Enforcement Directorate Says NCLAT Can’t Free  Properties Attached Under PMLA
A gavel sits on a stage. (Photographer: Daniel Acker/Bloomberg News)

Enforcement Directorate Says NCLAT Can’t Free Properties Attached Under PMLA


The Enforcement Directorate has asked the National Company Law Appellate Tribunal that it has no jurisdiction over the properties attached by the agency under the Prevention of Money Laundering Act, 2002.

The validity of the attachment could be examined by an adjudicating authority only under the PMLA, and hence the NCLAT should vacate its order passed on Oct. 14, directing it to release the assets of Bhushan Power & Steel Ltd. , said the ED in an affidavit filed before the appellate tribunal.

On Oct. 14, the NCLAT had directed the ED to release BPSL properties attached by the agency on the JSW Steel Ltd. plea, alleging siphoning of funds by its erstwhile promoters.

"It is submitted that the Provisional Attachment Order dated Oct. 10, 2019 passed under Section 5 of PMLA Act is not amenable to the jurisdiction of this Hon'ble Tribunal and its validity can only be examined by the Adjudicating Authority under Section 8 of the PMLA," said ED in an affidavit filed before the appellate court.

"There is no power under the Insolvency & Bankruptcy Code to interfere with a provisional attachment order passed," it said.

On Oct. 10, the ED had attached assets worth over Rs 4,025 crore of debt-ridden Bhushan Power & Steel in connection with its money laundering probe linked to an alleged bank loan fraud by its former promoters.

JSW Steel, which has emerged as successful bidder for Bhushan Power with its bid of Rs 19,700 crore, filed an appeal against ED's move before the NCLAT, which had on Oct. 14 directed them to be immediately released in favour of the resolution professional of the debt-ridden firm.

Questioning the NCLAT authority, the ED has asked the tribunal to vacate its earlier order and dismiss the appeal filed by JSW Steel, the successful resolution applicant.

"It is prayed that this Tribunal may be pleased to vacate the interim order dated October 14, 2019 directing release of the provisional attachment in favour of the RP and dismiss the present Appeal in so far as it seeks protection in favour of the "Corporate Debtor" or its assets against the powers conferred under the PMLA," the agency said.

It further said the ED is not covered within the definition of the operational creditor under the Insolvency and Bankruptcy Code.

To qualify as an operational creditor under the IBC, fundamental requirement is that there should be an operational debt must be owed to such a person, it added. According to the ED, it cannot be said that the "proceeds of crime" under the PMLA is in any way a "debt" "arising under any law".

"The IBC cannot be used to give an opportunity to a money launderer to connect proceeds of crime into assets that can be projected as legitimate. The object of PMLA will be defeated if tainted property is allowed to be projected as "untainted property" under the protective umbrella of orders passed by this Hon'ble Tribunal purportedly to implement the provisions of the IBC," the affidavit said.

The affidavit further stated that PMLA itself is a complete code and had effective remedial measures available to affected persons. During the last hearing, the Ministry of Corporate Affairs had said that the ED has no jurisdiction to attach the property of Bhushan Power, which is undergoing corporate insolvency resolution process.

"It is submitted that the ED is an independent investigating agency and therefore the interpretation of the PMLA by the Ministry of Corporate Affairs has no role or relevance in the matter," ED said on the matter in the affidavit.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.