NCLT can under Section 32A order release of corporate debtor’s properties attached by ED
The Bombay High Court has recently said that the NCLT was well within its jurisdiction in declaring that the corporate debtor would stand discharged from the offences alleged to have been committed prior to the initiation of Corporate Insolvency Resolution Process (CIRP) and that the attached properties as identified in the approval order became free of attachment from the time of approval of the resolution plan eligible for benefit of Section 32A.
The High Court order emanates from two writ petitions filed in the court – one by resolution applicant of DSK Southern Projects Private Limited seeking quashing of attachment of corporate debtor’s properties by the ED, and another by ED director challenging the authority and legal capacity of the NCLT to pass orders invoking Section 32A of the IBC, 2016 in a manner that (according to the ED) renders nugatory, the PMLA, 2002 and its legislative objective.
Note: Section 32A of the IBC, 2016 provides for immunity to corporate debtors and their assets, upon approval of a resolution plan, subject to certain conditions stipulated in that provision.
The High court said that the jurisdiction of Section 32A of the IBC, 2016 would be attracted from the point at which a qualifying resolution plan is approved under Section 31 of the IBC, 2016. The protections afforded by Section 32A would become available only when the resolution plan is so approved, and such resolution plan meets the other necessary ingredients to qualify for the immunity, namely, that there is a clean break with a change in ownership of, and control over, the corporate debtor.
The court further says there is one other facet that makes the scheme and import of Section 32A of the IBC, 2016 clear, logical and reasonable. The attachment under Section 5 of the PMLA, 2002 is but a measure in aid of eventual potential confiscation under Section 8(5) of the PMLA, 2002. Confiscation of the property of the corporate debtor can only be effected upon conviction of the corporate debtor for an offence of money laundering. Where Section 32A(1) of the IBC, 2016 confers immunity to the corporate debtor from prosecution, there can be no conviction that can follow. Consequently, it is but logical that the property of the corporate debtor would have protection from any continued attachment by reason of Section 32A(2).
“Therefore, when there is no potential in law for an eventual confiscation, the attachment, which is only an interim measure in aid of the final measure of confiscation must necessarily abate and come to an end, since it cannot continue in a vacuum,” the court says in its order.
In the present case, ED had attached properties worth Rs 32.51 crore of DSK Southern Projects Private Limited. The HC in its order said that as a consequence of Section 32A of the IBC, 2016, the ED must now necessarily release the attachment on the Attached Properties, without being bogged down by the question of how to interpret the continuation of attachment after the commencement of the CIRP and before the Approval Order, and the implications for the same under Section 14 of the IBC, 2016. We are not opining on this facet of the law as it is wholly unnecessary to dispose of the case at hand. It is trite law that no court should rule on questions of law in a vacuum.
Also See: Compulsorily Convertible Debentures are equity, not debt: Supreme Court
