Power to attach as conferred by Sec.5 of PMLA would cease to be exercisable once measure specified in Regulation 32 of Liquidation Regulations,2016 comes to be adopted & approved by NCLT: Delhi HC

Read Judgment: Nitin Jain Liquidator Psl Ltd. vs. Enforcement Directorate

Pankaj Bajpai

New Delhi, December 27, 2021: The Delhi High Court has held that Section 32A(2) of the Insolvency and Bankruptcy Code only protects the property of the corporate debtor in liquidation from provisional attachment by ED u/s 5 of Prevention of Money Laundering Act, 2002, in respect of money laundering offences committed prior to commencement of Corporate Insolvency Resolution Process (CIRP).

It does not make the Liquidator of corporate debtor immune from answering to the requests for information that may be directed towards him by the investigating authorities under the PMLA, added the High Court.

The Single Judge Yashwant Varma stated that Section 32A of IBC in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect.

The approval of the measure to be implemented in the liquidation process by the Adjudicating Authority must be held to constitute the trigger event for the statutory bar enshrined in Section 32A coming into effect, added the Single Judge.

Justice Varma therefore opined that the power to attach as conferred by Section 5 of the PMLA would cease to be exercisable once any one of the measures specified in Regulation 32 of the Liquidation Regulations 2016 comes to be adopted and approved by the Adjudicating Authority(NCLT).

The High Court observed that the expression “sale of liquidation assets” in section 32A(2) must be construed accordingly, and the power otherwise vested in Enforcement Directorate (Respondent) under the PMLA to provisionally attach or move against the properties of the corporate debtor would stand foreclosed once the Adjudicating Authority comes to approve the mode selected in the course of liquidation.

To this extent and upon the Adjudicating Authority approving the particular measure to be implemented, the PMLA must yield, added the Court.

The Single Judge went on to note that from the date when the Adjudicating Authority came to approve the sale of the corporate debtor as a going concern, the cessation as contemplated u/s 32A did and would be deemed to have come into effect.

“The Liquidator though obliged to administer and oversee the affairs of the corporate debtor in accordance with the provisions of the IBC, cannot strike a position of not cooperating with the competent authorities under the PMLA. Regard must be had to the fact that upon appointment, the Liquidator steps into the shoes of the erstwhile management and is the custodian of the properties. It would be necessary to recognize the obligation of the Liquidator to provide such material and other information that may be required”, observed the Single Judge.

The High Court therefore clarified that the Liquidator cannot strike the position of being immune from answering to the requests for information that may be directed towards him by the investigating authorities under the PMLA.