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TMI Blog2023 (2) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the right, title and interest of the Petitioners to the Specified Assets sold to the Petitioners will not be affected in any manner by any action taken/to be taken by Respondent No. 1 under the provisions of the Prevention of Money Laundering Act against the Corporate Debtor or the Corporate Debtor's promoters;" 2. Facts in brief are as under: 2.1 The petitioners namely (I) Welspun Steel Resources Private Limited (II) Welspun Corp Limited (III) Rank Real Estate and Infra Developers Private Limited and (IV) Mauyaan Shipyard Private Limited have approached this court challenging the provisional attachment order no. 8/22 dated 21.09.2022. ABG Shipyard Limited (the corporate debtor) was in the business of ship building in Dahej, Gujarat. An application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by the ICICI Bank against the Corporate Debtor which was admitted by the National Company Law Tribunal, Ahmedabad (NCLT). The respondent no. 2, after passing of an order on admission was appointed as an Interim Resolution Professional (IRP) and was subsequently confirmed as RP (Resolution Professional) by the Corporate Debtor. The Corporate Insolvency R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular transactions with various group companies and making overseas investment. The petitioners being successful bidders of the specified assets which they had purchased pursuant to the auction proceedings conducted under the orders of the Apex Court the petitioners on 21.09.2022, paid the entire sale consideration of Rs.676 crores plus applicable taxes aggregating to Rs.789,05,00,000/- to the liquidator and who in turn issued sale certificates to the petitioners in respect of the specified assets put up for sale. For the purposes of purchase of these assets, the petitioners have availed of a loan of Rs.400 crores from the Indusind Bank and the primary security for the loans is the assets of the corporate debtor. It is these very assets which by the impugned order have been attached by the respondent no. 1. 3. Mr. Mihir Joshi, learned Senior Advocate assisted by Mr. Jay Kansara and Ms. Alisha Mehta, learned advocates for the petitioners would submit that Section 32(A) of the IBC creates a bar and the respondent no. 1 therefore was wholly divested of all jurisdiction to take any action against the specified assets which have been sold to the petitioners. He would submit that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Joshi would submit that the expression 'reason to believe' does not mean purely subjective satisfaction. The reasons for the belief must have a rational connection or a relevant bearing to the formation of belief. It must be that one honest and a reasonable person based upon a reasonable ground. The reason to believe cannot arise from mere suspicion, gossip or rumour. The order suffers from non-application of mind as there are no objective reasons to believe recorded in the order. For a property to be a 'proceed of crime' must be derived and obtained directly or indirectly as a result of any criminal activity. Reason to believe is not bonafide and is not based on jurisdictional facts. 3.3 The petitioners, in Mr. Joshi's submission cannot invoke any other remedy than that of filing the present petition as 'reason to believe' is a jurisdictional fact which must be determined prior to assuming jurisdiction. In support of his submission, Mr. Joshi would rely on the following decisions: (a) Vijay Madanlal Choudhary vs. Union of India [2022 SCC OnLine SC 929]; (b) Madhya Pradesh Industries Ltd. vs. Income Tax Officer, Nagpur [(1970) 2 SCC 32]; (c) S. Ganga Saran and Sons (Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material which constitute malice in law. 3.8 Making a fine distinction between a jurisdictional fact and an adjudicatory fact, Mr. Joshi would submit that a jurisdictional fact is a fact which must exist before a court or an authority assumes jurisdiction over a particular matter. If a jurisdictional fact does not exist, the court, authority or officer cannot act. Such an order therefore can be questioned by a writ of certiorari. The principle is that by erroneously assuming existence of a jurisdictional fact no authority can confer upon itself jurisdiction which it otherwise does not possess. Absence of jurisdiction is an exception and an alternative remedy cannot oust the jurisdiction of this court to exercise discretion in favour of the petitioners. 3.9 Mr. Joshi further pointed out that the original complainant, the State Bank of India was already a part of the SCC during the liquidation process and no objection was raised by the bank with respect to sale of assets by the petitioner and therefore when the complainant itself is agreeable to sell the very assets there is no question of attaching the very property. 4. Mr. Saurabh Soparkar, learned Senior Advocate assisted by Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aharashtra and Others vs. Greatship (India) Limited [Civil Appeal No. 4956 of 2022]; (iii) Nitin Hasmukhlal Shah vs. Union of India [Special Civil Application No. 9946 of 2020]; (iv) G. Gopalkrishnan vs. Deputy Director, Directorate of Enforcement and other [WP (MD) No. 11454 of 2018]; (v) Kiran Shah vs. Enforcement Directorate, Kolkata reported in 2022 SCC Online NCLAT 2]; (vi) Apex Laboratories Private Ltd. vs. Deputy Commissioner of Income Tax reported in (2022) 7 SCC 98; (vii) Varsana Ispat Limited vs. Deputy Director, Directorate of Enforcement NCLAT [Company Appeal (AT) (Insolvency) No. 493 of 2018] 6. Having considered the submissions made by the learned advocates for the respective parties, the legality of the order under challenge has to be addressed from the point of view whether the assets acquired by the petitioners can at all be said to be 'proceeds of crime'. This is not only in light of the manner and the method in which the specified assets have been acquired by the petitioners but also in light of the provisions of the IBC. From the chain of events narrated in the earlier part of this judgement what is evident is that ABG Shipyard Limited went into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate debtor in relation to an offence", would include the attachment, seizure, retention or confiscation of such property under the law applicable to the corporate debtor. Since the word "include" is used under sub-clause (i) of the Explanation, the word "action" against the property of the corporate debtor is intended to have the widest possible amplitude. There is a clear nexus with the object of the Code. The other part of the clarification, under the Explanation, is found in the second sub-clause of the Explanation 322. Under the second limb of the Explanation, the Law Giver has clearly articulated the point that as far as the property of any person, other than the corporate debtor or any person who had acquired the property of the corporate debtor through the CIRP or liquidation process under the Code and who otherwise fulfil the requirement under Section 32A, action can be taken against the property of such other person. 323. Thus, reading sub-Section (1) and sub- Section(2) together, two results emerge: 323.1 Subject to the requirements embedded in sub- Section (1), the liability of the corporate, debtor for the offence committed under the CIRP, will cease. 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese 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. v. State Industrial & Investment Corpn. of Maharashtra Ltd. [(1993) 2 SCC 144] ; Sarwan Singh v. Kasturi Lal [(1977) 1 SCC 750] ; Allahabad Bank v. Canara Bank [(2000) 4 SCC 406] and Ram Narain v. Simla Banking & Industrial Co. Ltd. [1956 SCR 603 : AIR 1956 SC 614] 10. We may notice that the Special Court had in another case dealt with a similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. [(1997) 89 Comp Cas 547 (Special Court)] it had been contended that recovery proceedings under the Special Court Act should be stayed in view of the provisions of the 1985 Act. Rejecting this contention, the Special Court had come to the conclusion that the Special Court Act being a later enactment would prevail. The headnote which brings out succinctly the ratio of the said decision is as follows: "Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the Signature Not Verified Digitally Signed By:NEHA Signing Date:11.11.2022 15:55:22 Neutral Citation Number: 2022/DHC/004739 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 introduced in 2020 in the IBC also represents the "later" enactment for the purposes of evaluating the non obstante clause argument as canvassed on behalf of the petitioner. It would be pertinent to observe that subsequent amendments in an existing statute have also been recognised to be viewed as later acts for the purposes of answering the import of a non obstante clause. In Bank of India Vs. Ketan Parekh42, one of the questions which arose was whether the provisions of the Special Courts (Trial of Offenses Relating to Transactions in Securities) Act, 1992 would have effect notwithstanding the enforcement of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which was the later statute. Since both statutes contained non obstante clauses, ordinarily the 1985 Act would have had to yield being the statute promulgated prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supported by an affidavit, that he undertakes to complete the project within a certain time period, and that 70% of the amounts realised for the project from allottees, from time to time, shall be deposited in a separate account, which would be spent only to defray the cost of construction and land cost for that particular project. Registration is granted by the authority only when it is satisfied that the promoter is a bona fide promoter who is likely to perform his part of the bargain satisfactorily. Registration of the project enures only for a certain period and can only be extended due to force majeure events for a maximum period of one year by the authority, on being satisfied that such events have, in fact, taken place. Registration once granted, may be revoked if it is found that the promoter defaults in complying with the various statutory requirements or indulges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 follow. Under Section 88, the provisions of RERA are in addition to and not in derogation of the provisions of any other law for time being in force and under Section 89, RERA is to have effect notwithstanding anything inconsistent contained in any other law for the time being in force. 25. It is significant to note that there is no provision similar to that of Section 88 of RERA in the Code, which is meant to be a complete and exhaustive statement of the law insofar as its subject- matter is concerned. Also, the non obstante clause of RERA came into force on 1-5-2016, as opposed to the non obstante clause of the Code which came into force on 1-12-2016. Further, the amendment with which we are concerned has come into force only on 6-6- 2018. Given these circumstances, it is a little difficult to accede to arguments made on behalf of the learned Senior Counsel for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be breached by invocation of the provisions of the PMLA. The non obstante clause finding place in the IBC thus can neither be interpreted nor countenanced to have an impact far greater than that envisaged in Section 32A. The aforesaid issue stands answered accordingly." 6.3 Vijay Mohanlal Chaudhary (supra) was a case where the Apex Court was considering a batch of appeals concerning the validity and interpretation of certain provisions of the PMLA. Relevant paras read as under: "250. The other relevant definition is "proceeds of crime" in Section 2(1)(u) of the 2002 Act. This definition is common to all actions under the Act, namely, attachment, adjudication and confiscation being civil in nature as well as prosecution or criminal action. The original provision prior to amendment vide Finance Act, 2015 and Finance (No.2) Act, 2019, took within its sweep any pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Act - so long as the whole or some portion of the property has been derived or obtained by any person "as a result of" criminal activity relating to the stated scheduled offence. To be proceeds of crime, therefore, the property must be derived or obtained, directly or indirectly, "as a result of" criminal activity relating to a scheduled offence. To put it differently, the vehicle used in commission of scheduled offence may be attached as property in the concerned case (crime), it may still not be proceeds of crime within the meaning of Section 2(1)(u) of the 2002 Act. Similarly, possession of unaccounted property acquired by legal means may be actionable for tax violation and yet, will not be regarded as proceeds of crime unless the concerned tax legislation prescribes such violation as an offence and such offence is included in the Schedule of the 2002 Act. For being regarded as proceeds of crime, the property associated with the scheduled offence must have been derived or obtained by a person "as a result of" criminal activity relating to the concerned scheduled offence. This distinction must be borne in mind while reckoning any property referred to in the scheduled offence as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion against any person for money-laundering on an assumption that the property recovered by them must be proceeds of crime and that a scheduled offence has been committed, unless the same is registered with the jurisdictional police or pending inquiry by way of complaint before the competent forum. For, the expression "derived or obtained" is indicative of criminal activity relating to a scheduled offence already accomplished. Similarly, in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a Court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against him/her, there can be no action for money-laundering against such a person or person claiming through him in relation to the property linked to the stated scheduled offence. This interpretation alone can be countenanced on the basis of the provisions of the 2002 Act, in particular Section 2(1) (u) read with Section 3. Taking any other view would be rewriting of these provisions and disregarding the express language of definition clause "proceeds of crime", as it obtains as of now. 282. Be it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standalone process. SECTION 5 OF THE 2002 ACT 285. Section 5 forms part of Chapter III dealing with attachment, adjudication and confiscation. This provision empowers the Director or officer not below the rank of Deputy Director authorised by the Director for the purposes of attachment of property involved in moneylaundering. Such authorised officer is expected to act only if he has reason to believe that any person is in possession of proceeds of crime. This belief has to be formed on the basis of material in his possession and the reasons therefor are required to be recorded in writing. In addition, he must be convinced that such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which is likely to result in frustrating any proceedings concerning confiscation thereof under the 2002 Act. The Section 5 as amended reads thus: "CHAPTER III ATTACHMENT, ADJUDICATION AND CONFISCATION 5. Attachment of property involved in moneylaundering.- (1) Where the Director, or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section or on the date of an order made under 493[subsection (3)] of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation.-For the purposes of this subsection, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under subsection (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such attachment before the Adjudicating Authority." 286. From the plain language of this provision, it is evident that several inbuilt safeguards have been provided by the Parliament while enacting the 2002 Act. This provision has been amended vide Act 21 of 2009, Act 2 of 2013, Finance Act, 2015 and Act 13 of 2018, to strengthen the mechanism keeping in mind the scheme of the 2002 Act and the need to prevent and regulate the activity of money- laundering. As regards the amendments made vide Act 21 of 2009 and Act 2 of 2013, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds of crime. In order to arrive at a conclusion that 'reason to believe' exists, there must be some material to suggest such formation of opinion. The decisions in the cases of Madhya Pradesh Industries Ltd.(supra), S. Ganga Saran and Sons (Pvt.) Ltd. (supra), Sheo Nath Singh (supra), Radha Krishan Industries (supra), Calcutta Discount Co. Ltd. (supra) and Lakhmani Mewal Das (supra) have set out principles where the courts have held that reason to believe must be founded on sufficient material. It cannot be founded on mere suspicion but based on evidence. It must be held in good faith, cannot be merely a pretense. It is always open for the court to examine whether the reason to believe has a rational connection or a relevant bearing to the formation of the belief and the reasons are not extraneous or irrelevant to the purpose. Reading the contents of the order indicates that such observations are based on only on suspicion and are such which one that cannot be arrived at by an honest and a reasonable person but are based on mere suspicion, gossip or rumour. 8. As far as the aspect of alternative remedy is concerned, which is vehemently pressed into service by the learned ASG Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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