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Judgment
MP-PMLA-7526/MUM/2020 (I.A)
The present Interim Application has been filed by the applicant/appellant for urgent hearing specifically on the question that “once the corporate
debtor proceeds for liquidation, the attachment order passed under the provision of Prevention of Money Laundering Act, 2002 (PMLA),
cannot continue.†This question was raised by the applicant/appellant before the Honâ€ble High Court in the matter of W.P. (C) 637/2020 filed by
the appellant and that the Honâ€ble High Court vide order dated 17.01.2020 disposed of the petition with following orders/ directions:-
“The learned senior counsel for the petitioner, placing reliance on the section 32A(2) of the Insolvency and Bankruptcy Code, 2016 as
also the order dated 14.10.2019 passed by the National Company Law Appellate Tribunal, New Delhi (NCLAT) in Company Appeal (AT)
(Insolvency) No. 957/2019, titled JSW Steel Limited v. Mahender Kumar Khandelwal & Anr., submits that once the Corporate Debtor
proceeds of liquidation, the attachment order passed under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA)
cannot continue. He submits that the National Company Law Tribunal (NCLT) is to consider the application for proceeding the Corporate
Debtor into liquidation on 22.01.2020.
The present petition is disposed of granting liberty to the petitioner to move the Appellate Tribunal under PMLA to seek early consideration
of the appeal filed by the petitioner before it on the order of liquidation of the corporate debtor being passed by the NCLT. The
application/appeal filed by the petitioner shall expeditiously considered by the Appellate Tribunal preferably within eight weeks of moving
such application.
It is made clear that this court has not expressed any opinion on the merits of the submissions made by the learned Sr. Counsel for the
petitioner.
The petition is disposed of with above direction. There shall be no order as to costs.â€
The applicant has filed the present application in the light of the amendments made in Insolvency and Bankruptcy Code, (IBC) 2016 brought in vide
“THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2020†No. 1 of 2020 dated 13th March, 2020 with effect from
28.12.2019.
It is contended in the application that the order dated 03rd December, 2019 passed by this Tribunal has the effect of continuation of attachment of
properties mortgaged in favour of the appellant while the said properties are subject matter of proceedings not only under the Recovery of Debts and
Bankruptcy (RDB) Act, 1993 but also the SARFAESI Act, 2002 and IBC, 2016.
The hearing dated 10.11.2020 is confined to the short question on release of the mortgaged properties from attachment in view of the amendments
made in the Insolvency and Bankruptcy Code (I&BC), 2016 particularly incorporation of Section 32A(2) through the I&BC (Amendment) Act, 2020
notified on 13.03.2020 with effect from 28.12.2019.
It is also, inter-alia, contended by the applicant/appellant in the said application that the assignor of the appellant (JMF Products) had sanctioned a loan
of INR 63,00,00,000/- (Rupees Sixty three crores only) to M/s. DSK Motor against mortgaged of properties as a security i.e. “indenture of simple
mortgaged without possession†dated 18.10.2016 and that due to failure of the repayment of loan, the loan account was declared NPA by the
assignor on 05.12.2017 as per the extant guidelines of RBI and thereafter, being assigned, the appellant has step into the shoes of the assignor JMF
Products as a secured creditor and that Corporate Insolvency Resolution Process (CIRP) under section 9 of I&BC was initiated against M/s. DSK
Motor vide order dated 09.04.2019 passed by NCLT, Mumbai and that accordingly moratorium under Section 14 of I&BC was imposed by NCLT,
Mumbai and that pursuant to an order dated 17.03.2020, DSK Motors, being the corporate debtor was ordered to be liquidated. Therefore, since
17.03.2020, DSK Motors has been under liquidation under the Code.
In the interim application, the applicant has referred to section 32A(2) of the I&BC (Amendment), Ordinance 2019 and reproduced the relevant
portion of the Ordinance. It is to mention here that the Ordinance has become an Act vide “THE INSOLVENCY AND BANKRUPTCY CODE
(AMENDMENT) ACT, 2020†No. 1 of 2020 dated 13th March, 2020 with effect from 28.12.2019. The provision of Section 32A(2) of said
Ordinance which is relevant for the purpose is reproduced below:-
“(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 or Court.
Explanation.- For the purposes of this sub-section, it is hereby clarified that,-
(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or
confiscation of such property under such law as may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a
person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfills
the requirements specified in this section, against whom such an action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate
debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person,
shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate
insolvency resolution process.â€
The appellant has filed written synopsis on the aforesaid points which are perused. It is revealed from the record that JM Financial Products Ltd.
(JMFPL) advanced a loan of Rs. 63 Crores to DSK Motors Pvt. Ltd. (DSK Motors) on 13.10.2016 against mortgaged of properties involved herein.
The said loan account classified as NPA on 05.12.2017.
FIRâ€s were registered against DSK group of Companies during the period 28.10.2017 to 09.11.2017 and that the assignment agreement between
JMFPL and the appellant (JMFARC) took place on 29.12.2017. Notice under section 13(2) of SARFAESI Act was issued on 23.02.2018. The
Respondent registered ECIR on 08.03.2018 and issued PAO on 14.02.2019. The Receiver appointed by DRT, Pune took possession of the mortgaged
properties in O.A. No. 483/2018 and that the CIRP process initiated against DSK Motors on 09.04.2019 and that the proceedings under PMLA
before the Adjudicating Authority initiated on 10.04.2019 â€" 05.08.2019 and that the impugned order passed on 05.08.2019. The aforesaid
amendment in I&BC was carried on initially by I&BC (Amendment), Ordinance 2019 dated 28.12.2019 and thereafter replaced by I&BC
(Amendment) Act, 2020 vide notification dated 13.03.2020 and that the NCLT passed order of Liquidation of DSK Motors on 17.03.2020.
It is further submitted by the appellant/applicant through written synopsis, for the purpose of the short question heard for a decision. The portions
which are relevant for the purpose of deciding the aforesaid short questions are reproduced from the written synopsis of the appellant. The same are
as follows:
(i). That in view of the aforesaid amendment to the Code, it is clear that properties of the corporate debtor forming part of the resolution/liquidation
process, which are subject to attachment under any other prevailing law, are liable to be released from attachment forthwith to aid and assist the
resolution/liquidation process.
(ii). That, vide Order dated 17th March, 2020, the Honâ€ble National Company Law Tribunal, Mumbai directed the liquidation of DSK Motors and as
such, DSK Motors has been in liquidation since 17 March 2020. Therefore, in view of the express provisions of Section 32A, the JMFARC
Mortgaged Properties are liable to be released from attachment under PMLA, such that the same can be dealt with in accordance with the provisions
of the Code.
(iii). That the provisions of Section 32A of the Code are attracted subject to two conditions being fulfilled â€" (a) attachment must arise out of an
offence committed prior to commencement of CIRP; and (b) property must be covered under an approved resolution plan or sale of liquidation assets.
Both conditions are fulfilled in the present matter and as such the provisions of Section 32A of the Code are squarely applicable in relation to the
JMFARC Mortgaged Properties. Accordingly, once the provisions of Section 32A of Code are attracted, it is clear that the properties belonging to a
corporate debtor shall not be subjected to any form of attachment under any existing law. It is submitted that the wide amplitude of the language used
in Section 32A of the Code includes within its scope the attachment under PMLA and as such, JMFARC Mortgaged Properties ought to be released
from attachment under PMLA to be dealt with in accordance with the provisions of the Code.
(iv). The appellant had no knowledge of any allegations of money laundering against the members of the DSK Group. In fact the loan extended by JM
Financial Products Limited to DSK Motors predates even the registration of the FIR by almost a year. As such, there can be no allegation that the
appellant or JM Financial Products Limited was even aware of any money laundering allegations being made against members of the DSK Group at
the time of sanctioning the loan. In view of the above, the Appellant is a valid mortgage holder insofar as the JMFARC Mortgaged Properties are
concerned and the P.A.O is liable to be set aside insofar as the JMFARC Mortgaged Properties are concerned.
(v). That being a bona fide third party, who has acquired a legal, valid and binding mortgage rights on the JMFARC Mortgaged Properties, the
Appellant is protected by even the provisions of the PMLA, and as has been held in several cases now. As such, the PAO suffers from a cardinal
illegality that it attaches the property of a bona fide third party and punishes the third party by making it suffer the consequences of attachment under
PMLA without any basis in law whatsoever. Accordingly, the PAO is liable to be set aside insofar as the JMFARC Mortgaged Properties are
concerned.
(vi). That the Appellant has exercised its statutorily guaranteed rights of recovery of a secured debt by invoking the provisions of the SARFAESI Act
and has also initiated proceedings under the Recovery of Debts and Bankruptcy Act, 1993, for recovery of its secured debt before issuance of the
PAO and also duly participated in the Corporate Insolvency Resolution Process under the provisions of the Code and the rights of the secured creditor
cannot be superseded by attachment under PMLA.
(vii). That the JMFARC Mortgaged Properties being attached under PMLA essentially scuttles the procedure established by law insofar as the rights
of secured creditors under SARFAESI Act, Recovery of Debts and Bankruptcy Act, 1993 and the Code are concerned. Since the action under the
SARFAESI Act as well as Recovery of Debts and Bankruptcy Act, 1993 initiated by the Appellant predates even registration of the Complaint by the
Enforcement Directorate, it is trite law that the attachment under PMLA should take a back seat to the rights of the secured creditors, who have been
repeatedly recognised as victims of crime by a plethora of judgments.
And it is submitted by the learned counsel for the appellant that in view of the said provisions, no action, including attachment, can be taken over the
assets of any corporate debtor undergoing litigation under the I&BC and that the appellant mortgaged properties clearly fall within the purview of this
provision and are liable to be released from attachment under PMLA such that they can be dealt with in accordance with the provisions of the code
and that if the impugned order is not set-aside and the captioned appeal is allowed to languish, the liquidation process of DSK Motor would be
significantly prejudiced and would squarely fall contrary to the legislative intent, meaning and purport of Section 32A of the I&BC and its objective
which is maximising the value of assets of a corporate debtor such as DSK Motor and it is imperative that the mortgaged property are released from
the rigours of the order dated 03.12.2019 and attachment of the provision of the PMLA, such they can be dealt with by the appellant with the
provisions of the code and that the appellant is a secured financial creditor of the DSK Motor and as such enjoy a high position in the hierarchy of the
creditors under Section 53 of IBC and in view thereof JMFARC mortgaged properties should be entirely released from attachment under PMLA.
On the other hand, the Respondent has filed its written submission and also argued the matter. The relevant paras which are relevant for the purpose
of deciding the present question of law raised by the appellant are reproduced below from the written submission of the Respondent (ED):-
That, the enquiries in this case under the provisions of Prevention of Money Laundering Act, 2002 were initiated at Directorate of Enforcement,
Mumbai Zonal Office-II, Mumbai by recording an ECIR/01/MBZO-II/2018 dated 08.03.2018 against (1) Deepak Sakharam Kulkarni, (2) Hemanti
Deepak Kulkarni, (3) Shirish Deepak Kulkarni, (4) D. S. Kulkarni and Sons, (5) D. S. K. and Associates, (6) D. S. K. Construction and (7) Other
DSK Group of companies/Partnership firms and their Directors/ Officials and others.
The above ECIR was registered on the basis of three (03) FIRs viz. FIR No. 347/2017 dated 28.10.2017, FIR No. 373/2017 dated 09.11.2017 and
FIR No. 309/2017 dated 03.11.2017 registered at local police stations in Pune, Kolhapur and Mumbai respectively against the accused, Shri Deepak
Sakharam Kulkarni, Smt. Hemanti Deepak Kulkarni, Shri Shirish Deepak Kulkarni and DSK Group companies/firms invoking Sections 406, 420, 34 of
IPC and Section 3 and 4 of Maharashtra Protection of Interests of Depositors (MPID) Act, 1999.
Investigations revealed that (1) Deepak S Kulkarni, Chairman and Managing Director of D S Kulkarni Developers Limited (DSKDL) and promoter
of DSK Group, (2) Mrs. Hemanti Deepak Kulkarni, Group President and Power of Attorney holder of DSKDL and Director/partner of DSK Group
of Companies (3) Shirish D Kulkarni Executive Director of DSKDL and Director/partner in many DSK group of companies / firms,
(4) other Promoters / Directors / Partners of DSK group of companies, with dishonest, fraudulent and common intention, formed eight partnership
firms viz. (i) D S Kulkarni and Company, (ii) D S Kulkarni and Associates, (iii) D S Kulkarni and Brothers, (iv) D S Kulkarni & Sons,
(v) DSK & Sons, (vi) DSK & Asso, (vii) DSK Construction and (viii) DSK Enterprises under the veil of DSKDL, with the sole motive to collect the
funds from gullible public based in Mumbai, Pune, Kolhapur, and other cities of Maharashtra;
That to lure the general public, they systematically, step by step projected that the DSKDL, a public limited company is taking FDs/unsecured loans
and all the partnership firms are part and parcel of DSKDL; that although, these eight partnership firms didnâ€t have any profit generating business,
nevertheless the above said persons, with the connivance of others, between 2006 to 2017, dishonestly induced the gullible public and collected funds
from them in the guise of different deposit schemes through these eight partnership firms and collected Crores of rupees during the period from 2006
to 2017 from the general public of which, as on 31.03.2017 the amount of Rs.1129.46 Crores is outstanding to the general public which is the Proceeds
of Crime (POC) in the case.
The funds so collected by partnership firms were diverted to Bank accounts of DSKDL and Mrs. Hemanti D Kulkarni over the period directly as
well through other firms and were utilized for the purchase the land, for operative expenditure of the companies, for repayment of the Bank Loans, for
Tax payments, for self-utilization etc., for payment of premium of high value life insurance policies and for conspicuous consumption.
Therefore, on the reasonable ground that the properties amounting to Rs. 47440.02 Lakhs {Rs. 46490.29 Lakh (Immovable Properties)+Rs. 518.11
Lakhs (LIC) + Rs. 431.62 Lakhs (Bank Balance)} were arising as a result of criminal activity to a scheduled offence, were provisionally attached
under section 5(1) of PMLA 2002 vide Provisional Attachment Order No. 01/2019 dated 14.02.2019.
That after hearing both the sides, the Honâ€ble Adjudicating Authority, PMLA, found that there is considerable evidence regarding generation of
proceeds of crime by commission of scheduled offences and sufficient evidence of such proceeds of crime having been utilised and even sent abroad
by the concerned defendants. The Honâ€ble Adjudicating Authority, PMLA, accordingly vide its order dated 05.08.2019 in Original Complaint (OC)
No. 1104/2019, have confirmed the said PAO No. 01/2019 dated 14.02.2019.
That after confirmation of the PAO No. 01/2019 vide order dated 05.08.2019, the Enforcement Directorate took possession of the attached
immovable properties on 19-20.08.2019 and in respect of the movable properties possession was taken by issuing directives to the respective Banks.
SUBMISSIONS of the respondent department ON THE ISSUE OF LIQUIDATION ORDER UNDER IBC PASSED BY NCLT - MUMBAI
on 17th March 2020 - OVERIDING EFFECT - PMLA Vs IBC, NATURE OF PROCEEDINGS OF PROVISIONAL ATTACHMENT ORDER,
PROVISION OF NEW INSERTED SECTION 32(A)(2) OF IBC.
9.1. That the PMLA is a specific/special Act (Penal Law) enacted by the parliament to prevent money laundering and to provide for confiscation
derived from or involved, in money laundering and no exceptions can be made to it unless specifically provided for by the Parliament.
9.2. That merely because the assets are subject to a resolution proceeding under the IBC, it cannot be an escape route for any action under the
PMLA, as it would lead to abuse of the process of law by money-launderers. In this regard, it is relevant to place reliance on the judgment of the
Honâ€ble Court in the case of Deputy Director, Directorate of Enforcement Delhi v. Axis Bank & Ors. 2019 SCC Online Del 785,4 wherein the
Honâ€ble Court was pleased to hold as follows:
“146...A view to the contrary, if taken, would defeat the objective of PMLA by opening an escape route. After all, a person indulging in
money-laundering cannot be permitted to avail of the proceeds of crime to get a discharge for his civil liability towards his creditors for the
simple reason such assets are not lawfully his to claim.â€
9.3. That the IBC cannot be an amnesty route for accused under the PMLA, and the entire confiscation regime under PMLA and its objects will be
defeated if the Honâ€ble NCLT starts interfering with provisional attachment orders without the authority of law. Therefore, if said properties being
the proceeds of crime described as above, are not attached provisionally under section 5(1) of the PMLA; the said property may be alienated,
transferred or created encumbrance upon; and thereby frustrate the proceeding relating to confiscation of the property involved in money laundering
under PMLA.
9.4. That the scope of PMLA is much wider and comprehensive compared to the IBC, and since the assets of the Corporate Debtor are basically
“proceeds of crimeâ€, the special law governing money laundering will hold over any other enactment.
9.5. That the Honâ€ble High Court of Delhi in the case of Axis Bank (Supra) has held that the IBC and the PMLA operate in different fields and that
the former cannot take primacy over the latter. It was held as follows:
“147. To sum up on the issue, the objective of the legislation in PMLA being distinct from the purposes of the three other enactments viz.
RDBA, SARFAESI Act and Insolvency Code, the latter cannot prevail over the former. There is no inconsistency. The purpose, the text and
context are different. This court thus rejects the argument of prevalence of the said laws over PMLA.â€
9.6. That the Directorate of Enforcement is not covered within the definition of operational creditor as set out in section 5(20) and 5(21) of the IBC.
To qualify as an “operational creditor†within the meaning of section 5(20) of the IBC, the fundamental requirement is that an operational debt
must be owed to such a person or validly assigned or transferred to such person. Section 5(21) states that an “operational debt means: (i) a claim in
respect of goods or services including employment ; or (ii) a debt in respect of repayment of dues arising under any law for the time being in force and
payable to the Central Government, any State Government or local authority. It cannot be said that the “proceeds of crime†under the PMLA is in
any way a “debt†“arising under any lawâ€.
9.7. That the IBC cannot be used to give an opportunity to a money launderer to convert proceeds of crime into assets that can be projected as
legitimate. The object of PMLA will be defeated if tainted property is allowed to be projected as “untainted property†under the protective
umbrella of orders passed by the Honâ€ble NCLT purportedly to implement the provisions of the IBC.
9.8. That the Honâ€ble Supreme Court of India has held in several decisions that economic offences are a class of its own. InY .S. Jagan Mohan
Reddy v. Central Bureau of Investigation, (2013) 7 SCC 439 ,Honâ€ble Supreme Court has observed that the economic offences having deep rooted
conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the
country as a whole and thereby posing serious threat to the financial health of country.
9.9. That the Preamble to the PMLA states as follows:
“An Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for
matters connected therewith or incidental thereto.â€
The PMLA was also enacted in furtherance of Indiaâ€s International obligations to implement the UN resolutions calling upon Member States to
adopt national money-laundering legislation and programmes. This is evident from the Preamble of PMLA which reads as follows:
“WHEREAS the Political Declaration and Global Programme of Action, annexed to the resolution S-17/2 was adopted by the General
Assembly of the United Nations at its seventeenth special session on the twenty- third day of February, 1990;
AND WHEREAS the Political Declaration adopted by the Special Session of the United Nations General Assembly held on 8th to 10th June,
1998 calls upon the Member States to adopt national money-laundering legislation and programme;
AND WHEREAS it is considered necessary to implement the aforesaid resolution and the Declaration.â€
9.10. That one of the main objects of PMLA is to prevent money laundering by confiscating the property involved in money laundering. The PMLA
provides for the attachment/ confiscation of properties and prosecution thereafter. Therefore, on the basis of material & evidences on record and in
exercise of the powers conferred upon the Deputy Director under Sub-Section (1) of Section 5 of the PMLA, a Provisional Attachment order was
issued attaching provisionally the assets of the Corporate Debtor.
9.11. That the Preamble of the PMLA provides that, it is an Act to prevent money-laundering and to provide for confiscation of property derived from,
or involved in, money-laundering and to punish those who commit the offence of money laundering. Whereas, as per IBC, the primary objective is
maximization of value of assets of the debtor firm undergoing the insolvency and bankruptcy proceedings.
9.12. That, Section 71 of the PMLA provides that proceedings under the Act shall have overriding effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force. Furthermore, Section 65 of the PMLA also states that:
“65. Code of Criminal Procedure, 1973 to apply.â€
The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply, insofar as they are not inconsistent with the provisions of
this Act, to arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under this Act.â€
Section 71 of PMLA, 2002 is extracted hereunder: -
“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.â€
9.13. That, investigation under PMLA is primarily aimed at unearthing & attaching the money/proceeds arising out of the commission of scheduled
offences. The power of investigation is supplemented by way of passing provisional attachment orders under Section 5 of the PMLA and followed by
filing a prosecution complaint for the offence of money laundering as defined under Section 3 punishable under Section 4. A PAO under PMLA is
passed by an officer empowered to investigate crime u/s. 5(1) of the act and the attachment is done based on his reasons to believe and to be
recorded, while investigating a criminal case, instituted by a criminal investigation report and with an objective to enable confiscation after conviction in
a criminal trial. Therefore, the process of attachment is not completely a civil process but a quasi-criminal process, as the ultimate object is
confiscation which is done after a criminal trial and hence the attachment is merely a “step-in-aid†to achieve the object of PMLA,2002.
Whereas, the primary purpose of IBC is to aid lenders in effective and timely recovery or restructuring of defaulted assets. Further, proceedings under
the PMLA, attains finality only upon prosecution of the accused and confiscation of properties as a direct consequence from commission of scheduled
offences. Therefore, such proceedings are primarily criminal in nature. On the other hand, proceedings under the IBC are primarily civil proceedings.
Further the Honâ€ble High Court of Judicature at Madras in the matter between the Deputy Director, Directorate of Enforcement Vs. Asset
Reconstruction Company India Ltd. and another Writ Petition No.29970 of 2019 it has categorically held that “If one carefully goes through the
said section, there is no way provisional attachment order passed under the provisions of the PMLA would automatically invite a moratorium. This
provision only speaks about the consequence for institution of the suit, for continuance and other proceedings against the Corporate Debtor. Therefore,
Section 14 of the IBC is consequent upon an order passed by the Adjudicative Authority declaring moratorium. This would not apply to a special
enactment which travels on its own path. After all, one cannot presume a conflict between two enactments having it distinct roles with their
objections. As stated, it only speaks about the follow up action over a property, which is subject matter of the proceedings before the National
Company Law Tribunal under the IBC. Thus, Section 14 would not bar a proceeding under the PMLAâ€.
9.14. That, civil cases involve private disputes between persons or organizations while criminal cases involve conduct that is deemed to be harmful to
society as a whole. In criminal prosecution, it is duty of the respective investigating agency/authority to prosecute the accused & recover the monies
as per the prevalent Act. Accordingly, this Directorate has proceeded for provisional attachment of properties in the instant case as per the provisions
of PMLA, 2002 and same will also be liable for confiscation later on, subject to adjudication proceedings under the PMLA.
9.15. That, the question of primacy of IBC over the PMLA has been considered by Honâ€ble NCLAT in the case of Varsana Ispat Limited versus
Deputy Director of Enforcement (Company Appeal (AT) (Insolvency) No. 493 of 2018), vide judgment dated 02.05.2019, had held as under: -
“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 crimeâ€
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 crimeâ€, we hold that Section 14 of the “I&B Code†is not applicable to such proceeding.
..14. As the “Prevention of Money Laundering Act, 2002†relates to different fields of penal action of “proceeds of crimeâ€, it
invokes simultaneously with the “I&B Codeâ€, having no overriding effect of one Act over the other including the “I&B Codeâ€, we
find no merit in this appeal. It is accordingly dismissed. No costs.â€
9.16. That, the Honâ€ble Supreme Court has upheld the judgment of the Honâ€ble NCLAT in Varsanna Ispat (supra), and vide order dated
22.07.2019 dismissed Civil Appeal No. 5546 of 2019 being Varsanna Ispat Ltd vs. Deputy Director, Directorate of Enforcement, preferred against the
judgment of the Honâ€ble NCLAT dated 02.05.2019.
9.17. That, reliance in this regard is also placed on the order of Honâ€ble NCLAT in the case of Andhra Bank versus Sterling Biotech Limited
(Company Appeal (AT) (Insolvency) No. 601, 612, 527 of 2019), vide judgment dated 28.08.2019 wherein it was held that:
“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 PMLAâ€).â€
9.18. It is respectfully submitted that, the IBC cannot be used to give an opportunity to a money launderer to convert proceeds of crime into assets
that can be projected as legitimate. The object of PMLA will be defeated if tainted property is allowed to be projected as “untainted propertyâ€
under the protective umbrella of orders passed by the Honâ€ble NCLAT purportedly to implement the provisions of the IBC. (Please refer to Section
3 - PMLA).
9.19. In this regard, the observations of the Delhi High Court in Axis Bank (supra) on the PMLA being a Special Act are relevant:
“103. The special legislation against money-laundering (PMLA) seeks to enforce the sanction of confiscation (initiated by attachment)
against ill-gotten assets expecting to ensnare them in a net wider than under most of the existing laws germane to the issue of economic well-
being, security and integrity of India as a sovereign State. The expansive definition of the targeted property, described as “proceeds of
crimeâ€, as given in Section 2(1)(u) is as under:
“proceeds of crime†means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity
relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the
property equivalent in value held within the country or abroad;
(Emphasis supplied)
It is vivid that the legislature has made provision for “provisional attachment†bearing in mind the possibility of circumstances of
urgency that might necessitate such power to be resorted to. A person engaged in criminal activity intending to convert the proceeds of
crime into assets that can be projected as legitimate (or untainted) would generally be in a hurry to render the same unavailable. The entire
contours of the crime may not be known when it comes to light and the enforcement authority embarks upon a probe. The crime of such
nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not
an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude.
The total wrongful gain from the criminal activity cannot be computed till the investigation is completed. The authority for “provisionalâ€
attachment of suspect assets is to ensure that the same remain within the reach of the law.
*******************************************************
The proceeds of crime, there is no doubt, are not even remotely covered by the expressions “revenues, taxes, cesses†or other
“ratesâ€. 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 Consolidated Fund - cannot give to the value of proceeds of crime realised by sale of properties confiscated under PMLA the colour of
taxation. “ (emphasis added)
9.20. That, on principles of statutory interpretation an earlier specific law will prevail over the later general law in case of a conflict between the two.
Wherever Parliament has dealt with a specific instance through an earlier law, a later general rule will not override the earlier law unless Parliament
specifically intends as such. The Vera Cruz (1884) 10 AC 59 at page 68. Also see Maxwell on The Interpretation of Statutes, 12th Edition, p. 196-7).
9.21. That, the above canon of construction has been applied by the Honâ€ble Supreme Court of India in LIC v. D.J. Bahadur (at page 351) to hold
that the earlier Industrial Disputes Act, 1947 being the specific statute in the context of industrial disputes would prevail over the later general
enactment, i.e., the Life Insurance Corporation of India Act, 1956 in so far as disputes concerning the employees of LIC were involved.
9.22. In this regard, reliance is further placed upon the Honâ€ble Supreme Courtâ€s decision in U.P. SEB v. Hari Shankar Jain, (1978) 4 SCC 16
wherein the following observations are significant for the present: -
“8. The maxim “Generalia specialibus non derogant†is quite well- known. The rule flowing from the maxim has been explained in
Mary Seward v. Owner of the “Vera Cruz†[(1884) 10 AC 59, 68] as follows:
“Now if anything be certain it is this, that where there are general words in a later Act capable of reasonable and sensible application
without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier and special legislation
indirectly repealed, altered, or derogated from merely by force of such general words, without any indication of a particular intention to do
so.â€
The question in Seward v. Owner of the “Vera Cruzâ€â€œ was whether Section 7 of the Admiralty Court Act of 1861, which gave
jurisdiction to that Court over “any claim for damage done by any ship†also gave jurisdiction over claims for loss of life which would
otherwise come under the Fatal Accidents Act. It was held that the general words of Section 7 of the Admiralty Court Act did not exclude the
applicability of the Fatal Accidents Act and therefore, the Admiralty Court had no jurisdiction to entertain a claim for damages for loss of
life.
The reason for the rule that a general provision should yield to a specific provision is this: In passing a special Act, Parliament devotes
its entire consideration to a particular subject. When a general Act is subsequently passed, it is logical to presume that Parliament has not
repealed or modified the former Special Act unless it appears that the Special Act again received consideration from Parliament. Vide
London and Blackwall Railway v. Limehouse District Board of Works [26 LJ Ch 164 : 69 ER 1048] , and Thorpe v. Adams [(1871) LR 6 CP
125] . In J&K Cotton Spinning and Weaving Mills Co. Ltd. v. State of U.P. [AIR 1961 SC 1170: (1961) 3 SCR 185 : (1961) 1 LLJ 540 :
(1960-61) 19 FJR 43] , this Court observed (at p. 1174):
“The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and Judges but
springs from the common understanding of men and women that when the same person gives two directions, one covering a large number of
matters in general and another to only some of them his intention is that these latter directions should prevail as regards these while as
regards all the rest the earlier direction should have effect.â€
We have already shown that the Industrial Employment (Standing Orders) Act is a special Act dealing with a specific subject, namely the
conditions of service, enumerated in the schedule, of workmen in industrial establishments. It is impossible to conceive that Parliament
sought to abrogate the provisions of the Industrial Employment (Standing Orders) Act embodying as they do hard-won and precious rights
of workmen and prescribing as they do an elaborate procedure, including a quasi-judicial determination, by a general, incidental provision
like Section 79(c) of the Electricity (Supply) Act. It is obvious that Parliament did not have before it the Standing Orders Act when it passed
the Electricity Supply Act and Parliament never meant that the Standing Orders Act should stand pro tanto repealed by Section 79(c) of the
Electricity Supply Act. We are clearly of the view that the provisions of the Standing Orders Act must prevail over Section 79(c) of the
Electricity Supply Act, in regard to matters to which the Standing Orders Act applies.â€
9.23. That, while enacting the IBC, 2016 the Parliament was conscious of the PMLA and yet it neither made any specific reference by way of an
ouster of PMLA nor did it take away any powers already conferred under the PMLA. The general non-obstante clause contained in Section 238 of
the IBC cannot be construed to take away any powers under the PMLA which also contains a similar non- obstante clause under S. 71 of PMLA.
9.24. Therefore, it is respectfully submitted that, PMLA being a special law to tackle and curb money laundering - enacted to implement Indiaâ€s
international obligations under the UN resolutions should receive precedence over the IBC only to the extent of properties or assets which are the
“proceeds of crimeâ€.
9.25. That, vide Gazette Notification dated 28th December 2019 the Government of India has issued the Insolvency and Bankruptcy (Amendment)
Ordinance, 2019 whereby the new provision of section 32A has been introduced in the Insolvency and Bankruptcy Code, 2016 (hereinafter
“IBCâ€) which reads as follows:
“32A. (1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate
debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall
not be prosecuted for such an offence from the date of the resolution plan has been approved by the Adjudicating Authority under section 31, if the
resolution plan results in the change in the management or control of the corporate debtor to a person who was not -
(a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
(b) 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 of a complaint to the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand
discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled:
Provided further that every person who was a “designated partner†as defined in clause (j) of section 2 of the Limited Liability Partnership Act,
2008 or an “officer who is in defaultâ€, as defined in clause (60) of the section 2 of the Companies Act, 2013, or was in any manner in-charge of,
or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or
indirectly involved in the commission of such offence as per the 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 debtorâ€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 â€
(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 or Court.
Explanation. - For the purpose of this sub-section, it is hereby clarified that, -
(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or
confiscation of such property under such law as may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a
person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils
the requirements specified in this Section, against whom such an action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate
debtor and any person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or
person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the
corporate insolvency resolution processâ€.
(emphasis added)
9.26. That, in accordance with newly inserted section 32A(2) of the IBC, the Enforcement Directorate is not precluded from proceeding against the
assets of a Corporate Debtor, for commission of offence prior to the commencement of the corporate insolvency resolution process before a
resolution plan covering such assets has been approved.
9.27. That, since in the present case there was no resolution plan covering the assets of the Corporate Debtor as attached by the ED vide Provisional
Attachment Order ED cannot be precluded from proceeding against the assets of the Corporate Debtor in accordance with law, merely because the
CIRP has been initiated against the accused/Corporate Debtor.
9.28. That, it is well settled law that the Legislature is presumed to know all existing laws as well as the needs of the society, while enacting a
legislation. Therefore, it will be presumed that after considering all possible scenarios when the Ordinance has dealt with only one situation where the
powers of ED under PMLA are being curtailed then it will be presumed in law that the powers of ED under PMLA qua all other situations remain
untouched and are to be governed by the extant law under PMLA. Therefore, prior to approval of a resolution plan, the EDâ€s power to attach
property under S. 5 cannot sought to be trammelled upon merely because CIRP process is underway or because moratorium has been imposed.
9.29. That, once the amended IBC has expressly laid down that only after the approval of a resolution plan under section 31 of the IBC, would the ED
be precluded from proceeding against the assets of the Corporate Debtor for the commission of offences prior to the CIRP, it cannot be argued that
merely because a moratorium period under section 14 of the IBC is active, the ED is precluded from proceeding against the assets of the Corporate
Debtor. If the Applicantâ€s arguments are accepted, it would lead to whittling down the provision of section 32A as well as reading into section 32A
which is not there.
9.30. That, the Honâ€ble National Company Law Appellate Tribunal in the case of Varsanna Ispat Ltd. vs. The Deputy Director, Directorate of
Enforcement Company Appeal (AT) (Insolvency) No. 493 of 2018, vide its judgment dated 02.05.2019, has held that section 14 of the IBC is not
applicable to proceedings under the Prevention of Money laundering Act, 2002 (hereinafter “PMLAâ€). The relevant paragraph from Varsanna
Ispat (Supra) is extracted hereunder:
“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 crimeâ€, we hold that Section 14 of the “I&B Code†is not applicable to such
proceeding.†(emphasis added)
9.31. That, the decision of the Honâ€ble NCLAT in Varsanna Ispat (supra) was subsequently followed by in the case of Rotomac Global Private ltd.
vs. Deputy Director, Directorate of Enforcement, Company Appeal (AT) (Insolvency) No. 140 of 2019.
9.32. That, the Honâ€ble High Court of Delhi in the case of Deputy Director, Directorate of Enforcement vs. Axis Bank 2019 SCC OnLine Del 7854
has also held that a moratorium in terms of section 14 of the Act cannot come in the way of the statutory authority conferred under the PMLA, and if
a contrary view is taken it would defeat the very objective of the PMLA. The relevant paragraph from Axis bank (supra) is extracted hereunder:
“146. A Resolution Professional appointed under the Insolvency Code does not have any personal stake. He only represents the interest
of creditors, their committee having appointed and tasked him with certain responsibility under the said law. The moratorium enforced in
terms of Section 14 of Insolvency Code cannot come in the way of the statutory authority conferred by PMLA on the enforcement officers
for depriving a person (may be also a debtor) of the proceeds of crime. A view to the contrary, if taken, would defeat the objective of PMLA
by opening an escape route. After all, a person indulging in money-laundering cannot be permitted to avail of the proceeds of crime to get a
discharge for his civil liability towards his creditors for the simple reason such assets are not lawfully his to claim.†(emphasis added).
9.33. That, in light of the aforementioned it is submitted that the ED is not precluded from proceeding against the assets of the Corporate Debtor,
merely because of a moratorium period being in effect.
9.34. That, the Honâ€ble NCLT, Hyderabad on the issue of Moratorium under Section 14 of IBC, Prevalence/Overriding effect of IBC under Section
238 of IBC, Civil nature of Proceedings related to Provisions, after much deliberation vide its Order dated 06.05.2020 IA No. 54/2020 in CP(IB) No.
43/7/HDB/2018 dismissed the application filed by the Resolution Professional and upheld the attachment made by the complainant department vide
Provisional Attachment No.05/2019 dated 30.12.2019. The Honâ€ble NCLT, Hyderabad while upholding the Provisional Attachment Order made the
following observation vide their Order dated 06.05.2020: -
“39. The applicant cannot take shelter under Section 32(A)(2) of the I&B Code, because when Provisional Attachment Order was passed there
was no resolution plan approved by the COC, which was confirmed by the Adjudicating Authority under Section 31 of the I&B Code. In the present
case, no Resolution Plan is approved by the COC as on the date of the Provisional Attachment Order. Therefore, Section 32A (2) of the I&B Code
will not apply to the Provisional Attachment Order passed by respondent no.1. Thus, the present application filed by the Resolution Professional on
behalf of the Corporate Debtor is liable to be dismissed.
In addition to the above, it is submitted by the respondent that, the present appellant who is a secured creditor and at this stage when the company has
gone into liquidation, the appellant - JMFRC along with other creditors is subject to provisions of IBC for disposal / distribution of assets of the
company and cannot take an escape route by seeking an order from this Honâ€ble tribunal for de attaching and releasing the properties in its favor.
9.35. And that, attention is invited to Order dated 4.9.2020 passed by High Court of Kolkata in IA CAN 1 of 2020 ( Old CAN No. 5363 of 2020) in
Writ Petition 6575/2020 Directorate of Enforcement vs. Anil Goel & Anr. Wherein the order dated 12.3.2020 passed by NCLT Kolkata Bench
wherein it was held as under:
“Heard the appearing parties. The petitioners raise a fundamental question of jurisdiction exercised by the National Company Law
Tribunal (NCLT), Kolkata Bench vide its order dated 12th March, 2020 concerning the Respondent No.2/the Company in liquidation which
is being also proceeded against under the Prevention of Money Laundering Act, 2002 ( for short the PML Act). Mr. Hossain, learned
Counsel appearing for the petitioners, i.e. the Directorate of Enforcement submits that the Respondent Nos. 1 and 2/ representing the
Company in liquidation, have earlier submitted themselves to the adjudicatory process under the PML Act and the law is now squarely
settled in the case of Embassy Property Development Private Limited Vs. State of Karnataka reported in 2019 SCC Online SC 1542 that in
the event two separate jurisdictions involving the NCLT and any other statutory authority, all issues concerning the Company in
liquidation/the Corporate Debtor (CD) cannot fall into the single basket of the NCLT. On behalf of the Respondent No.1/Resolution
Professional (RP), Ms. Bansal appears and submits that Section 32A of the IBC (the Code) protects the findings of the NCLT, Kolkata Bench
dated 12th March, 2020 since the assets of the Company in liquidation are required to be dealt with appropriately by the RP, who is also
the Official Liquidator. Having heard the parties and considering the materials placed at this stage, this Court is satisfied that the
petitioners have made out a prima facie case for grant of an interim order. Accordingly, there shall be a stay in terms of Prayers (c) and (d)
of the writ petition until further orders. Parties are permitted to exchange their Affidavits and Counter Affidavits to the writ petition within a
consolidated period of six weeks from date. At the end of the period granted for such Affidavits, the petitioners shall prepare comprehensive
Paper Book(s) for the convenience of the ultimate adjudication. I.A. No. 1 of 2020 (Old CAN No. 5363 of 2020), which is an application
praying urgent hearing of the stay petition stands disposed of in view of the above direction. All parties to act in terms of a copy of this
order downloaded from the official website of this Court.â€
That, PAO was passed as per provisions of the Act, and confirmed by the Adjudicating Authority by proper order, the Special Court is
empowered to release the property even at the interim stage to any person claiming the same as provided under Proviso 2 Section 8(8) and the bank
must approach the Special Court. Moreover any property identified as Proceeds of crime by the department is liable to be confiscated with Central
Government. The interest of the Central Government through the Respondent is required to be safeguarded for confiscation of property involved in
money laundering which shall be in the overall interest and financial growth of the country and standard of living of innocent citizens of the country.
During the course of hearing, the learned counsel for the Respondent submitted that the Liquidator appointed by NCLT ought to have approached this
Tribunal for the purpose of deciding the appeal/application as the Liquidator has stepped into the shoe of the Corporate Debtor. The Liquidator on
liquidation of assets/properties involved in the present proceedings would distribute the proceeds to the Financial Creditors. Therefore, Liquidator is a
necessary party in the appeal as well as in the application to decide the question raised in the appeal and in the application.
Heard both sides on the question whether the Liquidator is a necessary party to decide the present application.
It is seen from the record that subsequent to the coming into the force of the I&BC (Amendment) Act, 2020 the NCLT, Court-III, Mumbai Bench
vide order dated 17.03.2020 in the matter of M.A. No. 3348 of 2019 in C.P. No. 512/2019 has appointed Mr. Indrajit Mukherjee as Liquidator as
provided under Section 34(1) of the IBC. This order has been passed subsequent to the order passed by Honâ€ble High Court, Delhi directing this
Tribunal to consider the application/appeal filed by the petitioner i.e. the present appellant. There was no occasion before the Honâ€ble High Court to
know that Mr. Mukherjee has been appointed as the Liquidator. Now the question is whether, after the appointment of the Liquidator, without hearing
him any order could be passed in the appeal/application. On being asked by this Tribunal as to whether the Liquidator appointed by the NCLT is a
necessary party, it is replied by the learned counsel for the appellant that no relief has been sought against the Liquidator and that the present
appellant/applicant is not going to sale the attached properties mortgaged with it, if released from attachment and that the present application has been
filed only to decide the question of law raised in the application i.e. applicability of amended provisions as incorporated as Section 32A(2) in the I&BC
by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 dated 13.03.2020 enforced with effect from 28.12.2019. The Liquidator has no role
to play in deciding the present application and that liquidator is not a necessary party. By virtue of his appointment the Liquidator, who stepped into the
shoe of corporate debtors, is a necessary party because of the subsequent development. This is so because of the nature of the order passed by the
NCLT. The operative portion of the NCLT order dated 17.03.2020 is reproduced below:-
“ORDER
This miscellaneous application filed by the Resolution professional seeking liquidation of the Corporate Debtor namely (DKS Motors Pvt.
Ltd.) on the ground that no resolution plan has been received by him, hence this application under Section 33 (1) of the Insolvency and
Bankruptcy Code, 2016, praying following reliefs:
a. “To pass an order of Liquidation of the Corporate Debtor under Section 33 (2) of the Insolvency and Bankruptcy Code, 2016.
b. To direct Respondents to pay professional fees of the Applicant and the ratified expenses as incurred by the Applicant during the CIRP.
c. To appoint a Liquidator under Section 34 of the Insolvency and Bankruptcy Code, 2016.
d. Direct public announcement of such liquidation as under Section 33(1)(b)(ii) of the Insolvency and Bankruptcy Code, 2016.â€
The Adjudicating Authority vide its order dated 09.04.2019 on a Petition filed by the Operational Creditor under Section 9 of the Code
directed initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor namely M/s. DSK Motors Pvt. Ltd.
wherein Mr. Rajkumar Mahto, was appointed as Interim Resolution Professional (IRP). Thereafter in the 1st meeting of the Committee of
Creditors (CoC) Mr. Snehal Arvind Kamdar, was appointed as Resolution Professional (RP) and the same was approved by this Bench by
an order dated 01.07.2019.
The CoC in its 3rd meeting held on 16.07.2019 decided to appointed Valuers. The RP accordingly appointed two registered valuers as
required under Regulation 27 of the IBBI (IRP for Corporate Persons) Regulations, 2016 and the Information Memorandum was prepared
as provided under Regulation 36(1) of the Code.
The RP submits that the public announcement was made on 20.04.2019 for submitting the claims. It is further submitted than an
advertisement, inviting Expression of Interest (EoI) in Form G was not published, for the reasons that the Resolution to publish Form G was
rejected by 91.78%. Thereafter, no extension has been sought and no EoI was invited and no Resolution plan was received.
The Resolution Professional submits that in the 7th CoC meeting held on 13.09.2019, the CoC having 95.41% voting rights passed a
resolution for liquidating the company in view of the fact that the no Resolution Plan was received in stipulated time period. Accordingly,
the Resolution Professional filed this application for liquidation of the Company as provided u/s. 33 of the Insolvency & Bankruptcy Code,
2016 (Code).
That Mr. Indrajit Mukherjee, has agreed and given his consent to act as liquidator and to carry on the process of liquidation as
enshrined in the Code.
Upon hearing the submissions of the Applicant and on perusal of the Application and the documents enclosed therein, it is found, the RP
has complied with the procedure laid down under, the Insolvency and Bankruptcy code and Regulations made thereunder. The valuation
report filed by the valuer has not been disputed by the CoC. On verification of the papers/documents placed before this Bench, we are of
the considered view that this is a fit case to pass liquidation order under sub-section 1 of section 33 of the Code for liquidation in the
absence of any resolution plan. Hence ordered.
ORDER
a. The Miscellaneous Application is hereby allowed.
b. That the Mr. Indrajit Mukherjee, Registration No. IBBI/IPA-001/IP-PO1533/2018-2019/12450, herein is hereby appointed as Liquidator
as provided under Section 34(1) of the Code.
c. That the Liquidator for conduct of the liquidation proceedings would be entitled to the fees as provided in Regulation 4 of the IBBI
(Liquidation Process Regulations), 2016.
d. The Liquidator appointed in this case to initiate liquidation process as envisaged under Chapter-III of the Code by following the
liquidation process given in the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
e. The Liquidator appointed under section 34(1) of the Code. Will have all powers of the board of the directors, key managerial personnel
and the partners of the Corporate Debtor, as the case may be, shall cease to have effect and shall be vested with the liquidator.
f. that the Corporate Debtor to be liquidated in the manner as laid down in the Chapter by issuing Public Notice stating that the Corporate
Debtor is in liquidation with a direction to the Liquidator to send this order to the ROC under which this Company has been registered.
g. all the powers of the Board of Directors, key managerial persons, the partners of the Corporate Debtor hereafter ceased to exist. All
these powers henceforth vest with the Liquidator.
h. that the personnel of the Corporate Debtor are directed to extend all co-operation to the Liquidator as required by him in managing the
liquidation process of the Corporate Debtor.
i. that upon having initiated liquidation process, subject to section 52 of the Code, no suit or other legal proceeding shall be instituted by or
against the Corporate Debtor save and except the liberty to the liquidator to institute suit or other legal proceeding on behalf of the
corporate debtor with prior approval of this Adjudicating Authority.
j. That this order for liquidation under this Section shall be deemed to be a notice of discharge to the officers, employees and workmen of
the Corporate Debtor except when the business of the Corporate Debtor is continued during the liquidation by the Liquidator.
The appellant/applicant has filed the present application on 06.08.2020 through e-mail which is much after the liquidation order dated 17.03.2020
passed by the NCLT. The appellant/applicant should have prayed this Tribunal to make the liquidator as a party in the present proceedings. Even at
the time of filing the appeal, the Insolvency Resolution Professional (IRP) because, as per the own admission of the appellant the Corporate
Insolvency Resolution Process (CIRP) was initiated against DSK Motors i.e. Corporate Debtor on 9th April, 2019 whereas the appeal is filed on
20.09.2019. The IRP has been replaced by Liquidator on 17.03.2020. Since the Liquidator had already stepped into the shoe of Corporate Debtors
before the filing of the present application so the Liquidator should have been made party in the appeal as well as application to decide the
appeal/applicatio on merit. The properties involved in the present appeal were acquired by DSK Motors i.e. one of the Corporate Debtor and the same
properties have been mortgaged with the assignor of the present appellant. In view of the same the Liquidator is a necessary party. His presence is
required to decide the application effectively. In this regard reliance is placed on section 35(1)(k) of the I&BC, 2016. Section 35 of the said code deals
with powers and duties of Liquidator. Section 35(1)(k) of I&BC, 2016 reads as follows:
Section 35. Powers and duties of Liquidator;-
(1) Subject to the directions of the Adjudicating Authority, the Liquidator shall have the following powers and duties, namely:-
……………………….
………………………….
……………………………
(k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the Corporate
Debtor.
Admittedly, the Corporate Debtor is not made a party to the proceedings when the properties in the present proceedings are involved, so the
Liquidator who has been appointed by the NCLT is necessary to be heard before passing any order. Not impleading the Liquidator as a party to the
present proceeding to decide the present question of law is detrimental to the proper adjudication to the present application particulars when the
question of law which has bearing on disposal of the appeal then all the necessary parties to be heard. Therefore, the application to release the
properties on the ground of aforesaid Amended provision made in I&BC, 2016 by way of introduction of Section 32A(2) through I&BC (Amendment)
Act, 2020, is rejected on the ground of non-joinder necessary party. The application is accordingly disposed of.
However, the appellant is given liberty that it may file appropriate application to implead the Liquidator in the appeal and may raise the present
question of law at the time of hearing of the appeal on merit.
List the appeal on 26th February, 2021.