ED Operational Creditor under IBC for assets acquired through proceeds of crime, NCLAT expresses prima facie view
Aditi Singh October 26 2019
The NCLAT yesterday expressed its prima facie view that if the assets seized by the Enforcement Directorate are finally held to be purchased out of the ‘proceeds of crime’, the amount which is generated from such assets would come within the meaning of ‘Operational Debt’ under the Insolvency and Bankruptcy Code, 2016.
This Operational Debt would be payable to the Enforcement Directorate for which it may file a claim under Insolvency and Bankruptcy Code, 2016, it stated.
“Prima facie, we are of the view that if the assets are seized by the Enforcement Directorate and finally hold that the assets were purchased out of the ‘proceeds of crime’, in such case, the amount as may be generated out of the assets will come within the meaning of ‘Operational Debt’ payable to the Enforcement Directorate for which it may file claim in terms of the Insolvency and Bankruptcy Code, 2016.”, NCLAT said.
The opinion was expressed by a three-member Bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice Venugopal M and Member (Judicial) Justice Jarat Kumar Jain while dealing with the winning resolution applicant for Bhushan Power and Steel, JSW Steel Ltd’s plea for immunity for the assets of the former from the ongoing criminal proceedings against it.
On the previous date of hearing, NCLAT had framed two issues for consideration during the course of JSW Steel’s plea. These issues were:
(i) Whether the ‘Directorate of Enforcement’ has jurisdiction to attach the property of the ‘Corporate Debtor’ or part thereof which is undergoing ‘corporate insolvency resolution process’; and
(ii) Whether the ‘Directorate of Enforcement’ comes within the meaning of ‘Operational Creditor’ in terms of Section 5 (20) and (21) of the ‘Insolvency and Bankruptcy Code, 2016’ for the purpose of money claim (civil matter), which may be generated out of the attached property/ part thereof of the ‘Corporate Debtor’.
The Ministry of Corporate Affairs and the Enforcement Directorate had, however, given divergent views on the issue.
The NCLAT yesterday granted an opportunity to the two “Departments of the Central Government” to “sit together and settle the issue” before the issues are decided on merits.
“Before deciding the case on merit, it is desirable if the two wings/ Departments of the Central Government sit together and settle the issue.”, it said.
As per the affidavit filed by the Ministry of Corporate Affairs, Enforcement Directorate has no jurisdiction to attach the property of the Corporate Debtor undergoing corporate insolvency resolution process, particularly, when an appeal is pending on consideration of the issue of attachment.
The Enforcement Directorate, on the other hand, has submitted that NCLAT has no jurisdiction with respect to the attachment of assets in the course of proceedings under the Prevention of Money Laundering Act.
The matter would be taken up next on November 18.
JSW Steel was represented by Senior Advocates Kapil Sibal and Arun Kathpalia with L&L Partners Advocates Manmeet Singh, Nishtha Chaturvedi, Anugrah Robin Frey, and Abhilasha Khanna.
Resolution Professional Senior Advocate Abhinav Vasisht with Shardul Amarchand Mangaldas Advocates Shantanu Chaturvedi, Charu Bansal, Priya Singh.
Committee of Creditors was represented by Senior Advocate Ramji Srinivasan with Cyril Amarchand Mangaldas Advocates Bishwajit Dubey, Spandan Biswal, Srideepa Bhattacharya, Aditya Marwah, Neha Shivhare, Sylona Mohapatra, Varnika Taya.
The Enforcement Directorate was represented by Advocate Zoheb Hossain.
Read the Order: