Varrsana Ispat Limited Vs. Dy. Director, Directorate of Enforcement - Release of property, attached by ED under PMLA, prior to moratorium.

NCLAT (02.05.2019) in Varrsana Ispat Limited Vs. Dy. Director, Directorate of Enforcement [Company Appeal (AT) (Insolvency) No. 493 of 2018] held that;

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.

As the ‘Prevention of Money Laundering Act, 2002’ relates to different fields of penal action of ‘proceeds of crime’, it invokes simultaneously with the ‘I&B Code’, having no overriding effect of one Act over the other including the ‘I&B Code’, we find no merit in this appeal.

Facts of the case; The Directorate of Enforcement of Central Government, New Delhi, attached some of the properties of ‘Varrsana Ispat Limited’- (‘Corporate Debtor’), vide orders dated 10.07.2017 under PMLA, prior to commencement of CIRP. RP filed application for releasing the property from attachment. Adjudicating Authority observed that the attachment order was issued on 10th July, 2017 prior to the order of declaration of the ‘Moratorium’ in the case in hand. Therefore, an order releasing the order of attachment by the Directorate of Enforcement is not maintainable. Hence the present appeal.

 

Excerpts of the order;

The Directorate of Enforcement of Central Government, New Delhi, attached some of the properties of ‘Varrsana Ispat Limited’- (‘Corporate Debtor’). The ‘Resolution Professional’ filed application before the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, for releasing the attachment of certain assets of the ‘Corporate Debtor’ by Deputy Director of Enforcement.

# 2. On-going through the order of attachment, the Adjudicating Authority observed that the attachment order was issued on 10th July, 2017 prior to the order of declaration of the ‘Moratorium’ in the case in hand. Therefore, an order releasing the order of attachment by the Directorate of Enforcement is not maintainable. The aforesaid order dated 12th July, 2018 is under challenge in this appeal.

# 3. Learned counsel appearing on behalf of the Appellant- ‘Resolution Professional’ submitted that Section 14 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) has an overriding effect on the provisions of the ‘Prevention of Money Laundering Act, 2002’. Reference was made to Section 238 of the ‘I&B Code’. It was submitted that during the period of ‘Moratorium’ the creditors and all authorities causing any disruption in the ‘Corporate Insolvency Resolution Process’ cannot be allowed to do so.

# 4. Further, according to counsel for the Appellant, the provisional order of attachment cannot be confirmed by the Directorate of Enforcement during the period of ‘Moratorium’.

# 5. On the other hand, according to learned counsel appearing on behalf of the Directorate of Enforcement, in view of the provisions of ‘Prevention of Money Laundering Act, 2002’ including Section 2(1)(u) and Sections 3 & 4, the action can be taken under ‘Prevention of Money Laundering Act, 2002’ even during the period of ‘Moratorium’.

# 8. Section 14 is not applicable to the criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act having essence of crime or crime proceeds. The object of the ‘Prevention of Money Laundering Act, 2002’ is to prevent the money laundering and to provide confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto.

# 12. From the aforesaid provisions, 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.

# 13. In so far as penalty is concerned, offence of money-laundering is punishable with rigorous imprisonment which is not less than three years and has nothing to do with the ‘Corporate Debtor’. It will be applicable to the individual which may include the Ex-Directors and Shareholders of the ‘Corporate Debtor’ and they cannot be given protection from the ‘Prevention of Money Laundering Act, 2002’ and such individual cannot take any advantage of Section 14 of the ‘I&B Code’. This apart, we find that the attachments were made by the Deputy Director of Directorate of Enforcement much prior to initiation of the ‘Corporate Insolvency Resolution Process’, therefore, the ‘Resolution Professional’ cannot derive any advantage out of Section 14.

# 14. As the ‘Prevention of Money Laundering Act, 2002’ relates to different fields of penal action of ‘proceeds of crime’, it invokes simultaneously with the ‘I&B Code’, having no overriding effect of one Act over the other including the ‘I&B Code’, we find no merit in this appeal. It is accordingly dismissed. No costs.

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