ED Cannot Retain Attached Assets After Approval of Resolution Plan : NCLAT

A coram of Chairperson Justice Ashok Bhushan, along with Technical Member Barun Mitra observed that the section 32A of the Code extinguishing all prior criminal liabilities of the Corporate Debtor will come into force once a resolution plan is approved.

They further observed that there is no need to obtain any order from the PMLA authority for the release of the same.

“We thus are of the view that Provisional Attachment Order shall cease to operate after resolution plan is approved, bringing into effect Section 32A...We thus are of the view that Provisional Attachment Order has to be treated to cease by virtue of legislative scheme under Section 32A and there is no necessity to obtain any order by the SRA from the adjudicating authority under the PMLA.”

The case arose from a challenge filed by Vantage Point Asset Management, the successful resolution applicant (SRA) for Alchemist Infra Realty Ltd. It approached the appellate tribunal after the National Company Law Tribunal (NCLT), Delhi approved the resolution plan but declined to direct the ED to lift a 2019 provisional attachment on the company's assets.

The NCLT in its July 4, 2024 order had advised the SRA to approach PMLA authorities separately, prompting the appeal.

Vantage Point argued that once the resolution plan is approved, Section 32A extinguishes past liabilities and prevents enforcement actions against the corporate debtor's assets. Since the attachment was only provisional and no confiscation order had been passed, the assets remained part of the debtor's estate and were lawfully included in the resolution plan.

The ED contended that its attachment predated the insolvency process and could not be nullified by a later plan approval. It also cited several precdents to argue that "proceeds of crime" cannot be used to discharge commercial debt.

The Tribunal rejected the ED's arguments, emphasizing the supremacy of Section 32A post approval of the resolution plan.

“There is no exception in scheme of Section 32A that where Provisional Attachment Orders have been passed prior to initiation of CIRP or prior to approval of the resolution plan assets have to be kept out of the resolution. The trigger event when 32A comes into operation is the approval of the resolution plan.”

It further observed that there is no impropriety in including the attached assts in the information memorandum.

“By the attachment of the assets, the ownership rights of the corporate debtor are not divested, nor it can be said that the corporate debtor does not continue to be the owner of the asset. The scheme under the PMLA itself, clarifies that despite attachment the corporate debtor is entitled to enjoy the property.”

Addressing the status quo order in an earlier Delhi HC Judgement, the court noted that the such interim orders does not mean that it's prohibited for the Resolution Professional to include the assets in the information memorandum.

Regarding the NCLT's direction to pursue remedy under PMLA, the appellate tribunal held that requiring the SRA to seek release of the attachment was "unnecessary" and not in accordance with the statutory scheme under Section 32A

Subsequently, the NCLAT ruled that the provisional attachment by the ED “has to be treated to have ceased” as of the resolution plan's approval on July 4, 2024.

Case Title: Vantage Point Asset Management Pte. Ltd v Gaurav Misra Resolution Professional of Alchemist Infra Reality Ltd. & Anr.

Case Number: Company Appeal (AT) (Ins) No. 1495 of 2024

Appearances:

For Appellant : Senior Advocate Dhruv Mehta, with Advocates Palash Singhai, Harshal Sareen Kartikey Shrarma, Prachi Johri, Mirgangi Parul

For Respondents: Advocate Zohab Hossain (Special Counsel for ED) Advocates Vivek Gurnami, Vivek Gaurav, Satyam

Senior Advocate Krishnendu Datta, with Advocate Varsha Banerjee for Resolution Professional

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