Successful Resolution Applicant Entitled Benefit Of Protection U/S 32A IBC To Lift ED's Attachment Over Corporate Debtor's Assets: NCLAT New Delhi

Brief Facts

The corporate debtor was admitted into insolvency on October 10, 2021. Resolution plan submitted by the appellant was approved by Committee of Creditors with 100% vote share on October 18, 2023. Thereafter, a letter of intent was issued to the appellant on October 20, 2023. Consequently, Resolution Professional filed an application bearing IA No. 01/2024 in which the approval of the plan from the NCLT was sought.

The appellant in the resolution plan submitted sought to vacate attachments on the assets of corporate debtor by the Enforcement Directorate (ED) under Prevention of Money Laundering Act (PMLA). This request was made by Successful Resolution Applicant (SRA) so that the assets could be monetised and developed as per the resolution plan. The appellant contended that all government related attachments on the corporate debtor's properties should be vacated after the approval of the Resolution Plan.

NCLT Decision

The resolution plan was approved by the NCLT on July 4, 2024 but it refused to vacate the attachments over the properties by the ED under the PMLA. The Tribunal observed that it will lead to dangerous consequences if the properties attached under the PMLA are released automatically once a resolution plan is approved. The Tribunal concluded that the SRA would be entitled to reliefs, waivers and concessions if any what is explicitly mentioned in section 31(1) and 32A of the IBC therefore properties attached by the ED would not be released.

Issue Before NCLAT

Whether Successful Resolution Applicant (SRA) is entitled to the benefit of Section 32A of IBC to lift the attachment under PMLA by Enforcement Directorate over the assets of the Corporate Debtor.

NCLAT's Analysis

The NCLAT observed that the NCLT erred in not extending the benefit of section 32A of the IBC to the appellant. The tribunal relied on the judgment of the Bombay High Court in Shiv Charan and Ors. vs. Adjudicating Authority and Anr. (2024) in which it was held that once a resolution plan is approved, the corporate debtor is entitled to the benefit of section 32A of the IBC. No assets can be attached of the corporate debtor for the offences committed before commencement of CIRP. It was held as under:

“The Bombay High Court in Shiv Charan and Ors. vs. Adjudicating Authority under the Prevention of Money Laundering Act, 2002 and Anr. – Writ Petition (L) No.9943 of 2023has categorically held that Section 32-A mandates that once a Resolution Plan is approved, no action can be taken against the properties of the Corporate Debtor in relation to an offence committed prior to the commencement of the CIRP of the Corporate Debtor. It was also held by the Bombay High Court that NCLT has all powers to direct the ED to raise its attachment in relation to the attached properties of the Corporate Debtor, once a Resolution Plan qualifies for immunity under Section 32A was approved. The Bombay High Court has also held that NCLT does not lack jurisdiction to use its judicial discretion to adjudicate upon the release of the attachment”.

The NCLAT further noted that the NCLT wrongly interpreted the judgment of the Delhi High Court in Rajiv Chakraborty vs. Directorate of Enforcement (2022) in which the court recognised the power of attachment under PMLA. But it also culled out the legislative intent behind incorporating section 32A of the IBC which creates an impregnable wall around the new management of the corporate debtor after the approval of resolution plan. The tribunal held that once the resolution plan qualifies for immunity under section 32A of the IBC, invocation of powers under PMLA ends. It was observed as under:

“The reliance on judgment of the Delhi High Court in Rajiv Chakraborty's case for not accepting the prayer of the Appellant is also misplaced. In Rajiv Chakraborty's case, the Delhi High Court has laid down that power to attach under PMLA would not fall within the ken of Section 14(1)(a). Whereas in the same judgment, Section 32A has been noticed and the Delhi High Court has laid down that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to the erection of an impregnable wall which cannot be breached by invocation of the provisions of the PMLA. The non obstante clause finding place in the IBC thus can neither be interpreted nor countenanced to have an impact far greater than that envisaged in Section 32A. The aforesaid issue stands answered accordingly”.

The NCLAT further referred to judgment of the Supreme Court in Manish Kumar v. Union of India wherein the constitutional validity of section 32A was upheld. It was further held by the Supreme Court that new management of the corporate debtor is free from past liabilities and attachments after the approval of Resolution Plan. It was observed as under:

“In the judgment of  Manish Kumar vs. Union of India and Anr. – (2021) 5 SCC 1 challenge to Section 32-A was repelled and while repelling the challenge to Section 32-A, the Hon'ble Supreme Court examined the legislative scheme of Section 32-A. The Hon'ble Supreme Court has clearly held that Section 32-A has been engrafted in the legislation, which is a legislative scheme and if legislature thought that immunity be granted to the Corporate Debtor or its property, it hardly furnishes a ground for this Court to interfere. The extinguishment of the criminal liability of the Corporate Debtor is apparently important to the new management to make a clean break with the past and start on a clean slate”.

Conclusion

The NCLAT concluded that assets of the Alchemist Infra Reality Ltd .are qualified to be protected under section 32A of the IBC therefore they cannot be attached by the ED under PMLA after the approval of resolution plan. The tribunal directed the ED to release the attached assets. Consequently, the decision of the NCLT to the effect that successful resolution applicant was not entitled to the benefit of section 32A of the IBC, was set aside.

Case Title: Vantage Point Asset Pte. Ltd.v.Gaurav Misra (RP)

Court: National Company Law Appellate Tribunal, New Delhi

Case Reference: Company Appeal (AT) (Insolvency) No. 1495 of 2024
Judgment Date: 13/08/2024