NCLT Has Jurisdiction To Direct ED To Release Attached Properties Of Corporate Debtor: Bombay High Court

The Bombay High Court held recently that the NCLT has the jurisdiction to direct the Enforcement Directorate (ED) to release attached properties of a corporate debtor once the resolution plan has been approved and immunity from prosecution is triggered under Section 32A of IBC, 2016.A division bench of Justice BP Colabawalla and Justice Somasekhar Sundaresan upheld an NCLT order directing the ED to release the properties of a corporate debtor that were attached under the Prevention of Money Laundering Act, 2002 (PMLA).“Section 60(5) [of IBC] clearly empowers the NCLT to answer the question of whether the statutory immunity under Section 32A has accrued to a corporate debtor. As a consequence, the NCLT is well within its jurisdiction and power to rule that prior attachment of the property of a corporate debtor that is subject matter of an approved resolution plan, must be released, if the jurisdictional facts for purposes of Section 32A exist”, the court held.The court was dealing with two writ petitions filed by the resolution applicants and the ED, respectively, arising out of the resolution of DSK Southern Projects Private Limited (Corporate Debtor) under the IBC.The Corporate Debtor had been subjected to a Corporate Insolvency Resolution Process (CIRP) since December 9, 2021, at the instance of a financial creditor. A resolution plan propounded by Shiv Charan, Pushpalata Bai and Bharti Agarwal (Resolution Applicants) was approved by the National Company Law Tribunal, Mumbai (NCLT) on February 17, 2023.However, the ED had attached four bank accounts and 14 flats of the Corporate Debtor, valued at Rs. 32.51 crores, under the PMLA, on the basis of an ECIR alleging offences of cheating and criminal breach of trust against the Corporate Debtor and its erstwhile promoters. The attachment was confirmed by the Adjudicating Authority under the PMLA and continued after the approval of the resolution plan.The Resolution Applicants filed a writ petition seeking quashing of the ECIR, the attachment orders and the original complaint, and a direction to the ED to release the attached properties, in view of Section 32A of the IBC. Section 32A provides for immunity to the Corporate Debtor and its assets from any action in relation to an offence committed prior to the commencement of the CIRP, subject to certain conditions.The ED filed another writ petition challenging the authority and jurisdiction of the NCLT to pass orders invoking Section 32A of the IBC and affecting the provisions of the PMLA.The court held that Section 32A of the IBC is a non-obstante provision that overrides the provisions of the PMLA, in case of a conflict, and that the NCLT had the jurisdiction to interpret and apply Section 32A under Section 60(5) of the IBC. Section 60(5) empowers NCLT to decide any question of fact or law relating to the resolution of the Corporate Debtor.The court observed that Section 32A was introduced by Parliament with a specific legislative intent to give primacy to the IBC and to protect the Corporate Debtor and its assets from any antecedent proceedings under any other law in force. This is subject to the condition that the resolution plan results in a complete change in the ownership and control of the Corporate Debtor in favour of persons who were not involved in the commission of the offence.The court held that the Resolution Applicants had fulfilled the conditions of Section 32A and the approval of the resolution plan had the effect of automatically discharging the Corporate Debtor from prosecution and releasing its properties from attachment by operation of law.The court observed that when there is no potential in law for an eventual confiscation, the attachment, which is an interim measure in aid of the final confiscation, must abate.“The attachment under Section 5 of the PMLA, 2002 is but a measure in aid of eventual potential confiscation under Section 8(5) of the PMLA, 2002. Confiscation of the property of the corporate debtor can only be effected upon conviction of the corporate debtor for an offence of money laundering. Where Section 32A(1) of the IBC, 2016 confers immunity to the corporate debtor from prosecution, there can be no conviction that can follow.”The court, therefore, ruled that the attachment by the ED over the properties of the Corporate Debtor came to an end with the approval of the resolution plan by operation of law. It directed the ED to communicate the release to the Corporate Debtor and the Resolution Applicants within six weeks. The court also dismissed the writ petition filed by the ED as being devoid of merit.Additional Solicitor General Devang Vyas along with Advocates Ashish Chavan, Shelang Shah & Zishan Quazi represented the Enforcement Directorate.Senior Advocate Vikram Nankani along with Advocates Mayur Khandeparkar, Akanksha Saxena, Aditya Ajgaonkar, G. Aniruth Purusothaman & Joshua Borges represented the Resolution Applicants.Case no. – Writ Petition (L) No. 9943 of 2023Case...

NCLT Has Jurisdiction To Direct ED To Release Attached Properties Of Corporate Debtor: Bombay High Court

Amisha Shrivastava

Tags