IBC Overrides PMLA; No Attachment Possible Under PMLA During Insolvency Process : NCLT [Read Order]

IBC Overrides PMLA; No Attachment Possible Under PMLA During Insolvency Process : NCLT [Read Order]

The Adjudicating Authority under PMLA does not have jurisdiction to attach the properties of the Corporate Debtor undergoing Corporate Insolvency Resolution Process

The Insolvency and Bankruptcy Code 2016(IBC) will prevail over the Prevention of Money Laundering Act 2002(PMLA), and hence no attachment can be ordered under PMLA against the assets of corporate debtor undergoing insolvency process.

This was held by the National Company Law Tribunal, Mumbai bench, allowing an application moved by Resolution Professional of Sterling SEZ and Infrastructure Ltd, against which an application under Section 7 of IBC was admitted.

The Enforcement Directorate(ED) had initiated proceedings under the PMLA against Sterling on allegations of money laundering worth Rs 4274 crores. A provisional order of attachment was passed against some of the assets of Sterling by the Adjudicating Authority under the PMLA on May 29, 2018. After the NCLT admitted the insolvency petition against Sterling on July 16, 2018, the Adjudicating Authority under PMLA confirmed the provision attachment on November 20,2018.

In this backdrop, the Resolution Professional moved an application before NCLT under Section 60(5) IBC seeking lifting of attachment under PMLA, stating that IBC has overriding power over PMLA as per Section 238. It was also contended that the attachment after the admission of insolvency petition was hit by moratorium under Section 14.

The ED opposed the petition stating that the proceedings under PMLA were criminal in nature, and were not hit by Section 14 IBC. The attached properties were proceeds of crime and were hence liable to be confiscated, submitted the ED.

To resolve the controversy, the Tribunal appointed Advocate Mayur S Khandeparkar as amicus curiae for assistance. The amicus opined in favour of the Resolution Professional. However, the amicus suggested that it would be better for the resolution applicant to move the Adjudicating Authority under PMLA for lifting the attachment.

The Bench ordered the lifting of attachment on the following grounds :

  • Section 238 gives overriding power to PMLA. Also, IBC is a later legislation.
  • Attachment proceedings under PMLA are civil proceedings. Hence they are hit by morotorium under Section 14 IBC.
  • Section 63 of IBC ousts jurisdiction of civil courts and other authorities in respect of matters in which NCLT has jurisdiction.

Referring to the judgment of Appellate Tribunal under PMLA in the case Bank of Baroda vs Deputy Directorate Enforcement, Mumbai, the Tribunal bench of Bhaskara Pantula Mohan (Judicial Member) and V Nallasenapathy (Technical Member) observed :

the Adjudicating Authority under PMLA does not have jurisdiction to attach the properties of the Corporate Debtor undergoing Corporate Insolvency Resolution Process.

The February 12 order of the Tribunal noted that both the statutes had the similar objectives - to protect the interests of creditors. However, the criminal proceedings under PMLA will take a longer time, whereas the process under IBC is time-bound. It was observed :

Here the beneficiaries are the creditors of the Corporate Debtor. The criminal proceedings before PMLA will take a longer time and by the time there will be an eroison in the value of assets. However, considering the overriding provisions of Section 238 of IBC which is the later legislation when compared to the earlier legislation of PMLA, the provisions of IBC will prevail and hence considering the economic interest of the beneficiaries, the IBC will provide solution at the earliest to the Corporate Debtor as well as to the Creditors.

Therefore, the Tribunal was not inclined to accept the suggestion of amicus that application for lifting attachment should be moved before the Adjudicating Authority under PMLA. If that route is followed it may take a considerable time and the assets will be locked in the proceedings, observed the Tribunal.

Read Order