NCLAT to decide if Enforcement Directorate can attach property of Corporate Debtor undergoing CIRP

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, the NCLAT has stated that it would examine if Enforcement Directorate (ED) has the jurisdiction to attach the property of the Corporate Debtor undergoing corporate insolvency resolution process..Apart from the above, NCLAT shall also decide if the ED would qualify as Operational Creditor under the Insolvency and Bankruptcy Code in relation to the attachment of the property of a Corporate Debtor..“The questions arise for consideration in this appeal are:.(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 order reads..The two issues have been framed by a three-member Bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice AIS Cheema and Member (Technical) Kanthi Narahari in view of the contrary stand of the Central Government and the Enforcement Directorate on the issue..As per the affidavit filed by the Ministry of Corporate Affairs, Government of India, 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..Centre has contended that under the IBC, a resolution plan is binding on Central Government and all statutory authorities and once the resolution process is completed, there could be no attachment. It is argued that after a Resolution Plan is accepted, the Resolution Applicant would not be in wrongful enjoyment of any proceeds of crime as the assets of the Corporate would be transferred through a bona fide legal process..“The purpose and scheme of the CIR process is to hand over the company of the corporate debtor to a bona fide new resolution applicant. Any threat of attachment of the assets of the corporate debtor or subjecting the corporate debtor to proceedings by investigating agencies for wrongdoing of the previous management will defeat the very purpose and scheme of CIR process, which inter-alia includes resolution of insolvency and revival of the company, and the efforts of the bank to realise dues from their NPAs would get derailed.”, the affidavit of the Central Government reads..Therefore, while conducting an investigation under Prevention of Money Laundering Act, 2002, the ED is free to deal with or attach the personal assets of the erstwhile promoters and other accused persons, acquired through crime proceeds but not the assets of the Corporate Debtor which have been financed by creditors and acquired by a bona fide third party Resolution Applicant under IBC, it is submitted..Central Government has also clarified that the Resolution Applicant cannot be held responsible for the acts of omission and commission of the previous management and no criminal liability could be fixed on it..“..the erstwhile management of a company would be held responsible for the crimes, if any, committed under their regime and the new management taking over the company after going through the IBC process cannot be held responsible for the acts of omission and commission of the previous management. In other words, no criminal liability can be fixed on the successful Resolution Applicant or its officials.”.JSW Steel, as well as the Committee of Creditors for Bhushan Steel, have sided with the Central Government’s stand..After giving an opportunity to the ED as well the Central Bureau of Investigation to file their written response, NCLAT proceeded to prohibit ED from attaching any property of Bhushan Power and Steel without prior approval..NCLAT also directed that the property already attached would be released in favour of JSW Steel immediately..NCLAT, however, also passed a direction to ensure that JSW’s Resolution Plan was not given effect for the time being..The matter would be taken up next on October 25..JSW Steel was represented by Senior Advocates Kapil Sibal, 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 Misha, Shantanu Chaturvedi, Anoop Rawat, Shreyas, and Charu..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. .The Enforcement Directorate was represented by Advocate Zoheb Hossain..Central Government was represented by Director (Legal & Prosecution), Sanjay Shorey. .Read the Order: