Maintainability of writ petition against orders of NCDRC

Maintainability of writ petition against orders of NCDRC

The Consumer Protection Act 1986 was enacted with a view to provide access to consumer to disputes against the defective goods availed of or against deficient service provider, services whereof were availed of with due consideration. The Consumer Protection Act 1986 as enacted has undergone periodically changes and several amendments were carried out in the Act to cater to the needs that had arisen with a view to give fillip to the objective. Subsequently, the Consumer Protection Act is completely overhauled and a new Act is now enacted and known as Consumer Protection Act 2019(hereinafter referred to as “2019 Act”).

The National Consumer Disputes Redressal Commission is an apex body of consumer disputes. The complaints before the National Commission could be filed in case the value of goods or services availed of are more than Rs Ten (10) Crores as per the 2019 Act. In case, a party is aggrieved from the judgment of NCDRC passed in original complaint, the recourse available to such aggrieved party is a consumer appeal before hon’ble Supreme Court.  However as per the 2019 Act any order passed in First Appeal or in revision petition by the National Commission shall not be appealable and writ petition may lie before high courts under Article 227 of Constitution of India.

It is in this backdrop that the hon’ble Supreme Court has to deal with the issue in a matter reported as Ibrat Faizan v. Omaxe Buildhome Private Limited 2022 LiveLaw (SC) 481. The Supreme Court has settled the issue finally as regards whether writ shall lie before high courts against such orders passed by NCDRC, which is not appealable and the grey area that existed earlier is now set to rest.

The genesis of Ibrat Faizan (Supra) case needs analysis on a broad canvass. A writ petition was entertained by Delhi High Court against the order passed by National Commission in an appeal and interim order was passed.  The petitioner feeling aggrieved and dissatisfied with the order passed by the Delhi High Court holding that against the order passed by the National Commission passed in an appeal under Section 58(1)(a)(iii) of the Consumer Protection Act, 2019. It was held that a writ petition under Article 227 of the Constitution of India would be maintainable. The original respondent before the High Court had preferred the appeal before the hon’ble Supreme Court in Ibrat Faizan (Supra) case.

FACTUAL MATRIX

 

The Appellant in Ibrat Faizan (Supra) case, before the hon’ble Supreme Court had booked a flat in the project floated by the respondent. According to the appellant herein, despite the payment of sale consideration, the possession of the flat was not handed over and therefore the appellant filed a consumer complaint before the Delhi State Consumer Redressal Commission (‘State Commission’) on the grounds of deficiency of service and unfair trade practice. By order dated 16.10.2020, the State Commission allowed the said complaint directing the respondent herein to handover possession of the flat booked by the appellant subject to their meeting the requirements. The State Commission also directed the respondent herein to pay to the complainant – appellant compensation for the delayed period in the form of simple interest at the rate of 9% per annum for the period from the date of possession of the flat was due to be delivered till the delivery of the possession.

The original complainant/appellant had filed an execution and contempt petition before the State Commission and the State Commission had directed the decree holder to place on record the details of the bank accounts or the properties of the respondent  which were to be attached for not implementing the judgment and order dated 16.10.2020 passed by the State Commission. The respondent-builder had thus preferred an appeal before the National Commission. Vide order dated 30.03.2021, the National Commission granted stay of the State Commission’s order, subject to deposit of the entire cost of the flat along with 9% per annum interest on the amount paid till date in the Registry of the State Commission or face the execution action by the State Commission.

 

The respondent/builder was now aggrieved and dissatisfied with the order dated 30.03.2021 passed by the National Commission and preferred a writ petition before the High Court by way of Writ CM(M) No. 374/2021 under Article 227 of the Constitution of India contending, inter alia, that the National Commission ought not to have directed the builder to deposit the entire cost of the apartment along with the compensation awarded by the State Commission. The High Court had stayed the operation of the order of National Commission dated 30.03.2021, subject to the builder depositing with the State Commission 50% of the amount directed to be deposited by way of interest towards compensation within four weeks. A further order came to be passed by the High Court on 17.08.2021 in Writ CM (M) No. 374/2021. Thereafter, the National Commission passed a final order in First Appeal No. 250/2021 vide order dated 09.12.2021 and confirmed the order passed by the State Commission dated 16.10.2020.

The respondent/ builder was again dissatisfied with the final order dated 09.12.2021 passed by the National Commission, confirming the order dated 16.10.2020 passed by the State Commission, and again approached the Delhi High Court by way of writ petition being CM(M) No. 1196/2021. The High Court vide interim order dated 22.12.2021 had stayed the operation of final order dated 09.12.2021 passed by the National Commission in First Appeal No. 250/2021 till the next date of hearing. This order of high court was impugned before the Supreme Court by the Appellant.

The Legal ANALYSIS

 On 21.03.2022, the Supreme Court had passed the following order:

 

“The jurisdiction of the High Court, under Article 227 of the Constitution of India, against the order passed by the National Consumer Disputes Redressal Commission (NCDRC) is the moot question for consideration. As the matter is pending before the High Court and the next date of hearing is reported to be 29.03.2022, we request the High Court to decide the issue with respect to the jurisdiction of the High Court, under Article 227 of the Constitution of India, against the order passed by the National Consumer Disputes Redressal Commission (NCDRC) first which may be decided on or before 18.04.2022. The decision of the High Court on the jurisdiction shall be placed before this Court on or before the next date of hearing”.

Accordingly, vide a further order dated 31.03.2022, the learned Single Judge of the High Court has decided on the question of jurisdiction and it has held that against the order passed by the National Commission dated 09.12.2021 passed in First appeal No. 250/2021, impugned before it, a writ petition under Article 227 of the Constitution of India would be maintainable.

The Appellant in the above perspective had sought amendment, and that was allowed as necessitated owing to the subsequent order dated 31.03.2022 passed by the high court and that was also challenged before the Supreme Court in the matter in hand. 

The appellant contended that against the order passed by the National Commission, an appeal provided under Section 27A(1)(c) of the Consumer Protection Act, 1986 and without exhausting the said remedy, the High Court ought not to have entertained the writ petition under Article 227 of the Constitution of India, which was against the order passed by the National Commission in First Appeal No. 250/2021.

It was also pleaded that assuming that the writ petition under Article 227 of the Constitution of India against the order passed by the National Commission, impugned before the High Court, was maintainable, in that case also, in the limited jurisdiction available under Article 227 of the Constitution of India, the High Court ought not to have stayed the order passed by the National Commission dated 09.12.2021 passed in first appeal No. 250/2021.

Per contra it is contended by the respondent that as the appeal before the National Commission was under Section 58(1)(a)(iii) of the 2019 Act, there is no further appeal provided against the order of the National Commission, as provided to the Supreme Court under section 67 of the 2019 Act, against the order passed by the National Commission under Section 58(1)(a)(iii) of the 2019 Act. Hence, a writ petition under Article 227 of the Constitution of India would be maintainable. Reliance was placed upon the decision of the Supreme Court in the case of Associated Cement Companies Limited v. P.N. Sharma, AIR 1965 SC 1595 (paras 44 & 45), and the subsequent decision of the Supreme Court in the case of L. Chandra Kumar v. Union of India, (1997) 3 SCC 261.

The short issue craving for answer before the hon’ble Supreme Court was as under: 

“whether, against the order passed by the National Commission in an appeal under Section 58(1)(a)(iii) of the 2019 Act, a writ petition before the concerned High Court under Article 227 of the Constitution of India would be maintainable?”

 

Before delving in the issue the provisions of Consumer Protection Act 2019 shall be of relevance. The relevant provisions are as under:

“58. Jurisdiction of National Commission.—(1) Subject to the other provisions of this Act, the National Commission shall have jurisdiction—

 

(a) to entertain—

 

(i) complaints where the value of the goods or services paid as consideration exceeds rupees Ten crores:

 

Provided that where the Central Government deems it necessary so to do, it may prescribe such other value, as it deems fit;

 

(ii) complaints against unfair contracts, where the value of goods or services paid as consideration exceeds ten crore rupees;

 

(iii) appeals against the orders of any State Commission;

 

(iv) appeals against the orders of the Central Authority; and

 

(b) to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been decided by any State Commission where it appears to the National Commission that such State Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction illegally or with material irregularity.

 

(2) The jurisdiction, powers and authority of the National Commission may be exercised by Benches thereof and a Bench may be constituted by the President with one or more members as he may deem fit:

 

Provided that the senior-most member of the Bench shall preside over the Bench.

 

(3) Where the members of a Bench differ in opinion on any point, the points shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and make a reference to the President who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other members and such point or points shall be decided according to the opinion of the majority of the members who have heard the case, including those who first heard it:

 

Provided that the President or the other member, as the case may be, shall give opinion on the point or points so referred within a period of two months from the date of such reference.

 

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67. Appeal against order of National Commission.—Any person, aggrieved by an order made by the National Commission in exercise of its powers conferred by sub-clause (i) or (ii) of clause (a) of sub-section (1) of Section 58, may prefer an appeal against such order to the Supreme Court within a period of thirty days from the date of the order:

 

Provided that the Supreme Court may entertain an appeal after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing it within that period:

 

Provided further that no appeal by a person who is required to pay any amount in terms of an order of the National Commission shall be entertained by the Supreme Court unless that person has deposited fifty per cent of that amount in the manner as may be prescribed.”

         

It is observed by the hon’ble Supreme Court that the appeal before the National Commission was against the order passed by the State Commission under Section 47(1)(a) of the 2019 Act. Therefore, against the order passed by the State Commission in a complaint in exercise of its powers conferred under Section 47(1)(a) of the 2019 Act, an appeal to the National Commission was maintainable, as provided under Section 58(1)(a)(iii) of the 2019 Act. As per Section 67 of the 2019 Act, any person, aggrieved by an order made by the National Commission of its powers conferred by sub-clause (i) or (ii) of clause (a) of sub-section (1) of Section 58, may prefer an appeal against such order to the Supreme Court. Therefore, an appeal against the order passed by the National Commission to the Supreme Court would be maintainable only in case the order is passed by the National Commission in exercise of its powers conferred under Section 58(1)(a)(i) or under Section 58(1)(a)(ii) of the 2019 Act. No further appeal to the Supreme Court is provided against the order passed by the National Commission in exercise of its powers conferred under Section 58(1)(a)(iii) or under Section 58(1)(a)(iv) of the 2019 Act. In that view of the matter, the remedy which may be available to the aggrieved party against the order passed by the National Commission in an appeal under Section 58(1)(a)(iii) or Section 58(1)(a)(iv) would be to approach the concerned High Court having jurisdiction under Article 227 of the Constitution of India.

The next issue of pertinence was as to whether national Commission could be construed to be or shall be akin to a “Tribunal” for the purpose of exercise of powers under Article 227 of the Constitution of India by the High Court is concerned, has been considered by a Constitution Bench of the Supreme Court in the case of Associate Cement Companies Limited (supra). The paragraphs 44 and 45 of the above judgment are reproduced below:-

“44. An authority other than a court may be vested by statute with judicial power in widely different circumstances, which it would be impossible and indeed inadvisable to attempt to define exhaustively. The proper thing is to examine each case as it arises, and to ascertain whether the powers vested in the authority can be truly described as judicial functions or judicial powers of the State. For the purpose of this case, it is sufficient to say that any outside authority empowered by the State to determine conclusively the rights of two or more contending parties with regard to any matter in controversy between them satisfies the test of an authority vested with the judicial powers of the State and may be regarded as a tribunal within the meaning of Article 136. Such a power of adjudication implies that the authority must act judicially and must determine the dispute by ascertainment of the relevant facts on the materials before it and by application of the relevant law to those facts. This test of a tribunal is not meant to be exhaustive, and it may be that other bodies not satisfying this test are also tribunals. In order to be a tribunal, it is essential that the power of adjudication must be derived from a statute or a statutory rule. An authority or body deriving its power of adjudication from an agreement of the parties, such as a private arbitrator or a tribunal acting under Section 10-A of the Industrial Disputes Act, 1947, does not satisfy the test of a tribunal within Article 136. It matters little that such a body or authority is vested with the trappings of a court. The Arbitration Act, 1940 vests an arbitrator with some of the trappings of a court, so also the Industrial Disputes Act, 1947 vests an authority acting under Section 10-A of the Act with many of such trappings, and yet, such bodies and authorities are not tribunals.

45. The word “tribunal” finds place in Article 227 of the Constitution also, and I think that there also the word has the same meaning as in Article 136.”

The next issue of significance is whether National Commission is a Tribunal within the meaning of Article 227 of Constitution of India?

The hon’ble Supreme Court has thus held that National Commission can be said to be a ‘Tribunal’ which is vested by Statute the powers to determine conclusively the rights of two or more contending parties with regard to any matter in controversy between them. It is further held that it satisfies the test of an authority vested with the judicial powers of the State and therefore may be regarded as a ‘Tribunal’ within the meaning of Article 227 and/or 136 of the Constitution of India. It is further observed by the Supreme Court that in a given case, the Supreme Court may not exercise its powers under Article 136 of the Constitution of India, in view of the remedy which may be available to the aggrieved party before the concerned High Court under Article 227 of the Constitution of India, as it is appropriate that aggrieved party approaches the concerned High Court by way of writ petition under Article 227 of the Constitution of India.

 

In another Constitution Bench decision of Supreme Court i.e in  L. Chandra Kumar (supra), while dealing with the jurisdiction of the High Courts under Articles 226/227 of the Constitution of India in respect of powers of judicial review, it is observed and held in para 90 as under:

“90. We may first address the issue of exclusion of the power of judicial review of the High Courts. We have already held that in respect of the power of judicial review, the jurisdiction of the High Courts under Articles 226/227 cannot wholly be excluded. It has been contended before us that the Tribunals should not be allowed to adjudicate upon matters where the vires of legislations is questioned, and that they should restrict themselves to handling matters where constitutional issues are not raised. We cannot bring ourselves to agree to this proposition as that may result in splitting up proceedings and may cause avoidable delay. If such a view were to be adopted, it would be open for litigants to raise constitutional issues, many of which may be quite frivolous, to directly approach the High Courts and thus subvert the jurisdiction of the Tribunals. Moreover, even in these special branches of law, some areas do involve the consideration of constitutional questions on a regular basis; for instance, in service law matters, a large majority of cases involve an interpretation of Articles 14, 15 and 16 of the Constitution. To hold that the Tribunals have no power to handle matters involving constitutional issues would not serve the purpose for which they were constituted. On the other hand, to hold that all such decisions will be subject to the jurisdiction of the High Courts under Articles 226/227 of the Constitution before a Division Bench of the High Court within whose territorial jurisdiction the Tribunal concerned falls will serve two purposes. While saving the power of judicial review of legislative action vested in the High Courts under Articles 226/227 of the Constitution, it will ensure that frivolous claims are filtered out through the process of adjudication in the Tribunal. The High Court will also have the benefit of a reasoned decision on merits which will be of use to it in finally deciding the matter.”

 

Findings of Supreme Court:

It is held that against the order passed by the Tribunal, the aggrieved party may approach the concerned High Court under Article 227 of the Constitution of India. It is already held by the Supreme Court that national Commission shall be a Tribunal.

The Supreme Court in State of Karnataka v. Vishwabarathi House Building Co-operative Society, (2003) 2 SCC 412 had dealt with an issue with regard to the Constitutional validity of the Consumer Protection Act, 1986. The validity of the Act was challenged, inter-alia, on the ground that the Parliament, was not empowered to establish a hierarchy of Courts, which would operate parallelly with the Courts established under the Constitution. Upholding the validity of the Act, this Court observed that the very fact that a given party could always approach the High Court under Article 227, or the Supreme Court, as the case may be, against an order of a Commission constituted under the Act, was itself an adequate safeguard. The observations of Supreme Court therein to the effect that a party aggrieved by an order of a Commission constituted under the Act, could approach a High Court, or the Supreme Court, have been extracted as under:

“52. The very fact that in a given case a party under the said Act may approach upto the Supreme Court and or may otherwise take recourse to the remedy of judicial review, the interest of the parties must be held to have been sufficient safeguard”.

53. The provisions relating to power to approach appellate court by a party aggrieved by a decision of the forums State Commissions as also the power of High Court and thus Court under Article 226/227 of the Constitution of India and Article 32 of this Court apart from Section 23 of the Act provide for adequate safeguards. Furthermore, primarily the jurisdiction of the forum/commissions is to grant damages. In the event, a complainant feels that he will have a better and effective remedy in a civil court as he may have to seek for an order of injunction, he indisputably may file a suit in an appropriate civil court or may take recourse to some other remedies as provided for in other statutes.”

 

The hon’ble Supreme Court went on to add that so far as the remedy which may be available under Article 136 of the Constitution of India is concerned, it cannot be disputed that the remedy by way of an appeal by special leave under Article 136 of the Constitution of India may be too expensive and as observed in the case of L. Chandra Kumar (supra), the said remedy can be said to be inaccessible for it to be real and effective. Therefore, when the remedy under Article 227 of the Constitution of India before the concerned High Court is provided, in that case, it would be in furtherance of the right of access to justice of the aggrieved party, may be a complainant, to approach the concerned High Court at a lower cost, rather than a Special Leave to Appeal under Article 136 of the Constitution.

It was therefore held that the High Court has not committed any error in entertaining the writ petition under Article 227 of the Constitution of India against the order passed by the National Commission which has been passed in an appeal under Section 58(1)(a)(iii) of the 2019 Act. However, while exercising the powers under Article 227 of the Constitution of India, the High Court subjects itself to the rigour of Article 227 of the Constitution and the High Court has to exercise the jurisdiction under Article 227 within the parameters within which such jurisdiction is required to be exercised. The scope and ambit of jurisdiction of Article 227 of the Constitution has been explained by the Supreme Court in the case of Estralla Rubber v. Dass Estate (P) Ltd., (2001) 8 SCC 97, which has been consistently followed by the Supreme Court and even in the recent decision of the Supreme Court in the case of Garment Craft v. Prakash Chand Goel, 2022 SCC OnLine SC 29). Therefore, while exercising the powers under Article 227 of the Constitution, the High Court has to act within the parameters to exercise the powers under Article 227 of the Constitution. While considering the grant of interim stay/relief in a writ petition under Article 227 of the Constitution of India, the High Court has to bear in mind the limited jurisdiction of superintendence under Article 227 of the Constitution. Therefore, while granting any interim stay/relief in a writ petition under Article 227 of the Constitution against an order passed by the National Commission, the same shall always be subject to the rigour of the powers to be exercised under Article 227 of the Constitution of India.

It was thus held that a writ petition under Article 227 of the Constitution of India before the concerned High Court against the order passed by the National Commission in an appeal under Section 58(1)(a)(iii) of the 2019 Act shall be maintainable. However, it is observed that while considering the question of interim relief/stay, the High Court will bear in mind the rigour of the powers to be exercised under Article 227 of the Constitution of India.

                                           ----------

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

 

IBC 2016 AND PMLA: WHICH SHALL PREVAIL OVER OTHER?

 

IBC 2016 and PMLA: Which shall prevail oVER other?

 

The Delhi High Court recently had the occasion to deal with Insolvency & bankruptcy Code 2016 (In short “IBC”)  and Prevention of Money Laundering Act 2002 ( In short “PMLA”) and what shall precede other and that of primacy. In Nitin Jain Liquidator, FSL Ltd Vs Enforcement Directorate- W.P. (C) 3261/2021, it is held by Delhi High Court that power under PMLA 2002 shall no longer be available, if an order relating to liquidation of assets of corporate debtor is passed under IBC 2016. The adjudicating Authority is empowered to pass order as per IBC Code and as per Section 14 of IBC, there shall be moratorium in respect of any case initiated or pending against corporate debtor/s. Of course, the criminal cases shall not be covered under it. The proceedings before National Company Law Tribunal (NCLT) in this regard, is known as CIRP (Corporate Insolvency Resolution Process).

 

The principal question determined in Nitin Jain (Supra) was whether the authorities under the Prevention of Money Laundering Act, 2002 , would retain the jurisdiction or authority to proceed against the properties of a corporate debtor once a liquidation measure has come to be approved in accordance with the provisions made in the Insolvency and Bankruptcy Code, 2016?

 

The Liquidator had approached the high Court once summon issued by the respondent was received, who was investigating the affairs of the corporate debtor under the provisions of the PMLA and petitioner was directed by the Directorate of Enforcement (In short “ED”) not to dispose of the assets of the said company, as the matter was pending under PMLA, 2002 which allegedly had overriding effect over IBC and other laws governing such transactions.

However, the petitioner contended that summons by ED was untenable as there was no proceeding presently pending against the Corporate Debtor or any of its promoters. There is not even a provisional attachment order (In short, “PAO‘) at this stage and the hon’ble Supreme Court in Opto Circuit India Ltd. v. Axis Bank & Ors., 2021 SCC OnLine SC 55 has held:

“16 This Court has time and again emphasized that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an Election Petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an Election Petition in the case of Chandra Kishor Jha v. Mahavir Prasad (1999) 8 SCC 266 and in the course of consideration observed as hereunder:

“It is a well settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner. Therefore, if the salutary principle is kept in perspective, in the instant case, though the Authorised Officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying due process under law. We have found fault with the Authorised Officer and declared the action bad only in so far as not following the legal requirement before and after freezing the account. This shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the appellant and its Directors which is a matter to be taken note in appropriate proceedings if at all any issue is raised by the aggrieved party.”

 

In the backdrop of the fact that although investigation was continuing under the PMLA, no provisional order of attachment had been issued against the corporate debtor. Thus, communications addressed by the respondent to the Liquidator was kept in abeyance. It had further provided that the proceeds received from any sale of movable or immovable assets of the corporate debtor which may be disposed of by the Liquidator shall be placed in a separate bank account and an affidavit be filed before the high court with respect to the amounts that may be received. The Court further provided that the question of whether the movable or immovable assets and their sale during the liquidation process would be permissible under Section 32A of the IBC, would be taken up for consideration later.

THE CIRP

The corporate debtor was admitted to the Corporate Insolvency Resolution Process and the petitioner was appointed as a Resolution Professional by the Committee of Creditors. Expressions of Interest were invited and since no viable expression of interest was received, the Committee of Creditors passed a resolution recommending the liquidation of the corporate debtor. That resolution was backed by 93.43% of the creditors opining that the corporate debtor was liable to be liquidated in accordance with the provisions made in that regard under the IBC. While the CIRP remained open and was conducted over the maximum statutorily permissible period of 330 days, no viable proposal for the resolution of the debts of the corporate debtors or its resurrection were received. It was in the aforesaid backdrop that the application made by the petitioner here for liquidation of the corporate debtor pursuant to the resolution of the Committee of Creditors came be allowed by the Adjudicating Authority in terms of its order of 11 September 2020. No doubt, it is the date of this order passed by the Adjudicating Authority which is liable to be viewed as the ―liquidation commencement date‖ as defined in Section 5 (17) of the IBC. The petitioner was appointed as the Liquidator, and the first sale notice was issued on 27 November 2020. However, this did not culminate. On 15 January 2021, the Liquidator had received the first summons from the respondent and was followed by an e-mail of 25 January 2021 which was impugned in the writ petition. A second summons came to be issued by the Enforcement Directorate on 27 January 2021. The writ petition came to be filed around 5 March 2021. The interim order came to be passed on the petition on 17 March 2021. The petitioner moved CM Application No. 32220/2021 before the High Court disclosing that the assets and properties of the corporate debtor were placed for disposal by way of an e-auction initiated in accordance with the provisions of the IBC and after due sanction of the Adjudicating Authority. The Liquidator apprised the Court that, amongst the various options of sale prescribed, the sale of the corporate debtor as a going concern was the recourse adopted. It was further disclosed that the first sale notice came to be issued on 27 November 2020. However, since no concrete offers were received, a revised sale Notice of 19 March 2021 came to be published and the same has also been placed on the record. In the sale which was ultimately conducted on 09 April 2021, a bid of Rs.425.50 Crores was received from M/s Lucky Holdings Private Limited which proposed to take over the assets of the corporate debtor and continue its functioning as a going concern. Upon finding that the said bid was the highest, a Letter of Intent came to be issued in favour of M/s Lucky Holdings Private Limited on 19 April 2021. The aforesaid successful bidder is stated to have deposited Rs.5 Crores immediately upon acceptance of bid and subsequently on 23 April 2021, deposited a further sum of Rs.30 Crores. The petitioner further apprises the Court that the balance amount of Rs.390.5 crores plus any other additional net current operational liabilities would have to be deposited by the successful bidder in accordance with the provisions made in the IBC as well as the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The sale as conducted by the Liquidator was approved by the Adjudicating Authority in terms of its order of 08 September 2021. The Adjudicating Authority while passing the aforesaid order and while approving the sale as conducted by the petitioner here also took note of the order of the High Court of 17 March 2021 and consequently provided that the distribution of assets would abide by the terms of that order and the provisions of Section 53 of the IBC. The CM afore noted seeks the disbursal of amounts representing workmen‘s dues and proceeded on the premise that since no provisional order of attachment has been issued, the provisions of Section 32A of the IBC would clearly apply and consequently no fetter operates upon the power of the Liquidator to proceed further and to distribute the sale proceeds as received in accordance with the provisions made in the IBC. The tentative list of distribution of the sale proceeds amongst the various secured and operational creditors as well as the workers of the corporate debtor in accordance with the priorities specified in Section 53 of the IBC was also set forth. It has accordingly been prayed that the Liquidator be permitted to distribute the proceeds as received out of the liquidation sale and  Liquidation Regulations, 2016 and presently placed in escrow in terms of the order of this Court of 17 March 2021. The order approving the sale was subsequently modified by the Adjudicating Authority by an order of 5 October 2021 in certain respects and the same has been brought on the record by way of application bearing no. CM 41811/2021.

It becomes relevant to note that when the matter was taken up for consideration on 24 November 2021, till that date no order of provisional attachment had admittedly been issued. However, on 03 December 2021, the Delhi High Court was apprised by ED that an order of provisional attachment has come to be issued on 2^nd  December 2021. It was further pointed out that the assets of the corporate debtor to the extent to Rs. 274.60 crores alone have been provisionally attached under the PMLA, since, upon investigation it was found that the same would represent proceeds of crime.

As noted above, the sale conducted by the petitioner and in which M/s Lucky Holdings Private Limited was identified as the successful auction bidder, was ultimately approved by the Adjudicating Authority on 08 September 2021. The Adjudicating Authority confirmed the sale The Successful Bidder shall complete the sale process by paying balance consideration amount within 30 days from the date of this order and upon payment of entire sale amount all the rights and title and interest in whole and every part of the Corporate Debtor including but not limited to intellectual property rights continue to vest in the Corporate Debtor. It was directed by the Adjudicating Authority that the Liquidator shall disburse the amount so received to all stakeholders/beneficiaries in terms of provisions of Section 53 of IBC, 2016 after necessary approval by the Hon‘ble Delhi High Court.

PROCEEDINGS IN HIGH COURT

It in this backdrop that the Liquidator moved the high Court seeking permission for disbursal of part of the sale proceeds, which had been received. The petitioner assails the action taken by the respondent in purported exercise of powers conferred by the PMLA principally on the anvil of Section 32A. It was contended that the validity of Section 32A has undisputedly been upheld by the Supreme Court in the matter of Manish Kumar v. Union of India (2021) 5 SCC 1. The jurisdiction and authority of the respondent under the PMLA is legislatively mandated to cease once a resolution plan is approved by the Adjudicating Authority or the sale of liquidation assets commences. It is further contended that Section 32A clearly mandates that no action shall be taken against the properties of the corporate debtor, once a resolution plan comes to be approved or the corporate debtor undergoes liquidation. The Report of the Insolvency and Law Committee in paragraphs 17.10 and 17.11 stipulates:

 

17.10. Thus, the Committee agreed that the property of a corporate debtor, when taken over by a successful resolution applicant, or when sold to a bona fide bidder in liquidation under the Code, should be protected from such enforcement action, and the new Section discussed in paragraph 17.7 should provide for the same. Here too, the Committee  agreed that the protection given to the corporate debtor‘s assets should in no way prevent the relevant investigating authorities from taking action against the property of persons in the erstwhile management of the corporate debtor that may have been involved in the commission of such criminal offence.

17.11. By way of abundant caution, the Committee also recognized and agreed that in all such cases where the resolution plan is approved, or where the assets of the corporate debtor are sold under liquidation, such approved resolution plan or liquidation sale of the assets of the corporate debtor‘s assets would have to result in a change in control of the corporate debtor to a person who was not a related party of the corporate debtor at the time of commission of the offence along with the corporate debtor.‖

 

The underlying objective of Section 32A which has essentially been placed on the statute book to ensure that a bona fide bidder in liquidation is protected from enforcement action. It has also been contended that the specter of attachment or a recognition of the right of the respondent to proceed against the assets of the corporate debtor either after a resolution plan has been approved or where liquidation has commenced, would clearly impact the value of the property as well as the interest that may be evinced by prospective applicants. Reliance was placed upon the judgment rendered by NCLAT in JSW Steel v. Mahender Kumar Khandelwal, 2020 SCC Online NCLAT 104, the following extracts of that decision, which are reproduced hereunder:-

“44. A plain reading of Section 32A(1) and (2) clearly suggests that the Directorate of Enforcement/ other investigating agencies do not have the powers to attach assets of a Corporate Debtor‘, once the 8 Resolution Plan‘ stands approved and the criminal investigations against the Corporate Debtor stands abated. Section 32A of the ‗I&B Code‘ does not in any manner suggest that the benefit provided thereunder is only for such resolution plans which are yet to be approved.

 In Deputy Director, Directorate of Enforcement Delhi vs Axis Bank 2019 SCC OnLine Del 7854 it is observed:ABOUT US

“112. Chronologically speaking, RDBA (in its original form and RDDBFI Act) was  enacted in 1993, followed by SARFAESI Act coming on the statute book in 2002, the PMLA being enacted in 2002, commencing in 2005, the Insolvency Code being the latest legislation enforced in 2016. These laws, enacted for different objects and reasons, have come with provisions declaring each of them to have the ―overriding effect‖”.

·        The hon’ble High Court in Nitin Jain (Supra) has noted in para 63 that:

• “The PMLA essentially represents the commitment of the Union to frame a comprehensive legislation to deal with the pernicious crime of money laundering as flowing from the Political Declaration and Global Programme of Action as adopted by the General Assembly of the United Nations on 23 February 1990, the Political Declaration adopted in the Special Session of the U.N. between 8 to 10 June 1998, the Financial Action Task Force held in Paris from 14 to 16 July 1989. Taking cognizance of the scourge of money laundering faced by governments across the globe and the legitimization of moneys derived from criminal activities as well as the imperative need to deprive the perpetrators of such action of the fruits derived from such activities, lead to the Government introducing the Prevention of Money- laundering Bill, 1998 in Parliament. The PMLA ultimately came to be enforced with effect from 1 July 2005”.

64. As is manifest from a reading of the long title of the PMLA, it has essentially been promulgated to prevent money laundering and to provide for confiscation of property derived from or involved in the crime of money laundering. The expression ―proceeds of crime has been defined in Section 2(u) of the PMLA to mean any property derived or obtained whether directly or indirectly by a person as a result of criminal activity relating to a scheduled offence or the value of any such property and where such property is taken or held outside the country, then property equivalent in value thereto.

The high court has categorically held that A Resolution Professional appointed under the Insolvency Code does not have any personal stake. He only represents the interest of creditors, their committee having appointed and tasked him with certain responsibility under the said law. The moratorium enforced in terms of Section 14 of Insolvency Code cannot come in the way of the statutory authority conferred by PMLA on the enforcement officers for depriving a person (may be also a debtor) of the proceeds of crime. A view to the contrary, if taken, would defeat the objective of PMLA by opening an escape route. After all, a person indulging in money-laundering cannot be permitted to avail of the proceeds of crime to get a discharge for his civil liability towards his creditors for the simple reason such assets are not lawfully his to claim.

Though the sequitur to the above conclusion is that the bona fide third party claimant has a legitimate right to proceed ahead with enforcement of its claim in accordance with law, notwithstanding the order of attachment under PMLA, the latter action is not rendered irrelevant or unenforceable. To put it clearly, in such situations as above (third party interest being prior to criminal activity) the order of attachment under PMLA would remain valid and operative, even though the charge or encumbrance of such third party subsists but the State action would be restricted to such part of the value of the property as exceeds the claim of the third party.

IBC VIS A VIS PMLA

The IBC is primarily concerned with the subject of restructuring of indebted corporate debtors, adoption of means for their revival, securing the interests of creditors and for adoption of steps for effective and timely resolution of corporate insolvency, whereas the PMLA, on the other hand, is a statute fundamentally concerned with trying offenses relating to money laundering, following the proceeds of crime and for confiscation of properties obtained in the course of commission of those offenses or connected therewith. It sets up an investigative and adjudicatory mechanism in respect of offenses committed, attachment of tainted properties and other related matters. It sets up Special Courts for trial of offenses and to bring the guilty to book. Viewed in that backdrop, it is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of debts of a corporate debtor, those under the PMLA are concerned with the criminality attached to the offense of money laundering and to move towards confiscation of properties that may be acquired by commission of offenses specified therein. The authorities under the aforementioned two statutes consequently must be accorded adequate and sufficient leeway to discharge their obligations and duties within the demarcated spheres of the two statutes. In a case where in exercise of their respective powers a conflict does arise, it is for the Courts to discern the legislative scheme and to undertake an exercise of reconciliation enabling the authorities to discharge their obligations to the extent that the same does not impinge or encroach upon other sphere.

 

REMARK

 

What emerges therefore from the discussion above that  the ED while conducting investigation under PMLA is free to deal with or attach the personal assets of the erstwhile promoters and other accused persons, acquired through crime proceeds. However, the assets of the Corporate Debtor which have been financed by Creditors and acquired by a bona fide third party Resolution Applicant through the statutory process supervised and approved by the Adjudicating Authority under the IBC shall have no further fetter. The Resolution Applicant, therefore, shall not be in wrongful enjoyment of any proceeds of crime after acquisition of the Corporate Debtor and its assets, as a Resolution Applicant would be a bona fide asset acquired through a legal process. Therefore, upon an acquisition under a CIRP by a Resolution Applicant, the Corporate Debtor and its assets are not derived or obtained through proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA") and need not be subject to attachment by the ED after approval of Resolution Plan by the Adjudicating Authorities.

What is of further significance that The Insolvency and Bankruptcy Code, 2016 (IBC) was promulgated on concepts such as promoting maximization of value of assets, transparent and predictable insolvency resolution framework, avoiding destruction of value of the debtor, and recognizing the difference between malfeasance and business failure. Even though the IBC has been globally recognized as a paradigm shift in India‘s insolvency resolution process, many areas have required judicial and legislative interventions to enable the process to achieve the desired results. While acknowledging the role played by IBC in arresting the growth of NPAs, it is expected that effective measures within the ambit of IBC would be taken to realize better results from the process. The average time taken for resolution has come down to 394 days which could be further reduced.

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Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com