The power to seize assets under the Money Laundering Prevention Act will end once the liquidation process under the Insolvency and Bankruptcy Code begins, the Delhi High Court has said in an order last week.
In the case of PSL Ltd., Nitin Jain has been appointed liquidator by the National Company Law Court under IBC to administer the affairs and estate of the company. Subsequently, Jain received a summons from the Enforcement Branch, which was investigating the company’s affairs under the PMLA. Jain challenged the ED’s decision in the High Court.
He argued that the jurisdiction of the ED under the PMLA must cease according to law once a resolution plan is approved by the contracting authority or once the liquidation process begins. The liquidator relied on Article 32A of the IBC which prohibits prosecution, seizure, seizure, action or confiscation against a debtor company after the approval of a resolution plan.
The ED countered that the powers under the PMLA related to seizure and forfeiture cannot be viewed as secondary to the IBC. In addition, this article 32A is applicable when the debtor company is in the process of resolution and no prohibition of this type is applicable at the stage of liquidation. Until the sale of the assets in liquidation is complete and a certificate of sale is issued, the power to sue the debtor company’s assets under the PMLA remains unlimited, ED added.
Judge Yashwant Varma rejected the ED’s argument.
In its order, the court noted that while the IBC authorities are concerned with the prompt settlement of debts, those of the PMLA are concerned with the crime related to the offense of money laundering and confiscation of acquired property. .
Thus, the authorities under both laws must have sufficient room for maneuver to fulfill their respective obligations and duties. If a conflict arises, the courts must discern the legislative scheme and undertake a reconciliation exercise, the High Court added.
In the present case, the conflict relates only to Article 32A of the IBC. The High Court held that once the legislature introduces a specific provision for termination of liability and prosecution, this alone will determine the extent of the ED’s powers while a resolution or liquidation process is in progress. Classes.
The legislature, the High Court noted, wanted to ensure that during the recovery / restructuring period of the debtor company, it was not overwhelmed by pending court cases.
The court specified, however, that the cessation of proceedings is limited to the debtor company. The people who were in charge of its affairs cannot avail themselves of this exception.
On the basis of these observations, the tribunal de grande instance ordered the liquidator to proceed with the liquidation of PSL in accordance with the IBC, while prohibiting the ED from taking further action against the assets of the company.