Section 14 Of IBC Would Not Bar A Proceeding Under PMLA: NCLT Ahmedabad Reiterates

Background Facts

M/s Mayfair Leisure (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) on 02.06.2020 and an Interim Resolution Professional (“IRP”) was appointed. Public announcement from inviting claims from creditors was issued on 13.06.2020 and claims from only one Financial Creditor i.e. Bank of India was received. An e-mail dated 22.06.2020 was received by the IRP from the Suspended Management through which he was informed that the property of the Corporate Debtor located in Vadodara had been attached by the CBI on 05.04.2018 and the attachment was confirmed by the Hon’ble Gujrat High Court in 2019. It was further stated the property has been attached by the Enforcement Directorate (“ED”) by a provisional attachment order dated 24.04.2018, which was confirmed by the Hon’ble PMLA Appellate Tribunal vide its order dated 03.12.2018. Vide an order dated 12.05.2020, the Hon’ble PMLA Appellate Tribunal had directed the status of the property to be maintained as it was on 07.04.2018.

It was submitted by the IRP that he is neither able to take the possession of the property nor dispose it off due to the order dated 12.05.2020. ED has not filed its claim with the IRP and the IRP vide a letter dated 21.07.2020 requested the ED to release the attached property. Hence the present application was filed seeking release of attached property by the ED.

The Deputy Director of Director of Enforcement responded the present application by submitting that a money laundering case was registered by ED, Ahmedabad on 05.04.2018. The case was filed on the basis of an FIR dated 26.03.2018 by the CBI against M/s. Diamond Power Infrastructure Ltd (“DPIL”) under, inter alia, Section 420, 467, 468 IPC, 1860 and Section 13 of Prevention of Corruption Act, 1998. It was submitted that DPIL used its related parties including the Corporate Debtor to indulge in suspicious transactions during the period of 2010-2011 to 2016-2017. It was revealed in the investigations that these transactions were mere paper transactions without any transfer of goods in order to present a false picture of business health to banks. Huge amounts of loans and credits received by DPIL were diverted to the Corporate Debtor and used in the real estate business of these companies. It was further submitted that the attachment order of the properties was issued much prior to the admission of the instant application. It was submitted that the present application is not maintainable as once it is established that money involved in the case is laundered, the provisionally attached properties will stand confiscated and will be dealt as per section 8(8) of PMLA, 2002.

Observations of the Tribunal

The Tribunal observed that the Corporate Debtor was admitted into CIRP vide an order dated 02.06.2020 but the property was already attached by the ED by a provisional attachment order dated 24.04.2018 which was confirmed by Hon’ble PMLA Appellate Tribunal vide order dated 03.12.2018. Further, vide an order dated 12.05.2020, the Hon’ble PMLA Appellate Tribunal had directed the status of the property to be maintained as it was on 07.04.2018 during the course of investigation of the money laundering under PMLA, 2002.

The Tribunal observed that complaint has been filed before the Hon’ble Special Court under the PMLA, 2002, for confiscation of the attached properties and prosecution of the accused persons. Thus criminal action under PMLA, 2002 was already taken by the Respondent on 24.04.2018, much prior to the admission of the instant application.

The Tribunal reiterated that it has no jurisdiction to go into the matters governed under the PMLA, 2002 and, therefore, section 14 of IBC, consequent upon an order passed by the Adjudicating Authority declaring moratorium, would not apply to the PMLA, 2002, which is a distinct and special statute having its own objective. Thus section 14 would not bar a proceeding under the PMLA Act, 2002. It relied on the judgement of Madras High Court in Deputy Director, office of the Joint Directorate of Enforcement vs. Asset Reconstruction Company of India Ltd. and others (Writ Petition No. 29970 of 2019 and WMP Nos. 29872 and 34971 of 2019), wherein it was held that Section 14 would not bar a proceeding under the PMLA, 2002.

With the aforesaid observations, the Tribunal ordered the applicant IRP to approach the Competent Forum under PMLA, 2002 or any other Jurisdictional Forum in accordance with the law and rejected the application.

Case: Chandra Prakash Jain, IRP For MayFair Leisures Ltd. Vs Deputy Director, Directorate of Enforcement in the matter of Bank of India vs M/s Mayfair Leisures Ltd

Case No. :IA NO. 608 of 2020 in CP (IB) NO. 213/7/NCLT/AHM/2018,

Counsels for the Applicant:Adv. Monaal J. Davawala

Counsel for the Respondent :Adv. Sudhir K Gupta

Counsel for Suspended Management: Adv. Kunal P Vaishnav

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