Rotomac Global Pvt. Ltd vs Deputy Director, Directorate Of ...

[ arising out of Order dated 10th January, 2019 by NCLT, Allahabad Bench, in I.A. No. 150/2018 IN CP No. (IB) 70/ALD/2017 ]

IN THE MATTER OF:

Rotomac Global Private Limited, (Through Anil Goel, Liquidator) ... Appellant

Vs.

Deputy Director, Directorate of Enforcement ... Respondent

Present : For Appellant : Mr. Kanishk Khetan and Mr. Abhishek Pratap Singh, Advocates

Mr. Anil Goel, Liquidator (in person)

For 1st Respondents: Mr. Nitesh Rana and Mr. A.R. Aditya Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Bank of Baroda initiated 'Corporate Insolvency Resolution Process'

against 'Rotomac Global Private Limited' (Corporate Debtor). After the

conclusion of the 'corporate insolvency resolution process' in absence of any

viable and feasible resolution plan, the Adjudicating Authority ordered for

liquidation of the 'Corporate Debtor'.

2. The Directorate of Enforcement of Delhi Zonal Office-I vide order ECIR

No. 01/DLZO-I/2018 dated 18th February, 2018 started investigation for

commission of offence under Section 3 of 'Prevention of 'Money Laundering 2

Act, 2002' punishable under Section 4 of the said Act on the basis of

information/material from CBI dated 18th February, 2018 under section 420,

467, 471, 468 & 120-B IPC and Section 13(2) r/w 13(1)(d) of the Prevention

and Corruption Act.

3. In the investigation under the provisions of 'Money Laundering Act,

2002' it found that accused persons having misappropriated/ diverted bank

funds, committed criminal breach of trust and laundered the money so

diverted.

4. The Directorate of Enforcement, basing on the material and evidences

on record and exercising the powers conferred by Sub-Section (1) of Section 5

of the 'Prevention of Money Laundering Act, 2002', passed a Provisional

Attachment Order No.08/2018 dated 28.05.2018 attaching the properties

provisionally lying in name of 'Corporate Debtor' and its Directors wherein it

was further ordered that the same shall not be transferred, disposed, parted

with or otherwise dealt with in any manner, whatsoever, until or unless

specifically allowed to do so by the Directorate.

5. It is further stated that the properties in question and mentioned in

PAO that were attached fall within the definition of 'Proceeds of Crime' in

terms of Section 2(1)(u) of the PMLA and the same were provisionally attached

vide PAO No. 08.2018 dated 28.05.2018. It is further stated that the property

provisionally attached constitutes the value of such proceeds of crime.

6. The Liquidator filed an application for direction on Directorate of

Enforcement for release of assets of the 'Corporate Debtor'. It was contended

by the respondent that in view of Section 9 of PMLA, in case an order of

Company Appeal (AT) (Insolvency) No. 140 of 2019 3

confiscation has been made under sub-section (6) of Section 8 of the PMLA in

respect of any property of a person, all the rights and title in such property

shall vest absolutely in the Central Government free from all encumbrances.

7. It is contended that the mortgage or creating a charge over the

properties of the Corporate Debtor in favour of the banks and other lenders is

only encumbrance of the properties. It is contended that in view of Section 9,

if confiscation has been made under sub-section (6) of Section 8, such

property shall vest in the Central Government free from all encumbrances.

8. It is also contended that State will have first right to confiscate the

proceeds of crime over the right of person to recover their debts from an

accused. It is stated that the Applicant/Liquidator has got alternative

remedies available U/s 8, 26 and 42 of the PMLA Act, 2002. It is for the

Applicant/ Liquidator to project his case before the appropriate Authority U/s

8, 26, and 42 of the PMLA Act, 2002, in case, if the rights of the secured

creditors or other creditors is affected.

9. Having heard the learned counsel for the parties, the Adjudicating

Authority by impugned order dated 10th January, 2019 rejected the

application giving rise to the present application preferred by the Liquidator

of 'Rotomac Global Private Limited'. Similar question fell for consideration

before this Appellate Tribunal in 'Varrsana Ispat Limited vs. Deputy

Director, Directorate of Enforcement' - Company Appeal (AT) (Insolvency)

No. 493 of 2018' wherein this Appellate Tribunal taking into consideration

the provisions of Section 4 of 'Prevention of Money Laundering Act, 2002'

observed and held as follows :

Company Appeal (AT) (Insolvency) No. 140 of 2019 4

"8. Section 14 is not applicable to the criminal proceeding

or any penal action taken pursuant to the criminal

proceeding or any act having essence of crime or

crime proceeds. The object of the 'Prevention of

Money Laundering Act, 2002' is to prevent the money

laundering and to provide confiscation of property

derived from, or involved in, money-laundering and

for matters connected therewith or incidental thereto.

9. Section 2(1) (u) of the 'Prevention of Money

Laundering Act, 2002' defines "proceeds of crime"

which reads as follows:

"2. Definitions. ─ (1) In this Act, unless

the context otherwise requires,─

xxx xxx xxx

(u) "proceeds of crime" means any property

derived or obtained, directly or indirectly,

by any person as a result of criminal

activity relating to a scheduled offence or

the value of any such property"

Company Appeal (AT) (Insolvency) No. 140 of 2019 5

10. Chapter II relates to 'offence of money-laundering'

and Section 3 therein relates to 'offence of money-

laundering, which reads as follows:

"3. Offence of money-Laundering.-

Whosoever directly or indirectly attempts

to indulge or knowingly assists or

knowingly is a party or is actually involved

in any process or activity connected with

the proceeds of crime including its

concealment, possession, acquisition or

use and projecting or claiming it as

untainted property shall be guilty of

offence of money-laundering."

11. 'Punishment for money-laundering' is prescribed

under Section 4 as follows:

"4. Punishment for money-laundering -

Whoever commits the offence of money-laundering

shall be punishable with rigorous imprisonment for

a term which shall not be less than three years but

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which may extend to seven years and shall also

be liable to fine:

Provided that where the proceeds of crime involved

in money-laundering relates to any offence

specified under paragraph 2 of Part A of the

Schedule, the provisions of this section shall have

effect as if for the words" which may extend to

seven years", the words "which may extend to ten

years" had been substituted."

12. From the aforesaid provisions, it is clear that the

'Prevention of Money-Laundering Act, 2002' relates

to 'proceeds of crime' and the offence relates to

'money-laundering' resulting confiscation of property

derived from, or involved in, money-laundering and

for matters connected therewith or incidental thereto.

Thus, as the 'Prevention of Money Laundering Act,

2002' or provisions therein relates to 'proceeds of

crime', we hold that Section 14 of the 'I&B Code' is

not applicable to such proceeding.

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13. In so far as penalty is concerned, offence of money-

laundering is punishable with rigorous imprisonment

which is not less than three years and has nothing

to do with the 'Corporate Debtor'. It will be applicable

to the individual which may include the Ex-Directors

and Shareholders of the 'Corporate Debtor' and they

cannot be given protection from the 'Prevention of

Money Laundering Act, 2002' and such individual

cannot take any advantage of Section 14 of the 'I&B

Code'. This apart, we find that the attachments were

made by the Deputy Director of Directorate of

Enforcement much prior to initiation of the 'Corporate

Insolvency Resolution Process', therefore, the

'Resolution Professional' cannot derive any

advantage out of Section 14.

14. As the 'Prevention of Money Laundering Act, 2002'

relates to different fields of penal action of 'proceeds

of crime', it invokes simultaneously with the 'I&B

Code', having no overriding effect of one Act over the

Company Appeal (AT) (Insolvency) No. 140 of 2019 8

other including the 'I&B Code', we find no merit in

this appeal. It is accordingly dismissed. No costs."

The case of the Appellant being covered by 'Varrsana Ispat Limited'

(Supra), the present appeal is dismissed. No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice A.I.S. Cheema ] Member (Judicial)

[ Kanthi Narahari ] Member (Technical)

New Delhi

2nd July, 2019

/ns/

Company Appeal (AT) (Insolvency) No. 140 of 2019