Assets Of Corporate Debtor Attached Under PMLA Are Not Part Of Resolution Estate, NCLT Cannot Direct Release Even If Attached During CIRP: NCLAT

Brief Facts:

The present appeal has been filed by the Appellant against an order passed by National Company Law Tribunal (NCLT/Adjudicating Authority) by which it refused to release the assets from the attachments of the Enforcement Directorate (ED). The Corporate Debtor's accounts were declared Non Performing Assets (NPA) by the SBI and other lenders on 26.08.2014.

Thereafter, a recall notice was also issued on 08.12.2014. Due to continued defaults, an application was filed by the SBI under section 7 of the Code which was admitted by the Adjudicating Authority thereby initiating the CIRP against the corporate debtor.

Meanwhile, the ED, under the Ministry of Finance, Government of India, had initiated investigation under the PMLA against M/s PD Agroprocessors Pvt. Ltd., which is associate company of Dunar Foods Ltd. And traced the flow of alleged tainted funds to the Corporate Debtor.

Consequently, on 26.12.2017, the Deputy Director of the Directorate of Enforcement, Mumbai Zone, issued Provisional Attachment Order (PAO) No. 12/2017 under Section 5(1) of the PMLA, attaching various immovable and movable assets of Dunar Foods Ltd.

After hearing both parties, the NCLT, Mumbai Bench passed the impugned order dated 21.05.2018, whereby it dismissed the RP's application. The NCLT held that the Provisional Attachment Order issued by the ED under Section 5(1) of the PMLA did not fall within the scope of the moratorium under Section 14 of the IBC.

Contentions:

The Appellant submitted that the NCLT has failed to appreciate the legislative scheme of the IBC, particularly the overriding effect granted to it under Section 238, and the mandatory nature of the moratorium under Section 14. The continuation of attachment not only violated statutory protection but also rendered the CIRP futile, causing irreparable harm to creditors and defeating the purpose of resolution.

It was further submitted that once a resolution plan has been approved, the assets of the Corporate Debtor must be allowed to flow into the new management without encumbrances. Maintaining the attachment post approval defeats the commercial expectations of the Successful Resolution Applicant and could render the entire CIRP futile.

Per contra, the Respondent submitted that the Hon'ble National Company Law Tribunal (NCLT) and this -13- Hon'ble Appellate Tribunal (NCLAT) do not possess jurisdiction to adjudicate upon or interfere with provisional or confirmed attachment orders issued under the Prevention of Money Laundering Act, 2002 (“PMLA”).

It was further contended that in the present matter, the provisional attachment order dated 26.12.2017 was passed under Section 5(1) of the PMLA by the competent authority, which was subsequently confirmed by the Adjudicating Authority under Section 8(3) of the PMLA on 11.06.2018. Therefore, the only statutory remedy available to the Appellant was to prefer an appeal before the Appellate Tribunal under the PMLA in accordance with Section 26 thereof.

It was further submitted that to allow a blanket application of moratorium even in cases where tainted assets are involved would frustrate the objectives of the PMLA and encourage corporate fraudsters to launder money and then seek shelter under the insolvency framework.

The Respondent No. 2/SRA submitted that in spite of clear order there is still attachment on assets/properties of the Corporate Debtor by the Respondent No.1. Despite fulfilment of all the requirements/conditions as envisaged under Section 32A of the Code, the assets/properties of the Corporate Debtor have not been transferred to SRA without any attachment, encumbrances, Lien etc. till date.

Observations:

The Tribunal noted that in the present case, although the Provisional Attachment Order under section 5 of the PMLA was passed after the initiation of the CIRP against the corporate debtor, the ECIR investigation had already started in 2013 which indicates that the ED's actions were based on a pre-existing criminal process. The attached assets being proceeds of crime fall outside the resolution estate under the IBC.

In light of the above discussion, it held that section 14 of the IBC protects lawful and encumbered assets for resolution. The assets attached in the present case being proceeds of crime under the PMLA are excluded from the Resolution Estate. The PMLA provides an independent mechanism for challenging the attachment orders passed by the Competent Authority under the PMLA. Therefore, the issuance of the PAO by the ED under the PMLA does not violate moratorium under section 14 of the IBC.

The Tribunal further observed that for the non-obstante clause to apply, two conditions must be satisfied: (i) There must be a clear inconsistency between the two statutes; (ii) Both statutes must operate in the same field or deal with the same subject matter.

After perusing the scheme of both the statutes, It held that The objectives of both statutes, though occasionally intersecting, are not inherently inconsistent. While the IBC aims at reviving commercial entities, the PMLA seeks to punish crime and prevent unjust enrichment through illicit means.

The Tribunal further held that “While it is true that the IBC thrives on a free, unencumbered asset base to attract resolution applicants. If prime assets are rendered unusable due to attachment, the likelihood of resolution reduces. That, however, is not a sufficient ground to invalidate another statute's valid operation, especially when it relates to proceeds of crime.”

The Tribunal observed that since in the present case, the property in question was already in attachment under the PMLA through the PAO which was later confirmed before the approval of the Resolution Plan in 2019, section 32A of the IBC will not come into operation as conditions mentioned under this provision were not satisfied.

It held that the IBC cannot override the PMLA only on the ground that the attachment by the ED interferes with the CIRP under the IBC. The ED does not act as a creditor but as a public enforcement agency. The attached assets are not to satisfy creditors, but to uphold penal objectives and international obligations under FATF and UN Conventions.

The Tribunal noted that the Supreme Court in Embassy Property held that the NCLT is not empowered to interfere with the decisions given by the statutory or quasi judicial authorities under the special statutes like the Mines and Minerals Act. This principle is equally applicable to the PMLA. Since in the present case, the PAO was confirmed by the Adjudicating Authority under section 8(3) of the PMLA, the appropriate remedy for the Appellant was to file an appeal against this order under section 26 of the PMLA before the designated Appellate Tribunal.

Similarly, the Supreme Court in Kalyani Transco Vs. M/s. Bhusan Power and Steel Ltd and Others held that the NCLAT is not authorised to interfere with a Provisional Attachement Order passed under section 5 of the PMLA that has been confirmed by the Adjudicating Authority under section 8(3) of the PMLA.

Accordingly, the present appeal was dismissed.

Case Title: Mr. Anil Kohli Resolution Professional Versus Directorate of Enforcement

Case Number: Company Appeal (AT) (Ins.) No. 389 of 2018

Judgment Date: 03/07/2025

For Appellant: Mr. Abhishek Anand, Mr. Karan Kohli & Ms. Ridhima Mehrotra, Advocates.

For Respondents: Mr. Zoheb Hossain, Advocate for R-1/ED. Mr. Himanshu Dubey, Ms. Shruti Manchanda, Advocates for R-2.

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