In a first, NCLT allows sale of assets attached by ED

The Kolkata Bench of the National Company Law Tribunal (NCLT) has recently allowed the liquidator to sell Varrsana Ispat Limited’s assets which have been attached by the Enforcement Director under the Prevention of Money Laundering Act (PMLA).

Insolvency proceeding against Varrsana Ispat, a Kolkata-based maker of steel and part of the REI Agro Group, was started in November 2017 and in want of any takers under the IBC process, the company was ordered to be liquidated in August 2019.

But even before the insolvency proceedings against Varrsana Ispat could begin, a charge sheet was filed against its group company REI Agro Limited and its promoter/directors, wherein it was alleged that they had cheated the consortium of banks and committed offences punishable under different sections of the Indian Penal Code.  Attachment orders were passed against REI Agro on allegations that assets acquired by it were proceeds of crime under the Prevention of Money Laundering Act (PMLA). Since Varrsana Ispat is one of the group companies of the REI Agro, assets of the former were also attached by the Enforcement Directorate.

Allowing the sale of assets attached by the Enforcement Directorate, the Bench of KR Jinan of Kolkata NCLT maintained the applicability of Section 32-A, which provides that Corporate Debtor shall not be prosecuted for an offence committed prior to commencement of Corporate Insolvency Resolution Process (CIRP) once Resolution Plan has been approved by the Adjudicating Authority.

The bench of KR Jinan concurred with liquidator Anil Goel’s argument that the ED was prevented from taking any action against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor and therefore, he can proceed with the sale of the property under attachment and upon confirmation of the sale the buyer can seek appropriate relief for deattachment in accordance with section 32-A.

The primary objection of the ED’s side to the petition filed by the liquidator was that Section 32A can be applied only after the liquidation process is over or resolution plan is approved and that application under the said Section can be filed only by the successful resolution applicant and not the liquidator.

To this the Bench of KR Jinan said: “…we are of the considered opinion that 32-A is also applicable to liquidation proceedings. Under the object as well as under section it is specifically dealt with that the section is applicable to prevent insolvency in case the company goes into CIRP or liquidation.”

It further says that Section 32-A is also applicable to the assets of the CD undergoing liquidation and a liquidator can file an application like the one in hand.

Anil Goel, the liquidator and chairman, AAA Insolvency Professional LLP, said in a LinkedIn post after the NCLT verdict that Varrsana Ispat is being run as a going concern with an annual turnover of Rs 900 crore.  “Now, we would be selling the corporate debtor as a going concern and then will apply to NCLT under newly inserted section 32A of IBC for de-attachment and protection of the buyer,” he said adding that this is the first order of its kind in the country after the promulgation of section 32A in IBC.