National Company Law Appellate Tribunal (NCLAT) has held that section 14 of Insolvency and Bankruptcy Code does not apply to properties attached as proceeds of crime under the Prevention of Money Laundering Act.
In the present case, the Bank of Baroda had initiated 'Corporate Insolvency Resolution Process'
against 'Rotomac Global Private Limited' (Corporate Debtor) which was followed by the Adjudicating Authority allowing such liquidation to take place. Meanwhile, Enforcement Directorate, upon information received from CBI, started investigating the Corporate Debtor and attached its properties as 'proceeds of crime' under section 5 of Prevention of Money Laundering Act. This attachment made it impossible for the Liquidator to carry on the process with regards to the properties thereby attached.
Enforcement Directorate argued that that the mortgage or creating a charge over the properties of the Corporate Debtor in favour of the banks and other lenders are the only encumbrance of the properties. Therefore, in view of Section 9, if confiscation has been made under sub-section (6) of Section 8, such property shall vest in the Central Government free from all encumbrances. Further, it was contended that the State will have the first right to confiscate the proceeds of crime over the right of a person to recover their debts from an accused.
The Appellate body relied upon its own judgment in Varrsana Ispat Limited vs. Deputy Director, Directorate of Enforcement which categorically held that section 14 is not applicable to the criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act having the essence of crime or crime proceeds.
Commenting upon the possible overriding effect of one Act over the other, it was opined that as the 'Prevention of Money Laundering Act, 2002' relates to different fields of penal action of 'proceeds of crime', it invokes simultaneously with the 'I&B Code', having no overriding effect of one Act over the other.
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