IBC cannot be used to frustrate PMLA proceedings: NCLT

The National Company Law Tribunal (NCLT) recently ruled that the Insolvency and Bankruptcy Code (IBC) cannot be used to frustrate proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) [M/s Goyal Tea Agencies Private Limited v M/s Shakti Bhog Snacks Limited].

A coram of Bachu Venkat Balram Das (Member Judicial) and Dr Sanjeev Ranjan (Member Technical) of the NCLT Bench at Delhi said that an adjudicating authority (NCLT in this case) cannot assume jurisdiction in a manner that would render the corporate debtor unavailable for criminal liability, particularly when it stands named as an accused, and its assets, however meagre, are under attachment.

“It is not the quantum but the character of the proceedings that is determinative. The IBC cannot be used as a mechanism to frustrate or sidestep the legitimate process of law under the PMLA,” the NCLT said. 

The tribunal rendered these observations while rejecting an application filed by the resolution professional (RP) of Shakti Bhog Snacks Limited under Section 54 of the IBC, seeking dissolution of the company on the ground that there are no assets, no ongoing business operations and no scope for its revival. 

The RP said that continuation of the Corporate Insolvency Resolution Process (CIRP) or initiation of liquidation would be futile and economically unviable. 

However, the Enforcement Directorate (ED) opposed the plea, stating that the company and its ex-official are accused in the money laundering case related to the ₹3,269 crore loan fraud case and the PMLA proceedings are pending against them. 

It was submitted that the NCLT does not have the jurisdiction to interfere with proceedings under the PMLA including provisional attachment orders passed by a competent authority. 

ED’s lawyers further said that PMLA is a special legislation enacted to combat and regulate the offence of money laundering and holds primacy over IBC in all proceedings that relate to or arise from acts of money laundering. 

Mere initiation of resolution proceedings under the IBC cannot serve as a shield against enforcement actions under the PMLA, it was argued. 

After considering the case, the NCLT said that permitting dissolution despite the pendency of special PMLA court's cognisance over the corporate debtor would amount to judicial overreach and would impair the ED’s ability to complete its investigation, pursue trial and recover proceeds of crime. 

“In light of the above facts and circumstances, the prayer(s) sought in the present Application cannot be allowed and hence, IA-3695-2023 In IB-1713-2019, hereby stands dismissed,” the tribunal ordered, rejecting the application by the RP for dissolution of the company.  

Advocate Swaralipi Deb Roy appeared for the RP of Shakti Bhog Snacks Limited. 

ED was represented by Special Counsel Zoheb Hossain and panel counsel Vivek Gurnani. 

[Read Order]