SC urges govt to resolve PMLA vs IBC deadlock | Latest News India - Hindustan Times
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SC urges govt to resolve PMLA vs IBC deadlock

By, New Delhi
Apr 06, 2022 06:26 AM IST

“This is worrying...objective of the IBC will be frustrated,” remarked a bench headed by Chief Justice of India NV Ramana.

If the Enforcement Directorate (ED) attaches properties purchased under the insolvency process for financial crimes of the previous owner, it would frustrate the objective of the Insolvency and Bankruptcy Code (IBC), the Supreme Court observed on Tuesday, asking the central government to quickly resolve the conundrum.

The Supreme Court. (HT PHOTO)Why should the ED be allowed to attach properties that are bought by a new purchaser in an auction lawfully conducted under the IBC, the bench asked solicitor general Tushar Mehta.
The Supreme Court. (HT PHOTO)Why should the ED be allowed to attach properties that are bought by a new purchaser in an auction lawfully conducted under the IBC, the bench asked solicitor general Tushar Mehta.

“This is worrying...objective of the IBC will be frustrated,” remarked a bench headed by Chief Justice of India NV Ramana.

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Why should the ED be allowed to attach properties that are bought by a new purchaser in an auction lawfully conducted under the IBC, the bench asked solicitor general Tushar Mehta.

The bench, which also comprised justices Krishna Murari and Hima Kohli, pointed out that nobody would be interested to buy assets under the insolvency process if the central agency can attach such properties under the money laundering law on account of illegalities committed by previous owners.

“Suppose a property was purchased using tainted money and it is put up for auction. It would have been a different scenario if the previous entity (corporate debtor or promoter) sold it privately, but that is not the case. There is an auction approved by you under IBC. How can ED then attach such properties?” it asked Mehta, who appeared for the central government and the ED in the matter.

At this point, Mehta disclosed there was a divergence of opinion on this issue between the ED and the corporate affairs ministry, and attempts are being made to resolve the differences. The ED operates under the finance ministry.

“Suppose there is a plot or land which was bought using the proceeds of a crime. Someone else buys it under IBC. There is no ambiguity that the new buyer will not be prosecuted under the PMLA (Prevention of Money Laundering Act, 2002). But the divergence of opinion is about the property because the ED says that the property is liable to be attached as proceeds of crime,” he submitted.

The two ministries are going to resolve this question of law and that a meeting is likely to be held after the current session of Parliament concludes on April 8, Mehta said. “Someone needs to sit with the two and bridge the gap. I am certain the differences will be resolved very soon,” he said.

“Whatever the ministries may decide, we may also want to know how and why this should happen,” the court retorted.

Mehta acknowledged the concerns of the court and agreed that such a practice may run contrary to the objective of IBC. The bench then posted the matter for hearing next on April 19 following an assurance from Mehta on a possible resolution by then. Both the corporate affairs and finance ministries are headed by Nirmala Sitharaman.

The court was hearing a dispute over the ED’s 2019 provisional attachment order with respect to properties of the now bankrupt Bhushan Power and Steel, which, despite being the sixth-largest non-performing account in the country, is awaiting resolution for nearly four years now.

A month after the National Company Law Tribunal in Delhi approved JSW Steel’s successful resolution plan, the ED provisionally attached assets of Bhushan worth 4,025 crore in October 2019. The National Company Law Appellate Tribunal stayed both the resolution plan approval and the attachment order on appeal.

But the ED refused to release the attached assets on the grounds that the money-laundering law prevails over IBC when it comes to attachment of properties obtained as proceeds of crime. It further contended that the properties could be released only when a suitable order is obtained by a party from the appellate authority under PMLA.

Left with no alternative, Bhushan’s lenders moved the Supreme Court for relief, which granted an interim stay on the attachment in December 2019.

Meanwhile, in December 2019, the Union government introduced Section 32A in IBC by way of an ordinance, which was later enacted as an amendment, to provide that the criminal proceedings against former promoters will not affect a resolution applicant when acquiring a stressed firm, and that no prosecution could be launched against a successful resolution applicant or the assets once a resolution plan was approved.

Citing this amendment in the law, the appellate tribunal in February 2020 vacated the attachment of Bhushan’s assets and approved JSW Steel’s bid for the company. But the ED moved the Supreme Court to argue that the IBC amendment could not be given retrospective effect since the resolution plan was approved prior to the amendment.

JSW Steel too moved the apex court, seeking immunity from the ED. In the wake of JSW’s apprehensions towards implementing the resolution plan, Bhushan’s lenders also requested the Supreme Court to resolve the matter.

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