No conflict between insolvency and anti-money laundering laws, says NCLAT

There is no conflict between Prevention of Money Laundering Act (PMLA) and Insolvency and Bankruptcy Code (IBC), and even if property of a corporate debtor has been attached under the PMLA, if the corporate insolvency resolution process (CIRP) has initiated, the property should become available to fulfil objects of IBC till a resolution takes place or sale of liquidation asset occurs.

This is the gist of a recent order by the National Company Law Appellate Tribunal (NCLAT) in the Directorate of Enforcement vs Manoj Kumar Agarwal, Resolution Professional of Sterling SEZ and Infrastructure Ltd.

The NCLAT dismissed the Enforcement Directorate appeal against a February 2019 Mumbai bench of NCLT order allowing the resolution professional to take charge of the properties (attached by ED) and deal with them under IBC as if there is no attachment.

The appellate tribunal in its order observed that the objective of attachment of properties under the prevention of Money Laundering Act can be achieved through Section 14 of the IBC.

NCLAT in its order held: “The aim and object of PMLA under Section 5 for attaching the property alleged to be involved in money laundering is to avoid concealment, transfer or dealing in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under chapter III of PMLA. Thus, provisional attachment order is issued for a period not exceeding 180 days from the date of Order. Now, if Section 14 (1)(b) of IBC relating to moratorium is seen, on the insolvency commencement date, the Adjudicating Authority is required to pass order declaring moratorium, inter alia prohibiting transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein” thus the moment CIRP is initiated, the property of the Corporate Debtor is protected by such moratorium. Thus both provisions seek to protect the property of Corporate Debtor from transfer etc. till further actions take place.”

The tribunal also maintained that if the aims and objects of IBC are to be achieved, and maximisation of value is material so as to reach a resolution, above acts in time bound manner are to be performed and there cannot be obstructions of attachments and seizures existing.

“If the property is under attachment or seizure, or possession is taken over, keeping the corporate debtor a going concern would be serious issues. Without the properties in possession of IRP/RP getting valuation done during CIRP or even liquidation stage, would be issues. Attachment remaining in force would affect value of the property and prospective applicants may not respond in the manner in which they would, if the property is not under active attachment or seizure,” held the tribunal.

On the contention of ED that the Adjudicating Authority (NCLT) did not have the powers to interfere with provisional attachment order passed under the Prevention of Money Laundering Act and the same has to be dealt with only in the manner provided in law under the PMLA, the appellate tribunal cited Section 238 of the IBC, which read as follows:

“The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

The NCLAT further said that if this Section (238) is perused, the provisions of IBC would have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

“Section 238 of IBC does not give over riding effect merely to Section 14. The other provisions also are material, and will have effect if there is anything inconsistent therewith contained in any other law for the time being in force. Thus, if the authorities under PMLA on the basis of the attachment or seizure done or possession taken under the said Act resist handing over the properties of the Corporate Debtor to the IRP/RP/Liquidator the consequence of which will be hindrance for them to keep the Corporate Debtor a going concern till resolution takes place or liquidation proceedings are completed, the obstructions will have to be removed,” concluded the NCLAT.

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