Jurisdiction Of Authorities Under PMLA To Proceed Against Properties Of Corporate Debtor Ceases Once Liquidation Approved Under IBC: Delhi High Court

The Delhi High Court has adjudicated on the question as to whether the authorities under the Prevention of Money Laundering Act, 2002 would retain the jurisdiction or authority to proceed against properties of a corporate debtor once a liquidation measure has come to be approved in accordance with Insolvency and Bankruptcy Code, 2016.

Justice Yashwant Varma in a detailed order held that the power to attach as conferred by sec. 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.

It added that accordingly power vested 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," the Court said.

It added:

"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."

The Court reasoned that sec. 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.

"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," the Court held.

On the issue of reconciliation between the IBC and the PMLA, the Court observed that 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.

Furthermore, the Court held 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.

In this backdrop, the Court was of the opinion that the authorities under the two statutes must be accorded sufficient leeway to discharge their obligations and duties within the spheres of the two statutes.

"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," it said.

The Court was dealing with a petition filed by a liquidator appointed by the NCLT, the Adjudicating Authority under the IBC, to administer the affairs and the estate of M/S PSL Ltd. The Liquidator was compelled to approach the High Court upon a receipt of summons issued by the Enforcement Directorate who was investigating the affairs of the corporate debtor under the provisions of the PMLA.

The plea was therefore filed seeking a direction to restrain ED 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.

The Court allowed the petition while making the aforesaid observations and held the Liquidator entitled in law to proceed further with the liquidation process in accordance with the provisions of the IBC.

The Court restrained ED 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," the Court added.

Title: NITIN JAIN LIQUIDATOR PSL LIMITED v. ENFORCEMENT DIRECTORATE THROUGH: RAJU PRASAD MAHAWAR, ASSISTANT DIRECTOR PMLA

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