NCLT Doesn't Have Jurisdiction To Direct ED To Defreeze Corporate Debtor's Account Frozen Under PMLA: NCLT

Brief Facts

The Adjudicating Authority, on 03.02.2023, admitted the petition under section 7 of the Code, filed by M/s. Shimping Technology Pvt Ltd (Financial Creditor) against M/s. Foxdom Technologies Pvt Ltd (Corporate Debtor) and appointed Mr. Shailendra Singh (Applicant) as Interim Resolution Professional (IRP). The Resolution Professional (RP) constituted the Committee of Creditors (CoC) comprising the sole Financial Creditor.

Public Announcement in Form A was made on 11.02.2023 in Financial Express and Jansatta. The Applicant republished Form G on 29.06.2023 in the Newspapers. The last date for submission of Resolution plan was 07.07.2023.

Since the CoC, on 02.06.2023, ratified the payment of the Corporate Insolvency Resolution Process (CIRP) costs from ICICI Bank Account of the Corporate Debtor, the Applicant commenced making payments for the CIRP costs through cheques from the said bank account of the Corporate Debtor.

On 11.07.2023, the Applicant came to know that the cheque issued by him from the Bank Account had been returned unpaid / dishonoured by ICICI Bank Ltd (Respondent No. 2).

The Applicant was informed that the said account of the Corporate Debtor was frozen on the written instructions of Assistant Director, Directorate of Enforcement. An investigation under PMLA was going on. The director of the Corporate Debtor was one of the accused.

The Resolution Professional of the Corporate Debtor filed the application under Section 60(5) of the Code, seeking directions to remove the debit freeze on the bank Account of the corporate debtor and to allow the applicant to operate the same.

Issue

Whether the Adjudicating Authority under the IBC has the jurisdiction to direct the ED to defreeze the bank account of the Corporate Debtor?

Submissions

The Applicant submitted that the Respondents must be directed to defreeze the account of the Corporate Debtor and that because of blocking/freezing the bank account, the CIRP process was hampered and was affecting the interest of creditors, stakeholders and employees of the Corporate Debtor.

Per contra, Respondent No. 1 submitted that the NCLT does not have the jurisdiction to entertain a challenge by the Resolution Professional seeking removal of debit freeze. Further, it was contended that the Moratorium under Section 14 of the Code does not apply to proceedings under the PMLA.

Observations

The Tribunal observed that the law is well settled as held by the Supreme Court in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka & Ors. and by the NCLAT in Kiran Shah vs. Enforcement Directorate, wherein it was held that the NCLT is not empowered to decide the questions of law or fact falling under the purview of another authority under PMLA only remedy that is available to the Applicant herein is to approach the Adjudicating Authority, PMLA where the matter is presently sub-judice.

The Tribunal noted that the NCLAT in Varrsana Ispat Limited versus Deputy Director of Enforcement, held that Section 14 of the IBC is not applicable to proceedings under the PMLA.

The Tribunal observed that PMLA primarily focuses on preventing money laundering and recovering proceeds of crime, whereas IBC is aimed at the resolution of Corporate Debtor. Accordingly, the NCLT, deriving its jurisdiction from the provisions of IBC, lacks the authority to adjudicate upon an order issued by the Adjudicating Authority under PMLA or to direct the ED to release the attachment.

The Tribunal held that it did not have the power to issue directions to the ED to defreeze the account of the Corporate Debtor when the account was frozen as per the directions of the Adjudicating Authority under PMLA. It held that the jurisdiction to deal with matters related to attachment and freezing of accounts under PMLA vests exclusively with the authorities designated under the said enactment.

Accordingly, the Tribunal disposed of the application.

Case Title: Mr. Shailendra Singh, Resolution Professional of Foxdom Technologies Pvt Ltd vs. Directorate Of Enforcement & Anr.

Case Number: ΙΑ NO. 4689 OF 2023 IN IB-102(ND)/2022

For the Applicant: Mr. M.S. Vishnu Shankar, Advocate.

For the RP: Adv Gautam Singhal & Adv Rajat Chaudhary.

For the Respondent No.1: Adv Zoheb Hossain ED Spl Counsel, Adv Vivek Gurnani Adv Kartik Sabharwal Adv Adhiraj Singh.

For the Respondent No.2: Adv Chandrashekhar A Chakalabbi and Adv G. Anusha

Order Pronounced on:11.02.2025