NCLT Hyderabad: 'Provisional Order Of Attachment' Made Under PMLA Would Not Nullify The Protection Granted Under Section 32A IBC

Section 32A stipulates that once Resolution Plan is approved by the Adjudicating Authority after completion of CIRP, there cannot be attachment or confiscation of assets of Corporate Debtor, as otherwise same will defeat objects of the insolvency Regime.

Facts and Background

The applicant “SREI Multiple Assets Investment Trust” is a successful resolution applicant (SRA); respondent no. 1 is the Enforcement Directorate; respondent no. 2 is the Chairman of the Supervisory Committee of the Corporate Debtor; and respondent no. 3 to 6 are the pro forma parties.

By the order dated July 5, 2017, Deccan Chronicle Holdings Limited was admitted into CIRP, and Ms. Mamta Binani (respondent No. 2) was appointed as Resolution Professional. Ms. Mamta Binani (Respondent No. 2) took all the required steps, such as the constitution of the COC and inviting expressions of interest. After extension of the date for receiving Expression of Interest (EoI), 11 participants submitted EoIs, out of whom two Resolution Applicants were at the forefront, viz. Arm Infra & Utilities and SREI Multiple Assets Investment Trust (the applicant).

In the 15th CoC, the resolution plan submitted by the applicant was approved with 81.30% votes under Section 30(4) of the Code. Ultimately, the CIRP was concluded on February 15, 2019. NCLT Hyderabad on June 3, 2019, approved the resolution plan submitted by Ms. Mamta Binani (respondent No. 2).

Further, the provisional order of attachment dated October 15, 2020, issued by Enforcement Directorate (respondent No. 2) under Section 5(1) PMLA, attaches immovable properties valued at Rs. 1,22,15,06,450/- for a period of 180 days.

In response to the 'Provisional Order of Attachment', the applicant filed a petition seeking relief. The Hon'ble NCLAT, vide order dated January 21, 2022, set aside order dated June 3, 2019, passed by this Tribunal approving the resolution plan.

Further, Canara Bank (Financial Creditor) challenged the above NCLAT order dated January 21, 2022, before the Hon'ble Supreme Court of India. The Supreme Court upheld NCLT order dated June 3, 2019, regarding the implementation of the resolution plan.

The applicant files this application under Sections 32A and 60(5) of the IBC with the prayer of obtaining a declaration asserting that the assets and/or properties belonging to the corporate debtor, as outlined in the resolution plan, are not subject to attachment by the Enforcement Directorate (Respondent No. 1). Additionally, the applicant seeks the annulment of the provisional order of attachment issued under Section 5(1) of PMLA.

Arguments by the Applicant

The assets of the corporate debtor cannot be attached as they form an integral part of the approved resolution plan as approved by this Tribunal. The same, having been upheld by the Honourable Supreme Court, is now binding on all the stakeholders.

Relying on newly introduced Section 32A of the IBC, the applicant contends that a corporate debtor cannot be prosecuted for an offense committed prior to the commencement of the CIRP once the resolution plan has been approved by the Tribunal.

By giving reference to Manish Kumar vs. Union of India [(2021) 5 SCC 1], the applicant contends that the applicant cannot be faulted for the offenses committed by the erstwhile promoters of the corporate debtor and that the assets of the corporate debtor under the resolution plan cannot be attached by the Enforcement Directorate (Respondent No. 1).

The order of attachment made under Section 5(1) of PMLA by the Enforcement Directorate (respondent no 1) in respect of the assets and properties of the corporate debtor forming part of the approved resolution plan is unsustainable and untenable under law as the said property is immune from the impugned provisional order of attachment under Section 32A of IBC.

It was contended by the applicant that they are not concerned with the first PAO since it was passed prior to the approval of the resolution plan. However, the applicant is aggrieved with the second PAO since it was passed after approval of the resolution plan.

It was contended that the subject properties do not fall under any of the exemptions enshrined in Section 32A IBC, and the impugned provisional order of attachment, therefore, is liable to be quashed or vacated.

It was further contended that if there is any substance in the submissions of the Enforcement Directorate (Respondent No 1), the matter should be sent to the CoC so that RP may publish a fresh request for resolution plans on the basis of a fresh information memorandum, which would exclude the assets that were attached by the ED.

Arguments by the Respondent No 1 (Enforcement Directorate)

The resolution plan of the corporate debtor cannot be implemented as the resolution plan deals with the attached property of the corporate debtor. If the resolution plan is implemented without considering provisional attachment orders, it will be detrimental to all the stakeholders, including the enforcement directorate and the successful resolution applicant.

Section 71 of the PMLA shall have effect notwithstanding anything inconsistent therewith contained in any other law, and the PMLA is a special law dealing with the proceeds of crime and tainted money and arresting the circulation of tainted or laundered money in the system.

The orders of attachment made under PMLA cannot be considered or ruled upon by NCLT under IBC. The provisions of the IBC cannot be interpreted in a manner to defeat the objective of the Prevention of Money Laundering Act, 2002.

The challenge to the order of attachment made under PMLA would neither lie before this Tribunal nor would this Tribunal have jurisdiction to rule on the validity or otherwise of the provisional order of attachment passed under the PMLA.

The present application is, per se, not maintainable before this Tribunal, and the same is liable to be dismissed.

It was contended that the resolution plan of the applicant submitted before the Committee of Creditors by the resolution professional itself is in violation of Section 30(2) of the IBC, which requires confirmation that the “resolution plan submitted by the resolution applicant does not contravene any provisions of law for the time being in force.”.

NCLT Verdict

It was observed that the impugned provisional order of attachment of the properties and assets of the corporate debtor has been passed after the approval of the resolution plan of the applicant, and the same is true of some of the properties that are covered under the said approved resolution plan.

The Bench cleared that "we are not entering into any discussion or intend to arrive at a finding on the maintainability, per se, of the impugned order of attachment of the properties that formed part of the approved resolution plan, as the same is not in the scope of our present job.".

Bench mentioned that their inquiry, therefore, is confined only to finding "whether the provisional order of attachment under Section 5(1) of the PMLA, in respect of the properties of the corporate debtor covered under the approved resolution plan, would wipe out the protection available to such properties under Section 32A of the IBC?"

Bench, while relying on the categorical findings by the Hon'ble Supreme Court in the case of Manish Kumar vs. Union of India [(2021) SCC Online SC 30], observed that the case makes it clearer than crystal that the property that formed part of the resolution plan duly approved under the provisions of the IB Code enjoys the protection enshrined in Section 32A of the IBC.

The Tribunal further held that the said protection of Section 32A needs to be 'extended' to the 'provisional order of attachment made under the provisions of the PML Act, lest the very purpose of introducing Section 32A by way of an amendment by the legislature get defeated. Therefore, for the said limited extent, this Tribunal can exercise its jurisdiction as enshrined in subsection 5(c) of Section 60 of the IBC.

The Tribunal holds that, in terms of Section 60(5)(c) of the IBC, this adjudicating authority has the jurisdiction to adjudicate on the impugned provisional order of attachment only to the extent of examining whether the 'protection' envisaged under Section 32A of the IB Code can be extended to the properties of the corporate debtor forming part of the approved resolution plan till a resolution takes place or the sale of liquidation assets occurs.

The Tribunal holds that all the assets and properties of the corporate debtor, which formed part of the approved resolution plan for the resolution of the insolvency of the corporate debtor, are immune from the provisional order of attachment made vide dated October 15, 2020, under Section 5(1) of PMLA.

Case Title: (Canara Bank vs Deccan Chronicle Holdings Limited)

Bench: DR. VENKATA RAMAKRISHNA BADARINATH NANDULA, HON'BLE MEMBER (JUDICIAL) SH. CHARAN SINGH, HON'BLE MEMBER (TECHNICAL)

Case Number : IA.No.738 OF 2023

Counsel for Applicant : Shri Joy Sha, Senior Counsel with Shri Abhishek Dash, Advocate.

Counsel for Respondents: Shri D. Narender Naik, Advocate (For respondent No 1), Shri Mayur Mundra, Erstwhile RP (For respondent NO 2), Shri N. Satyanarayana Babji, Advocate (For respondent No 4), Shri B.V.N. Sai Charan, Advocate (For respondent NO 6)

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