No Attachment Of Property Under PMLA Once Liquidation Commences: NCLT Jaipur

Background Facts

M/s Emgee Cables and Communication Limited (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (‘CIRP’) on 27.07.2018. Subsequently, the Adjudicating Authority passed an order for liquidation of Corporate Debtor and appointed a Liquidator on 25.09.2019.

On 12.12.2019 the Deputy Director of Directorate of Enforcement, passed a provisional attachment order under Section 5(1) of the Prevention of Money Laundering Act, 2002 (‘PMLA’), with respect to the properties of the Corporate Debtor. The provisional attachment Order was set aside by Adjudicating Authority on 07.09.2020.

The Directorate of Enforcement filed a Writ Petition before the High Court of Rajasthan, challenging the order dated 07.09.2020. The writ petition is pending adjudication. A Contempt Petition has also been filed against the Directorate of Enforcement, for not complying with the order dated 07.09.2020.

The Liquidator filed an application before the Adjudicating Authority, seeking direction to conduct auction of the Corporate Debtor’s properties, which were attached by the Directorate of Enforcement.

The Liquidator contended that Dena Bank (Financial Creditor) submitted a claim form on 22.10.2019 with respect to the properties attached by the PMLA. The said properties were mortgaged with Dena Bank and the same has relinquished security interest in favour of the Liquidator. Resultantly, the Liquidator is empowered to sell the said properties, as they form part of the Liquidation Estate under IBC.

The Directorate of Enforcement argued that the Corporate Debtor cannot escape from its liability under the PMLA, merely because the assets of Corporate Debtor are subject to liquidation proceeding under IBC.

Relevant Law

Section 32A of IBC

“Section 32A. Liability for prior offences, etc.

(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person.”

NCLT Verdict

The Bench observed that PMLA is not empowered to attach the property of the Corporate Debtor, once order of the Liquidation has already been passed. Further, the attachment of the properties of the Corporate Debtor under PMLA has to be lifted in lieu of Section 32A of the IBC.

“Thus, the IBC creates a specific bar with respect to proceedings that may be initiated under the PMLA by virtue of the provisions contained in Section 32A. Moreover, Section 32A cannot possibly be read as being applicable prior to a Resolution Plan being approved or a liquidation measure being enforced. Further, it can therefore be construed that the objective and intention of the Code is providing a free hand to the creditors if the properties of the Corporate Debtor are attached then it will jeopardize the Liquidation Process.”

The Bench directed the Liquidator to carry out auction of the properties of the Corporate Debtor, after approval from the stakeholders. The Enforcement Directorate is at liberty to prefer their claim, if any, to the Liquidator.

Case Title: M/s Packwell (India) Ltd. v M/s Emgee Cables and Communication Ltd

Case No.: CP No. (IB)- 601/ND/2018

Counsel For Applicant: Anubha Singh, Adv.

Counsel for Respondent: Anand Sharma, Adv.

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