PMLA Proceedings Not Hit by Moratorium Under Section 14 of IBC: NCLT

PMLA Proceedings Not Hit by Moratorium Under Section 14 of IBC: NCLT

Introduction

The National Company Law Tribunal (NCLT), New Delhi Bench, comprising Shri Manni Sankariah Shanmuga Sundaram (Member-Judicial) and Shri Atul Chaturvedi (Member-Technical), has ruled that the NCLT lacks the authority to adjudicate upon an order issued by the adjudicating authority under the Prevention of Money Laundering Act (PMLA) or to direct the Enforcement Directorate (ED) to release the attachment.

Factual Background

The resolution professional (RP) filed an application under Section 114(1) read with Section 60(5) of the Insolvency and Bankruptcy Code (IBC) to stay the proceedings initiated by the ED under the PMLA, 2002, and to set aside the provisional attachment order. The RP argued that the attachment would hinder the Corporate Insolvency Resolution Process (CIRP) and violate the moratorium under Section 14 of the IBC.

Procedural Background

The case was heard by the NCLT, New Delhi Bench, which considered the application filed by the RP and the response of the ED. The NCLT examined the jurisdiction of the tribunal to interfere with the attachment order under PMLA.

Issues

The primary issue before the court was:

• NCLT's Jurisdiction: Whether the NCLT has the authority to adjudicate upon an order issued by the adjudicating authority under PMLA or to direct the ED to release the attachment.

Contentions of Parties

Resolution Professional: The RP contended that the PMLA proceedings are "civil proceedings" and therefore, the bar under Section 14 applies to it. The RP relied on P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021) and Alchemist ARC v. Hotel Gaudavan Pvt. Ltd. (2017) to support its contention.

Enforcement Directorate: The ED argued that the attachment was made under Section 5 of PMLA in respect of "proceeds of crime" arising out of an FIR by the CBI. The ED submitted that the NCLT has no jurisdiction to interfere with the orders passed under the PMLA, which is a special and self-contained code. The ED relied on Embassy Property Developments Pvt. Ltd. v. State of Karnataka (2019), Varrsana Ispat Ltd. v. Deputy Director, ED (2019), and Kiran Shah v. ED (2021) to support its contention.

Reasoning & Analysis

The NCLT observed that:

• Limited Jurisdiction: The NCLT cannot adjudicate upon matters falling outside the scope of IBC and within the exclusive domain of authorities constituted under any other legislation.
• Moratorium Under Section 14: The moratorium under Section 14 is not applicable to PMLA proceedings.
• Immunity Under Section 32A: The immunity under Section 32A is not applicable to offenses committed prior to the initiation of CIRP.
• Principle of Harmonious Construction: Both laws (IBC and PMLA) can operate in their respective fields, and remedies are available to the applicant under Sections 8, 26, and 42 of the PMLA.

Implications

The NCLT's decision highlights the importance of understanding the jurisdiction of the tribunal under the IBC and PMLA. The judgment underscores the need for parties to approach the appropriate authorities under the relevant legislation.

In this case the applicant was represented by Mr. Bhargav Thali, Advocate. Meanwhile the RP was represented by Mr. Abhishek Anand, Mr. Karan Kohli and Ms. Vaishnavi, Advocates.