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Insolvency Law: Delhi High Court Restrains ED's Power To Attach Assets

Power to attach assets under the PMLA will end once the liquidation process under IBC begins, Delhi High Court says.

<div class="paragraphs"><p>The power to attach assets under the PMLA will come to a halt once the liquidation process under the IBC begins, the Delhi High Court reiterated last week.</p></div>
The power to attach assets under the PMLA will come to a halt once the liquidation process under the IBC begins, the Delhi High Court reiterated last week.

The power to attach assets under the Prevention of Money Laundering Act will come to a halt once the liquidation process under the Insolvency and Bankruptcy Code begins, the Delhi High Court said in an order last week.

In PSL Ltd.'s case, Nitin Jain was appointed as the liquidator by the National Company Law Tribunal under IBC to administer the affairs and estate of the company. Subsequently, Jain got a summons by the Enforcement Directorate, which was investigating the affairs of the company under the PMLA. Jain challenged the ED's move before the high court.

He argued that the ED's jurisdiction under the PMLA is bound to cease as per the law once a resolution plan is approved by the adjudicating authority or once the liquidation process commences. The liquidator relied on section 32A of the IBC which bars prosecution, attachment, seizure, action or confiscation against a corporate debtor after a resolution plan is approved.

The ED countered that the powers under PMLA related to attachment and confiscation cannot be viewed as secondary to the IBC. Also, that section 32A is applicable when the corporate debtor is undergoing resolution and no such bar is applicable at the liquidation stage. Till the sale of the assets under liquidation process is completed and a sale certificate issued, the power to proceed against the properties of the corporate debtor under the PMLA remains unfettered, added ED.

Justice Yashwant Varma dismissed the ED's submission.

The power otherwise vested in the respondent (ED) under the PMLA to provisionally attach or move against the properties of the corporate debtor would stand foreclosed once the adjudicating authority comes to approve the mode selected in the course of liquidation.
Justice Yashwant Varma, Delhi High Court

In its order, the court noted that while the authorities under the IBC are concerned with timely resolution of debts, those under the PMLA are concerned with the criminality attached to the offense of money laundering and confiscation of properties that were acquired.

So, the authorities under both statutes must be given sufficient leeway to discharge their respective obligations and duties. If at all a conflict arises, courts have to discern the legislative scheme and undertake an exercise of reconciliation, added the high court.

In the present case, the conflict is only with regards to section 32A of the IBC. The high court was of the view that once the legislature has introduced a specific provision for cessation of liabilities and prosecution, then that alone will determine the extent of the ED's powers while a resolution or liquidation process is ongoing.

The legislature, the high court noted, wanted to ensure that during the corporate debtor's revival/restructuring period, it is not swamped with pending court cases.

The court, however, clarified that the cessation of prosecution is restricted to the corporate debtor. Individuals who were in-charge of its affairs cannot claim this exception.

With these observations, the high court directed the liquidator to proceed with PSL's liquidation process in accordance with IBC, while restraining the ED from taking any further action against the company's properties.