The Aryavarth Express
Agency(Bombay): In a significant judgment, the Bombay High Court has confirmed that the National Company Law Tribunal (NCLT) possesses the jurisdiction to instruct the Enforcement Directorate (ED) to relinquish control over properties attached to a corporate debtor, following the sanction of a resolution plan under Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016. This verdict underscores the supremacy of the IBC in resolving corporate insolvency matters, even when faced with conflicting claims under the Prevention of Money Laundering Act, 2002 (PMLA).
The division bench comprising Justice BP Colabawalla and Justice Somasekhar Sundaresan upheld a previous NCLT decision, which mandated the ED to release the assets of a corporate debtor implicated in offences under the PMLA. This ruling was based on the premise that Section 60(5) of the IBC explicitly grants the NCLT the authority to determine if the statutory immunity provided by Section 32A applies, thereby necessitating the release of previously attached properties.
This case originated from the corporate insolvency resolution process (CIRP) of DSK Southern Projects Private Limited, initiated on December 9, 2021, by a financial creditor’s application. The resolution plan proposed by Shiv Charan, Pushpalata Bai, and Bharti Agarwal was ratified by the NCLT Mumbai on February 17, 2023. Despite this approval, the ED maintained its attachment on the debtor’s assets, including four bank accounts and 14 flats valued at Rs. 32.51 crores, pursuant to allegations of fraudulent activities.
The resolution applicants contested this attachment, arguing that Section 32A of the IBC shields the corporate debtor and its assets from proceedings concerning offences committed prior to the CIRP’s initiation, provided specific conditions are met. The ED, on the other hand, challenged the NCLT’s capability to affect PMLA provisions through its orders.
The High Court elucidated that Section 32A’s introduction into the IBC reflects a clear legislative intention to prioritize the code’s mechanisms over other laws in resolving insolvency issues, ensuring protection for the corporate debtor from prior legal entanglements, on the condition of a complete overhaul in ownership to individuals uninvolved in the alleged offences.
In this context, the Court concluded that the resolution plan’s endorsement effectively nullifies the corporate debtor’s liability for prosecution and necessitates the dissolution of property attachments as a legal consequence.
Further, the Court pointed out that the concept of property attachment under the PMLA serves as a preliminary step towards possible confiscation, which is contingent upon a conviction for money laundering. Given the immunity conferred by Section 32A, such a conviction becomes legally implausible, rendering the attachment moot.
Hence, the Court decreed that the ED’s attachment of the Corporate Debtor’s assets ceases with the resolution plan’s acceptance. It directed the ED to formalize the asset release within six weeks and dismissed the ED’s petition for lack of merit, reinforcing the NCLT’s role as a pivotal arbiter in insolvency resolutions under the IBC framework.
Representatives from both sides, including Additional Solicitor General Devang Vyas for the ED and Senior Advocate Vikram Nankani for the Resolution Applicants, presented their cases, marking a notable interpretation of the intersection between the IBC and PMLA in corporate insolvency scenarios.