NCLAT (03.01.2022) in Kiran Shah,‘RP’ of KSL and Industries Ltd Vs Enforcement Directorate, Kolkata [Company Appeal (AT)(Insolvency) No.817/2021 ] Held that;
The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering
The objective of PMLA being distinct from the purpose of RDBA,SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former.
An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act.
Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides.”
Thus, we have no hesitation in holding that the NCLT has got no jurisdiction to go into the matters governed under the PMLA.
Adjudicating Authority has no jurisdiction under Section 60(5) and/or 32A(2) of the IB Code or under Rule 11 of the NCLT, to quash and/or set aside the order so passed by a Competent Authority of Enforcement Directorate (ED) under the PMLA.
This Adjudicating Authority is not vested with the power of judicial review over administrative action or is sitting as an Appellate Authority for the order so passed by the Competent Authority.
Further, Section 32A of the IBC does not envisages any rights upon this Adjudicating Authority to interfere in order passed by some Competent Authority. For this purpose, Applicant may approach the Appellate/Higher Authority of the concerned Competent Authority, who has passed the order in question.
‘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.
Excerpts of the order;
The ‘Appellant’/Resolution Professional has preferred the instant Company Appeal (AT)(Ins) No.817/2021 as an ‘Aggrieved Person’ being dissatisfied with the order dated 31.12.2020 in IA 81/2020 in CP(IB)No.397/NCLT AHM/2018 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Ahmedabad Bench, Ahmedabad Court No.2).
# 2. Earlier, the ‘Adjudicating Authority’ (National Company Law Tribunal, Ahmedabad Bench, Ahmedabad Court No.2) while passing the impugned order in IA 81/2020 in CP(IB)No.397/NCLT AHM/2018 (Filed by the Anil Kumar, IRP of KSL & Industries Ltd under Sections 14, 18, 25 and 60(5) of the I&B Code 2016) at paragraph 11 to 14 had observed the following:-
# 11.”The Hon’ble High Court of Madras has recently dealt with the issue, in the matter of Deputy Director, Office of the Joint Director, Directorate of Enforcement Vs. Asset Reconstruction Company )India_ Ltd and others (Writ Petition No.29970 of 2019 and WMP Nos 29872 & 34971 of 2019), wherein, the Hon’ble High Court of Madras, observed that “NCLT has no jurisdiction to go into the matters governed under the Prevention of Money Laundering Act, 2001 (PMLA) and, therefore, Section 14, having consequent upon an order passed by the Adjudicating Authority declaring moratorium, would not apply to the PMLA which is a distinct and special statute having its own objective and as such Section 14 would not bar a proceeding under the Act.”
For the sake of brevity, para 8, 9 and 10 of the said judgement is reproduced hereinbelow:
Para 8. Section 14 of the IBC speaks of moratorium. A declaration has to be made through an order by the Adjudicatory Authority in this regard. If one carefully goes through the said section, there is no way professional attachment order passed under the provisions of the PMLA would automatically invite a moratorium. This provision only speaks about the consequence for institution of the suit, for continuance and other proceedings against the Corporate Debtor. Therefore, Section 14 of the IBC is consequent upon an order passed by the Adjudicative Authority declaring moratorium. This would not apply to a special enactment which travels on its own path. After all, one cannot presume a conflict between two enactments having it distinct roles with their objections. As stated, it only speaks about the follow up action over a property, which is subject matter of the proceedings before the National Company Law Tribunal under the IBC. Thus, Section 14 would not bar a proceeding under the PMLA.
Para 9. Section 32-A of the IBC deals with the liability for prior offences. This provision would get attracted in a case where the resolution plan has been approved by the Adjudicating Authority under Section 31 of the IBC. Therefore, when no such approval has taken place, the Adjudicating Authority will not have any power or authority to exercise the power under Section 32-A of the IBC. We may note, this insertion by way of an amendment came into being with effect from 28.12.2019 onwards.
Para 10. Section 60 of the IBC comes under Chapter VI. Chapter VI of the IBC deals with the Adjudicating Authority for corporate persons. Section 65 of the IBC gives jurisdiction to the Tribunal to entertain and dispose of any application on proceeding by or against the Corporate Debtor. Even this proceeding would not apply to a statutory Authority in another enactment and that too, a special one. As observed, the scope of enquiry under PMLA is rather wide and comprehensive.
# 12. While dealing with the issue, the Hon’ble High Court of Madras (Supra ) also referred the judgement so pronounced by the Hon’ble Apex Court in Embassy Property Development (P) Ltd with regard to the same issue:
Jurisdiction and the powers of the High Court under Article 226
13. What is recognized by Article 226(1) is the power of every High Court to issue (i) directions, (ii) orders or (iii) writs. They can be issued to (i) any person or (ii) authority including the Government. They may be issued (i) for the enforcement of any of the rights conferred by Part III and (ii) for any other purpose. But the exercise of the power recognized by Clause (1) of Article 226, is restricted by the territorial jurisdiction of the High Court, determined either by its geographical location or by the place where the cause of action, in whole or in part, arose. While the nature of the power exercised by the High Court is delineated in Clause (1) of Article 226, the jurisdiction of the High Court for the exercise of such power, is spelt out in both Clauses (1) and (2) of Article 226.
24. Therefore in so far as the question of exercise of the power conferred by Article 226, despite the availability of a statutory alternative remedy, is concerned, Anisminic cannot be relied upon. The distinction between the lack of jurisdiction and the wrongful exercise of the available jurisdiction, should certainly be taken into account by High Courts, when Article 226 is sought to be invoked bypassing a statutory alternative remedy provided by a special statute.
28. Therefore as rightly contended by the learned Attorney General, the decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence the correctness of the said decision can be called into question only in a superior court which is vested with the power of judicial review over administrative action. The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action. Judicial review, as observed by this court in Sub Committee on Judicial Accountability Vs Union of India (1991) 4 SCC 699, flows from the concept of a higher law, namely the Constitution. Paragraph 61 of the said decision captures this position as follows:
“But where, as in this country and unlike in England, there is a written Constitution which constitutes the fundamental and in that sense a “higher law” and acts as a limitation upon the legislature and other organs of the State as grantees under the Constitution, the usual incidents of parliamentary sovereignty do not obtain and the concept is one of ‘limited government’. Judicial review is, indeed, an incident of and flows from this concept of the fundamental and the higher law being the touchstone of the limits of the powers of the various organs of the State which derive power and authority under the Constitution and that the judicial wing is the interpreter of the Constitution and, therefore, of the limits of authority of the different organs of the State is to be noted that the British Parliament with the Crown is supreme and its powers are unlimited and courts have no power of judicial review of legislation.”
29. The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. Hence, let us now see the jurisdiction and powers conferred upon NCLT.”
Scope of Section 60 of IBC:-
“37. From a combined reading of Subsection (4) and Sub section (2) of Section 60 with Section 179, it is clear that none of them hold the key to the question as to whether NCLT would have jurisdiction over a decision taken by the government under the provisions of MMDR Act, 1957 and the Rules issued thereunder. The only provision which can probably throw light on this question would be Sub section (5) of Section 60, as it speaks about the jurisdiction of the NCLT.
13. The learned single Judge of the Delhi High Court in the Deputy Director, Directorate of Enforcement Delhi and others V. Axis Bank and others (Manu/DE/1120/2019) has dealt with the similar issue in extenso. Ultimately, the following conclusion has been arrived at.
“171.(i) The process of attachment (leading to confiscation) of proceeds of crime under PMLA is in the nature of civil sanction which runs parallel to investigation and criminal action vis-a-vis the offence of money-laundering…..
(vi)The objective of PMLA being distinct from the purpose of RDBA,SARFAESI Act and Insolvency Code, the latter three legislations do not prevail over the former............
(viii) The PMLA, RDBA,SARFAESI Act and Insolvency Code (or such other laws) must co-exist, each to be construed and enforced in harmony, without one being in derogation of the other with regard to the assets respecting which there is material available to show the same to have been “derived or obtained” as a result of “criminal activity relating to a scheduled offence” and consequently being “proceeds of crime”, within the mischief of PMLA.......
(xii) An order of attachment under PMLA is not illegal only because a secured creditor has a prior secured interest (charge) in the property, within the meaning of the expressions used in RDBA and SARFAESI Act. Similarly, mere issuance of an order of attachment under PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release (or restoration) from PMLA attachment being dependent on its bonafides.”
Thus, we have no hesitation in holding that the NCLT has got no jurisdiction to go into the matters governed under the PMLA.
13.Thus, on going through the above decision and view taken by the Hon’ble Madras High Court, as of now, it is clear that this Adjudicating Authority has no jurisdiction under Section 60(5) and/or 32A(2) of the IB Code or under Rule 11 of the NCLT, to quash and/or set aside the order so passed by a Competent Authority of Enforcement Directorate (ED) under the PMLA. This Adjudicating Authority is not vested with the power of judicial review over administrative action or is sitting as an Appellate Authority for the order so passed by the Competent Authority.
# 14. Further, Section 32A of the IBC does not envisages any rights upon this Adjudicating Authority to interfere in order passed by some Competent Authority. For this purpose, Applicant may approach the Appellate/Higher Authority of the concerned Competent Authority, who has passed the order in question. In view of this, we are of the opinion that the Applicant may put forward the grievances before the concerned authority, who has passed the order and/or their Higher/Appellant Authority, as the case may be.”
and dismissed the ‘Application’ as ‘not maintainable’, but without costs.
RESUME OF FACTS
# 3. Three First Information Reports dated 12.08.2015, 13.05.2016 and 25.05.2016 were filed by numerous Banks under Section 120-B r/w 420 of the Indian Penal Code and 13(2) r/w 13(1) of the Prevention of Corruption Act, 1988 against M/s ACTIF Corporation Ltd, M/s Jaybharat Textiles, M/s Krishna Knitwear Technology Ltd and M/s Eskay Knot (India) Ltd and the same were forwarded to the CBI BS&FC Cell through letter dated 26.08.2016.
# 4. According to the Respondent, the ‘First Information Reports’ revealed that the said Group Companies of the Tayal Group had acquired loan facilities aggregating Rs.524.61 crores wherein the funds were laundered through a maze of fictitious companies. Based on the ‘First Information Reports’ the Respondent had recorded ECIR No. KLZO/14/2016 dated 19.10.2016 and initiated an investigation under the Prevention of Money Laundering Act, 2002.
# 5. It is the version of the Respondent that during the course of investigation it came to light that M/s KSL & Industries was a ‘Group Company of Tayal Group’ and the ‘Competent Authority’ passed a ‘Provisional Attachment Order’ (PAO) on 08.05.2019 as per Section 5 of the Prevention of Money Laundering Act, 2002 thereby ‘Express Mall’ (Single Property) valued Rs. 483,16,35,696/- was attached being the ‘Equivalent Value’ of the proceeds of crime. Further, an application in CP(IB) No.397/7/NCLT AHM/2018 was filed (under Section
# 7 of the I&B Code 2016) by(I) M/s Abhinandan Multitrade Pvt Ltd (ii) Express Suitings Pvt Ltd/Operational Creditors against the KSL & Industries/Corporate Debtor and that the ‘Adjudicating Authority’ (National Company Law Tribunal, Ahmedabad) had admitted the application on 06.09.2019.
# 6. It comes to be known that a Prosecution Complaint in OC NO.1150/2019 was filed before the ‘Adjudicating Authority’, ‘PMLA’ and the Provisional Attachment Order dated 08.05.2019 was affirmed in respect of the property of the Corporate Debtor, through an order dated 24.10.2019, which according to the Appellant, the same was done inspite of the imposition of moratorium under the I&B Code, 2016 and the objections raised by the ‘Erstwhile Interim Resolution Professional’.
# 7. The Appellant/Resolution Professional had filed an ‘Appeal’ No.3387/2019 on 27.12.2019 before the Appellate Tribunal, PMLA, and not resting on that, preferred an IA 81/2020 in CP(IB)No.397/NCLT/ AHM/2018 before the ‘Adjudicating Authority’ praying to set aside the ‘Provisional Attachment Order’ dated 8.5.2019 and the confirmation order dated 24.10.2019 passed by the ‘Adjudicating Authority’ (PMLA) and the said Application came to be rejected on 31.12.2020 by the ‘Adjudicating Authority’ (NCLT Ahmedabad) as ‘not maintainable’. Hence, the Appellant/Resolution Professional of KSL & Industries Ltd has filed the instant Company Appeal (AT)(Ins) No.817/2021 before this ‘Appellate Tribunal’.
# 110. 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. Viewed in that perspective, IA 81 of 2020 in CP(IB) No. 397/NCLT/AHM/2018 filed by the Applicant/IRP for KSL & Industries Ltd is held by this ‘Tribunal’ as not maintainable in law. Resultantly, the Appeal fails.
DISPOSITION
# 111. In fine, Company Appeal (AT)(Insolvency) No. 817 of 2021 is dismissed. No Costs. Connected I.A.s’ No. 2778 of 2021 and 2194 of 2021(Stay Application) are dismissed.
# 112. Before parting with the case, this ‘Tribunal’ makes it crystalline clear that the proper recourse to be resorted to by the ‘Corporate Debtor’ is to approach the ‘Competent Forum’ by pursuing its remedy in Appeal No. 33387/2019 (filed on 27.12.2019) under the ‘Prevention of Money Laundering Act, 2002’ to its logical end or any other ‘Jurisdictional Forum’ (other than the purview of I & B Code, 2016,) of course in the manner known to Law and in accordance with Law, if it so desires/advised.
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