Insolvency and Bankruptcy Code (IBC) has no power to interfere with the provisional attachment order under Prevention of Money Laundering Act (PMLA), the enforcement directorate (ED) has said in an affidavit to the National Company Law Appellate Tribunal (NCLAT).
The investigation agency has also said that its attachment order can only be adjudicated upon at the designated authority under PMLA and not by NCLAT and hence, the NCLAT should vacate its October 14 order directing the agency to release the attached assets.
Hearing JSW Steel’s appeal seeking protection from attachment of BPSL’s assets post take-over on allegation of siphoning off funds by its erstwhile promoters under the PMLA, the NCLAT had on October 14 directed ED to release the attached assets and refrain from attaching assets further without its permission.
The ED had on October 10 attached BPSL’s assets worth Rs 4,025.25 crore on alleged money laundering by the erstwhile promoters. In its provisional order, the NCLAT also posed a couple of questions including whether the ED has jurisdiction to attach property of the corporate debtor (BPSL) or a part of it when corporate insolvency resolution process was still on. It also issued notice to ED.
In its reply, the ED also appealed the NCLAT to dismiss JSW Steel’s prayer.
“It is prayed that this (appellate) tribunal may be pleased to vacate the interim order dated 14.10.2019 directing release of the provisional attachment in favour of the ‘Resolution Professional’ and dismiss the present Appeal in so far as it seeks protection in favour of the ‘Corporate Debtor’ or its assets against the powers conferred under the PMLA,” the ED said in the reply affidavit.
The ED has cited numerous orders by the Supreme Court and the high courts as also by the NCLAT to drive home its point of argument that PMLA overrides the IBC and that in matters relating to money-laundering, PMLA has the exclusive jurisdiction and not IBC.
“PMLA is the specific/special law governing money laundering in the country and no exceptions can be made to it unless specially provided for by the Parliament. There is no power under the IBC to interfere with a provisional attachment order under section 5 of the PMLA,” the ED said.
It is also submitted that merely because the assets are subject to a resolution proceeding under the IBC, it cannot be any escape route for any action under the PMLA, as it would lead to abuse of the process of law by money-launderers, it added.
Investigating various documents, including those received from the income tax and bank details, the ED found that BPSL through its directors have availed various credit facilities from 33 different financial institutions, including banks between 2007 and 2014. BPSL deliberately defaulted in repayment of loan amounts, forcing lead lender Punjab National Bank to declare its account as non-performing assets (NPA) on December 31, 2015, which others followed.
The ED first discovered illegal diversion of funds from the accounts of BPSL on a raid conducted on BPSL’s Chandigarh premises in December, 2014. It found that BPSL, its directors and its staff dishonestly and fraudulently diverted `2,348 crore into the accounts of various companies by showing them as advances between 2007 and 2014. They also forged CENVAT invoices, paper bills and supporting documents like GRs, transport documents, vouchers, etc for fraudulent diversion of bank funds without any corresponding supply of goods.
“The investigation thus far has revealed circular diversion of funds amounting to Rs 4,025.23 crore related of criminal activity of scheduled offence. Further investigation into the affairs is also under progress,” the ED said.
During the investigation, it has been revealed that various properties had been acquired in the name of the corporate debtor during the period when funds out of loans received from various banks by the corporate debtor were diverted and routed back as equity.
“The Corporate Debtor by way of criminal activity related to scheduled offences had acquired huge amount of funds of Rs 4025.23 crores in form of infusion of equity capital, which was sourced from illegally diverted fund out of loans taken by the Corporate Debtor from various banks. Therefore, this amount of `4025.23 crores represents proceeds of crime which was further used and projected as untainted business expenses and in creation of an asset base for the Corporate Debtor and hence is in its possession,” it said.