Prefatory Note
On 12.04.2024, the High Court of Kerala (‘HC’) passed a judgment in the case of CA Jasin Jose v Directorate of Enforcement[i] wherein the HC issued an interim order lifting the attachment order issued by the Directorate of Enforcement (‘ED’) as per the Prevention of Money Laundering Act, 2002 (‘PMLA’) against the Corporate Debtor (‘CD’) undergoing liquidation under the Insolvency and Bankruptcy Code, 2016 (‘IBC’).
Factual Matrix
M/s. Atlas Gold Township (India) Private Limited, the CD, was undergoing liquidation proceedings before the National Company Law Tribunal (‘NCLT’). During the pendency of these proceedings, the ED attached the properties of the CD, bringing the liquidation process to a standstill since the properties could not be sold.
Aggrieved by this, the liquidator of the CD (‘Petitioner’) approached the HC seeking interim relief from lifting the attachment made by the ED.
The Petitioner relied on Rajiv Chakraborty Resolution Professional of EIEL v. Directorate of Enforcement[ii] and AM Mining India Private Limited v. Union of India[iii] to emphasise that the insolvency proceedings initiated before attachment orders by the ED should prevail, emphasizing the overriding effect of the IBC over the PMLA.
Issue
Whether the liquidation proceedings under the IBC take precedence over the attachment proceedings initiated by the ED under the PMLA?
Held
The HC ruled in favour of the Petitioner and lifted the attachment order placed by the ED on the properties subject to liquidation, allowing the liquidation process to proceed without further delays caused by the said attachment. Thus, the liquidator was permitted to proceed with the sale of the attached properties as part of the liquidation process.
However, while allowing the sale, the HC imposed a condition that the proceeds from the sale must be retained in a specific account to ensure that the right of the ED to attach the proceeds was preserved. This means that although the properties could be sold, the funds generated from the sale would still be subject to the attachment by ED, protecting ED’s interest in recovering any potential proceeds related to money laundering activities.
Further, the Liquidator was directed to keep the ED officers informed about the details of the proposed sales.
Our Analysis
This ruling again highlights the stance taken by various courts on the precedence of the IBC over other statutes, including the PMLA, especially when insolvency proceedings are already in progress.
The HC emphasized that the non-obstante clause in the IBC grants it precedence over other laws, including the PMLA. This was crucial in determining that the liquidation should not be disrupted by an attachment order passed by the ED.
By relying on the established judicial precedents, the HC reinforced consistent interpretation concerning the interaction between IBC and PMLA, holding the judiciary’s commitment to the IBC’s goal of timely resolution and asset maximization.
However, in this case, the HC balanced both parties’ interests by allowing the liquidation sale to continue while ensuring the ED’s right to attach the sale proceeds was maintained, thereby protecting the creditor interests and bolstering the IBC's objective.
The decision highlights the judiciary's role in preventing undue interference with IBC proceedings by enforcement actions, which supports the broader objectives of the IBC, promoting an effective insolvency resolution and liquidation framework.
End Notes
[i] [2024] 162 taxmann.com 478 (Kerala).
[ii] 2022 SCC OnLine Del.3703.
[iii] Special Civil Application No.808 of 2023).
Please find below the write-ups on where the IBC overrides other laws:
IBC overrides Electricity Act: Supreme Court Reinforces IBC’s Waterfall Mechanism by Sanyam Aggarwal
IBC Prevails: ITAT Upholds IBC Over Income Tax Act in Liquidation Cases by Sanyam Aggarwalrides Electricity Act: Supreme Court Reinforces IBC’s Waterfall Mechanism by Sanyam Aggarwal
Authored by Sanyam Aggarwal, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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