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Judgment
FPA-PMLA-1970/MUM/2017
By this order we propose to decide the present appeal filed against the order dated 20th September, 2017 whereby the application filed by the
appellant was dismissed by the Adjudicating Authority.
The said application was filed by the appellant in view of the order passed on 12th September, 2017 by the Adjudicating Authority (NCLT,
Ahmedabad Bench) in CP No.(IB)89/7/NCLT/AHM/2017. The operative portion of the order reads as under:
“10. In view of the above discussion, this Application deserved to be admitted and it is accordingly admitted under Section 7(5) of the
Code.
This Adjudicating Authority hereby appoint Shri Dushyant C. Dave, having address at 1101, Dalamal Tower, B Wing, Free Press
Journal Marg, Nariman Point, Mumbai, and having Registration No. IBBI/IPA-003/IP-N00061/2017-18/10502 under Section 13(1) of the
Code.
the Interim Insolvency Resolution Professional is hereby directed to cause public announcement of the initiation of “Corporate
Insolvency Resolution Process†and call for submission of claims under Section 13(1)(b) read with Section 15 of the Code and Regulation
6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
This Adjudicating Authority hereby order moratorium under Section 13(1)(a) of the IB Code prohibiting the following as referred to in
Section 14 of the Code.
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any
judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest
therein.
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any
action under the Securitisatioin and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
i. However, the order of moratorium shall not apply in respect of supply of essential goods or services to Corporate Debtor.
ii. The order of moratorium is not applicable to the transactions that may be notified by the Central Government in consultation with any
financial sector regulator.
iii. The order of moratorium comes into force from the date of the order till the completion of Corporate Insolvency Resolution Process
subject to the Proviso under sub-Section(4) of Section 14.
The moratorium declared by this Adjudicating Authority is not applicable to the criminal proceedings, if any, initiated under the
provisions of Prevention of Money Laundering Act, 2002 by the Enforcement Directorate and to the criminal case, if any, initiated by the
Central Bureau of Investigation against the Respondent Company.
This Application stands disposed of accordingly. No order as to costs.
Communicate a copy of this order to the Applicant Financial Creditor, and to the Respondent Corporate Debtor and to the Interim
Insolvency Resolution Professional.
The order passed by the Adjudicating Authority on 20th September, 2017 has been challenged by the appellant on various grounds. On 26th
September, 2017, we directed the Adjudicating Authority to adjourn the matter after 05th October, 2017 so that the present appeal may be heard on
the date fixed. However, we have been informed that despite our direction and knowledge about our order, the matter was heard by the Adjudicating
Authority for some time as informed by the learned counsel for the parties, if that is so in our opinion, it is a serious matter. We direct that in future,
the Adjudicating Authority should be very careful and must follow the directions issued by the higher authority.
Mr. Desai, learned senior counsel for the appellant has made various submissions and has also referred to various provisions of the Act Insolvency
and Bankruptcy Code, 2016. His first submission is that the proceeding pending before us as well as the Adjudicating Authority is in the nature of civil
proceeding. In support of his argument, he has referred the order of the Gujarat High Court- the details of which are mentioned in ground B of the
Grounds of Appeal which reads as under:
“ The Learned Adjudicating Authority has failed to take into consideration the order dated 09.05.2014 in Special Criminal Application
No. 1725 of 2014 the Honâ€ble High Court of Gujarat has declared that the proceedings u/s 5, 8 and 17 of PML Act are civil in nature, the
relevant paragraphs quoted herein after:
“30. The main purpose of Section 5 appears to be provisional attachment of the properties where prosecution is intended. Conjoint
reading of Section 5 and 8 clearly indicates their purpose being the prevention of money-laundering activity if such case is made out, by
confiscating properties involved in Money-Laundering Act, either during pendency of prosecution or at the conclusion of the trial.
Similarly, conjoint reading of Section 17 and 8 would indicate that its main purpose is to search and seize incriminating material in case
where prosecution is intended and even in cases where it is not immediately intended. Thus, where the prosecution is not immediately
intended, compliance with Section 157 of Cr. P.C. or lodgment of the complaint is not mandatory. Under Section 8 various acts undertaken
under Section 5, 17 and 18 with which Adjudicating Authority or the Court is authorized to deal with can be confirmed by the Adjudicating
Authority or by the Special Court on conclusion of the trial.
In light of the aforementioned scheme of several provisions of P.M.L. Act, the question as to whether the proceedings under Section 5, 8
and 17 are civil proceedings or criminal is required to be addressed. The argument is that unless a report or the complaint as contemplated
under first proviso to Section 5 and also as contemplated in the proviso to sub-section (1) of Section 17 is made, the proceedings are not
sustainable. As noticed in greater detail, the ultimate object of Section 5 is provisional attachment of the property. The object appears to
prevent destruction of the evidence which may be produced in the proposed criminal proceedings or to take in possession the property
involved in the money-laundering, though the proceedings can be initiated on the basis of the reports or complaint, etc., as contemplated in
the first proviso to Section 5. In view of second proviso, proceedings can be initiated under Section 5 even in absence of compliance of first
proviso. Various safeguards impose fetters upon the attaching officer obliging him to immediately send the order made by him and the
factum of attachment of the property made by him within the prescribed period to the Adjudicating Authority to enable it to adjudicate upon
such attachment. It is pertinent to note that the legislative intent insofar as powers of the Adjudicating Authority are concerned, is made
clear under Section 6 (15) by clarifying that it is not bound by the procedure laid down by the Code of Civil Procedure. Thus, if the
Adjudicating Authority was intended to be an authority dealing with the criminal acts, the proviso dispensing with Code of Civil Procedure
would have been made. These facts thus sindicate that the Adjudicating Authority under Section 8 is authorized to undertake civil
proceedings and adjudicate thereupon as rightly argued by the learned counsel for the respondents.â€
Learned senior counsel for the appellant further submits that since the proceeding pending under Section 5 and 8 are not in the nature of criminal
proceeding, para 14 of the order passed by the Adjudicating Authority (NCLT) is not applicable in the said circumstances.
His second submission is that the Act Insolvency and Bankruptcy Code, 2016 is a Special Act which has an overriding effect then the PMLA Act,
2002. The Act was passed in 2016, subsequent to the act of PML Act in the decision of Supreme Court in the case of Solidaire India Ltd. V/s. Fair
Growth Financial Services Ltd. & Ors. wherein after discussion in para 7-11 it was held that later enactment would prevail with a non-obstante
clause. Paras 7-11 reads as under:-
“7. Coming to the second question, there is no doubt that the 1985 Act is a special Act. Section 32(1) of the said Act reads as follows:
“32. Effect of the Act on other laws.â€"(1) The provisions of this Act and of any rules or schemes made there under shall have effect
notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act,
1973 (46 of 973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or
Articles of Association of an industrial company or in any other instrument having effect by virtue of any /law other than this Act.â€
The effect of this provision is that the said Act will have effect notwithstanding anything inconsistent therewith contained in any other law
except to the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976. A similar
non obstante provision is contained in Section 13 of the Special Court Act which reads as follows:
“13. Act to have overriding effect.â€"The provisions of this Act shall have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than this Act, or in any
decree or order of any Court, tribunal or other authority.â€
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. v. State Industrial & investment Corpn. Of Maharashtra Ltd.; Sarwan Singh v. Kasturi Lal;
AllahabadBankv.Canara Bank and Ram Narain v. Simla Banking & Industrial Co. Ltd.
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. 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 connection, 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 ration 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 later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers
the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not
want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment
continue to apply.
The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13. that its provisions are to
prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had
the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have
specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the
provisions of the said Act were to prevail even over the provisions of the Sick Companies Act.
Under Section 3 of the 1992 Act, all properly of notified persons is to stand attached. Under Section 3(4), it is only the Special Court which
can give directions to the Custodian in respect of property of the notified party. Similarly, under Section 11(1), the Special Court can give
directions regarding property of a notified party. Under Section 11(2), the Special Court is to distribute the assets of the notified party in
the manner set out thereunder. Monies payable to the notified parties are assets of the notified party and are, therefore, assets which stand
attached. These are assets which have to be collected by the Special Court for the purposes of distribution under Section 11(2). The
distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are
siphoned off from hanks and financial institutions into private pockets are returned to the banks and financial institutions. The time and
manner of distribution is to be decided by the Special Court only. Under Section 22 of the 1985 Act, recovery proceedings can only be with
the consent of the Board for Industrial and Financial Reconstruction or the appellate authority under that Act. The Legislature being aware
of the provisions of Section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act of the 1992 Act to give
directions to recover and to distribute the assets of the notified persons in the manner set down under Section 11 (2) of the 1992 Act. This
can only mean that the Legislature wanted the provisions of Section 11(2) of the 1992 Act to prevail over the provisions of any other law
including those of the Sick Industrial Companies (Special Provisions) Act, 1985.
It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can he
harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special
Provisions) Acy 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is
to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature
intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay
back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst
considering a .scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special
Court can, if it is convinced, grant time or installments.
There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is
concerned.
We are in agreement with the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it
makes appropriate provisions in the Act in that behalf. Mr Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that
the said Act will be in addition to and not in derogation of a number of other Acts including the 198.5 Act. Similarly under Section 32 of the
1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land (Ceiling and Regulation) Act is not excluded. It is
clear that in the instant case there was no intention of the legislature to permit the 1985 Act to apply, notwithstanding the fact that
proceedings in respect of a company may be going on before the BIFR. The 1992 Act is to have an overriding effect notwithstanding any
provision to the contrary in another Act.â€
Similar view was taken by the Bombay High Court in the case of Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd. The judgment rendered
on 09.02.2016 reported in 1997 (89) company cases 547 (BOM) para 15 of the said judgment read as under:
To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special
statues, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the
Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-
obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail
then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. In the present case, the
said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If
the legislature wanted to provide otherwise, they would have specifically so provided.â€
His argument is that since the NCLT is of subsequent date thus, the said Act would prevail upon the PMLA, 2002. He also submits that the
provisional attachment order passed by the Enforcement Directorate in the present case has to be set aside in order to comply with the order dated
12th September, 2017, passed by the Adjudicating Authority (NCLT).
Shri Pankaj Vijayan, Advocate on behalf of I.R.P, who has been given the assignment to dispose of the properties agrees that the present Act
Insolvency and Bankruptcy Code, 2016 has an overriding effect on PMLA, 2002. His argument is that the provisional attachment order is liable to be
set aside but the same should not be interfered with by this Tribunal as validity of the provisional attachment order is to be determined by the
Adjudicating Authority, who has the competent jurisdiction to decide the issue. Accordingly the appeal is not maintainable before this Tribunal. He
argues that if any appeal is to be filed, it is to be filed by IRP and not the appellant. His argument is that he has already filed the reply to the
provisional attachment order and the same has to be considered by the Adjudicating Authority on merits as per settled law.
We are of the view that there is force in the submissions of learned Mr. Pankaj Vijayan, IRP. However, we are of the view that all the issues
raised by the parties are to decided by the Adjudicating Authority after hearing.
Under these circumstances, the present appeal is disposed of with the direction that the parties shall appear before the Adjudicating Authority on
10th October, 2017, the date already fixed. The Adjudicating Authority shall hear all the parties on all the issues raised by the appellant and Mr.
Pankaj Vijayan, IRP before us and pass the final order but positively before expiry of 180 days from the date of PAO.
The present appeal as well as miscellaneous applications are accordingly disposed of.
With the consent of the parties, the following lines in the last order dated 26.09.2017 is deleted-
“Despite of the said averment made the application of the appellant was rejected without assigning any valid reason.â€
Copy of the order be given “dasti†to both the parties.