Provisional Attachment Under PMLA Subsequent To Initiation Of CIRP: Supreme Court To Consider The Issue

The issue in the petition concerns whether an order of provisional attachment passed under Prevention of Money Laundering Act, 2002 ("PMLA") would prevail over Insolvency and Bankruptcy Code, 2016 ("IBC") or not, if the said order has been passed subsequent to initiation of Corporate Insolvency Resolution Process ("CIRP").

Background Facts

Kohinoor Steel Private Limited ("Corporate Debtor") was admitted into CIRP by the Adjudicating Authority on 20.11.2019. Mr. Ashok Kumar Sarawagi ("Petitioner/Resolution Professional") was appointed as the Resolution Professional and had invited Expression of Interest thereby inviting Resolution Plans for the Corporate Debtor.

Thereafter, the PMLA Court by invoking provisions of the Prevention of Money Laundering Act, 2002 ("PMLA") had passed an order on 30.12.2021 for provisional attachment of the Corporate Debtor's immovable and moveable assets. The Resolution Professional had filed an application before the Adjudicating Authority seeking setting aside of the provisional attachment order. However, on 02.03.2022 the Adjudicating Authority dismissed the application with following observations:

"We are of the view that this Adjudicating Authority, with utmost regard to the order relied upon by the Applicant, is bound by the order dated 3rd of January, 2022 passed by Hon'ble 3 Member Bench of NCLAT which took the view that NCLT is not empowered to deal with the matters falling under PMLA. In the present case since notice impugned has been issued under the Prevention of Money Laundering Act, 2002 therefore, this application is not maintainable and the same is hereby rejected."

Thereafter, the Resolution Professional filed an appeal before the NCLAT challenging the Adjudicating Authority's order dated 02.03.2022. The NCLAT Bench placed reliance on its previous judgments passed in (i) Varrasana Ispat Limited Vs. Deputy Director of Enforcement, Company Appeal (AT) (Insolvency) No.493 of 2019 and; (ii) Kiran Shah vs. Enforcement Directorate, Company Appeal (At) (Ins.) No.817 of 2021, wherein it was held that Adjudicating Authority is not empowered to deal with the matters falling under the purview of PMLA. The NCLAT vide an order dated 09.05.2022 upheld the Adjudicating Authority's order and dismissed the appeal.

The Resolution Professional filed a Special Leave Petition before the Supreme Court challenging the NCLAT order dated 09.05.2022. The Resolution Professional contended that the order of PMLA Court for provisional attachment in their case was passed after initiation of CIRP. Whereas, in the already decided cases of Varrasana Ispat Limited Vs. Deputy Director of Enforcement and Kiran Shah vs. Enforcement Directorate, the order of attachment was passed under PMLA much prior to initiation of CIRP.

TheSupreme Court had issued notice on the Special Leave Petition and had directed the Parties to maintain status quo with respect to the proceedings in question. The question before the Bench is whether a provisional attachment order passed under PMLA subsequent to initiation of CIRP would prevail over IBC or not.

Interim Relief Granted By Court

In a subsequent hearing on 14.12.2022, the Resolution Professional (Petitioner) prayed for interim relief by permitting the CoC to conduct and conclude the CIRP on 'as is where is' and 'whatever there is' basis. Otherwise if process is not concluded within time then the same would result in liquidation of Corporate Debtor. The Resolution Professional further submitted that if the Resolution Plan for Corporate Debtor is approved by the CoC, the same cannot be acted upon unless approved by the Adjudicating Authority.

The Enforcement Directorate opposed the prayer and submitted that an appeal against the order of attachment has already been filed before the NCLAT.

The Bench has permitted the Resolution Professional to conduct the CIRP on 'as is where is' and 'whatever there is'. However, even if the Resolution Plan, as approved by the CoC, is submitted to the Adjudicating Authority for approval, then such approval shall not be granted by the Adjudicating Authority without express permission of the Supreme Court.

Case Title: Ashok Kumar Sarawagi v Enforcement Directorate & Anr.

Case no.: Special Leave Petition (Civil) Diary No(S). 30092/2022

Counsel For Petitioner(s): Mr. Dhruv Mehtra, Sr. Adv. Mr. Tishampati Sen, Adv. Ms. Riddhi Sancheti, AOR Mr. Anurag Anand, Adv. Ms. Anupama Dhurve, Adv.

Counsel for Respondents: Mr. Zoheb Hossain, Adv, Mr. Kanu Agarwal, Adv., Mr. Sourav Roy, Adv., Mr. Annam Venkatesh, Adv., Mr. M.K. Maroria (AOR).

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