SHIV CHARAN VS. ADJUDICATING AUTHORITY & ORS, WRIT PETITION (L) NO.9943 OF 2023
FACTS
DSK Southern Projects Private Limited ("Corporate Debtor/ CD") was subjected to CIRP since 09.12.2021. Resolution plan propounded by Mr. Shiv Charan, Ms. Pushpalata Bai and Ms. Bharti Agarwal ("Resolution Applicants/ RA") came to be approved by the Learned NCLT by an order dated 17.02.2023 (“Approval Order”).
However, the CD’s properties and bank accounts were attached by the Enforcement Directorate (“ED”) since 2019 and continued even after the commencement of CIRP and further continued even after approval of the resolution plan. By a subsequent order dated 28.04.2023 (“April 2023 Order”), the NCLT directed the ED to release the attached properties. It is the continuation of such attachment by ED that lies at the heart of these proceedings.
ISSUE
Whether NCLT had jurisdiction to direct ED to release properties attached under Prevention of Money Laundering Act, 2002 (“PMLA”), by invoking Section 32A of the IBC?
Whether the NCLT had exceeded its jurisdiction while ruling on questions of fact and law in relation to resolution proceedings as under Section 60(5) of the IBC?
OBSERVATIONS:
The jurisdiction of/ protections afforded by Section 32A (to the CD and its properties from any attachment) would become available only when the resolution plan is approved u/s 31 and meets the other necessary ingredients to qualify for the immunity, namely, that there is a clean break with a change in ownership of, and control over, the corporate debtor.
Once Section 32A is attracted, such instruments of enforcement would be inoperative against the CD and its properties but would continue to be in force and be pressed into service to prosecute the other accused and their properties who do not enjoy immunity.
As per Section 31, the NCLT not only must ensure that any order approving a resolution plan complies with the provisions of IBC but also make sure that the resolution plan so approved can be effectively implemented. Keeping this in mind, the NCLT directed the ED to lift its attachment on the properties of CD as mandated by Section 32A. Looking at the object and purpose of Sections 31 and 32A, it is clear that NCLT had powers to give such direction to ED. This is further strengthened in view of its powers u/s 60(5) to answer the question of law arising u/s 32A, especially when it has not even interpreted any question of law under PMLA.
Since both Section 32A and Section 60(5) are non-obstante provisions, they would prevail, with no room for concern, real or imagined, about any conflict between legislations. Therefore, an interpretation of the IBC by NCLT did not at all render the provisions of PMLA nugatory. The NCLT has merely given effect to the provisions of Section 32A.
The question whether section 14 of IBC override Section 8 of PMLAis definitely in vacuum but this debate is wholly irrelevant to dispose of the case at hand, when the jurisdiction of Section 14 has already come to an end with the commencement of jurisdiction u/s 32A.
Once a CD is eligible for the immunity, the CD and its properties are outside the pale and reach of the ED’s jurisdiction. By extinguishing any scope for continued action against the CD’s property covered by Section 32A and by enabling the proceeds of crime to be chased in the hands of the other accused, any action, as a matter of law, against the assets of the CD, would come to an end.
Since no element of PMLA would matter any more once a corporate debtor falls within the scope of Section 32A, the ED would not be a creditor at all, and no debt would be owed by the CD to the ED. Therefore, whether the ED is to be classified as an operational creditor or a financial creditor is totally irrelevant.
HELD
NCLT was well within its jurisdiction in declaring, both in the Approval Order (under Section 31) and in the April 2023 Order (under Section 60(5)), that the CD would stand discharged from the offences alleged to have been committed prior to the CIRP and that the attached properties as identified in the Approval Order became free of attachmentfrom the time of approval of the resolution plan eligible for benefit of Section 32A