The promulgation of the Insolvency & Bankruptcy Code 2016 (Code) brought about a paradigm shift in dealing with the rising number of ‘defaulters’, providing respite to the long awaited creditors, who constantly bore the final brunt of the defaulting borrowers. The Code also witnessed stupendous support in the judgments of the Supreme Court, the NCLAT and NCLT, which constantly reiterated the non-obstante provision of the Code in cases of conflict between the Code and the other Statutes. However, an unsettled issue recently cropped, raising the question of conflict between two Special Statutes (Code and the Prevention of Money Laundering Act 2002 (PMLA)), operating vastly in different fields and enacted by the Legislature with the intent of achieving different set of objectives. The objective of PMLA is “to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incident thereto”. The unresolved issue was recently dealt by the Delhi High Court in a recent judgment1, observing that there exists no inconsistency between the two statutes and further that Code does not prevail over the PMLA.

The bone of contentions involved in the above case was qua the attachment of the assets of a Corporate Debtor, purchased anterior to the commission of offence under money laundering, which, in cases of insolvency, needs to be taken into custody by the Interim Resolution Professional/ Resolution Professional (IRP/RP).

In order to decipher the meaning of ‘attachment’, which is of prime importance in the context of PMLA, it is relevant to understand the contextual aspect of the term as it stands under the two Special Contesting statutes. As per PMLA, provisional attachment can be permitted only when the property is such as was “involved in” or “used for” the commission of the offence of money laundering, which is prior to the confirmation of the attachment by the Adjudicating Authority (under PMLA). However, mere confirmation of the attachment by the Adjudicating Authority, which is appealable in nature, does not lead to the person being divested of claiming interest in such property. Thus, attachment under PMLA is not a one-step procedure but one carried out after exercising much caution and restrain.

Shifting towards the Code, once the application, seeking commencement of CIRP of the Corporate Debtor, gets admitted, moratorium is declared under Section 14 and the IRP/ RP is delegated with the task of managing the affairs and protecting the assets of the Corporate Debtor. Once the IRP/RP take control, no third party can raise or interfere with the assets of the Corporate Debtor.

The High Court, in accordance with Section 8 of the PMLA, has offered substantial respite to the parties who have interest in the title acquired from the Company, prior to the commission of the offence of money laundering. However, the same does not render the attachment order inoperative, which entitles the State to only that value of the property which exceeds the claim of such bonafide third party. Further, the bonafide third party, who has acquired interest in such asset/ property, posterior to the commission of the offence, are duty bound to prove that they had exercised due diligence while making such purchase. Thus, the kind of remedial measure to be undertaken by bonafide third party is dependent on the time of commission of the offence, which acts as a benchmark. A perusal of the Delhi High Court judgment provides that the measures to be undertaken to ensure consistency between the Code and the PMLA remains unanswered. As, in so far as the duties for the IRP/RP, to take possession of assets of the Company, in case of attachment under PMLA is concerned, has not been elucidated. What is further difficult to comprehend is whether the IRP/RP is to approach the Special Court under PMLA or seek permission from the NCLT or NCLAT for release of such asset/Property Evaluating this situation form RP’s prospective, one may say that the said judgment extensively dealt with the relevant provisions of PMLA, but did not take into account the provisions of the Code, which makes it incumbent upon the IRP/RP to take possession of the assets of the Corporate Debtor, whether disputed or not. As per the said judgment, the IRP/RP is directed to approach the Special Court under PMLA, the same may warrant considerable time and may further upset the time bound completion of CIRP. It is quite clear that the Code was introduced as a single window clearance towards revival and resolution of insolvency & bankruptcy of a company, in a time bound manner, ensuring maximization of value of assets of the Corporate Debtor and balancing the interest of all the stakeholders. This entire exercise of CIRP, revival or liquidation, is to be conducted under the aegis of the Code and to the satisfaction of the NCLT.

One significant provision of Code is Section 60(5), which has a non-obstante clause and empowers the NCLT to decide any proceeding qua the Corporate Debtor or any question of law or priorities arising out of the CIRP or liquidation of the Corporate Debtor, also considering that Section 238 of Code entails the Code to override other laws, it may be safely concluded that the legislature, in its wisdom, desired that the provisions of Code were to override all other conflicting statutes, including PMLA. It may therefore be stated that relegating the IRP/RP to a different forum (special court under PMLA) may adulterate the entire concept and idea of Code and therefore the NCLT, in light of the above discussion, is deemed to be sufficiently empowered to exercise jurisdiction over such issues.