Amendments Needed In IBC To Provide NOC To Successful Resolution Applicants When Plan Over Attached Property Is Approved: Sr Adv Mukul Rohatgi

On Friday, 17th January 2025, a roundtable discussion titled "Understanding the Synergy Between PMLA and IBC" was held at India International Centre, New Delhi by the Insolvency Law Academy (ILA) in collaboration with NM Law Chambers. The event brought together legal professionals, policymakers, and academicians to explore the intersection of the Prevention of Money Laundering Act (PMLA) and the Insolvency and Bankruptcy Code (IBC). The discussion featured three distinguished panelists, Mr. Mukul Rohatgi, Senior Advocate and Former Attorney General for India; Mr. Karnal Singh, Former Director of the Enforcement Directorate (ED); and Mr. Sumant Batra, Insolvency Lawyer and Founder, Insolvency Law Academy.Sr. Adv. Mukul Rohatgi started by discussing the history of insolvency laws before the IBC came into force. He stated that the Recovery Of Debts and Bankruptcy Act, 1993, which catered to distressed assets, was not sufficient to address the problems. Thereafter, the SARFAESI Act was brought in to provide a mechanism for financial institutions to recover their dues by selling the secured assets in a swift manner, but this Act too failed to achieve its objective. When these Acts were not working properly, the Government constituted a committee under the chairmanship of T.K. Vishwanathan. The present IBC was enacted based on the report submitted by this committee. He elaborated that there are two primary objectives of the IBC: firstly, the revival of the distressed company; secondly, maximizing the value of the assets of the company undergoing the revival process. Mr. Rohatgi discussed the provisions of the PMLA and the Vijay Madanlal Choudhary judgment. He remarked that the PMLA is draconian in the sense that it gives sweeping powers to the personnel of the ED to use statements given by a person as a witness under Section 50 against that person if they are later made an accused. Usually, such statements, if given to police officers, are hit by Article 20(3) of the Indian Constitution, which provides that no person shall be compelled to be a witness against themselves. Since ED officers do not fall under the definition of police officers, the bar under Article 20(3) does not apply to them. This was one of the arguments before the Supreme Court in Vijay Madanlal, as the ED officers have powers similar to police officers, and they should also be subjected to the same constraints a normal police officer is subject to, but this argument was rejected. He further opined that the Supreme Court, in the Toofan Singh case, while interpreting the provisions of the NDPS Act, held that NDPS officers are police officers. Therefore, the Court should have followed this judgment and declared ED officers as police officers too. The question of Section 50 is pending review before the Supreme Court. Coming to the main topic, he said that an order of attachment of properties of a person can be passed by officers under Section 5 of the PMLA on the basis of a reasonable belief that such a person is in possession of proceeds of crime, has committed a scheduled offence, etc. He raised the main issue: Section 32A of the IBC clearly states that a corporate debtor is not liable for offences committed before the commencement CIRP, and its properties covered by the resolution plan cannot be attached. In light of this, he questioned whether the ED can justify continuing its attachment of such properties or if it must lift the attachment once conditions under Section 32A are met. He said that although the ED must lift its attachment over the properties of the corporate debtor once a resolution plan is approved by the Adjudicating Authority, as the word “shall” is used under the section, still the resolution applicant is compelled to file a discharge application before the Adjudicating Authority constituted under the PMLA for this purpose. He argued that this will discourage prospective applicants from coming forward to buy the corporate debtor as a going concern. He suggested that an amendment should be brought in, and the power to remove attachment over the properties of the corporate debtor must be given to the NCLT constituted under the IBC. He further opined that a specific provision should also be incorporated stating that once a resolution plan is approved and Section 32A comes into operation, a NOC should be issued in favor of the successful resolution applicant. He also stated that the twin conditions provided under sub-clauses (a) and (b) of Section 32A were not required, as they dilute the intent of this provision, given that similar provisions are already engrafted under Section 29A of the IBC with respect to eligibility to submit a resolution plan. He opined that satisfying these two conditions will be an uphill task for applicants to prove or establish, as they will be moving from one authority to another to do the same. Adv. Sumant Batra interjected...

Amendments Needed In IBC To Provide NOC To Successful Resolution Applicants When Plan Over Attached Property Is Approved: Sr Adv Mukul Rohatgi

Mohd Malik Chauhan &Tazeen Ahmed

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