted forfeitable assets did not emerge until the late 20th century. ```[T]he lack of historical precedent for the asset freeze here is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Chitty, supra, at 736-737 (collecting sources). The common law did permit the Government, however, to seize tainted assets before trial. For example, seizure of the res has long been considered a prerequisite to the Initiation of in rem forfeiture proceedings. United States v. James Daniel Good Real Property, 510 U.S. 43, 57 (1993) (emphasis added); see The Brig Ann, 9 Cranch 289, 291 (1815) (Story, J.). But such forfeitures were traditionally fixed... by determining what property has been 'tainted' by unlawful use. Austin v. United States, 509 U.S. 602, 627 (1993) (Scalia, J., concurring in part and concurring in judgment). So the civil in rem forfeiture tradition tracks the tainteduntainted line. It provides no support for the asset freeze here. There is a similarly well-established Fourth Amendment tradition of seizing contraband and stolen goods before trial based only on probable cause. See Carroll v. United States, 267 U.S. 132, 149152 (1925) (discussing this history); Boyd v. United States, 116 U.S. 616, 623-624 (1886) (same). Tainted assets fall within this tradition because they are the fruits or instrumentalities of crime. So the Government may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty through in rem proceedings would have raised Fifth and Sixth Amendment concerns had they not been a war measure). The common law thus offers an administrable line: A criminal defendant's untainted assets are protected from Government interference before trial and judgment. His tainted assets, by contrast, may be seized before trial as contraband or through a separate in rem proceeding. Reading the Sixth Amendment to track the historical line between tainted and untainted assets makes good sense. It avoids case-by-case adjudication, and ensures that the original meaning of the right to counsel does real work. The asset freeze here infringes the right to counsel because it is so broad that it differs not only in degree, but in kind, from its historical antecedents. James Daniel Good, supra, at 82 (THOMAS, J., concurring in part and dissenting in part). 64. While dealing with the aforesaid issue and the decisions of the U.S. Supreme Court in Caplin and Sila Luis, the Court may only incidentally observe that insofar as PMLA is concerned, it enables the Enforcement Directorate to not only move against properties which may have been derived or obtained directly or ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the general practice in India to start a ML investigation only on the basis of a predicate offence case. Even if the ML investigation since recently can run concurrently with the predicate offence enquiry, there is no inter-agency MOU or arrangement to deal with evidentiary issues between the various agencies in investigating predicates and ML offences. Also, the way the interaction between the law enforcement agencies is presently structured carries the risk that ML prosecutions could be delayed while the other predicate offence investigation agencies try to secure convictions. ********* 175. Although recently an increased focus on the ML aspect and use of the ML provisions is to be acknowledged, there are still some important and often long-standing legal issues to be resolved. To that end following measures should be taken: The monetary threshold limitation of INR 3 million for the Schedule Part B predicate offences should be abolished. The section 3 PMLA definition of the ML offence should be brought in line with the Vienna and Palermo Conventions so as to also fully cover the physical concealment and the sole acquisition, possession and use of all r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o case law in this respect. 236. Also, the procedural provisions of Chapter III make confiscation of the proceeds of crime contingent on a prior seizure of attachment of the property by the Adjudicating Authority, and consequently substantially limit the possibilities for confiscation under the PMLA. ********* General comments 244. Since confiscation is linked to a conviction it is not possible to confiscate criminal proceeds when the defendant has died during the criminal proceedings. However, it is possible to attach and dispose of any property of a proclaimed offender when that person has absconded. The absence of a regulation when the defendant has died may have a negative impact on the effectiveness of the confiscation regime in place in India. 293. In view of the observations made in said Report, the FATF made recommendations as follows: 2.3.3 Compliance with Recommendations 3 Rating Summary of factors relative to s. 2.3 underlying overall rating R.3 PC Confiscation of property laundered is not covered in the relevant legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at predicate offence and money laundering offence have taken place and the property in question (i.e. the proceeds of crime) is involved in money laundering. ********* However, the MER 2010 highlighted certain deficiencies in the AML legislation which adversely affected the ratings on a few FATF recommendations. The areas are broadly summarized below:- a) Commodities market out of the ambit of PMLA. b) DNFBP sector not subjected to PMLA (except Casino). c) Effectiveness concerns due to absence of ML conviction. d) Identification and verification of beneficial ownership of legal persons. e) Ineffective sanctions regime for non-compliance. India has suggested an Action Plan with short, medium and long term objectives to address the specific issues raised in the MER 2010 that includes proposed amendments in the PMLA. (emphasis supplied) 295. As aforesaid, in this backdrop the amendment Act 2 of 2013 came into being. Considering the purport of the amended provisions and the experience of implementing/enforcement agencies, further changes became necessary to strengthen the mechanism regarding prevention of money-laundering. It is not righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ED moves to provisionally attach properties which constitute proceeds of crime, it does not do so acting as a creditor. The steps that are taken under the aforesaid provisions are aimed at principally attaching properties which have been determined as representing proceeds of crime and thus placing a fetter on the right of the holder thereof to deal with or fritter away the same. It essentially seeks to strip the perpetrator of the right to enjoy the same during the pendency of proceedings under the PMLA. The order of attachment thus puts a restraint on the further enjoyment of the property by the possessor thereof as also to put a restraint on its powers to transfer or alienate the same pending the trial of the offence of money laundering by the Special Court. 68. As was aptly observed by the Court in Axis Bank, the Government while seeking to attach properties under the PMLA is not liable to be viewed as exercising a sovereign prerogative to levy a tax or to recover a debt but essentially to take away what has been illegitimately obtained in the course of a person indulging in proscribed criminal activity. The aforesaid view also finds resonance in the following observations a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n d' tre is completely different from what has been advocated by Shri Mehta. The confiscation of the proceeds of crime is by the Government acting statutorily and not as a creditor. This judgment, again, does not further his case. 69. Regard must also be had to the fact that the word debt itself is defined under the IBC to mean a liability or obligation which is due from any person. The action of attachment and ultimate confiscation under the PMLA is essentially to strip the possessor of the tainted property of all rights that may have otherwise been exercisable. When the respondents proceed to invoke the provisions of the PMLA, they are in essence proceeding towards the ultimate confiscation of properties unlawfully acquired or those which were obtained by the use of proceeds garnered from the commission of a schedule offence. I. ABSENCE OF CONFLICT 70. Turning then to the scope of the two statutes and the perceived conflict between the two, the Court in Axis Bank had while ruling on third-party interests observed as follows: - 105. It is vivid that the legislature has made provision for provisional attachment bearing in mind the possibility of circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) consideration, there being no intent, while acquiring such interest or charge, to defeat or frustrate the law, neither the said property nor the person claiming such interest having any connection with or being privy to the offence of Money-laundering . 163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-off. From this, it naturally follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration, acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enforce its claim by disposal of the subject property and the remainder alone being made available for the purposes of the PMLA. 72. The IBC on the other hand is a compendious legislation which engrafts measures pertaining to resolution of claims which may exist against a debtor facing the spectre of insolvency. It essentially creates a mechanism for speedy resolution of insolvency, exploration of the possibility of its revival and for appropriate steps towards liquidation being taken if it be ultimately found that the entity cannot be revived. IBC is a comprehensive and all-encompassing code dealing with all aspects relating to insolvency. It is a legislative measure aimed at ensuring expeditious resolution of situations of insolvency and thus protecting the rights of all stakeholders. It is these aspects which appear to have guided the Legislature in adopting measures which removes the erstwhile management from the seat of control over the corporate debtor, the creation of a common platform for the examination of claims of various parties who may have had dealings with the debtor, the appointment of Resolution Professionals who may be charged with exploring the possibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atorium provision in the following terms:- 8.2. The moratorium under Section 14 is intended to keep the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default. Keeping the corporate debtor running as a going concern during the CIRP helps in achieving resolution as a going concern as well, which is likely to maximize value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate. 8.11. Further, the purpose of the moratorium is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities causing environmental damage or activities that are detrimental to public health and safety. As a procedural matter, some insolvency laws limit the initial scope of acts and actions to which the stay applies on commencement, but provide that upon application, the court might extend the stay to other types of action and act. 35. To ensure transparency and predictability, it is highly desirable that an insolvency law clearly identify the actions that are to be included within and specifically excepted from the scope of the stay, irrespective of who may commence those actions, whether unsecured creditors (including priority creditors such as employees, legislative lien holders or Governments), third parties (such as a lessor or owner of property in the possession or use of the debtor or occupied by the debtor), secured creditors or others. Exceptions might include set-off rights and netting of financial contracts; actions to protect public policy interests, such as to restrain environmental damage or activities detrimental to public health and safety; actions to prevent abuse, such as the use of insolvency proceedings as a shield for illegal activities; actions comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suits and would thus cover all proceedings which could be viewed as being in relation to the enforcement or recovery of a debt that may be owed by the corporate debtor. 80. As would be evident from the aforesaid discussion, the primordial purpose of a moratorium as enunciated hereinabove, is clearly distinct from the purpose and objectives of attachment action taken under the PMLA. PMLA is not concerned with the recovery or enforcement of a debt. Proceedings for attachment that may be initiated in terms thereof cannot by any stretch of imagination be viewed as being akin to an action for enforcement or recovery of a debt. PMLA is guided by the legislative policy of confiscation of proceeds of crime. That legislation is aimed primarily at fighting the scourge of organised crime, the generation and retention of criminal proceeds, denuding offenders of the economic benefits that may have been derived or obtained by the commission of scheduled offenses and thus become an iteration of the legislative policy that crime would not pay. PMLA seeks to adopt, enforce and unleash punitive measures against the commission of crime and the retention of ill-gotten gains. 81. The Government w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which seeks to strip and deprive criminals of benefits derived and retained by the adoption of illegal and dishonest action. The PMLA is an enactment which is aimed at affecting the disgorgement of illegal gains. The Court deems it apposite to note that the Insolvency Law Committee Report, 2016 had pertinently observed in Para 8.11 that the moratorium provision is not liable to be interpreted as barring all possible actions especially where countervailing public policy concerns are involved . It also took note of laws prevailing in different jurisdictions which permit regulatory actions which though not aimed at collecting moneys for the estate protect other vital and urgent public interests. This view finds reiteration in the UNCITRAL Legislative Guide on Insolvency Law which had recognised actions to protect public policy concerns falling outside the ken of a moratorium. 83. Viewed in that light, it cannot possibly be said that actions taken under that statute are akin or similar to steps that may be taken by a creditor pursuing an ordinary monetary claim. The tainted property is not a debt owed to the Government. It is not something which is owed to the Government or a li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Varrsana Ispat . While dealing with the aforesaid issue, the NCLAT enunciated the legal position as follows: - 8. Section 14 is not applicable to the criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act having essence of crime or crime proceeds. The object of the Prevention of Money Laundering Act, 2002 is to prevent the money laundering and to provide confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. 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 Code is not applicable to such proceeding. 87. An identical issue fell for consideration before the NCLAT in the matter of Sterling Biotech Limited. In the aforesaid matter, the Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IBC and observed in Paragraph 63 as under: 63. A conspectus of these judgments would show that the gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply. We have already seen how it is the victim alone who can file the complaint which ordinarily culminates in the payment of fine as compensation which may extend to twice the amount of the cheque which would include the amount of the cheque and the interest and costs thereupon. Given our analysis of Chapter XVII of the Negotiable Instruments Act together with the amendments made thereto and the case law cited hereinabove, it is clear that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 of the IBC, amount to a proceeding within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding. 58. Thus to quasi-criminal proceeding as regards Corporate Debtor, Section 14 applies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be available to keep it a going concern, or to get the properties valued without which Resolution/Sale would not be possible, the obstruction will have to be removed. To take over properties of Corporate Debtor, and manage the same, and keep Corporate Debtor a going concern are acts which fall within purview of IBC. IRP/RP/Liquidator under IBC have duty and right to take over and manage assets of Corporate Debtor as long as the assets are property of the Corporate Debtor, so that the other duties conferred on them by the statute are performed. These are issues relating to resolution/liquidation. If hindrance is being created by the attachment or by taking over the possession, it would be a question of priority arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor and such question can be decided by the Adjudicating Authority under Section 60(5)(c) of IBC which reads as under: 60 (5) . (c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. 62. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor . 101. Besides this, the objective, purpose of two enactments (1) I B Code and (2) PMLA even though at the first blush appear to be at logger heads, there is no repugnancy and inconsistency between them, in lieu of the fact the text, shape and its colour are conspicuously distinct and different, operating in their respective spheres. More importantly, when confiscation of the Proceeds of Crime takes place, the said Act is performed by the Government not in its status/capacity/role as Creditor. 108. The Hon'ble Supreme Court had confirmed the Judgment of this Tribunal in Varrsana Ispat Ltd. v. Deputy Director of Enforcement (Vide Comp. App. (AT) (Ins) No. 493 of 2018) through an order dated 22.07.2019 in Civil Appeal 5546 of 2019 and the same has become final, conclusive and the same being of a binding value upon this Tribunal. Indeed, as per Article 141 of the Constitution of India the Judgment of the Hon'ble Supreme Court is binding on this Appellate Tribunal. 109. In regard to the Judgment of the Hon'ble High Court of Delhi in the matter of Deputy Director, Directorate of Enforcement Delhi v. Axis Bank Reported in 2019 SCC OnLine Del 785 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Chapter VI of the IBC deals with the Adjudicating Authority for corporate persons. Section 65 of the IBC gives jurisdiction to the Tribunal to entertain and dispose of any application on proceeding by or against the Corporate Debtor. Even this proceeding would not apply to a statutory Authority in another enactment and that too, a special one. As observed, the scope of enquiry under PMLA is rather wide and comprehensive. 91. The perceived conflict between the IBC and the PMLA fell for consideration before a learned Judge of this Court in Axis Bank. While answering the aforesaid issue, the Court observed thus: - 139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, SARFAESI Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is due to the claimant i.e. the banks or the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evident upon a consideration of the decisions aforenoted, the IBC is primarily concerned with the subject of restructuring of indebted corporate debtors, adoption of means for their revival, securing the interests of creditors and for adoption of steps for effective and timely resolution of corporate insolvency. The PMLA, on the other hand, is a statute fundamentally concerned with trying offenses relating to money laundering, following the proceeds of crime and for confiscation of properties obtained in the course of commission of those offenses or connected therewith. It sets up an investigative and adjudicatory mechanism in respect of offenses committed, attachment of tainted properties and other related matters . It sets up Special Courts for trial of offenses and to bring the guilty to book. 86. Viewed in that backdrop, it is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of debts of a corporate debtor, those under the PMLA are concerned with the criminality attached to the offense of money laundering and to move towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under the PMLA, as was noted hereinabove, is not an attachment for debt but principally a measure to deprive an entity of property and assets which comprise proceeds of crime. 95. The effect of attachment of property was succinctly explained by the Supreme Court in Balkrishan Gupta vs. Swadeshi Polytex Ltd. (1985) 2 SCC 167 as follows: - 20. We shall first consider the effect of appointment of a Receiver in respect of the shares in question. A perusal of the provisions of Section 182-A of the Land Revenue Act shows that there is no provision in it which states that on the appointment of a person as a Receiver the property in respect of which he is so appointed vests in him similar to the provision in Section 17 of the Presidency Towns Insolvency Act, 1909 where on the making of an order of adjudication the property of the insolvent wherever situate would vest in the official assignee, or in Section 28(2) of the Provincial Insolvency Act, 1920 which states that on the making of an order of adjudication, the whole of the property of the insolvent would vest in the court or in the Official Receiver. Sub-section (4) of Section 182-A of the Land Revenue Act provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. The effect of an order of attachment is what Section 149 of the Land Revenue Act itself says. Such attachment is made according to the law in force for the time being for the attachment and sale of moveable property under the decree of a civil court. Section 60 of the Code of Civil Procedure, 1908 says that except those items of property mentioned in its proviso, lands, houses, or other buildings, goods, money, bank-notes, cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities of money, debts, shares in a corporation and all other saleable property, moveable or immovable, belonging to a judgment-debtor, or over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment-debtor, or by another person in trust for him or on his behalf, is liable for attachment and sale in execution of a decree against him. Section 64 of the Code of Civil Procedure, 1908 states that where an attachment of a property is made, any private transfer or delivery of the property attached or of any interest therein and any payment to the judgment-debtor of any deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court held: (SCC p. 268, para 58) 58. What is the effect of attachment before judgment? Attachment before judgment is levied where the court on an application of the plaintiff is satisfied that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him (a) is about to dispose of the whole or any part of his property, or (b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the court. The sole object behind the order levying attachment before judgment is to give an assurance to the plaintiff that his decree if made would be satisfied. It is a sort of a guarantee against decree becoming infructuous for want of property available from which the plaintiff can satisfy the decree. The provision in Section 64 of the Code of Civil Procedure provides that where an attachment has been made, any private transfer or delivery of the property attached or of any interest therein and any payment to the judgment-debtor of any debt, dividend or other monies contrary to such attachment, shall be void as against all claims enforceable under the attachment. What is claimed enforceable is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable. 98. It may additionally be noted that an attachment that may be come to be made under Sections 5 and 8 of the PMLA are only temporary steps which are taken by the authorities under the aforesaid Act in order to identify the properties which have been found to constitute proceeds of crime. The Court notes that Section 5 empowers the Director or any other officer so designated and empowered by the PMLA to provisionally attach properties which may be found to be in possession of a person and which constitute proceeds of crime. That power to provisionally attach such a property is based upon the Director having a reason to believe that such proceeds of crime are likely to be concealed, transferred or ferreted away with a view to frustrate proceedings under the PMLA. The powers so exercise by the Director under Section 5 is thereafter subjected to a review process before the Adjudicating Authority before whom the matter stands placed for the purposes of confirmation. 99. Section 5(2) enjoins the Director to forward a copy of the order of provisional attachment along with all other materials in his possession to the Adjudicating Authority for such purpose. On the receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot possibly be recognised as constituting the solitary principle of interpretation which would apply or an inviolable rule. It must be fundamentally borne in mind that a non obstante clause in any statute is looked at principally in case of an asserted irreconcilable conflict between statutes. However, that does not preclude courts from identifying or discerning the core objectives of the competing statutes. This would be manifest from the following pertinent observations that were made by the Supreme Court in Maruti Udyog Vs. Ram Lal (2005) 2 SCC 638 - 41. The said Act contains a non obstante clause. It is well settled that when both statutes containing non obstante clauses are special statutes, an endeavour should be made to give effect to both of them. In case of conflict, the later shall prevail. 42. In Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. [(2001) 3 SCC 71] it is stated: (SCC pp. 73-74, paras 9-10) 9. It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified therein. However, when the Legislature introduced the said provision, it was conscious and aware of the fact that the provisions of the PMLA could be enforced against the properties of a corporate debtor notwithstanding the pendency of the CIRP. This the Court notes in light of the extent to which Section 14 could be recognised to legally operate under the statutory scheme and as has been explained hereinabove. Notwithstanding the above, the Legislature chose to structure that provision in a manner that the authorities under the PMLA would cease to have the power to attach or confiscate only when a Resolution Plan had been approved or where a measure towards liquidation had been adopted. 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 were approved or a measure in aid of liquidation had been adopted. 106. Section 32A which came to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that notwithstanding the original statute having been promulgated in 1985, the provisions of Section 9A would not stand overridden by the 1993 statute since the former had come to be enforced later in point of time. 107. While the decision of the Supreme Court in Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India was also cited for the consideration of the Court, it would be pertinent to note that notwithstanding the two statutes in question there carrying non obstante clauses, the issue was ultimately answered based upon Section 88 of RERA which provided that its provisions would be in addition to and not in derogation of other statutes. This would be evident from the following observations as they appear in paragraphs 23 and 25 of the report:- 23. A perusal of the aforesaid provisions would show that, on and from the coming into force of RERA, all real estate projects (as defined) would first have to be registered with the Real Estate Regulatory Authority, which, before registering such projects, would look into all relevant details, including delay in completion of other projects by the developer. Importantly, the promoter is now to make a declaration supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in instalments within the time specified in the agreement for sale and shall be liable to pay interest at such rate as may be prescribed for any delay in such payment. Under Section 31, any aggrieved person may file a complaint with the authority or the adjudicating officers set up by such authority against any promoter, allottee or real estate agent, as the case may be, for violation or contravention of RERA, and Rules and Regulations made thereunder. Also, if after adjudication a promoter, allottee or real estate agent fails to pay interest, penalty or compensation imposed on him by the authorities under RERA, the same shall be recoverable as arrears of land revenue. Appeals may be filed to the Real Estate Appellate Tribunal against decisions or orders of the authority or the adjudicating officer. From orders of the Appellate Tribunal, appeals may thereafter be filed to the High Court. Stiff penalties are to be awarded for breach and/or contravention of the provisions of RERA. Importantly, under Section 72, the adjudicating officer must first determine that the complainant has established default on the part of the respondent, after which consequential orders may then follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, it becomes the duty of the Court to discern the true intent and scope of the two legislations. Even though the IBC and Section 238 thereof constitute the later enactment when viewed against the PMLA which came to be enforced in 2005, the Court is of the considered opinion that the extent to which the latter was intended to capitulate to the IBC is an issue which must be answered on the basis of Section 32A. The introduction of that provision in 2020 represents the last expression of intent of the Legislature and thus the embodiment of the extent to which the provisions of the PMLA are to give way to proceedings initiated under the IBC. 109. The Court has independently come to the conclusion that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to the erection of an impregnable wall which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of bonafide third party claimant cannot be sacrificed or defeated. A contrary view would be unfair and unjust and, consequently, not the intention of the legislature. The legislative scheme itself justifies this view. To illustrate, reference may be made to sub-section (8) of Section 8 PMLA where-under a power is conferred on the special court to direct the Central Government to restore a property to the claimant with a legitimate interest even after an order of confiscation has been passed. 150. The legislation on money-laundering, as is the case of similarly placed other legislations providing for forfeiture or confiscation of illegally acquired assets, contains sufficient safeguards to protect the interest of such third parties as may have acted bonafide. Such safeguards and rights to secure their lawful interest in the property subjected to attachment (with intent to take it to confiscation) have already been noticed at length with reference to the statutory provisions. To recapitulate, and by way of illustration, reference may be made to the opportunity afforded by law (Section 8) to a person claiming a legitimate interest to approach the adjudicating authority a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 8 PMLA. 164. Though the sequitur to the above conclusion is that the bonafide third party claimant has a legitimate right to proceed ahead with enforcement of its claim in accordance with law, notwithstanding the order of attachment under PMLA, the latter action is not rendered irrelevant or unenforceable. To put it clearly, in such situations as above (third party interest being prior to criminal activity) the order of attachment under PMLA would remain valid and operative, even though the charge or encumbrance of such third party subsists but the State action would be restricted to such part of the value of the property as exceeds the claim of the third party. 165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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