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AMICUS AI
Citation Codes
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Case Number
Attorney(S)
  • Mr. Kanishk Khetan and Mr. Abhishek Pratap Singh, Advocates, ;
  • Mr. Anil Goel, Liquidator (in person);
  • Mr. Nitesh Rana and Mr. A.R. Aditya Advocates, for 1st Respondents.
Judges
  • Sudhansu Jyoti Mukhopadhaya
  • Chairperson
  • A.I.S. Cheema, Member (Judicial)
  • Kanthi Narahari, Member (Technical)
Acts
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. Kanishk Khetan and Mr. Abhishek Pratap Singh, Advocates, ;
  • Mr. Anil Goel, Liquidator (in person);
  • Mr. Nitesh Rana and Mr. A.R. Aditya Advocates, for 1st Respondents.
Judges
  • Sudhansu Jyoti Mukhopadhaya
  • Chairperson
  • A.I.S. Cheema, Member (Judicial)
  • Kanthi Narahari, Member (Technical)
Acts
See more information ...
Smart Summary

Factual and Procedural Background

The Bank of Baroda initiated the Corporate Insolvency Resolution Process (CIRP) against Rotomac Global Private Limited (the Corporate Debtor). After the CIRP concluded without any viable resolution plan, the Adjudicating Authority ordered liquidation of the Corporate Debtor.

The Directorate of Enforcement (Delhi Zonal Office-I) commenced an investigation vide ECIR No. 01/DLZO-I/2018 dated 18 February 2018 into offences under sections 420, 467, 471, 468 & 120-B IPC and Section 13(2) read with 13(1)(d) of the Prevention and Corruption Act, based on material from the CBI. Under the Prevention of Money Laundering Act, 2002 (PMLA), the investigation found misappropriation/diversion of bank funds, criminal breach of trust and money-laundering.

Exercising powers under Sub‑Section (1) of Section 5 PMLA, the Directorate issued Provisional Attachment Order No.08/2018 dated 28.05.2018 attaching properties provisionally in the name of the Corporate Debtor and its directors and prohibiting transfer or disposal of those properties. The Directorate characterized those properties as "proceeds of crime" within Section 2(1)(u) PMLA and as constituting the value of such proceeds.

The Liquidator of Rotomac Global Pvt. Ltd. filed an application seeking a direction for release of the Corporate Debtor's assets. The Directorate opposed, citing provisions of the PMLA (including Section 8(6) and Section 9) and asserting that confiscation/attachment under the PMLA vests title in the Central Government free from encumbrances. The Adjudicating Authority, by its impugned order dated 10 January 2019, rejected the Liquidator's application. The present appeal arises from that order.

Legal Issues Presented

  1. Whether Section 14 of the Insolvency & Bankruptcy Code (I&B Code) applies to proceedings or actions under the Prevention of Money Laundering Act, 2002 (PMLA), including provisional attachments/confiscation of property characterized as proceeds of crime.
  2. Whether properties provisionally attached/confiscated under the PMLA can be released to the Liquidator of the Corporate Debtor despite charges or mortgages in favour of banks or other secured creditors.
  3. What is the relative effect or priority of PMLA confiscation/attachment (including vesting under sub‑section (6) of Section 8 and Section 9 of PMLA) vis-à-vis secured creditors' encumbrances and rights under the I&B Code.

Arguments of the Parties

Liquidator's Position

  • The Liquidator filed an application seeking directions to the Directorate of Enforcement for release of assets of the Corporate Debtor (i.e., that the provisionally attached properties be released for the liquidation process).

Directorate of Enforcement's Contentions

  • That in terms of Section 9 of the PMLA, if confiscation is made under sub‑section (6) of Section 8 PMLA, all rights and title in such property vest absolutely in the Central Government free from all encumbrances.
  • Mortgages and charges created in favour of banks and other lenders are merely encumbrances; where confiscation under PMLA has occurred, such encumbrances are displaced.
  • The State has a prima facie superior right to confiscate proceeds of crime over the rights of persons (including creditors) to recover their debts from an accused.
  • The Liquidator has alternative remedies available under Sections 8, 26 and 42 of the PMLA; it is for the Liquidator to present its case before the appropriate authority under those sections if the rights of secured or other creditors are affected.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Varrsana Ispat Limited vs. Deputy Director, Directorate of Enforcement Company Appeal (AT) (Insolvency) No. 493 of 2018 That Tribunal, "taking into consideration the provisions of Section 4 of Prevention of Money Laundering Act, 2002" observed and held (as recited in the opinion) regarding the relationship between PMLA proceedings and Section 14 of the I&B Code. The present Appellate Tribunal treated the present case as covered by Varrsana Ispat Limited (supra) and applied its reasoning to hold that Section 14 of the I&B Code is not applicable to PMLA proceedings; accordingly dismissed the appeal.

Court's Reasoning and Analysis

The Tribunal analysed the statutory scheme and facts as follows (summary limited to text in the opinion):

  1. The Prevention of Money Laundering Act, 2002 is directed at preventing money‑laundering and providing for confiscation of property derived from, or involved in, money‑laundering (para 8, 12). Thus PMLA proceedings concern "proceeds of crime".
  2. Section 2(1)(u) PMLA defines "proceeds of crime" as "any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property" (para 9‑11 as quoted in the opinion).
  3. Section 3 PMLA delineates the offence of money‑laundering (processes connected with proceeds of crime), and Section 4 prescribes punishment for money‑laundering (paras 12‑15 as quoted).
  4. Given that PMLA deals specifically with proceeds of crime and penal measures (including confiscation), the Tribunal held that Section 14 of the I&B Code (which provides protection for certain actions during insolvency/resolution) is not applicable to PMLA proceedings or penal/criminal actions having the essence of crime or crime proceeds (para 12, repeated reasoning across paras 12–14).
  5. The Tribunal observed that punishment under Section 4 is imprisonment and pertains to individuals (e.g., ex‑directors/shareholders) and thus such individuals cannot invoke protection under Section 14 of the I&B Code (para 13).
  6. The Tribunal noted that the Directorate's attachments were made prior to initiation of the CIRP, and therefore the Resolution Professional could not derive advantage from Section 14 (para 13).
  7. Finally, the Tribunal concluded that PMLA and the I&B Code operate in different fields and may be invoked simultaneously; neither statute has an overriding effect over the other in the context considered, and therefore the appeal raised no merit (para 14).

Holding and Implications

Holding:

The appeal is dismissed. The Tribunal held that Section 14 of the I&B Code is not applicable to proceedings under the Prevention of Money Laundering Act, 2002 (including provisional attachments/confiscation of proceeds of crime) and therefore the Liquidator's application for release of assets was rightly rejected by the Adjudicating Authority.

Implications:

  • The Tribunal's decision confirms that properties characterized as "proceeds of crime" and subject to attachment/confiscation under the PMLA are not brought within the protective scope of Section 14 of the I&B Code (as applied in this case).
  • The penalty framework under Section 4 PMLA (including imprisonment) relates to individuals involved in money‑laundering and does not extend the protection of Section 14 I&B Code to those individuals or to the Resolution Professional in respect of properties attached under PMLA (para 13).
  • The attachments made by the Directorate prior to the initiation of CIRP remained effective for the purposes of PMLA; the Resolution Professional cannot derive advantage from Section 14 in those circumstances (para 13).
  • The Tribunal applied its earlier decision in Varrsana Ispat Limited (supra) to the present facts and dismissed the appeal with no costs (final paragraph).

Note: All statements in this summary are drawn exclusively from the provided opinion. No information beyond that text has been added.

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    Rotomac Global Private Limited v. Deputy Director, Directorate Of Enforcement .

    SUDHANSU JYOTI MUKHOPADHAYA, J. The Bank of Baroda initiated Corporate Insolvency Resolution Process against Rotomac Global Private Limited (Corporate Debtor). After the conclusion of the corporate insolvency resolution process in absence of any viable and feasible resolution plan, the Adjudicating Authority ordered for liquidation of the Corporate Debtor.

    2. The Directorate of Enforcement of Delhi Zonal Office-I vide order ECIR No. 01/DLZO-I/2018 dated 18th February, 2018 started investigation for commission of offence under Section 3 of Prevention of Money Laundering Company Appeal (AT) (Insolvency) No. 140 of 2019 Act, 2002 punishable under Section 4 of the said Act on the basis of information/material from CBI dated 18th February, 2018 under section 420, 467, 471, 468 & 120-B IPC and Section 13(2) r/w 13(1)(d) of the Prevention and Corruption Act.

    3. In the investigation under the provisions of Money Laundering Act, 2002 it found that accused persons having misappropriated/ diverted bank funds, committed criminal breach of trust and laundered the money so diverted.

    4. The Directorate of Enforcement, basing on the material and evidences on record and exercising the powers conferred by Sub-Section (1) of Section 5 of the Prevention of Money Laundering Act, 2002, passed a Provisional Attachment Order No.08/2018 dated 28.05.2018 attaching the properties provisionally lying in name of Corporate Debtor and its Directors wherein it was further ordered that the same shall not be transferred, disposed, parted with or otherwise dealt with in any manner, whatsoever, until or unless specifically allowed to do so by the Directorate.

    5. It is further stated that the properties in question and mentioned in PAO that were attached fall within the definition of Proceeds of Crime in terms of Section 2(1)(u) of the PMLA and the same were provisionally attached vide PAO No. 08.2018 dated 28.05.2018. It is further stated that the property provisionally attached constitutes the value of such proceeds of crime.

    6. The Liquidator filed an application for direction on Directorate of Enforcement for release of assets of the Corporate Debtor. It was contended by the respondent that in view of Section 9 of PMLA, in case an order of Company Appeal (AT) (Insolvency) No. 140 of 2019 confiscation has been made under sub-section (6) of Section 8 of the PMLA in respect of any property of a person, all the rights and title in such property shall vest absolutely in the Central Government free from all encumbrances.

    7. It is contended that the mortgage or creating a charge over the properties of the Corporate Debtor in favour of the banks and other lenders is only encumbrance of the properties. It is contended that in view of Section 9, if confiscation has been made under sub-section (6) of Section 8, such property shall vest in the Central Government free from all encumbrances.

    8. It is also contended that State will have first right to confiscate the proceeds of crime over the right of person to recover their debts from an accused. It is stated that the Applicant/Liquidator has got alternative remedies available U/s 8, 26 and 42 of the PMLA Act, 2002. It is for the Applicant/ Liquidator to project his case before the appropriate Authority U/s 8, 26, and 42 of the PMLA Act, 2002, in case, if the rights of the secured creditors or other creditors is affected.

    9. Having heard the learned counsel for the parties, the Adjudicating Authority by impugned order dated 10th January, 2019 rejected the application giving rise to the present application preferred by the Liquidator of Rotomac Global Private Limited. Similar question fell for consideration before this Appellate Tribunal in Varrsana Ispat Limited vs. Deputy Director, Directorate of Enforcement Company Appeal (AT) (Insolvency) No. 493 of 2018 wherein this Appellate Tribunal taking into consideration the provisions of Section 4 of Prevention of Money Laundering Act, 2002 observed and held as follows : Company Appeal (AT) (Insolvency) No. 140 of 2019

    8. Section 14 is not applicable to the criminal proceeding or any penal action taken pursuant to the criminal proceeding or any act having essence of crime or crime proceeds. The object of the Prevention of Money Laundering Act, 2002 is to prevent the money laundering and to provide confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto.

    9. Section 2(1) (u) of the Prevention of Money Laundering Act, 2002 defines proceeds of crime which reads as follows:

    2. Definitions. (1) In this Act, unless the context otherwise requires, xxx xxx xxx (u) proceeds of crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property Company Appeal (AT) (Insolvency) No. 140 of 2019

    10. Chapter II relates to offence of money-laundering and Section 3 therein relates to offence of money- laundering, which reads as follows:

    3. Offence of money-Laundering.- Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.

    11. Punishment for money-laundering is prescribed under Section 4 as follows:

    4. Punishment for money-laundering Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but Company Appeal (AT) (Insolvency) No. 140 of 2019 which may extend to seven years and shall also be liable to fine: Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words which may extend to seven years", the words "which may extend to ten years" had been substituted.

    12. From the aforesaid provisions, it is clear that the Prevention of Money-Laundering Act, 2002 relates to proceeds of crime and the offence relates to money-laundering resulting confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. Thus, as the Prevention of Money Laundering Act, 2002 or provisions therein relates to proceeds of crime, we hold that Section 14 of the I&B Code is not applicable to such proceeding. Company Appeal (AT) (Insolvency) No. 140 of 2019

    13. In so far as penalty is concerned, offence of money- laundering is punishable with rigorous imprisonment which is not less than three years and has nothing to do with the Corporate Debtor. It will be applicable to the individual which may include the Ex-Directors and Shareholders of the Corporate Debtor and they cannot be given protection from the Prevention of Money Laundering Act, 2002 and such individual cannot take any advantage of Section 14 of the I&B Code. This apart, we find that the attachments were made by the Deputy Director of Directorate of Enforcement much prior to initiation of the Corporate Insolvency Resolution Process, therefore, the Resolution Professional cannot derive any advantage out of Section 14.

    14. As the Prevention of Money Laundering Act, 2002 relates to different fields of penal action of proceeds of crime, it invokes simultaneously with the I&B Code, having no overriding effect of one Act over the Company Appeal (AT) (Insolvency) No. 140 of 2019 other including the I&B Code, we find no merit in this appeal. It is accordingly dismissed. No costs. The case of the Appellant being covered by Varrsana Ispat Limited (Supra), the present appeal is dismissed. No cost. [Justice S.J. Mukhopadhaya] Chairperson [ Justice A.I.S. Cheema ] Member (Judicial) [ Kanthi Narahari ] Member (Technical) New Delhi 2nd July, 2019 /ns/

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    Comments

    Rotomac Global Private Limited v. Deputy Director, Directorate Of Enforcement .
    (Jul 2, 2019)