Brief Overview:
IBC only aims to deal with the issue of corporate insolvency and to pay off the creditors of the corporate debtor through the sale proceeds of its legitimate assets, and not out of its ill-gotten wealth. Challenge to actions taken by the ED would have to be pursued within the PMLA framework.
Technical Details:
1) Pursuant to investigation commenced by the Enforcement Directorate (“ED”) against the corporate debtor (“CD”), the ED issued a Section 50 notice under the Prevention of Money Laundering Act, 2002 (“PMLA”) directing debtors of the CD not to release monies to the CD.
2) ED provisionally attached the assets of the CD. Later, the CD was admitted to CIRP.
3) The provisional attachment confirmed during moratorium imposed under IBC was set aside by the Appellate Tribunal under PMLA. Appeal pending before the High Court; no stay granted.
4) During moratorium, ED withdrew monies from the CD’s account. CD went into liquidation. NCLT dismissed the challenge by the liquidator against the ED’s actions.
5) NCLAT held:
(a) IBC contains no provision to enable accommodating wealth sourced by and out of a crime.
(b) Purpose of moratorium is to freeze the existing liability of the CD and is limited to proceedings which have the likelihood to add to the existing liability of the CD.
(c) Penal statutes of public law nature, even if they affect the net assets of the CD cannot be impacted by moratorium.
(d) IBBI has also issued a circular that insolvency professionals may approach the Special Court under PMLA for restitution of assets where the ED has attached them.
JC Takeaways:
The judgment reinforces that the moratorium under IBC cannot shield attachment of assets alleged to constitute proceeds of crime under PMLA. It further clarifies that jurisdiction of the tribunals under IBC is not plenary and cannot be invoked to challenge actions taken by the ED under the PMLA. Insolvency Professionals must take appropriate steps within the PMLA framework.
For further details, please see:
Value Wise Consultancy Private Limited vs. The Deputy Director and Ors, CA(AT)(Ins) No. 1226 of 2022
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