TUSSLE OVER THE ASSETS BETWEEN THE ED AND NEW MANAGEMENT OF THE CORPORATE DEBTORPERSPECTIVE
In a recent judgment, the Bombay High Court has clarified that attachment of the properties of the corporate debtor under the Prevention of Money Laundering Act, 2002 (“PMLA”) cannot continue upon the approval of the resolution plan under the Insolvency and Bankruptcy Code, 2016 (“Code”). The court has further held that the National Company Law Tribunal (“NCLT”) has power to direct the Enforcement Directorate (“ED”) to release attached properties of a corporate debtor once a resolution plan has been approved.[1]
Section 32A of the Code provides that all attachments over properties of a corporate debtor would cease once a resolution plan is approved. The attachment in the present case was made prior to initiation of the Corporate Insolvency Resolution Process (“CIRP”) and continued during the CIRP period as well as after the approval of the resolution plan. The NCLT ordered the release of the assets which were attached, which consequently led to filing of writ petitions by the ED as well as the successful resolution applicants before the Bombay High Court.
The Code and the PMLA are both special legislations operating within their own demarcated spheres. Both these legislations consist of a non-obstante clause and therefore, are exclusive to each other. However, time and again courts and tribunals have approached the issue of repugnancy between statutes differently.
The present judgment provides necessary clarification on the interplay between the two statutes in the context of Section 32A of the Code.
Firstly, the Bombay High Court, on a combined reading of Sections 60(5), 32A and 238 of the Code held that the Parliament has explicitly conferred jurisdiction on the NCLT to entertain or dispose of any question of law or fact pertaining to the assets of the corporate debtor.
Secondly, Section 32A is a special automatic framework where the only condition precedent is the approval of a resolution plan under Section 31 of the Code. The resolution applicant is not required to knock on the doors of any forum to seek any positive grant of approval or endorsement so that the benefits of Section 32A may become available to the corporate debtor.
The court thus found that a successful resolution applicant need not file an appeal under Section 26(1) of the PMLA in order to lift the attachment levied on the properties of the corporate debtor and can automatically invoke Section 32A of the Code.
The court further found that Parliament has explicitly conferred jurisdiction on the NCLT to entertain or dispose of any question of law or fact arising in relation to insolvency resolution proceedings of any corporate debtor under the Code. Accordingly, the Court ruled that the attachment by the ED over the properties of the corporate debtor came to an end with the approval of the resolution plan by operation of law.
CONCLUSION
The Bombay High Court, in light of the facts of the present case squarely restricted its analysis to the release of attached property under Section 32A of the Code and abstained from adjudicating whether the ED could attach property during the moratorium period under Section 14 of the Code. This is because the order by the NCLT for releasing the attached property was passed after approval of the resolution plan and an analysis under Section 14 would be futile. Thus, the tussle between PMLA and the Code in the context of Section 14 continues.[2]
IMPLICATIONS
Section 32A of the Code plays a pivotal role in enabling corporate debtors with a troubled financial past to make a fresh start. Traditionally, under the PMLA, assets would remain attached for years before being confiscated and directed to government coffers. However, the interpretation of Section 32A by the Bombay High Court offers a significant opportunity for new management of corporate debtors to embark on a clean slate, while ensuring that the assets that were otherwise tainted, could legitimately, re-enter the economy rather than being absorbed by the State.
Moreover, by ensuring that the corporate debtor's assets remain within the available asset pool, the judgement enhances the potential recovery for creditors despite the corporate debtor's insolvency.
[1] Shiv Charan v. Adjudicating Authority Writ Petition (L) No. 9943 of 2023.
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