HC Delhi (11.11.2022) in Rajiv Chakraborty RP of EIEL Vs. Directorate of Enforcement [W.P.(C) 9531/2020] held that;
It was pertinently observed that while an attachment under the PMLA would remain valid and operative, it would have to ultimately take a “back seat” allowing the secured creditor or a bonafide third party claimant to enforce its claim by disposal of the subject property and the remainder alone being made available for the purposes of the PMLA.
The ratio of the aforesaid decision clearly appears to be that the word “proceedings” is not liable to draw colour or meaning from the words institution or continuation of suits and would thus cover all proceedings which could be viewed as being in relation to the enforcement or recovery of a debt that may be owed by the corporate debtor.
“Insolvency Law Committee Report, 2016 had pertinently observed in Para 8.11 that the moratorium provision is not liable to be interpreted as barring all possible actions “especially where countervailing public policy concerns are involved”.
On a consideration of the precedents which have come to be rendered on the aforesaid subject, this Court finds that both NCLT and NCLAT, have correctly taken the view that the moratorium would not prevent the authorities under the PMLA from exercising the powers conferred by Sections 5 and 8 notwithstanding the pendency of the CIRP.
Attachment under the PMLA, as was noted hereinabove, is not an attachment for debt but principally a measure to deprive an entity of property and assets which comprise proceeds of crime.
The aforesaid discussion leads the Court to conclude that the provisional attachment of properties would in any case not violate the primary objectives of Section 14 of the IBC.
The introduction of Section 32A constitutes an event of vital import since it embodies a provision which effectively shut out criminal proceedings including those under the PMLA upon the CIRP reaching the defining moment specified therein. . . . . . . The Legislature thus in its wisdom chose to place an embargo upon the continuance of criminal proceedings including action of attachment under the PMLA only once a Resolution Plan were approved or a measure in aid of liquidation had been adopted.
The Court has independently come to the conclusion that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable.
PAO made by the ED under the PMLA does not invest in that authority a superior or overriding right in property. Ultimately the claims of parties over the property that may be attached and the question of distribution and priorities would have to be settled independently and in accordance with law.
“The Court further observes that the rights of the Enforcement Directorate over the properties subject to attachment would stand restricted to the extent that has been recognised in this decision as well as the judgment of the Court in Axis Bank.
Blogger’s Comments; All said and done, the principal objective of attachment & confiscation of tainted property in PMLA is that a person/company is not able to enjoy the proceeds of crime. Under IBC, as soon as the application under section 7, 9 or 10 is accepted, the control of the company is divested from its promoters/directors/existing management & the promoters/directors are prevented from taking back the control of the company (Section 29A & section 32A) either during insolvency proceedings or during liquidation process, thus fulfilling the principle objective of PMLA.
Rather, attachment of company’s property (particularly liquid assets i.e. bank accounts etc.) under the provisions of PMLA, during insolvency/liquidation proceedings frustrate the principal objective of the IBC, to put the assets of insolvent companies in the beneficial use of the society. In contrast due to protracted proceedings in PMLA the value of the assets gets diminished, which ultimately is the loss of the society.
Excerpts of the order;
A. PROLOUGE
# 1. This writ petition raises the important question of the impact that a moratorium that comes into effect in terms of Section 14 of the Insolvency and Bankruptcy Code, 20061 would have on the powers of the Enforcement Directorate2 to enforce an attachment under the provisions of the Prevention of Money Laundering Act, 20023 . The petition raises a challenge to orders of attachment which have been made by the ED in exercise of powers conferred by the PMLA. While the writ petition as originally framed had assailed the validity of Provisional Attachment Orders dated 08 July 2020 and 05 August 2020, subsequently and since those orders came to be confirmed by the Adjudicating Authority, an amendment application was moved questioning the confirmation orders dated 01 January 2021 and 29 January 2021. The petition has been instituted by the Resolution Professional5 of Era Infra Engineering Limited6 which was admitted to insolvency proceedings under the provisions of the IBC. The challenge to the orders of attachment is essentially founded on the provisions of Section 14 of the aforesaid enactment with the petitioner contending that once the moratorium had come into effect, the ED stood denuded of jurisdiction to exercise powers under the PMLA. Before proceeding ahead to notice the submissions which have been addressed, it would be pertinent to notice the following essential facts.
G. PMLA AND THE PROCEEDS OF CRIME
# 46. Turning then to the provisions of the PMLA, the Court deems it apposite to firstly notice its Statements of Objects and Reasons as appended to the Bill which was introduced in Parliament and the same is extracted hereinbelow: –
# 60. The heart of the PMLA was captured in paragraphs 64 and 65 of the decision of the Court in Nitin Jain:–
“64. The PMLA essentially represents the commitment of the Union to frame a comprehensive legislation to deal with the pernicious crime of money laundering as flowing from the Political Declaration and Global Programme of Action as adopted by the General Assembly of the United Nations on 23 February 1990, the Political Declaration adopted in the Special Session of the U.N. between 8 to 10 June 1998, the Financial Action Task Force held in Paris from 14 to 16 July 1989. Taking cognizance of the scourge of money laundering faced by governments across the globe and the legitimization of moneys derived from criminal activities as well as the imperative need to deprive the perpetrators of such action of the fruits derived from such activities, lead to the Government introducing the Prevention of Money-laundering Bill, 1998 in Parliament. The PMLA ultimately came to be enforced with effect from 1 July 2005.
65. As is manifest from a reading of the long title of the PMLA, it has essentially been promulgated to prevent money laundering and to provide for confiscation of property derived from or involved in the crime of money laundering. The expression “proceeds of crime” has been defined in Section 2(u) of the PMLA to mean any property derived or obtained whether directly or indirectly by a person as a result of criminal activity relating to a scheduled offence or the value of any such property and where such property is taken or held outside the country, then property equivalent in value thereto.”
# 62. The provisions thus incorporated in Sections 5 and 8 of the PMLA are in essence the adoption of the “non-conviction based asset forfeiture model” which now stands adopted the world over in the fight against organised crime and money laundering. These principles were also lucidly explained by the U.S. Supreme Court in Caplin & Drysdale, Chartered vs. United States30. The Court deems it apposite to extract the following passages from the aforesaid decision:- .. . . . . .
# 65. It also becomes important to note that the provisions for a pre-conviction attachment of properties was consciously adopted and incorporated in the PMLA to strengthen the fight against the offence of money laundering. This is evident from the recordal of the following facts by the Supreme Court in Vijay Madan Lal Chaudhary & Ors. v. Union of India & Ors.32:- . . . . .
# 66. The PMLA is thus a distinct regime adopted by the Nation aimed to strengthen the arms of enforcement agencies in the fight against crime, representative of the new tools adopted across the world to force the perpetrators of crime to disgorge the benefits that may have been derived or obtained and thus stands on a pedestal distinct and different from the insolvency regimen which has come to be erected in terms of the IBC. The two statutes thus subserve completely different, divergent and distinct purposes. The objectives underlying the introduction of the PMLA, the international obligations of the country which lead to its promulgation based upon the views expressed by the Financial Action Task Force33 and which have been elaborately noticed in Vijay Madanlal clearly lend credence to the aforesaid conclusion.
H. ATTACHMENT NOT A DEBT RECOVERY ACTION
# 67. The Court also deems it apposite to observe that the Government while proceeding to act under the PMLA can also not be recognized to be acting as a creditor who seeks to enforce a debt. This is clearly evident from the definition of the words “creditor” and “debt” which is employed under the IBC. Its action to attach a property is not one which is taken by a person to whom a debt may be said to be owed. It would be relevant to note that when the ED moves to provisionally attach properties which constitute proceeds of crime, it does not do so acting as a creditor. The steps that are taken under the aforesaid provisions are aimed at principally attaching properties which have been determined as representing proceeds of crime and thus placing a fetter on the right of the holder thereof to deal with or fritter away the same. It essentially seeks to strip the perpetrator of the right to enjoy the same during the pendency of proceedings under the PMLA. The order of attachment thus puts a restraint on the further enjoyment of the property by the possessor thereof as also to put a restraint on its powers to transfer or alienate the same pending the trial of the offence of money laundering by the Special Court.
# 68. As was aptly observed by the Court in Axis Bank, the Government while seeking to attach properties under the PMLA is not liable to be viewed as exercising a sovereign prerogative to levy a tax or to recover a debt but essentially to take away what has been illegitimately obtained in the course of a person indulging in proscribed criminal activity. The aforesaid view also finds resonance in the following observations as were made by the Supreme Court in P. Mohanraj: –
“100. Lastly, Shri Mehta relied upon Directorate of Enforcement v. Axis Bank [Directorate of Enforcement v. Axis Bank, 2019 SCC OnLine Del 7854 : (2019) 259 DLT 500] , and in particular, on paras 127, 128 and 146 to 148 for the proposition that an offence under the Prevention of Money-Laundering Act could not be covered under Section 14(1)(a). The Delhi High Court’s reasoning is contained in paras 139 and 141, which are set out hereinbelow: (SCC OnLine Del)
“139. From the above discussion, it is clear that the objects and reasons of enactment of the four legislations are distinct, each operating in different field. There is no overlap. While RDBA has been enacted to provide for speedier remedy for banks and financial institutions to recover their dues, Sarfaesi Act (with added chapter on registration of secured creditor) aims at facilitating the secured creditors to expeditiously and effectively enforce their security interest. In each case, the amount to be recovered is “due” to the claimant i.e. the banks or the financial institutions or the secured creditor, as the case may be, the claim being against the debtor (or his guarantor). The Insolvency Code, in contrast, seeks to primarily protect the interest of creditors by entrusting them with the responsibility to seek resolution through a professional (RP), failure on his part leading eventually to the liquidation process.
***
141. This Court finds it difficult to accept the proposition that the jurisdiction conferred on the State by PMLA to confiscate the “proceeds of crime” concerns a property the value whereof is “debt” due or payable to the Government (Central or State) or local authority. The Government, when it exercises its power under PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, the person alleged to be complicit in the offence of money-laundering similarly not acquiring the status of a debtor. The State is not claiming the prerogative to deprive such offender of ill-gotten assets so as to be perceived to be sharing the loot, not the least so as to levy tax thereupon such as to give it a colour of legitimacy or lawful earning, the idea being to take away what has been illegitimately secured by proscribed criminal activity.” (emphasis in original)
This raison d’être is completely different from what has been advocated by Shri Mehta. The confiscation of the proceeds of crime is by the Government acting statutorily and not as a creditor. This judgment, again, does not further his case.”
# 69. Regard must also be had to the fact that the word “debt” itself is defined under the IBC to mean a liability or obligation which is due from any person. The action of attachment and ultimate confiscation under the PMLA is essentially to strip the possessor of the tainted property of all rights that may have otherwise been exercisable. When the respondents proceed to invoke the provisions of the PMLA, they are in essence proceeding towards the ultimate confiscation of properties unlawfully acquired or those which were obtained by the use of proceeds garnered from the commission of a schedule offence.
I. ABSENCE OF CONFLICT
# 70. Turning then to the scope of the two statutes and the perceived conflict between the two, the Court in Axis Bank had while ruling on third-party interests observed as follows: –
“105. It is vivid that the legislature has made provision for “provisional attachment” bearing in mind the possibility of circumstances of urgency that might necessitate such power to be resorted to. A person engaged in criminal activity intending to convert the proceeds of crime into assets that can be projected as legitimate (or untainted) would generally be in a hurry to render the same unavailable. The entire contours of the crime may not be known when it comes to light and the enforcement authority embarks upon a probe. The crime of such nature is generally executed in stealth and secrecy, multiple transactions (seemingly legitimate) creating a web lifting the veil whereof is not an easy task. The truth of the matter is expected to be uncovered by a detailed probe which may take long time to undertake and conclude. The total wrongful gain from the criminal activity cannot be computed till the investigation is completed. The authority for “provisional” attachment of suspect assets is to ensure that the same remain within the reach of the law.
xxx xxx xxx
161. The law conceives of possibility of third party interest in property of a person accused of money-laundering being created legitimately or, conversely, with ulterior motive “to frustrate” or “to defeat” the objective of law against money-laundering. In case of tainted asset – that is to say a property acquired or obtained as a result of criminal activity – the interest acquired by a third party from person accused of money-laundering, even if bona fide, for lawful and adequate consideration, cannot result in the same being released from attachment, or escaping confiscation, since the law intends it to “vest absolutely in the Central Government free from all encumbrances”, the right of such third party being restricted to sue the wrong-doer for damages, the encumbrance, if created with the objective of defeating the law, being treated as void (Section 9).
162. But, in case an otherwise untainted asset (i.e. deemed tainted property) is targeted by the enforcement authority for attachment under the second or third part of the definition of “proceeds of crime”, for the reason that such asset is equivalent in value to the tainted asset that was derived or obtained by criminal activity but which cannot be traced, the third party having a legitimate interest may approach the adjudicating authority to seek its release by showing that the interest in such property was acquired bona fide and for lawful (and adequate) consideration, there being no intent, while acquiring such interest or charge, to defeat or frustrate the law, neither the said property nor the person claiming such interest having any connection with or being privy to the offence of money-laundering.
163. Having regard to the above scheme of the law in PMLA, it is clear that if a bonafide third party claimant had acquired interest in the property which is being subjected to attachment at a time anterior to the commission of the criminal activity, the product whereof is suspected as proceeds of crime, the acquisition of such interest in such property (otherwise assumably untainted) by such third party cannot conceivably be on account of intent to defeat or frustrate this law. In this view, it can be concluded that the date or period of the commission of criminal activity which is the basis of such action under PMLA can be safely treated as the cut-off. From this, it naturally follows that an interest in the property of an accused, vesting in a third party acting bona fide, for lawful and adequate consideration, acquired prior to the commission of the proscribed offence evincing illicit pecuniary benefit to the former, cannot be defeated or frustrated by attachment of such property to such extent by the enforcement authority in exercise of its power under Section 8 PMLA.
164. Though the sequitur to the above conclusion is that the bonafide third party claimant has a legitimate right to proceed ahead with enforcement of its claim in accordance with law, notwithstanding the order of attachment under PMLA, the latter action is not rendered irrelevant or unenforceable. To put it clearly, in such situations as above (third party interest being prior to criminal activity) the order of attachment under PMLA would remain valid and operative, even though the charge or encumbrance of such third party subsists but the State action would be restricted to such part of the value of the property as exceeds the claim of the third party.
165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA.”
# 71. As would be evident from the aforesaid passages of that decision, the Court had while preserving the right of the competent authorities under the PMLA to provisionally attach properties notwithstanding independent proceedings that may have been initiated or would have been pending under the IBC at the relevant point of time, accorded no precedence to the claim of the ED over that of secured creditors or other bonafide third party claimants. It was pertinently observed that while an attachment under the PMLA would remain valid and operative, it would have to ultimately take a “back seat” allowing the secured creditor or a bonafide third party claimant to enforce its claim by disposal of the subject property and the remainder alone being made available for the purposes of the PMLA.
# 79. Regard must also be had to the fact that in P. Mohanraj, the Supreme Court had contrasted the breadth of the moratorium envisaged under Section 14 with that provided for in Sections 85 and 96 of the IBC. It had noted that the latter two provisions were concerned with a stay of proceedings “in respect of any debt”. It was in that context observed that the moratorium provisioned for in Section 14(1)(a) would be far wider and would cover any legal proceedings “even indirectly relatable to recovery of any debt.” P. Mohanraj was concerned with the question whether a Section 138 of the Negotiable Instruments Act proceeding would fall within the ambit of the expression “proceedings” as appearing in Section 14(1). The judgment in the aforesaid case is liable to be appreciated bearing in mind the fundamental fact that an action under Section 138 was recognised to be principally one for the recovery of a debt owed notwithstanding the proceedings being quasi criminal in character. The ratio of the aforesaid decision clearly appears to be that the word “proceedings” is not liable to draw colour or meaning from the words institution or continuation of suits and would thus cover all proceedings which could be viewed as being in relation to the enforcement or recovery of a debt that may be owed by the corporate debtor.
# 80. As would be evident from the aforesaid discussion, the primordial purpose of a moratorium as enunciated hereinabove, is clearly distinct from the purpose and objectives of attachment action taken under the PMLA. PMLA is not concerned with the recovery or enforcement of a debt. Proceedings for attachment that may be initiated in terms thereof cannot by any stretch of imagination be viewed as being akin to an action for enforcement or recovery of a debt. PMLA is guided by the legislative policy of confiscation of proceeds of crime. That legislation is aimed primarily at fighting the scourge of organised crime, the generation and retention of criminal proceeds, denuding offenders of the economic benefits that may have been derived or obtained by the commission of scheduled offenses and thus become an iteration of the legislative policy that crime would not pay. PMLA seeks to adopt, enforce and unleash punitive measures against the commission of crime and the retention of ill-gotten gains.
# 82. The Court finds itself unable to accept the submission that the provisions of the PMLA are liable to be read as being subservient to the moratorium provision comprised in Section 14 of the IBC for the following additional reasons. PMLA seeks to subserve a larger public policy imperative. The enactment represents a larger public interest, namely the fight against crime and the debilitating impact that such activities ultimately have on the society and the economy of nations as a whole. Tainted assets are those which would have been obtained through surreptitious means and modes, through layered transactions aimed at obfuscating their origins. The legislation aims at denuding the perpetrators of crime of gains obtained from such activities. It is a reparation measure which seeks to strip and deprive criminals of benefits derived and retained by the adoption of illegal and dishonest action. The PMLA is an enactment which is aimed at affecting the disgorgement of illegal gains. The Court deems it apposite to note that the Insolvency Law Committee Report, 2016 had pertinently observed in Para 8.11 that the moratorium provision is not liable to be interpreted as barring all possible actions “especially where countervailing public policy concerns are involved”. It also took note of laws prevailing in different jurisdictions which permit regulatory actions which though not aimed at collecting moneys for the estate protect other vital and urgent public interests. This view finds reiteration in the UNCITRAL Legislative Guide on Insolvency Law which had recognised “actions to protect public policy concerns” falling outside the ken of a moratorium.
# 83. Viewed in that light, it cannot possibly be said that actions taken under that statute are akin or similar to steps that may be taken by a creditor pursuing an ordinary monetary claim. The tainted property is not a debt owed to the Government. It is not something which is owed to the Government or a liability which is liable to be discharged or liquidated. On an overall conspectus of the aforesaid, the Court is of the considered opinion that on a fundamental plane, it would be incorrect to read Section 14 as completely shutting out actions under Sections 5 and 8 of the PMLA.
K. NCLAT AND CONFLICTING VIEWS
# 84. The scope of Section 14 of the IBC and the power of the authorities under the PMLA Act to effect attachment is an issue which appears to have fallen for consideration before the NCLT and the NCLAT on various occasions in the past. Since those decisions have also been cited before this Court, it would be apposite to briefly notice the principles laid down therein as well as to lend a quietus to the controversy which stands raised.
# 93. On a consideration of the precedents which have come to be rendered on the aforesaid subject, this Court finds that both NCLT and NCLAT, have correctly taken the view that the moratorium would not prevent the authorities under the PMLA from exercising the powers conferred by Sections 5 and 8 notwithstanding the pendency of the CIRP. The view as taken and expressed in the decisions aforenoted clearly commends acceptance and reiteration for the reasons assigned in those decisions as well as those noted by this Court in paragraphs 78-83 of this decision.
L. ATTACHMENT AND ITS EFFECT
# 94. The Court then deems it pertinent to observe that while proceeding to attach the tainted property, the respondents are not in essence effacing the property rights that may be claimed by an individual. It is a symbolic taking over of the custody of the property and for its preservation till such time as the proceedings that may be initiated under the PMLA come to a conclusion. Attachment thus is not liable to be viewed as an effacement of all rights that may exist or be claimed to be exercisable in respect of a property. Attachment essentially seeks to stamp the tainted property of having been found to represent proceeds of crime pursuant to the adjudicatory process which is undertaken under Sections 5 and 8 of the Act. It is essentially a seizure of property bringing it into the constructive possession of a court or as in this case, the authorities under the PMLA. Attachment under the PMLA, as was noted hereinabove, is not an attachment for debt but principally a measure to deprive an entity of property and assets which comprise proceeds of crime.
# 97. The aforesaid principles would establish that an attachment is essentially aimed at preventing private alienations. It does not confer a title on the authority which has taken that step. The attachment only enables the authorities under the act to restrain any further transactions with respect to the aforesaid property till such time as a trial with respect to the commission of an offence of money laundering comes to an end. Attachment under the PMLA does not result in an extinguishment or effacement of property rights. It is essentially a fetter placed upon the possessor of that property to deal with the same till such time as proceedings under the aforesaid enactment come to a definitive conclusion on the question of confiscation. As was noted hereinabove, it is essentially an action aimed at bringing into the control of a court or an authority, property over which multiple claims may exist. In any case, since the act of attachment does not result in the effacement of rights in property, it would clearly stand and survive outside the scope of a moratorium or an action relating to an action in respect of a debt due or payable.
# 100. However, both the orders under Sections 5 and 8 remain orders of attachment. The passing of those orders neither result in confiscation of those properties nor do those properties come to vest in the Union Government upon such orders being made. As was noticed by the Court in the earlier parts of this decision, the properties come to be confiscated only after a Special Court proceed to render a finding of guilt and frame orders for the properties so attached being confiscated in favor of the Union Government. As would be evident from a perusal of Section 8(6) where a Special Court finds or comes to the conclusion that an offence of money-laundering has not been established, it is obliged to release the attached property to the person entitled to receive it.
# 101. The attached property comes to vest in the Union Government only upon the passing of such an order as may be passed by the special Court either under sub-Sections 5 or 7 of Section 8 or Sections 58B or Section 60(2)(a). The aforesaid discussion leads the Court to conclude that the provisional attachment of properties would in any case not violate the primary objectives of Section 14 of the IBC.
M. NON OBSTANTE CLAUSE IN THE IBC AND PMLA
# 102. The Court had while noticing the submissions addressed on behalf of the petitioner taken note of the contention that Section 238 of the IBC would confer primacy upon the said statute and thus it would override the provisions of the PMLA bearing in mind that it was a special statute and had come to be promulgated later in point of time.
# 104. More importantly and while dealing with the question which arises for determination in this case, the Court would have to bear in mind the undisputed fact that while the PMLA was originally promulgated on 01 July 2005, the IBC came to be enforced with effect from 28 May 2016 and on subsequent dates when its various provisions were separately enforced. Section 238 of the IBC came to be energised in terms of the notification dated 30 November 2016 and was ordained to come into effect from 01 December 2016. Section 32A of the IBC on the other was introduced by Amending Act No.1 of 2020 with retrospective effect from 28 December 2019.
# 105. The introduction of Section 32A constitutes an event of vital import since it embodies a provision which effectively shut out criminal proceedings including those under the PMLA upon the CIRP reaching the defining moment specified therein. However, when the Legislature introduced the said provision, it was conscious and aware of the fact that the provisions of the PMLA could be enforced against the properties of a corporate debtor notwithstanding the pendency of the CIRP. This the Court notes in light of the extent to which Section 14 could be recognised to legally operate under the statutory scheme and as has been explained hereinabove. Notwithstanding the above, the Legislature chose to structure that provision in a manner that the authorities under the PMLA would cease to have the power to attach or confiscate only when a Resolution Plan had been approved or where a measure towards liquidation had been adopted. The statutory injunct against the invocation or utilisation of the powers available under the PMLA was thus ordained to come into effect only once the trigger events envisaged under Section 32A came into effect. The Legislature thus in its wisdom chose to place an embargo upon the continuance of criminal proceedings including action of attachment under the PMLA only once a Resolution Plan were approved or a measure in aid of liquidation had been adopted.
# 108. On a consideration of the aforesaid, the Court comes to the conclusion that Section 32A would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA. As has been observed hereinabove, while both IBC and the PMLA are special statutes in the generic sense, they both seek to subserve independent and separate legislative objectives. The subject matter and focus of the two legislations is clearly distinct. When faced with a situation where both the special legislations incorporate non obstante clauses, it becomes the duty of the Court to discern the true intent and scope of the two legislations. Even though the IBC and Section 238 thereof constitute the later enactment when viewed against the PMLA which came to be enforced in 2005, the Court is of the considered opinion that the extent to which the latter was intended to capitulate to the IBC is an issue which must be answered on the basis of Section 32A. The introduction of that provision in 2020 represents the last expression of intent of the Legislature and thus the embodiment of the extent to which the provisions of the PMLA are to give way to proceedings initiated under the IBC.
# 109. The Court has independently come to the conclusion that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature has authoritatively spoken of the terminal point whereafter the powers under the PMLA would not be exercisable. The events which trigger its application when reached would lead to the erection of an impregnable wall which cannot be breached by invocation of the provisions of the PMLA. The non obstante clause finding place in the IBC thus can neither be interpreted nor countenanced to have an impact far greater than that envisaged in Section 32A. The aforesaid issue stands answered accordingly.
N. THE THIRD PARTY SAFEGAUARDS
# 110. The Court also bears in mind that the provisional attachment of tainted properties does not inevitably lead to the debtor or the persons who hold the tainted property being divested of a right to establish that the properties so attached would not constitute proceeds of crime. It would be apposite to recollect that Axis Bank had duly dealt with the issue of bona fide third-party interests that may have come to be created over a period of time and the various avenues which stand created under the PMLA itself for an aggrieved person to seek the release of attached properties.
# 112. It would also be pertinent to note that merely because a particular property may have come to be provisionally attached under the PMLA, that does not confer on the enforcing authority under the aforesaid enactment, a superior or overarching interest either in the property or the proceeds that may ultimately be obtained upon its disposal. This position was duly elucidated in Axis Bank in the following terms: –
“165. Situation may also arise, as seems to be the factual matrix of some of the cases at hand, wherein a secured creditor, it being a bonafide third party claimant vis-a-vis the alternative attachable property (or deemed tainted property) has initiated action in accordance with law for enforcement of such interest prior to the order of attachment under PMLA, the initiation of the latter action unwittingly having the effect of frustrating the former. Since both actions are in accord with law, in order to co-exist and be in harmony with each other, following the preceding prescription, it would be appropriate that the PMLA attachment, though remaining valid and operative, takes a back-seat allowing the secured creditor bonafide third party claimant to enforce its claim by disposal of the subject property, the remainder of its value, if any, thereafter to be made available for purposes of PMLA.”
# 113. Viewed in the aforenoted backdrop it is manifest that an order of attachment when made under the PMLA does not result in the corporate debtor or the Resolution Professional facing a fait accompli. The statutes provide adequate means and avenues for redressal of claims and grievances. It could be open to a Resolution Professional to approach the competent authorities under the PMLA for such reliefs in respect of tainted properties as may be legally permissible. Similarly, and as was explained by Axis Bank, a PAO made by the ED under the PMLA does not invest in that authority a superior or overriding right in property. Ultimately the claims of parties over the property that may be attached and the question of distribution and priorities would have to be settled independently and in accordance with law.
# 114. Accordingly and for all the aforesaid reasons, the writ petition shall stand dismissed. The challenge to the Provisional Attachment Orders dated 08 July 2020 and 05 August 2020 as well as orders of confirmation passed by the Adjudicating Authority dated 01 and 29 January 2021 on grounds as raised fails and stands negatived.
# 115. This order, however, shall not preclude the petitioner Resolution Professional from seeking release of the provisionally attached properties in accordance with law.
# 116. The Court further observes that the rights of the Enforcement Directorate over the properties subject to attachment would stand restricted to the extent that has been recognised in this decision as well as the judgment of the Court in Axis Bank.
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