Mumbai: The Bombay High Court has held that National Company Law Tribunal (NCLT) has the power and jurisdiction to direct the Directorate of Enforcement (ED) to release properties attached by it of the company undergoing insolvency proceedings after the resolution plan for the insolvency process is approved.
The court also noted that Section 32A of the Insolvency and Bankruptcy Code (IBC) explicitly protects the company undergoing insolvency proceedings from being prosecuted further for any offence once the resolution plan has been approved. Hence, the NCLT is empowered to declare the end of prosecution against the corporate debtor and the attachment over its properties by agencies like ED.
Bench Observes Corporate Resolution Plans
“As a matter of law, once the resolution plan is approved with the attendant conditions set out in Section 32A being met, further prosecution against the corporate debtor and its properties would cease. Section 32A(3) enjoins the corporate debtor to continue to cooperate with the enforcement agencies in the continued prosecution against the individuals in question,” a bench of Justices BP Colabawalla and Somsekhar Sundaresan observed on March 1.
NCLT's Decision in DSK Southern Projects Case
The ED had attached assets of Hyderabad-based DSK Southern Projects following registration of an offence under the Prevention of Money Laundering Act (PMLA), 2002.
Later proceedings under IBC were initiated and the Mumbai bench of NCLT, on February 17, 2023, approved the resolution plans for Hyderabad based company DSK Southern Projects. Later on April 28, the NCLT declared the termination of prosecution of DSK Southern Projects Pvt Ltd and released its properties worth Rs32.51 crore.
ED Challenges NCLT Order Regarding Property Attachment
ED challenged this order before the HC contending that there are provisions in the PMLA which provides for an appeal against orders of attachment. By releasing the properties from attachment, the NCLT rendered the provisions of the PMLA ineffective, it claimed.
The agency insisted that the tribunal should have instructed the applicants — Shiv Charan, Pushpalata Bai, and Bharti Agarwal, whose resolution plan for DSK Southern Projects was accepted by the NCLT — to file an appeal under PMLA instead of issuing the order itself.
High Court Dismisses ED's Argument
The high court, however, dismissed the ED’s arguments observing that under Section 31(1) of the IBC, the NCLT is obligated to ensure that the resolution plan includes provisions for its effective implementation. Meaning, while approving a resolution plan, the NCLT must ensure that the plan can be executed effectively. Hence, the NCLT directed the ED to lift its attachment to the properties of the corporate debtor—DSK Southern Projects, the bench added.
“Therefore, we do not believe that Mr Vyas (additional solicitor general Devang Vyas for the ED) is correct in his argument that the NCLT lacks the power to instruct the ED to lift its attachment imposed under the provisions of the PMLA, 2002,” the court underlined.
It would be unnecessary to compel the successful resolution applicant to file an appeal under PMLA to lift the attachment or to reverse confiscation. “This is because Section 32A itself mandates that once a resolution plan is approved, no action can be taken against the properties of the corporate debtor concerning an offence committed prior to the commencement of the CIRP (Corporate Insolvency Resolution Process),” the court concluded.
