Before discussing the above subject matter, let us first understand what PMLA is and what is IBC
As per Insolvency and Bankruptcy code 2016, if any person who has taken any loan and committed default, then the application can be filed in front of the Hon!ble National Company Law Tribunal
As per section 3(23) the Person includes
Company, Limited Liability Partnership, any individual, Partnership, HUF, Trust, any entity established under a Statue can be considered as Person. The debt and default are defined in 3(11’) and 3(12) of the Code. The debt means liability or obligation in respect of a claim which is due from any person includes Financial debt or Operational debt and default means non payment of debt when whole or part of the instalment has become due and payable and not paid by the debtor. So if there is debt and default takes place, then the application can be filed by Financial Creditor, Operational Creditor and Corporate debtor.
As per section 5(8) has defined, Financial Creditor means the person to whom the financial debt is owed or assigned legally to some other person. The Financial debt has been defined in 5(9). The financial debt is an amount which is disbursed against the consideration of time value of money. Similarly Operational debt has been defined in Section 5(21) as any debt incurred towards supply of goods or services including employment and any amount payable as per law in force to any Central Govt or State Govt including any local body.
The Financial Creditor can file an application under section 7(1), Operational Creditor can file an application under section 9(1) and Corporate Debtor can file an application under section 10(1) of the Code.
Once the application is filed, the Adjudicating Authority will have a time of 14 days to ascertain the existence of default. If the application is completely filled in or there is ascertainment of existence of default is there and there is no disciplinary proceedings against the Insolvency Professional, then the application will be admitted otherwise the application will be rejected and the applicant will be given a time of 7 days to rectify the mistake and if he cannot rectify the application, the application will be returned.
Once the application is admitted, the Adjudicating Authority by an Order declare
1. Moratorium
2. Cause IRP to make Public Announcement
3. Appointment of Interim Insolvency Professional
The Corporate Insolvency Resolution Process will commence from the date of appointment of Interim Insolvency Professional. Immediately after appointment, the Interim insolvency Professional as per section 15 (1) and make an announcement of Public announcement immediately. Immediately means within 3 days. In the Public announcement, the details of CD, the Register with which the entity is registered and the last date of submission of claims and other details will be there. As per Section 15 (1) (C) and as per regulation 6(2) (C) the Creditors have to submit their claims within 14 days from the date of appointment of Interim Resolution Professional. But as per regulation 12(2) the Creditors who fails the submit the claims with proof within 14 days can submit their claims within 90 days from the Insolvency Commencement date. The regulation 12(2) was amended. Before amendment, the Creditors who fail to submit their claims within 14 days can submit their claims before approval of resolution plan. Now there is a limitation of time for submission of claims. This is because, the Corporate Insolvency Resolution Process is a time bound process to resolve the insolvency, protect the Creditors, increase the availability of credit and balance interest of all stake holders.
During the moratorium period, no initiation of fresh suit or continuation of pending suits or enforcement of decree of a court of law and also any recovery action under SARFAESI or any other law is permissible. So it is a calm period during which both the Creditors and Debtors will come to a negotiating table for resolution of insolvency. But during the moratorium period, if the Directorate of PMLA has confiscated or attached the property of the Corporate Debtor, than it will defeat the object of the Code.
The object of the code is to ensure the consolidation of insolvency laws relating to corporate persons, Partnership firms and individuals in a time bound manner, to promote entrepreneurship and availability of Credit and also ensure maximisation of value of assets and to improve the ease of doing business and facilitate more investment leading to higher economic development
The basic objective of the code will be defeated if the authorities of the PMLA attaches the property of the CD. Before discussing on this aspect, let us understand what is PMLA
The Money laundering is defined as the act of transferring illegally obtained money through legitimate people or accounts so that its original source cannot be traced. In other words, it is a scheme wherein in order to conceal its origin, transfer the money obtained illegally through various channels. Examples are opening of Shell companies, opening offshore bank accounts and bulk cash smuggling etc. Hence many nations felt this as a great menace to the economy of the country and accordingly a resolution was adopted in the General Assembly of the United Nations in the year 1998 against money laundering and drug trafficking and proposed an action plan against money laundering .Under this Act there is a provision for confiscation and seizure of the assets that are purchased through proceeds of Crime
Under IBC, the resolution applicant plays an important role in revival of the Corporate that is undergoing Corporate Insolvency Resolution Process. Resolution Applicant means a person who individually or jointly with any other person submits a resolution plan to the resolution Professional pursuant to the invitation made under clause (h) of sub-section (2) of section 25.The Resolution applicant after submitting resolution plan to the COC and after obtaining their approval and take approval of the Adjudicating Authority and he will take over the assets and liabilities and liabilities will be paid as per the resolution plan. During the CIRP , the bonafide Resolution applicant will take over the assets of the Corporate debtor .If there is a threat of attachment of property or pending proceedings by investigating agencies for wrong doings of the previous management will defeat the very purpose of the code The Resolution Applicant will come forward to put his hard earned money for acquiring the untainted assets of the Corporate debtor. The Resolution applicant needs a clean and untainted asset but not tainted asset. The object of the code is that a person acquiring the assets of the corporate debtor cannot be subjected to any harassment by any agency. The object of the code will be defeated if the Resolution applicant after placing his hard earned money in acquiring the assets of the CD, put to harassment from any investigating agency. The Resolution Applicant will come forward to invest in the assets of the CD only if there is an assurance that the assets of the CD are safe. Once this assurance is provided, the value of the asset will also go up.
Suppose the Resolution Applicant has submitted the resolution plan which was approved by the COC as per section 30(4) if it is as per the terms and conditions stipulated as per section 30(2), the Adjudicating authority will approve. After approval of resolution plan by Adjudicating Authority, the resolution applicant will place his hard earned money as per the terms of the resolution plan, then in such stage, if the authorities of the PMLA attach the assets of the CD, then what would be the position of the Resolution applicant?
The Directorate of Enforcement attaches the assets of the CD; the following problems will come up
The Main object of the code is to give confidence to the Creditors and maintain a balance between the interests of all stakeholders. This object of the Code will be defeated if Directorate of Enforcement attaches the property of the CD. In addition to this there will be a delay in the Insolvency Resolution Process which is against the time bound process of CIRP.
The above problem arises in the case of M/s Bhushan Power and Steel limited (BPSL). The details of the case are
1. Corporate Insolvency Resolution Process was initiated against M/s BPSL
2. M/s JSW Steel was the successful Resolution Applicant for BPSL
3. In the meanwhile the Enforcement Directorate (ED) has attached a portion of the assets of the BPSL stating that those assets were acquired as a result of proceeds of Crime.
4. M/s JSW Steel filed an application before NCLAT seeking protection from the attachment of the assets of the ED
5. Appellate Tribunal has opined that if the assets are seized by the ED as a result of proceeds of Crime, then the ED would have a claim over it in the nature of Operational Debt
6. The Ministry of Corporate Affairs , a Respondent in the matter has filed an affidavit and stated that once the resolution plan is approved by the Adjudicating Authority , it is binding on all the stakeholders including Govt.Agencies
7. Hence there is a need to settle the tussle between the two wings of the Govt such as Ministry of Corporate Affairs and the ED of Enforcement Directorate.
8. When the matter before NCLAT is pending for adjudication, then the Central Govt has by way of amendment introduced new Section 32 A in the Code
9. Basing on the amendment, the Hon!ble NCLAT has asked ED to clarify as to whether the Section 32 A would be applicable to the resolution plan submitted by the M/s JSW steel .
10. ED has opined that newly introduced Section 32 A would not applicable to the resolution plan submitted by the M/s JSW steel because the resolution applicant is a related party to the M/s BPSL
11. Hon!ble NCLAT has opined that right of raising objection is available to the stakeholders until approval of the resolution plan Once resolution plan is approved it will be binding on all the stakeholders and not agreed to the contention of ED and ordered that the resolution plan submitted by the M/s JSW steel stands approved and approved resolution plan will abate all the proceeds of Criminal investigation against the Corporate Debtor thereby providing immunity to the resolution applicant i.e M/s JSW steel.
12. The Parties have preferred an appeal in the Apex court.
Hence there is a need to bring section 32 A
What is section 32 A?
Section 32 A is the most powerful section in the IBC.The section provides immunity to the newly inserted Directors from all Offences committed by the Directors of the Corporate Debtor prior to the commencement or during the Corporate insolvency Resolution Process.The Section further prohibits all actions taken against the property of the Corporate Debtor who is undergoing Corporate Insolvency Resolution Process which are covered under the resolution plan approved by the Adjudicating Authority .The clause further denies attachment of Govt Agencies including attachment from the Directorate of Enforcement on the properties of the Corporate Debtor provided these properties are covered and considered under the resolution plan approved by the Adjudicating Authority. The Provisions of the section do not cover the assets of the third person like Guarantor etc. Further the section provides that the Corporate Debtor and any person shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. However the benefit of the cessation of liability would only be available when the change in the management or control of the Corporate debtor is not a person who was a promoter or in the management or control of the corporate debtor or a related party of such a person. Further the person in charge of the management should not be the one with respect to whom any investigating authority has given adverse opinion with respect to the Offence committed and furnished a report/complaint to the relevant statutory authority. The Provisions of the section shall not applicable to the cases where the corporate debtor falls under the purview of the Micro small and medium enterprise.
The immunity provided under section 32 A would not be applicable to the following persons
A) Every person who was a designated partner as defined in clause (j) of section 2 of the limited liability Partnership Act 2008
B) An Officer in default as defined in clause (60) of section 2 of the companies Act 2013
C) A person who was in any manner in charge of ,or responsible to the Corporate debtor for the conduct of its business or associated with the corporate debtor in any manner
D) A person who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority.
Hence the distinction must be made between offenses committed by the corporate debtor and other persons as mentioned above
The Problem arises when the Management of the Company or the Resolution applicant have acquired the assets with tainted money and the ED of the Enforcement Directorate has attached the property of the company basing on the fact that these assets were acquired through proceeds of crime, in such cases the smooth conduct of CIRP is very difficult.
1. M/s Rotomac Global Private ltd has undergone CIRP due to filing of an application by Bank of Baroda under section 7(1) of the code.
2. No viable resolution plan has come
3. Hon!bel NCLT has ordered for liquidation
4. Meanwhile the Directorate of Enforcement had launched investigation basing on the report of CBI
5. During the investigation ED has opined that they have committed certain offences and ordered for attachment of the properties
6. The liquidator had sought for release of assets attached by the ED
7. NCLT has rejected the request of the liquidator
8. Liquidator has moved the matter to NCLAT
9. NCLAT has held that if the assets were acquired through proceeds of the crime then Section 14 is not applicable to such proceedings
The question who will prevail? Whether IBC prevail over PMLA or PMLA prevails over IBC?
The above question was answered as IBC contains non –obstinate clause in section 238 of the Code. The similar provision was incorporated in the PMLA under section 71. Now the question is whether IBC prevail over PMLA or PMLA prevail over IBC ? As per Apex court the act which was promulgated later will prevail. This was decided in the case of Solidaire India ltd Vs Fairgrowth Financial Services Pvt ltd, it was held that if both the Acts have non-obstinate clause, in such case, latter statue shall prevail Hence provisions of IBC will prevail and accordingly section 14 overrides any inconsistent provisions in any other enactment including the Income tax Act 1961.
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