Dissolution Under IBC Can't Be Used To Frustrate Ongoing PMLA Proceedings: NCLT Delhi

The National Company Law Tribunal (NCLT), New Delhi bench of Shri Bachu Venkat Balaram Das and Dr. Sanjeev Ranjan (Technical Member) rejected an application seeking dissolution of M/s Shakti Bhog Snacks Limited under Section 54 of the Insolvency and Bankruptcy Code, 2016. The Tribunal held: “Dissolution under Section 54 of the IBC results in the Corporate Debtor ceasing to exist as a legal entity. Such a consequence would inevitably frustrate the ongoing criminal prosecution under the PMLA and defeat the authority and jurisdiction of the Ld. Special Court, which is statutorily vested with the power to try offences under the PMLA and adjudicate upon related attachments and confiscation proceedings” Background Facts: M/s Goyal Tea Agencies Private Limited, Operational Creditor filed an application under Section 9 of the code, for initiation of Insolvency Proceedings against the Corporate Debtor ,M/s Shakti Bhog Snacks Limited. Thereafter, the Insolvency Proceedings commenced on January 3, 2023.On admission, a moratorium under Section 14 of the Code was declared and Mr. Umesh Gupta was appointed as a Resolution Professional. Pursuant to the public announcement, claims were invited from all classes of creditors, including Financial Creditors, Operational Creditors, employees and workmen. However, only one claim was received from the Financial Creditor, i.e., State Bank of India. Upon commencement of CIRP, the Resolution Professional tried to take charge of the assets and records of the Corporate Debtor. He emailed the suspended directors, intimating them regarding the commencement of the CIRP and requested necessary documents and information. He also contacted one of the Suspended Directors, telephonically, seeking cooperation and contact details of other directors. However, the director refused to provide any assistance. Despite follow-up reminders by the Resolution Professional there was no response from the Suspended Directors. This non-cooperation compelled the Resolution Professional to file an application under Section 19(2) of the Code. The notices of the application were duly served, however the directors neither appeared nor filed replies. Due to repeated non-cooperation, the Resolution Professional visited the registered office of Corporate Debtor. On visit, he found that the premises of office were sealed by the Enforcement Directorate and no records or documents were found. Also financial statements of only year 2015–2016 were available. The land and building belonging to the Corporate Debtor, were sold by the State Bank of India under the SARFAESI Act in December 2019. Thereafter, the Resolution Professional filed the Dissolution application, stating that in cases where there are no assets to liquidate and no prospects of revival, the Adjudicating Authority is empowered to directly dissolve the Corporate Debtor under Section 54 of the Code, without undergoing the liquidation process. Enforcement Directorate's Objection: To the dissolution application, the Enforcement Directorate filed their reply informing about the ongoing proceedings of the Corporate Debtor and its group entities under the Prevention of Money Laundering Act, 2002. They submitted that the Corporate Debtor which is a group company was being used by M/s Shakti Bhog Foods Limited to rotate its loan funds against bogus invoices. Investigations revealed that SBSL acquired proceeds of crime worth ₹97.87 crore and transferred ₹127.81 crore to other group companies between FY 2007–08 and 2014–15 without any actual movement of goods. These transactions allegedly inflated SBFL's financials to secure further bank credit. They further contended that one of the bank accounts of the Corporate Debtor had been attached under PMLA proceedings. The Corporate Debtor, has been arrayed as an accused in the Supplementary Prosecution Complaint filed in September 2024, and a summons had been issued by the Special Court under PMLA. The Court has taken cognizance of the complaint and issued summons to all accused, including SBSL. The ED argued that dissolution would frustrate the ongoing trial and the enforcement of attached properties. Findings: The Tribunal observed that the application under Section 54 of the Code had been filed seeking dissolution of the Corporate Debtor, on the ground that there are no assets, no ongoing business operations, and no scope for revival. The Tribunal further noted that in the midst of ongoing proceedings and grave and substantiated allegations of money laundering of the Corporate Debtor before the PMLA, ordering dissolution now would extinguish the Corporate Debtor's legal existence, which would frustrate the ongoing criminal prosecution. Further, the Tribunal emphasized that the PMLA is a special and self-contained legislation designed to prevent, detect, and punish acts of money laundering. It provides for its...

Dissolution Under IBC Can't Be Used To Frustrate Ongoing PMLA Proceedings: NCLT Delhi

Mehak Aggarwal

Tags