PMLA-IBC ‘conflict’: NCLAT asks ED, MCA to reach consensus

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Published: October 26, 2019 2:01 AM

The tribunal has now said it held the prima facie view that if assets are seized by the ED and these turn out to be purchased out of proceeds of crime, then ED would have claim on them as ‘operational debt’, under the Insolvency and Bankruptcy Code (IBC), 2016.

Under IBC, operational creditors come after financial creditors when it comes to laying hands on the resolution proceeds.

A day after finance minister Nirmala Sitharaman said differences between the corporate affairs ministry and the Enforcement Directorate (ED) over the latter’s attachment of a portion of the properties of Bhushan Power & Steel (BPSL) that was under the insolvency resolution process would be resolved soon, the National Company Law Appellate Tribunal (NCLAT) on Friday seemed to pay heed as it asked “the two wings of the same government, same ministry” to sit together and and settle the issue.

The tribunal had, on October 14, asked the ED to release the attached properties and directed the agency not to attach any further assets without its permission. However, it had also put the Rs 19,700-crore payout by the JSW Steel to buy the debt-ridden company on hold until further orders.

The tribunal has now said it held the prima facie view that if assets are seized by the ED and these turn out to be purchased out of proceeds of crime, then ED would have claim on them as ‘operational debt’, under the Insolvency and Bankruptcy Code (IBC), 2016.

The three-member NCLAT bench, headed by chairperson justice SJ Mukhopadhay posted the matter to November 18 for further hearing. While the question is whether the Prevention of Money Laundering Act, under which the ED went ahead and attached BPSL assets overrides the IBC, Sitharaman on Thursday had said the government recognised there was an issue (over the dichotomy between the two laws).

While the ED does its duty of attaching properties of people who are being pursued under the PMLA, some of the (connected) company properties could also be getting attached, she noted. “I had a meeting with both revenue secretary and corporate affairs secretary. We are applying our mind on it. Let’s see how we resolve it,” she told reporters.

“Prima facie, we are of the view that if the assets are seized by the ED and finally hold that the assets were purchased out of the ‘proceeds of crime’, in such case, the amount as may be generated out of the assets will come within the meaning of ‘operational debt’ payable to the ED for which it may file claim in terms of the Insolvency and Bankruptcy Code, 2016,” the NCLAT said.

Under IBC, operational creditors come after financial creditors when it comes to laying hands on the resolution proceeds.

The bench was hearing JSW Steel’s plea seeking protection from attachment of BPSL’s assets post take-over. In its affidavit to the NCLAT, submitted on October 10, the MCA said that once a resolution plan is approved by the NCLT, it is binding on all stakeholders including government agencies. “Before approving the resolution plan, objections are heard by the adjudicating authority and once hearing on the resolution plan and objections is completed before the adjudicating authority and the resolution plan is approved, such resolution plan is binding on all stakeholders, including all government agencies,” the MCA said in the affidavit.

In its replying notice, the ED had appealed the NCLAT to dismiss JSW Steel’s prayer. It also said, “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”.

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