The National Company Law Appellate Tribunal (NCLAT) has said that any attachment of property alleged to be “proceeds of crime” by the Directorate of Enforcement (ED) cannot be undone under the insolvency law.
“The Insolvency and Bankruptcy Code (IBC) cannot override the Prevention of Money Laundering Act (PMLA)”, said the appellate tribunal’s 36-page-order in response to a plea filed by the resolution professional of Dunar Foods, challenging a National Company Law Tribunal (NCLT) ruling which had refused to direct the ED to release provisionally-attached assets of the debt-ridden company.
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Citing section 238 of IBC, a three-member NCLAT bench said the section has an overriding effect over other laws, but it “cannot override the PMLA in respect of proceedings involving proceeds of crime”, adding that both PMLA and IBC operate in distinct spheres.
Under section 14 of IBC, a moratorium is applied on those assets for the purpose of resolution. However, if the property is alleged to be “proceeds of crime” and is already under adjudication by competent authority under a penal statute, such property cannot be deemed to be part of the freely available resolution estate, NCLAT said.
The appellate also said ED does not act as a creditor, but as a public enforcement agency.
“The attached assets are not to satisfy creditors, but to uphold penal objectives and international obligations under FATF and UN Conventions,” said the appellate tribunal, while upholding an order of the NCLT.
Further, citing a directive issued by the Supreme Court in the Embassy Property matter, the tribunal said it “lacks jurisdiction to interfere with the Provisional Attachment Order (PAO), which has been subsequently confirmed by the Adjudicating Authority under the PMLA”.
On December 22, 2027, the Mumbai bench of NCLT had ordered insolvency proceedings against Dunar Foods after an insolvency petition was filed by a consortium of banks led by public sector lender SBI for a loan repayment default of ₹758.73 crore.
Accordingly, Dunar Foods, which is engaged in processing and exporting basmati rice, had the CIRP (corporate insolvency resolution process) initiated against it with the appointment of a resolution professional.
Meanwhile, the ED initiated an investigation under PMLA against PD Agroprocessors, an associate company of Dunar Foods, to trace the flow of alleged tainted funds to Dunar Foods under the Indian Penal Code and Foreign Exchange Management Act (FEMA).
The ED alleged that large export advances received by Dunar Foods from PD Agroprocessors were proceeds of crime.
The directorate then attached Dunar Foods' several immovable and movable assets worth ₹177.33 crore, prompting the resolution professional (RP) of the firm to move NCLT seeking immediate de-attachment of the provisionally-attached properties.
However, on May 21, 2018, the NCLT dismissed the RP's application and held that the provisional attachment order issued by the ED under PMLA did not fall within the scope of the moratorium under Section 14 of the IBC.
NCLT had said that PMLA is a special penal statute and has a 'distinct adjudicatory mechanism', hence unless and until the attachment was set aside by the PMLA adjudicating authority, the NCLT has no jurisdiction to direct its release.
Aggrieved by this decision, Dunar Foods' RP then approached appellate tribunal NCLAT.
Meanwhile, the lenders of Dunar Foods approved the resolution plan submitted by Amit Gupta in November 2019 during the pendency of the appeal in NCLAT.
The appellate tribunal said though PAO was issued by ED after the commencement of CIRP, ECIR (Enforcement Case Information Report) investigation commenced as far back as 2013.
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