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Liquidator Cannot Deal With Properties Attached As 'Proceeds Of A Crime' Under PMLA

In NATIONAL COMPANY LAW APPELLATE TRIBUNAL, Company Appeal (AT) (Insolvency) No. 140 of 2019, Rotomac Global Private Limited vs Deputy Director, Directorate of Enforcement, 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’. Meanwhile the Enforcement Directorate had also initiated action against the Directors of the company under Prevention of Money Laundering Act and 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 which fall within the definition of ‘Proceeds of Crime’ in terms of Section 2(1)(u) of the PMLA, 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.

Subsequently, the Liquidator filed an application for direction on Directorate of Enforcement for release of assets of the ‘Corporate Debtor’ claiming that as per PMLA act, confiscated property should vest  absolutely in the Central Government free from all encumbrances, but these properties have charge held by lending banks. The State objected claiming first right to recover their debts from an accused.

The NCLAT agreeing with the State observed that similar question has already been decided 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 the PMLA held that Section 14 of the Insolvency & Bankruptcy Cide 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 whereas the PMLA provisions therein relates to ‘proceeds of crime’, we hold that Section 14 of the ‘I&B Code’ is not applicable to such proceeding. Further, the penalty under money laundering offence 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’.


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