Does Moratorium Under IBC Take Away ED's Power To Order Attachment Of Property Under PMLA? Delhi High Court Says No

Observing that assets, which may have been obtained by the commission of a scheduled offense cannot be accorded exemption or immunity from the rigours of the PMLA, the Delhi High Court on Friday ruled that provisions of the money laundering Act are not subservient to the moratorium provision comprised in Section 14 of the Insolvency and Bankruptcy Code, 2006. "Acceptance of such a contention would not only run contrary to the legislative policy but also undermine the efforts of the legislature to combat the offense of money laundering. In fact if Section 14 were to be interpreted in the manner as suggested by the petitioner, it would deprive the authorities charged with implementing the provisions of the PMLA of an essential weapon in their quest to confiscate proceeds of crime," said the court.Section 14(1)(a) of IBC states that the Adjudicating Authority shall declare moratorium for prohibiting 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."Justice Yashwant Varma said PMLA seeks to subserve a larger public policy imperative and is an enactment representing "a larger public interest, namely the fight against crime and the debilitating impact that such activities ultimately have on the society and the economy of nations as a whole"."The Court deems it apposite to note that the Insolvency Law Committee Report, 2016 had pertinently observed in Para 8.11 that the moratorium provision is not liable to be interpreted as barring all possible actions "especially where countervailing public policy concerns are involved". It also took note of laws prevailing in different jurisdictions which permit regulatory actions which though not aimed at collecting moneys for the estate protect other vital and urgent public interests. This view finds reiteration in the UNCITRAL Legislative Guide on Insolvency Law which had recognised "actions to protect public policy concerns" falling outside the ken of a moratorium."The court further said PMLA proceedings are not akin or similar to steps that may be taken by a creditor pursuing an ordinary monetary claim. "The tainted property is not a debt owed to the Government. It is not something which is owed to the Government or a liability which is liable to be discharged or liquidated. On an overall conspectus of the aforesaid, the Court is of the considered opinion that on a fundamental plane, it would be incorrect to read Section 14 as completely shutting out actions under Sections 5 and 8 of the PMLA."The CaseThe court gave the ruling after deliberating on the question regarding the impact that a moratorium, which comes into effect in terms of Section 14 of the Insolvency and Bankruptcy Code, 2006, would have on the powers of the Enforcement Directorate to enforce an attachment under the provisions of the Prevention of Money Laundering Act, 2002.Rajiv Chakraborty, a Resolution Professional Of Era Infra Engineering Limited, before the court has challenged the orders of attachment passed by the ED under PMLA. One of his arguments was that once the moratorium had come into effect, the ED stood denuded of jurisdiction to exercise powers under the PMLA.Attachment under PMLA does not result in extinguishment of property rightsObserving that an attachment under PMLA is essentially aimed at preventing private alienations, Justice Varma added that such attachment does not result in extinguishment or effacement of property rights.The court added that the attachment of property only enables the authorities under the act to restrain any further transactions with respect to the attached property till the time the trial, with respect to the commission of an offence of money laundering, comes to an end."In any case, since the act of attachment does not result in the effacement of rights in property, it would clearly stand and survive outside the scope of a moratorium or an action relating to an action in respect of a debt due or payable," the court said.ED's Power to attach under PMLA would not fall within ambit of Section 14(1)(a) of IBCThe court further ruled that the power of ED to attach under the PMLA would not fall within the ambit of Section 14(1)(a) of the IBC.The court also observed that an order of attachment when made under the PMLA does not result in the corporate debtor or the Resolution Professional facing a "fait accompli.""The statutes provide adequate means and avenues for redressal of claims and grievances. It could be open to a Resolution Professional to approach the competent authorities under the PMLA for such reliefs in respect of tainted properties as may be legally permissible," the court said. The court was of the view that the claims of parties over the property that may be attached and the question of distribution and priorities would have to be settled independently and in accordance with...

Does Moratorium Under IBC Take Away ED's Power To Order Attachment Of Property Under PMLA? Delhi High Court Says No

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Does Moratorium Under IBC Take Away ED's Power To Order Attachment Of Property Under PMLA? Delhi High Court Says No

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