Proceedings U/S 37 A Of FEMA Can't Be Continued During Moratorium U/S 33(5) Of IBC: Calcutta High Court

Brief Facts:

This writ petition has been filed by Anup Kumar Singh (Petitioner) seeking to quash notices dated 30.11.2022 and 30.01.2023 issued under the FEMA.

Corporate Insolvency Resolution Process (CIRP) of Shree Ganesh Jewellery House (I) Pvt. Ltd. ("Shree Ganesh") commenced on 12.02.2018 by an order of National Company Law Tribunal (NCLT) , Kolkata. Section 14 of the Code prohibits initiation or continuation of suits or proceedings against the corporate debtor after the commencement of the CIRP. On 14.09.2018, the NCLT ordered the liquidation of Shree Ganesh, appointing the petitioner as liquidator.

Respondent No. 2 had earlier issued a Provisional Attachment Order under the PMLA on 16.04.2019, which was set aside by the PMLA Adjudicating Authority on 09.10.2019. An appeal was filed, and a status quo order was passed on 20.09.2023. The petitioner, being the liquidator, asserts that these proceedings should dissolve upon asset sale as per Section 32A.

On 30.11.2022, the petitioner received a Provisional Seizure Order under Section 37A of FEMA, followed by a notice dated 31.01.2023 seeking confirmation and personal appearance. The petitioner argues that these actions violated the moratorium under Section 33(5) of the Code. The seizure order was confirmed on 23.05.2023, pending outcome of the present writ petition. This confirmation order, being lis pendens, would be rendered ineffective if the writ petition succeeds.

The above order and notices have been challenged in the present petition.

Contentions:

The Petitioner submitted that the provisions of the IBC would override the provisions of the FEMA. Therefore, the moratorium under the IBC would override the provisions of the FEMA. Firstly, the IBC was a later Act, which was enacted by the legislature when the FEMA was already in force.

Per contra, the Respondent submitted that as the petitioner was the Liquidator of Accused/ Corporate Debtor, he prima facie could not have any jurisdiction even to pray for quashing and/or setting aside whole of the Annexure P-3, which also involved seizure of immovable properties not belonging to the Accused/ Corporate Debtor.

It was further submitted that when the petitioner herein had already availed the statutory opportunity of appeal against the Order dated 23.05.2023 passed by the Competent Authority under Section 37A(3) of the FEMA, 1999 thereby confirming the Order of Seizure dated 30.11.2022, this Court should not entertain the writ petition on merits.

Observations:

The court at the outset noted that admittedly, the CIRP for Shree Ganesh commenced on 12.02.2018 pursuant to an order passed by the NCLT at Kolkata under the provisions of the Code. Section 14 of the Code prohibits the initiation of suits or continuation of pending suits or proceedings against the corporate debtor following the initiation of CIRP.

It further noted that on 14.09.2018 the NCLT directed that Shree Ganesh should be liquidated. Furthermore, the writ petitioner was appointed as a liquidator. Incidentally, the proceeding against the corporate debtor/accused under the FEMA was initiated on 15.11.2016.

The court further observed that the mere fact that the proceeding under FEMA was initiated in 2016, before Section 14 of the Code came into operation in 2018, is irrelevant, as Section 14 concerns both the initiation and continuation of pending suits or proceedings.

It further added that once a liquidation order is passed, as in the present case, Section 33(5) provides that, subject to Section 52, no suit or legal proceeding shall be instituted by the liquidator on behalf of the corporate debtor without prior approval of the Adjudicating Authority.

Based on the above, it held that the CIRP contemplates the approval of a Resolution Plan. Post-liquidation, the corporate debtor may be sold as a going concern, or its assets may be sold. Thus, once CIRP is admitted, the assets of the corporate debtor cannot be attached and must be dealt with under CIRP or liquidation.

The court also opined that section 32A(2) of the Code provides that no action shall be taken against the property of the corporate debtor for any offence committed prior to the commencement of the CIRP.

It further observed that while the PMLA came into force in 2002, the IBC came into existence in 2016. In Ramsarup Industries Limited (supra) and Others, the Supreme Court held that the provisions of the IBC would override the provisions of the FEMA. Therefore, the moratorium under the IBC would override the provisions of the FEMA. Not only was the IBC enacted while the FEMA was in existence, but Section 238 of the Code also clearly provided for a non-obstante clause. On the other hand, FEMA did not have such non obstante clause.

The court noted that in support of this position, the petitioner relied on several judgments, including Paschimanchal Viduyt Vitran Nigam Ltd. V. Raman Ispat Private Ltd. and Ors. (2023), Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs (2023) and Duncans Industries Limited v. AJ Agrochem (2019) where the IBC was held to override provisions of the Electricity Act, Customs Act, Tea Act, Maharashtra Relief Undertaking Act, and the Income Tax Act.

Based on the above, the court held that in view of the proceedings pending under the Code and the orders passed therein, the impugned provisional seizure order and the impugned notices could not have been issued. Therefore, the impugned notices were quashed.

Accordingly, the present petition was allowed.

Case Title: Anup Kumar Singh Vs Union of India & others.

Case Number: WPA 4585 of 2023

Judgment Date: 16/04/2025

For the Petitioner: Mr. Jishnu Chowdhury Mr. Saptarshi Mondal .....Advocates

For Respondent: Mr. Arijit Chakraborti Mr. Deepak Sharma Ms. Swati Singh.....Advocates

Click Here To Read/Download The Order