High Court Delhi (15.12.2021) in Nitin Jain Liquidator PSL Limited Vs. ED Through Raju Prasad Mahawar, Assistant Director PMLA [W.P.(C) 3261/2021, CM APPLs. 32220/2021, 41811/2021, 43360/2021, 43380/2021] held that;
Regard must also be had to the fact the cessation of prosecution stands restricted to the corporate debtor and not the individuals in charge of its affairs. The PMLA and its provisions stand steadfast and do not stand diluted in their rigour and application against persons who were in control of the corporate debtor. It was this delicate balance struck by the Legislature which met approval in Manish Kumar. Section 32A in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect.
It must consequently be held that the power to attach as conferred by Section 5 of the PMLA would cease to be exercisable once any one of the measures specified in Regulation 32 of the Liquidation Regulations 2016 comes to be adopted and approved by the Adjudicating Authority.
The power otherwise vested in the respondent under the PMLA to provisionally attach or move against the properties of the corporate debtor would stand foreclosed once the Adjudicating Authority comes to approve the mode selected in the course of liquidation.
The Court thus comes to hold that from the date when the Adjudicating Authority came to approve the sale of the corporate debtor as a going concern, the cessation as contemplated under Section 32A did and would be deemed to have come into effect.
Excerpts of the Order;
# 1. The principal question which falls for determination in this writ petition is whether the authorities under the Prevention of Money Laundering Act, 2002, would retain the jurisdiction or authority to proceed against the properties of a corporate debtor once a liquidation measure has come to be approved in accordance with the provisions made in the Insolvency and Bankruptcy Code, 2016. The Petitioner is the Liquidator appointed by the National Company Law Tribunal [the Adjudicating Authority under the IBC] to administer the affairs and the estate of M/S PSL Ltd. The petition has been preferred seeking the following reliefs:
1) Allow the present petition;
2) Issue a Writ of Mandamus of any other appropriate Writ, restraining the Respondent from giving directions to the Liquidator for stopping E-Auction Process and not to take any coercive steps against the Petitioner for performing his duties under the Code, and/or;
3) Allowing the Liquidator to conduct the process of Liquidation, including the e-auction of assets of the corporate debtor as per the Code and/or;
4) Issue a writ of Mandamus or any other appropriate Writ restraining the Respondent from passing any attachment Orders in respect of assets of the corporate debtor and/or;
5) Pass any other order(s) may kindly be passed, which this Hon‘ble Court deems fit and proper, towards the ends of equity, justice and good conscience.‖
# 2. It appears that the Liquidator was compelled to approach this Court upon a receipt of summons issued by the respondent who was investigating the affairs of the corporate debtor under the provisions of the PMLA. When the petition initially came up for consideration before the Court on 17 March 2021, a learned Judge upon hearing counsels for respective parties proceeded to pass the following order: -
7. A perusal of the email issued by the ED clearly shows that the same is not on the basis of any proceedings initiated under Section 5 or 8 of the PMLA. The admitted position is that though investigation is going on, no PAO has been issued against the corporate debtor. Accordingly, the impugned e-mail and any other direction issued by the Respondent against the Liquidator shall remain stayed. In order to maintain a balance and to ensure that there is no prejudice caused, the Liquidator shall proceed in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter,IBC‘). However, if any moveable/immovable assets are disposed of by the Liquidator, the monetary sums recovered from the same shall be placed in a separate bank account and an affidavit stating the recovered amount shall also be placed before this Court. If any amounts are to be disbursed to any of the creditors, an application shall be moved before this Court seeking permission to disburse.
8. The question as to whether the moveable/immovable assets of the Corporate Debtor and the sale thereof during the liquidation process would be permitted under Section 32A of the IBC, would require consideration by this Court.
9. Both parties are permitted to approach this Court if any further clarification is required.
10. Let the counter affidavit, along with a written note of arguments on the scheme of the IBC in respect of Section 32A and its applicability to the facts, be placed on record within four weeks, by both parties. Rejoinder, if any, be filed within four weeks thereafter.
# 3. The learned Judge noted the undisputed fact that although investigation was continuing under the PMLA, no provisional order of attachment had been issued against the corporate debtor. The Court accordingly proceeded to place the impugned e-mail and communications addressed by the respondent to the Liquidator in abeyance. While permitting the petitioner to continue with the liquidation process, it further provided that the proceeds received from any sale of movable or immovable assets of the corporate debtor which may be disposed of by the Liquidator shall be placed in a separate bank account and an affidavit be filed before this Court with respect to the amounts that may be received. The Court further provided that the question of whether the movable or immovable assets and their sale during the liquidation process would be permissible under Section 32A of the IBC, would be taken up for consideration further.
P. SUMMATION
# 101. Upon a conspectus of the aforesaid discussion, the Court records the following conclusions: -
A. The Court notes that the reliefs as framed in the writ petition essentially seek a restraint against the respondent from interfering in the liquidation process which had been set in motion. That challenge cannot stand eclipsed merely on account of the issuance of the provisional order of attachment during the pendency of the writ petition. The authority of the respondent to move against the properties of the corporate debtor after the liquidation process has reached a stage where a particular measure has been approved by the Adjudicating Authority, is a question which would still arise and be open to be urged and contested.
B. The Court also notes that the challenge to the action of the respondent is raised on jurisdictional grounds by the petitioner. That issue cannot be recognised to stand interdicted merely on account of a provisional order of attachment coming to be issued in the interregnum and during the pendency of the writ petition. The preliminary objection is thus negatived.
C. When considering the rival submissions of primacy between the IBC and PMLA as urged by respective counsels, the Court bears in mind that when dealing with two statutes which may independently employ a legislative command for their provisions to have effect notwithstanding anything to the contrary contained in any other law, the first question that must be answered is whether there is in fact an element of irreconcilability and incompatibility in the operation of the two statutes which cannot be harmonized. The issue of incompatibility in the operation of two statutes should not be answered on a mere perceived or facial plane but on a deeper and meticulous examination of the operation of the competing provisions and the subject that is sought to be regulated.
D. The IBC can be aptly described as an economic measure marking a significant departure from the way debt was treated for centuries by statutes prevalent in the country. IBC is firstly envisaged to be an umbrella legislation dealing with varied aspects aimed at speedy insolvency resolution. It also ushered in a regimen where the erstwhile management which earlier continued to hold onto the reigns of the indebted entity as it sunk deeper into debt, now became liable to be removed from control and the corporate debtor taken over by a professional who would take over the management and administration of the debtor pending its insolvency resolution. The third important objective of the IBC was to achieve maximization of value with the assets of the debtor being taken over and being disposed by adoption of fair and transparent means within strict and regimented time lines.
E. The PMLA on the other hand is a statute fundamentally concerned with trying offenses relating to money laundering, following the proceeds of crime and for confiscation of properties obtained in the course of commission of those offenses or connected therewith. It sets up an investigative and adjudicatory mechanism in respect of offenses committed, attachment of tainted properties and other related matters.
F. Viewed in that backdrop, it is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of debts of a corporate debtor, those under the PMLA are concerned with the criminality attached to the offense of money laundering and to move towards confiscation of properties that may be acquired by commission of offenses specified therein. The authorities under the aforementioned two statutes must be accorded sufficient leeway to discharge their obligations and duties within the spheres of the two statutes.
G. In a case where in exercise of their respective powers a conflict does arise, it is for the Courts to discern the legislative scheme and to undertake an exercise of reconciliation enabling the authorities to discharge their obligations to the extent that the same does not impinge or encroach upon a facet which stands reserved and legislatively mandated to be exclusively controlled and governed by one of the competing statutes. The aspect of legislative fields of IBC and PMLA and the imperative to strike a correct balance was rightly noticed and answered by the learned Judge in Axis Bank.
H. The issue of reconciliation between the IBC and the PMLA, in so far as the present cause is concerned, needs to be answered solely on the anvil of Section 32A. Once the Legislature has chosen to step in and introduce a specific provision for cessation of liabilities and prosecution, it is that alone which must govern, resolve and determine the extent to which powers under the PMLA can be permitted in law to be exercised while a resolution or liquidation process is ongoing.
I. The SOA as well as the contemporaneous material noted above, indubitably establishes a conscious adoption of a legislative measure to insulate the resolution applicant from the prospect of prosecution in respect of offenses that may have been committed by the corporate debtor prior to the commencement of the CIRP. This legislative guarantee stands enshrined in Section 32A (1). Similarly, the provision unmistakably also insulates the properties of the corporate debtor from any action that may otherwise be taken in respect thereof for an offense committed prior to the commencement of the CIRP in terms of Section 32A (2).
J. Undisputedly and as has been explained in the decisions of the Supreme Court noticed above, maximization of value would be clearly impacted if a resolution applicant were asked to submit an offer in the face of various imponderables or unspecified liabilities. The amendment to sub-Section (1) of Section 31 and the introduction of Section 32A undoubtedly seek to allay such apprehensions and extend an assurance of the resolution applicant being entitled to take over the corporate debtor on a fresh slate. Section 32A assures the resolution applicant that it shall not be held liable for any offense that may have been committed by the corporate debtor prior to the initiation of the CIRP. It similarly extends that warranty in respect of the properties of the corporate debtor once a resolution plan stands approved or in case of a sale of liquidation assets.
K. A close reading of Section 32A (1) and (2) establishes that the legislature in its wisdom has erected two unfaltering barriers. It firstly prescribes that the offense, which may entail either prosecution of the debtor or proceedings against its properties, must be one which was committed prior to the commencement of the CIRP. Secondly the cessation of liability for the offense committed is to occur the moment a resolution is approved by the Adjudicating Authority or upon sale of liquidation assets.
L. The principal consideration which appears to have weighed was the imperative need to ensure that neither the resolution nor the liquidation process once set into motion and fructifying and resulting in a particular mode of resolution coming to be duly accepted and approved, comes to be bogged down or clouded by unforeseen or unexpected claims or events. The IBC essentially envisages the process of resolution or liquidation to move forward unhindered.
M. The Legislature in its wisdom has recognised a pressing and imperative need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from the vagaries of litigation or prosecution once the process of resolution or liquidation reaches the stage of the adjudicating authority approving the course of action to be finally adopted in relation to the corporate debtor.
N. Section 32A legislatively places vital import upon the decision of the Adjudicating Authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by Section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result in a right being recognised as inhering in the respondent to move against the properties of the corporate debtor even after their sale or transfer has been approved by the Adjudicating Authority. This would clearly militate against the very purpose and intent of Section 32A.
O. It becomes pertinent to recollect that one of primary objectives which informed the introduction of this provision was to assure the resolution applicant that its offer once accepted would stand sequestered from action for enforcement of outstanding claims against the corporate debtor. The imperative for the extension of this legislative guarantee subserves the vital aspect of maximization of value.
P. The issue of creation of an offense or its nullification is a matter of legislative policy. An offense or a crime on a jurisprudential or foundational plane must be founded in law. Manoj Kumar has duly taken note of this aspect when it held that the creation or cessation of an offense is ultimately an issue of legislative policy. The Parliament upon due consideration deemed it appropriate and expedient to infuse the clean slate doctrine bearing in mind the larger economic realities of today.
Q. Regard must also be had to the fact the cessation of prosecution stands restricted to the corporate debtor and not the individuals in charge of its affairs. The PMLA and its provisions stand steadfast and do not stand diluted in their rigour and application against persons who were in control of the corporate debtor. It was this delicate balance struck by the Legislature which met approval in Manish Kumar.
R. Section 32A in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect. Drawing sustenance from the same, this Court comes to the conclusion that the approval of the measure to be implemented in the liquidation process by the Adjudicating Authority must be held to constitute the trigger event for the statutory bar enshrined in Section 32A coming into effect. It must consequently be held that the power to attach as conferred by Section 5 of the PMLA would cease to be exercisable once any one of the measures specified in Regulation 32 of the Liquidation Regulations 2016 comes to be adopted and approved by the Adjudicating Authority.
S. The expression “sale of liquidation assets” must be construed accordingly. The power otherwise vested in the respondent under the PMLA to provisionally attach or move against the properties of the corporate debtor would stand foreclosed once the Adjudicating Authority comes to approve the mode selected in the course of liquidation. To this extent and upon the Adjudicating Authority approving the particular measure to be implemented, the PMLA must yield.
T. The Court thus comes to hold that from the date when the Adjudicating Authority came to approve the sale of the corporate debtor as a going concern, the cessation as contemplated under Section 32A did and would be deemed to have come into effect.
Q. OPERATIVE DIRECTIONS
# 102. Accordingly and for all the aforesaid reasons, this writ petition shall stand allowed in the following terms.
The Liquidator is held entitled in law to proceed further with the liquidation process in accordance with the provisions of the IBC.
The respondent shall hereby stand restrained from taking any further action, coercive or otherwise, against the liquidation estate of the corporate debtor or the corpus gathered by the Liquidator in terms of the sale of liquidation assets as approved by the Adjudicating Authority under the IBC.
The Court grants liberty to the petitioner to move the Adjudicating Authority for release of the amounts presently held in escrow in terms of the interim order passed in these proceedings.
Any application that may be made in this regard by the Liquidator shall be disposed of by the Adjudicating Authority bearing in mind the conclusions recorded hereinabove.
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