Aditya Ajgaonkar, Advocate

Introduction

The Prevention of Money Laundering Act, 2002 (PMLA) is a law that has civil consequences in addition to criminal prosecution for the parties involved. The PMLA being a special legislation, enacted for a special purpose often has an overriding effect on general law when it is in conflict with it. The issue of conflict of law is often vexatious and complex and needs to be tested by courts from time to time, especially when two special laws collide. Just like the PMLA, the Insolvency and Bankruptcy Cod, 2016 (IBC) is a special law which is primarily civil in nature. While the latter does not per se affect the functioning of the PMLA with respect to the actual crime of money laundering, Courts have been seized from time to time with certain conflicts that the IBC may have with the civil proceedings under the PMLA.

The PMLA in an effort to prevent money laundering, contains within its scheme a process to attach and confiscate proceeds of crime. The process of attachment and ultimate confiscation is encapsulated primarily within Chapter III of the act that deal with attachment, adjudication, and confiscation. Being a special law, it would not be out of place to reiterate that the PMLA has an overriding effect on general legislation as contained in section 71 of the Act with states:

71. Act to have overriding effect.– The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

The IBC is an act that was introduced much later after the PMLA came into force. The IBC claims to be “An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”¹ It also claims to have an overriding effect on other acts as provided for by section 238 of the Code which states as follows:

238. Provisions of this Code to override other laws.— The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

There is therefore a question that would arise as to which act would prevail if the IBC and the PMLA were to in fact conflict with each other. Though harmonious construction that would not lead to the derogation of either would be preferred as a means of interpretation, there have been propositions that have been tested by the courts. Sometimes the conflict between laws is irreconcilable, in the case of Section 32A of the IBC and the PMLA, luckily, this does not seem to be the case.

The Adjudication Under Prevention Of Money Laundering Act

The Chapter III of the PMLA (Section 8) provides for the attachment and confiscation in addition to adjudication of the attachment. This power to adjudicate has been granted to the adjudicating authority, however the power of ultimate confiscation has been provided to the special court which is actually trying the offence of money laundering. The said section also provides for the restoration of confiscated property along with release of property by the special court. This therefore makes the special court the ultimate authority not only with regards to trying the offence of money laundering but also with regards to the ultimate confiscation of the property. The confiscation is to ensure that a person, much less the accused does not benefit from the proceeds of crime The relevant portions of Section 8 are as follows:

8. Adjudication.– (1) On receipt of a complaint under sub-section (5) of section 5, or applications made under sub-section (4) of section 17 or under sub-section (10) of section 18, if the Adjudicating Authority has reason to believe that any person has committed an offence under section 3, it may serve a notice of not less than thirty days on such person calling upon him to indicate the sources of his income, earning or assets, out of which or by means of which he has acquired the property attached under sub-section (1) of section 5, or, seized under section 17 or section 18, the evidence on which he relies and other relevant information and particulars, and to show cause why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government:

Provided that where a notice under this sub- section specifies any property as being held by a person on behalf of any other person, a copy of such notice shall also be served upon such other person:

Provided further that where such property is held jointly by more than one person, such notice shall be served to all persons holding such property.

2. The Adjudicating Authority shall, after—

1. considering the reply, if any, to the notice issued under sub-section (1);
2. hearing the aggrieved person and the Director or any other officer authorised by him in this behalf; and
3. taking into account all relevant materials placed on record before him,

by an order, record a finding whether all or any of the properties referred to in the notice issued under sub-section (1) are involved in money-laundering:

3.  Where the Adjudicating Authority decides under sub-section (2) that any property is involved in money-laundering, he shall, by an order in writing, confirm the attachment of the property made under sub-section (1) of section 5 or retention of property or record seized under section 17 or section 18 and record a finding to that effect, such attachment or retention of the seized property or record shall—

continue during the pendency of the proceedings relating to any scheduled offence before a court; and record a finding to that effect, such attachment or retention of the seized property or record shall—

1. continue during the pendency of the proceedings relating to any scheduled offence before a court; and
2. become final after the guilt of the person is proved in the trial court and order of such trial court becomes final.

4. Where the provisional order of attachment made under sub-section (1) of section 5 has been confirmed under sub-section (3), the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the attached property.

5. Where on conclusion of a trial for any scheduled offence, the person concerned is acquitted, the attachment of the property or retention of the seized property or record under sub-section (3) and net income, if any, shall cease to have effect.

6. Where the attachment of any property or retention of the seized property or record becomes final under clause (b) of sub-section (3), the Adjudicating Authority shall, after giving an opportunity of being heard to the person concerned, make an order confiscating such property.

The Indian Bankruptcy Code

The IBC on the other hand has a distinct objective of ensuring that in case of insolvency the value of assets available for realisation may be maximised. Financial creditors are given a priority under the IBC for recovery of dues primarily because very often it is public money that flows through financial institutions. The IBC is dynamic and a recent legislation and much like the PMLA has seen amendments in order to better, fulfil its avowed objectives. One such section that was introduced as recently as 2020 through the Insolvency and Bankruptcy Code (Amendment) Act 2020 (1 of 2020) dated 13.03.2020 w.e.f. 28.12.2019 was section 32A of the IBC that reads as under:

32A. Liability for prior offences, etc.-

1. Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under Section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not—

a. a promoter or in the management or control of the corporate debtor or a related party of such a person; or

b. a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:

Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub- Section having been fulfilled:

Provided further that every person who was a “designated partner” as defined in clause (j) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or an “officer who is in default”, as defined in clause (60) of Section 2 of the Companies Act, 2013 (18 of 2013), or was in any manner in-charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor’s liability has ceased under this sub-Section.

2. No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under Section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not—

i. a promoter or in the management or control of the corporate debtor or a related party of such a person; or

ii. a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.

Explanation.– For the purposes of this sub-Section, it is hereby clarified that,–

i. an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;

ii. nothing in this sub-Section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this Section, against whom such an action may be taken under such law as may be applicable.

3. Subject to the provisions contained in sub- Sections (1) and (2), and notwithstanding the immunity given in this Section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.

The Constitutional validity of Section 32A of IBC

In Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 while considering Section 32A of the IBC, the Supreme Court observed that: –

In the Rajya Sabha debates, on 29-7-2019, when the Bill for amending the I&B Code came up for discussion, there were certain issues raised by certain members. While replying to the issues raised by certain Members, the Hon’ble Finance Minister stated thus:

“IBC has actually an overriding effect. For instance, you asked whether IBC will override SEBI. Section 238 provides that IBC will prevail in case of inconsistency between two laws. Actually, Indian courts will have to decide, in specific cases, depending upon the material before them, but largely, yes, it is IBC.

There is also this question about indemnity for successful resolution applicant. The amendment now is clearly making it binding on the Government. It is one of the ways in which we are providing that. The Government will not raise any further claim. The Government will not make any further claim after resolution plan is approved. So, that is going to be a major, major sense of assurance for the people who are using the resolution plan. Criminal matters alone would be proceeded against individuals and not company. There will be no criminal proceedings against successful resolution applicant. There will be no criminal proceedings against successful resolution applicant for fraud by previous promoters. So, I hope that is absolutely clear. I would want all the Hon’ble Members to recognise this message and communicate further that this Code, therefore, gives that comfort to all new bidders. So now, they need not be scared that the taxman will come after them for the faults of the earlier promoters. No. Once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company. So, that is very clear.”

The statement of the Hon’ble Finance Minister puts the objective of Section 32A of the IBC in sharp focus. It sheds light upon the intent behind enacting Section 32A. As to the weight to be given to the speech of member of the Legislature on the floor of the house is concerned, the Supreme Court in K.P. Varghese v. ITO, (1981) 4 SCC 173 held that it can be used for ascertaining the mischief sought to be remedied by the legislation.

Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this Court, one in Loka Shikshana Trust v. CIT [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : 101 ITR 234 : 1976 LR 1] , the other in Indian Chamber of Commerce v. Commissioner of Income Tax [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : 101 ITR 796 : 1976 Tax LR 210] and the third in Additional Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers’ Association [(1980) 2 SCC 31 : 1980 SCC (Tax) 170 : 121 ITR 1] where the speech made by the Finance Minister while introducing the exclusionary clause in Section 2, clause (15) of the Act was relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause.

The Interplay between Section 32A of the IBC and Criminal laws was explained at length in Manish Kumar v. Union of India, (2021) 5 SCC 1 while deciding on the constitutional validity of the IBC. The constitutional validity of Section 32A of the IBC was upheld. The Supreme Court held that:

Section 32-A has been divided into three parts consisting of sub-sections (1) to (3). Under sub-section (1), notwithstanding anything contained, either in the Code or in any other law, liability of a corporate debtor, for an offence committed prior to the commencement of the CIRP, shall cease. Further, the corporate debtor shall not be liable to be prosecuted for such an offence. The change in the management or control of the corporate debtor must not be in favour of a person, with regard to whom the relevant investigating authority has material which leads it to entertain the reason to believe that he had abetted or conspired for the commission of the offence and has submitted or filed a report before the relevant authority or the Court. The person, who comes to acquire the management and control of the corporate person, must not be a person who has abetted or conspired for the commission of the offence committed by the corporate debtor prior to the commencement of the CIRP. Therefore, abetting or conspiracy by the person, who acquires management and control of the corporate debtor, under a resolution plan, which is approved under Section 31 of the Code and the filing of the report, would remove the protective umbrella or immunity erected by Section 32-A in regard to an offence committed by the corporate debtor before the commencement of the CIRP. To make it even more clear, if either of the conditions, namely, abetting or conspiring followed by the report, which have been mentioned as aforesaid, are present, then, the liability of the corporate debtor, for an offence committed prior to the commencement of the CIRP, will remain unaffected.

Reading sub-section (1) and sub-section (2) of Section 32-A together, two results emerge:

Subject to the requirements embedded in sub-section (1) of Section 32-A, the liability of the corporate debtor for the offence committed under the CIRP, will cease.

The property of the corporate debtor is protected from any legal action again subject to the safeguards, which we have indicated.

The bar against action against the property, is available, not only to the corporate debtor but also to any person who acquires property of the corporate debtor under the CIRP or the liquidation process. The bar against action against the property of the corporate debtor is also available in the case of a person subject to the same limitation as prescribed in sub-section (1) and also in sub-section (2), if he has purchased the property of the corporate debtor in the proceedings for the liquidation of the corporate debtor.

The Supreme Court went on to observe:

The corporate debtor and its property in the context of the scheme of the Code constitute a distinct subject-matter justifying the special treatment accorded to them. Creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgment of the legislature. Erecting a bar against action against the property of the corporate debtor when viewed in the larger context of the objectives sought to be achieved at the forefront of which is maximisation of the value of the assets which again is to be achieved at the earliest point of time cannot become the subject of judicial veto on the ground of violation of Article 14. We would be remiss if we did not remind ourselves that attaining public welfare very often needs delicate balancing of conflicting interests. As to what priority must be accorded to which interest must remain a legislative value judgment and if seemingly the legislature in its pursuit of the greater good appears to jettison the interests of some, it cannot unless it strikingly ill squares with some constitutional mandate, suffer invalidation.

The Supreme Court in P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258 considered the Interplay of Section 14 of the Code with respect to the moratorium with respect to the negotiable instruments act. This Judgement also touched upon Section 32A of the IBC while observing that it cannot be pressed into use for interpreting Section 14 of the Act. Commenting upon the language of Section 32A of the IBC, the Court observed:

Unfortunately, Section 32-A is inelegantly drafted. The second proviso to Section 32- A(1) speaks of persons who are in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor and who are, directly or indirectly, involved in the commission of “such offence” i.e. the offence referred to in sub- section (1), “as per the report submitted or complaint filed by the investigating authority …”. The report submitted here refers to a police report under Section 173 CrPC, and complaints filed by investigating authorities under special Acts, as opposed to private complaints. If the language of the second proviso is taken to interpret the language of Section 32-A(1) in that the “offence committed” under Section 32-A(1) would not include offences based upon complaints under Section 2(d) CrPC, the width of the language would be cut down and the object of Section 32-A(1) would not be achieved as all prosecutions emanating from private complaints would be excluded. Obviously, Section 32-A(1) cannot be read in this fashion and clearly incudes the liability of the corporate debtor for all offences committed prior to the commencement of the corporate insolvency resolution process.

P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258 has been followed in Narinder Garg & Ors. v. Kotak Mahindra Bank, 2022 SCC OnLine SC 516 and Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation of India Ltd., 2023 SCC Online SC 266.

A Contentious Interplay

The Interplay between Section 32A of the IBC and PMLA was also touched upon by the Supreme Court in Manish Kumar v. Union of India, (2021) 5 SCC 1.

The contentions of the petitioners appear to be that this provision is constitutionally anathema as it confers an undeserved immunity for the property which would be acquired with the proceeds of a crime. The provisions of the Prevention of Money-Laundering Act, 2002 (for short “the PMLA”) are pressed before us. It is contended that the prohibition against proceeding against the property, affects the interest of stakeholders like the petitioners who may be allottees or other creditors. In short, it appears to be their contention that the provisions cannot stand the scrutiny of the Court when tested on the anvil of Article 14 of the Constitution of India. The provision is projected as being manifestly arbitrary. To screen valuable properties from being proceeded against, result in the gravest prejudice to the homebuyers and other creditors. The stand of the Union of India is clear. The provision is born out of experience. The Code was enacted in the year 2016. In the course of its working, the experience it has produced, is that, resolution applicants are reticent in putting up a resolution plan, and even if it is forthcoming, it is not fair to the interest of the corporate debtor and the other stakeholders. 

We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32-A. The boundaries of this Court’s jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the Code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the interim resolution professional and thereafter into the hands of the resolution professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision.

The Supreme Court therefore while deciding whether Section 32A of the IBC is manifestly arbitrary or not specifically considered the point of PMLA. At that time, the Union of India had supported the over overriding effect of Section 32A of the IBC with the PMLA.

The National Company Law Appellant Tribunal while considering the interplay between PMLA and Section 14 of the IBC in Varrasana Ispat ltd. v. DDE, 2019 SCC OnLine NCLAT 236 held:

It is clear that the ‘Prevention of Money- Laundering Act, 2002’ relates to ‘proceeds of crime’ and the offence relates to ‘money- laundering’ resulting confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. Thus, as the ‘Prevention of Money Laundering Act, 2002’ or provisions therein relates to ‘proceeds of crime’, we hold that Section 14 of the ‘I&B Code’ is not applicable to such proceeding.

Issue As To Jurisdiction

The question that then arose was to whether the National Company Law Tribunal (NCLT) as the adjudicating authority under the IBC has the power to release properties from attachment under the PMLA by applying Section 32A of the IBC.

In Kiran Shah v. ED, KOL, 2022 SCC OnLine NCLAT 2, the NCLAT held that no such power existed with the NCLT. It observed:

“As far as the present case is concerned, the ‘Appellant/Resolution Professional’ even though has filed Company Appeal (AT) (Ins) No. 817 of 2021 being dissatisfied with the order dated 31.12.2020 in IA 81 of 2020 in CP(IB) No. 397/NCLT/ AHM/2018 [filed by the Applicant/IRP for KSL Industries Ltd./Corporate Debtor under Sections 14, 18, 25 & 60(5) of Code] seeking to set aside the ‘Attachment of the Property of the ‘Corporate Debtor’ by the Respondent/Enforcement Directorate vide order dated 24.10.2019 passed by the ‘Adjudicating Authority’ PMLA etc., this ‘Tribunal’ makes it candidly clear that filing of Application under Section 60(5) of the I & B Code is not an ‘all pervasive’ one, thereby conferring ‘Jurisdiction’ to an ‘Adjudicating Authority’ (NCLT) to determine ‘any question/issue of priorities’, question of Law or Facts pertaining to the ‘Corporate Debtor’ when in reality in ‘Law’, the ‘Adjudicating Authority’ (NCLT) is not empowered to deal with the matters falling under the purview of another authority under PMLA.”

In the case of Shiv Charan v. Adjudication Authority, (WP (L) No. 9943 of 2023, a Division bench of the Bombay High Court was dealing with the issue of whether the National Company Law Tribunal NCLT would have the power to direct the release of properties attached under the PMLA by administering section 32A of IBC. The directorate of Enforcement contended that the order of the NCLT was without jurisdiction and it was only the authorities under the PMLA that had the powers to direct the release of attachment of the properties of the corporate debtor that had been covered under a resolution plan  approved by the NCLT under Section 31 of the IBC on the same liquidation assets under the provisions of Chapter III of Part II of the IBC to a person who is not a promoter, a conspirator in the commission of the offence or in the management or control of the corporate debtor or a related party thereof. The Bombay High Court considered various judgements such as Kiran Shah v. ED, KOL, 2022 SCC OnLine NCLAT 2, Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors, 2019 SCC OnLine SC 1542; Deputy Director, Office of the Joint Director, Directorate of Enforcement v. Asset Reconstruction Company India Ltd. & Ors., 2020 SCC OnLine Mad 28090, Phoenix Tech Tower Ltd. v. AP Gems and Jewellery Park Pt. Ltd., 2020 SCC OnLine NCLT 12503 and Manohar Lal Vij v. The Directorate of Enforcement, [IB]- 1205/[ND]/2019 but held that these judgements were not relevant.

The Bombay High Court held that the NCLT has the power to apply the provisions of Section 32A of the IBC to declare that the attachment of property comes to an end:

1. The NCLT was well within its jurisdiction in declaring, both in the Approval Order (dated 17th February, 2023) under Section 31 of the IBC, 2016 and in the April 2023 Order (under Section 60(5) of the IBC, 2016), that the corporate debtor 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 attachment from the time of approval of the resolution plan eligible for benefit of Section 32A. On facts, it is evident that the NCLT was accurate in the valid exercise of its explicit jurisdiction;
2. The jurisdiction of Section 32A of the IBC, 2016 would be attracted from the point at which a qualifying resolution plan is approved under Section 31 of the IBC, 2016. The protections afforded by Section 32A would become available only when the resolution plan is so approved, and such resolution plan 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;
3. IA 383 could be regarded as having become infructuous since the Approval Order had already, and rightly, protected the corporate debtor and the Attached Properties from continued prosecution of the scheduled offenses and the offense of alleged money laundering under the PMLA, 2002. However, the April 2023 Order that disposed of IA 383 was founded on applying the provisions of Section 32A to the facts of the case;
4. There is one other facet that makes the scheme and import of Section 32A of the IBC, 2016 clear, logical and reasonable. The attachment under Section 5 of the PMLA, 2002 is but a measure in aid of eventual potential confiscation under Section 8(5) of the PMLA, 2002. Confiscation of the property of the corporate debtor can only be effected upon conviction of the corporate debtor for an offence of money laundering. Where Section 32A(1) of the IBC, 2016 confers immunity to the corporate debtor from prosecution, there can be no conviction that can follow. Consequently, it is but logical that the property of the corporate debtor would have protection from any continued attachment by reason of Section 32A(2). Therefore, when there is no potential in law for an eventual confiscation, the attachment, which is only an interim measure in aid of the final measure of confiscation must necessarily abate and come to an end, since it cannot continue in a vacuum.
5. We are not opining on the implications of Section 14 of the IBC, 2016 for continuation of a prior attachment during the course of a CIRP. In the facts at hand, the jurisdiction of Section 14 came to an end, and the jurisdiction of Section 32A commenced, on 17th February, 2023. Therefore, dealing with a conflict between the provisions of the PMLA, 2002 and Section 14 of the IBC, 2016 was rendered irrelevant with effect from 17th February, 2023;
6. As a consequence of Section 32A of the IBC, 2016, the ED must now necessarily release the attachment on the Attached Properties, without being bogged down by the question of how to interpret the continuation of attachment after the commencement of the CIRP and before the Approval Order, and the implications for the same under Section 14 of the IBC, 2016. We are not opining on this facet of the law as it is wholly unnecessary to dispose of the case at hand. It is trite law that no court should rule on questions of law in a vacuum;
7. The Approval Order, which interpreted questions of fact and answered the question of law on implications of Section 32A for the corporate debtor, has not been challenged by the ED – neither in an appeal from the Approval Order nor in WP 29111 filed before us. The ED’s challenge is to the April 2023 Order that allowed IA 383 on the strength of Section 32A. The April 2023 Order does contain remarks about the interplay between Section 14 and the attachment but that is not the ratio of the April 2023 Order, which explicitly relies on Section 32A of the IBC, 2016 to direct the release of the Attached Properties. Even if purely for the sake of argument, the April 2023 Order were to be set aside, the Approval Order would hold the field and that order correctly requires the ED to release the Attached Properties owing to the operation of Section 32A of the IBC, 2016;
8. The NCLT in its capacity as the Adjudicating Authority under the IBC, 2016 has only interpreted the provisions of Section 32A and applied them to the facts at hand, to declare that the attachment of the Attached Properties by the ED must come to an end. It is possible that in a given case, the application of Section 32A of the IBC, 2016 may have an effect on existing and intended attachments and prosecution by enforcement agencies operating under laws such as the PMLA, 2002. However, 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. We, therefore, hold that the interpretation by the NCLT in both, the Approval Order, and the April 2023 Order, did not at all render nugatory, the provisions of the PMLA, 2002 or its legislative objectives. The NCLT has merely given effect to the provisions of Section 32A of the IBC, 2016 in its terms and that is an accurate decision, as explained by us above; and
9. Finally, quasi-judicial authorities wielding powers of a civil court in relation to the functioning of a State agency such as the ED, have a role that is distinct and separate from the executive authorities in the same agency. The former are inherently a statutory check and balance on the latter. As quasi-judicial authorities exercising the powers of civil courts and functioning within the territory of India, the law declared by the Hon’ble Supreme Court would bind the quasi-judicial authorities. As required under Article 141 of the Constitution of India, such quasi-judicial authorities must act consistent with the law declared by the Hon’ble Supreme Court rather than disobey the rule of law to give rise to avoidable litigation.

Conclusion

When two special laws collide, they are bound to cause ripples in the status quo. The question of whether the NCLT will have the jurisdiction to release properties attached under Section 5/Section 8 of the PMLA will no doubt traverse the long road and see a definitive judgement by the Supreme Court, but there is hardly any doubt that Section 32A will prevail over the attachment by the PMLA authorities.

Many PMLA proceedings in today’s time are caused by misappropriation of funds by siphoning off or cheating and fraud in corporates. The money in these corporates is often supplied through loans by banks and is public money. The IBC focusses on value maximisation and seeks to ensure that the public money gets realised to the best extent possible. It would therefore be farfetched to say that after resolution or sale of assets of the corporate debtor, the taint of being proceeds of crime should carry on with the properties that were attached. This would not only be against the legislative scheme to enable the resolution of Corporate Debtors but would also be grossly unfair. Perhaps it has to be considered that ‘proceeds of crime’ cannot be treated as an umbrella term and the taint would have to be based upon the facts and circumstances of the case. A bonafide third party should not be made to suffer for the wrongs of someone else. It would be unreasonable to expect a successful bidder for an asset to undergo further litigation in order to get the property that it has paid after going through the rigours of the IBC. This would discourage third parties and would put the entire process of resolution into a disarray, causing it to miss out on its avowed objective.

The conclusion can be borrowed from the order of the Hon’ble Bombay High Court in Shiv Charan:

“The facts at hand present a situation where a tribunal with explicit jurisdiction has duly and accurately exercised its powers, and an agency that is also duty-bound to follow the law as declared, has not discharged its duty, choosing to question the evident jurisdiction of the tribunal.”

This Judgement shall, needless to say, reinforce the faith of the public in the IBC.

1. Preamble, Insolvency and Bankruptcy Code, 2016