Bombay High Court Allows Writ Petitions Challenging PMLA Attachment — Section 32A IBC Immunity Overrides Provisional Attachment Order Under PMLA. Resolution Plan Approved for Corporate Debtor Shields Assets from Enforcement Directorate's Attachment.

High Court: Bombay High Court Bench: BOMBAY In Favour of Accused
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Case Note & Summary

The judgment concerns two writ petitions: one by individuals (Shiv Charan, Pushpalata Bai, and Bharti Agarwal) challenging a provisional attachment order under the Prevention of Money Laundering Act, 2002 (PMLA) against assets of a corporate debtor, and another by the Directorate of Enforcement challenging the release of those assets. The corporate debtor had undergone corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC), and a resolution plan was approved by the National Company Law Tribunal (NCLT) on 21 December 2021. The Enforcement Directorate had provisionally attached certain properties of the corporate debtor under Section 5 of PMLA on 28 December 2021, after the resolution plan approval. The petitioners sought quashing of the attachment order, while the Enforcement Directorate sought to continue the attachment. The court framed the issue as whether Section 32A of IBC, which grants immunity to corporate debtors and their assets upon approval of a resolution plan, overrides the PMLA attachment. The court analyzed the language of Section 32A, which states that no action can be taken against the corporate debtor or its assets in respect of an offence committed prior to the commencement of the resolution process, subject to conditions. The court held that the provisional attachment order under PMLA cannot survive after the resolution plan approval, as Section 32A IBC has overriding effect. The court directed the Adjudicating Authority under PMLA to release the attached properties. The petitions were disposed of accordingly.

Headnote

A) Insolvency and Bankruptcy Code - Section 32A - Immunity - Overriding Effect - Section 32A of the Insolvency and Bankruptcy Code, 2016 - The court considered whether the immunity under Section 32A IBC protects the corporate debtor's assets from attachment under PMLA after resolution plan approval. Held that Section 32A IBC has overriding effect and the provisional attachment order under PMLA cannot survive after approval of resolution plan (Paras 2, 30-35).

B) Prevention of Money Laundering Act - Attachment - Provisional Attachment Order - Section 5 of the Prevention of Money Laundering Act, 2002 - The court examined the validity of a provisional attachment order passed under PMLA against assets of a corporate debtor after resolution plan approval. Held that such attachment order ceases to have effect once resolution plan is approved under IBC (Paras 20-25).

C) Insolvency and Bankruptcy Code - Resolution Plan - Approval - Effect on Attachments - Section 31, 32A of the Insolvency and Bankruptcy Code, 2016 - The court analyzed the effect of approval of resolution plan on existing attachments. Held that the resolution plan approved by NCLT extinguishes all attachments, including those under PMLA, and the Adjudicating Authority must release the properties (Paras 30-35).

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Issue of Consideration

Whether the immunity granted under Section 32A of the Insolvency and Bankruptcy Code, 2016 to a corporate debtor and its assets upon approval of a resolution plan overrides a provisional attachment order passed under the Prevention of Money Laundering Act, 2002.

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Final Decision

The court allowed the writ petitions, holding that the provisional attachment order under PMLA cannot survive after approval of resolution plan under IBC. The Adjudicating Authority under PMLA was directed to release the attached properties.

Law Points

  • Section 32A of IBC
  • 2016 provides immunity to corporate debtor and its assets upon approval of resolution plan
  • overriding attachment under PMLA
  • 2002
  • Enforcement Directorate cannot continue attachment after resolution plan approval
  • Adjudicating Authority under PMLA must release attached properties.
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Case Details

2024 LawText (BOM) (03) 94

Writ Petition (L) No.9943 of 2023 and Writ Petition (L) No.29111 of 2023

2024-03-01

B. P. Colabawalla, Somasekhar Sundaresan

2024:BHC-OS:3371-DB

Mr. Devang Vyas, ASG a/w. Mr. Ashish Chavan, Mr. Shelang Shah & Mr. Zishan Quazi for Petitioner in WPL/29111/2023 and Respondents in WPL/9943/2023; Mr. Vikram Nankani, Senior Advocate a/w. Mr. Mayur Khandeparkar, Ms. Akanksha Saxena, Mr. Aditya Ajgaonkar, G. Aniruth Purusothaman & Joshua Borges for Petitioners in WPL/9943/2023 and Respondents in WPL/29111/2023.

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Nature of Litigation

Writ petitions challenging provisional attachment order under PMLA and seeking release of attached properties.

Remedy Sought

Petitioners in WPL/9943/2023 sought quashing of provisional attachment order dated 28 December 2021; Petitioner in WPL/29111/2023 sought to uphold the attachment.

Filing Reason

Enforcement Directorate provisionally attached properties of a corporate debtor after its resolution plan was approved under IBC, allegedly in violation of Section 32A IBC.

Previous Decisions

Resolution plan approved by NCLT on 21 December 2021; provisional attachment order under PMLA passed on 28 December 2021.

Issues

Whether Section 32A IBC immunity overrides PMLA attachment after resolution plan approval. Whether the provisional attachment order under PMLA can survive after approval of resolution plan.

Submissions/Arguments

Petitioners argued that Section 32A IBC grants immunity to corporate debtor and its assets upon resolution plan approval, overriding PMLA attachment. Enforcement Directorate argued that PMLA attachment is independent and not affected by IBC.

Ratio Decidendi

Section 32A of the Insolvency and Bankruptcy Code, 2016 provides immunity to corporate debtors and their assets upon approval of a resolution plan, overriding any attachment under the Prevention of Money Laundering Act, 2002. The provisional attachment order ceases to have effect once the resolution plan is approved.

Judgment Excerpts

The implications of Section 32A of the Insolvency and Bankruptcy Code, 2016 for corporate debtors and their assets, upon approval of resolutions, and indeed for enforcement agencies that have attached assets of such corporate debtors, fall for consideration in the captioned Writ Petitions. Section 32A of the IBC, 2016 provides for immunity to corporate debtors and their assets, upon approval of a resolution plan, subject to certain conditions stipulated in that provision.

Procedural History

The corporate debtor underwent CIRP; resolution plan approved by NCLT on 21 December 2021. Enforcement Directorate passed provisional attachment order under PMLA on 28 December 2021. Petitioners filed writ petitions challenging the attachment. The court heard both petitions together and pronounced judgment on 1 March 2024.

Acts & Sections

  • Insolvency and Bankruptcy Code, 2016: Section 32A, Section 31
  • Prevention of Money Laundering Act, 2002: Section 5
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