Latest news with #Insolvency&BankruptcyCode
New Indian Express
3 days ago
- Business
- New Indian Express
Finding prudence in abstention
Insolvency is an inevitable part of the collective human experience in all organised communities. In the event that a company is unable to fulfil its obligations and multiple creditors are owed money, there would be a race for diligence by these creditors to pursue their own interests and recover as much of the owed money as possible. The Insolvency & Bankruptcy Code, 2016, provides for a structured mechanism to distribute the proceeds from a company's insolvency and, thereby, seeks to prevent such a race. Under the code, the insolvency resolution process of a company concludes with the approval of the resolution plan by the National Company Law Tribunal. If the resolution plan is not approved, the corporate debtor will proceed to liquidation and eventually be dissolved. As part of this process, prospective applicants are invited to submit what are called as 'resolution plans' for taking over the company in distress. This is intended to facilitate proposals from persons interested in commercially viable but insolvent businesses to rescue such entities, creating value for all stakeholders in the process. Such a resolution plan must conform to the criterions in the code and meet such other conditions specified by the Insolvency and Bankruptcy Board of India. Once the resolution plan is approved by a committee of creditors, it is presented to the adjudicating authority for approval. Similar to the review of an arbitral award by a court under the Arbitration & Conciliation Act, 1996, the code includes a process in which the jurisdiction of the NCLT to review a resolution plan is limited. After approval from the NCLT, the plan is binding on the company and its employees, members, creditors, guarantors and other stakeholders. As such, the approval of a resolution grants the company a new beginning and resolves, once and for all, the financial position of the company as it stood on the day of the plan's approval, in order to allow it to have a 'clean slate' for the future. The successful resolution applicant then starts running the business of the debtor without pre-insolvency liabilities hanging over its head. The concept of 'clean slate' is not unique to India and is accepted in jurisdictions such as Australia as well.
Time of India
6 days ago
- Business
- Time of India
Insolvency law cannot override PMLA, says NCLAT; upholds asset attachment by ED
Insolvency & Bankruptcy Code cannot override the Prevention of Money Laundering Act ( PMLA ), said appellate tribunal NCLAT , adding assets of an debt-ridden firm once attached by the Directorate of Enforcement (ED) and confirmed by competent authority cannot be released for its resolution. Under section 14 of IBC, a moratorium is applied on those assets for the purpose of resolution. However, if the property is alleged to be "proceeds of crime" and is already under adjudication by competent authority under a penal statute, such property cannot be deemed to be part of the freely available resolution estate, the National Company Law Appellate Tribunal (NCLAT) said. The appellate tribunal held that if there is any attachment by ED under the PMLA, which is "validly made and confirmed, it cannot be undone under IBC (Insolvency and Bankruptcy Code). by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Farmer Finds Diamond Ring. When He Shows It To His Wife, She Says, 'I Want A Divorce'. Plays Star Undo Citing section 238 of IBC, which has an overriding effect over other laws, a three-member NCLAT bench said it "cannot override the PMLA in respect of proceedings involving proceeds of crime." PMLA and IBC operate in distinct spheres and there is no "irreconcilable inconsistency" exists between the two, said NCLAT adding ED does not act as a creditor, but as a public enforcement agency. Live Events "The attached assets are not to satisfy creditors, but to uphold penal objectives and international obligations under FATF and UN Conventions," said the appellate tribunal, while upholding an order of the National Company Law Tribunal (NCLT). NCLAT also cited a directive issued by the Supreme Court in the Embassy Property matter, saying it "lacks jurisdiction to interfere with the PAO, which has been subsequently confirmed by the Adjudicating Authority under the PMLA". The appellate tribunal's 36-page-order came over a plea filed by the resolution professional of Dunar Foods , challenging an NCLT ruling, which had refused to direct the ED to release provisionally attached assets of the debt-ridden company. On December 22, 2027, the Mumbai bench of NCLT had ordered insolvency proceedings against Dunar Foods, which was engaged in processing and exporting basmati rice. The insolvency petition was filed by a consortium of banks led by public sector lender SBI for a loan repayment default of Rs 758.73 crore. Accordingly, CIRP ( corporate insolvency resolution process ) was initiated against Dunar Foods with the appointment of a resolution professional. Meanwhile, the ED initiated an investigation under PMLA against PD Agroprocessors, an associate company of Dunar Foods. It traced the flow of alleged tainted funds to Dunar Foods based on scheduled offences under the Indian Penal Code and Foreign Exchange Management Act (FEMA), alleging that large export advances received by Dunar Foods from PD Agroprocessors were proceeds of crime. ED then attached Dunar Foods' several immovable and movable assets worth Rs 177.33 crore, prompting the resolution professional (RP) of the firm to move NCLT seeking immediate de-attachment of the provisionally attached properties. However, the NCLT on May 21, 2018 dismissed the RP's application and held that the provisional attachment order issued by the ED under PMLA did not fall within the scope of the moratorium under Section 14 of the IBC. NCLT had said that PMLA is a special penal statute and has a 'distinct adjudicatory mechanism', hence unless and until the attachment was set aside by the PMLA adjudicating authority, the NCLT has no jurisdiction to direct its release. Aggrieved by this decision, Dunar Foods' RP then approached appellate tribunal NCLAT. Meanwhile, the lenders of Dunar Foods approved the resolution plan submitted by Amit Gupta in November 2019 during the pendency of the appeal in NCLAT. The appellate tribunal said though Provisional Attachment Order (PAO) was issued by ED after the commencement of CIRP, ECIR (Enforcement Case Information Report) investigation commenced as far back as 2013.
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Business Standard
6 days ago
- Business
- Business Standard
Insolvency law cannot override PMLA, ED attachment to stay, says NCLAT
Insolvency & Bankruptcy Code cannot override the Prevention of Money Laundering Act (PMLA), said appellate tribunal NCLAT, adding assets of an debt-ridden firm once attached by the Directorate of Enforcement (ED) and confirmed by competent authority cannot be released for its resolution. Under section 14 of IBC, a moratorium is applied on those assets for the purpose of resolution. However, if the property is alleged to be "proceeds of crime" and is already under adjudication by competent authority under a penal statute, such property cannot be deemed to be part of the freely available resolution estate, the National Company Law Appellate Tribunal (NCLAT) said. The appellate tribunal held that if there is any attachment by ED under the PMLA, which is "validly made and confirmed, it cannot be undone under IBC (Insolvency and Bankruptcy Code). Citing section 238 of IBC, which has an overriding effect over other laws, a three-member NCLAT bench said it "cannot override the PMLA in respect of proceedings involving proceeds of crime." PMLA and IBC operate in distinct spheres and there is no "irreconcilable inconsistency" exists between the two, said NCLAT adding ED does not act as a creditor, but as a public enforcement agency. "The attached assets are not to satisfy creditors, but to uphold penal objectives and international obligations under FATF and UN Conventions," said the appellate tribunal, while upholding an order of the National Company Law Tribunal (NCLT). NCLAT also cited a directive issued by the Supreme Court in the Embassy Property matter, saying it "lacks jurisdiction to interfere with the PAO, which has been subsequently confirmed by the Adjudicating Authority under the PMLA". The appellate tribunal's 36-page-order came over a plea filed by the resolution professional of Dunar Foods, challenging an NCLT ruling, which had refused to direct the ED to release provisionally attached assets of the debt-ridden company. On December 22, 2027, the Mumbai bench of NCLT had ordered insolvency proceedings against Dunar Foods, which was engaged in processing and exporting basmati rice. The insolvency petition was filed by a consortium of banks led by public sector lender SBI for a loan repayment default of Rs 758.73 crore. Accordingly, CIRP (corporate insolvency resolution process) was initiated against Dunar Foods with the appointment of a resolution professional. Meanwhile, the ED initiated an investigation under PMLA against PD Agroprocessors, an associate company of Dunar Foods. It traced the flow of alleged tainted funds to Dunar Foods based on scheduled offences under the Indian Penal Code and Foreign Exchange Management Act (FEMA), alleging that large export advances received by Dunar Foods from PD Agroprocessors were proceeds of crime. ED then attached Dunar Foods' several immovable and movable assets worth Rs 177.33 crore, prompting the resolution professional (RP) of the firm to move NCLT seeking immediate de-attachment of the provisionally attached properties. However, the NCLT on May 21, 2018 dismissed the RP's application and held that the provisional attachment order issued by the ED under PMLA did not fall within the scope of the moratorium under Section 14 of the IBC. NCLT had said that PMLA is a special penal statute and has a 'distinct adjudicatory mechanism', hence unless and until the attachment was set aside by the PMLA adjudicating authority, the NCLT has no jurisdiction to direct its release. Aggrieved by this decision, Dunar Foods' RP then approached appellate tribunal NCLAT. Meanwhile, the lenders of Dunar Foods approved the resolution plan submitted by Amit Gupta in November 2019 during the pendency of the appeal in NCLAT. The appellate tribunal said though Provisional Attachment Order (PAO) was issued by ED after the commencement of CIRP, ECIR (Enforcement Case Information Report) investigation commenced as far back as 2013.
Mint
6 days ago
- Business
- Mint
Insolvency law cannot override PMLA, says NCLAT; upholds asset attachment by ED
New Delhi, Jul 6 (PTI) Insolvency & Bankruptcy Code cannot override the Prevention of Money Laundering Act (PMLA), said appellate tribunal NCLAT, adding assets of an debt-ridden firm once attached by the Directorate of Enforcement (ED) and confirmed by competent authority cannot be released for its resolution. Under section 14 of IBC, a moratorium is applied on those assets for the purpose of resolution. However, if the property is alleged to be "proceeds of crime" and is already under adjudication by competent authority under a penal statute, such property cannot be deemed to be part of the freely available resolution estate, the National Company Law Appellate Tribunal (NCLAT) said. The appellate tribunal held that if there is any attachment by ED under the PMLA, which is "validly made and confirmed, it cannot be undone under IBC (Insolvency and Bankruptcy Code). Citing section 238 of IBC, which has an overriding effect over other laws, a three-member NCLAT bench said it "cannot override the PMLA in respect of proceedings involving proceeds of crime." PMLA and IBC operate in distinct spheres and there is no "irreconcilable inconsistency" exists between the two, said NCLAT adding ED does not act as a creditor, but as a public enforcement agency. "The attached assets are not to satisfy creditors, but to uphold penal objectives and international obligations under FATF and UN Conventions," said the appellate tribunal, while upholding an order of the National Company Law Tribunal (NCLT). NCLAT also cited a directive issued by the Supreme Court in the Embassy Property matter, saying it "lacks jurisdiction to interfere with the PAO, which has been subsequently confirmed by the Adjudicating Authority under the PMLA". The appellate tribunal's 36-page-order came over a plea filed by the resolution professional of Dunar Foods, challenging an NCLT ruling, which had refused to direct the ED to release provisionally attached assets of the debt-ridden company. On December 22, 2027, the Mumbai bench of NCLT had ordered insolvency proceedings against Dunar Foods, which was engaged in processing and exporting basmati rice. The insolvency petition was filed by a consortium of banks led by public sector lender SBI for a loan repayment default of ₹ 758.73 crore. Accordingly, CIRP (corporate insolvency resolution process) was initiated against Dunar Foods with the appointment of a resolution professional. Meanwhile, the ED initiated an investigation under PMLA against PD Agroprocessors, an associate company of Dunar Foods. It traced the flow of alleged tainted funds to Dunar Foods based on scheduled offences under the Indian Penal Code and Foreign Exchange Management Act (FEMA), alleging that large export advances received by Dunar Foods from PD Agroprocessors were proceeds of crime. ED then attached Dunar Foods' several immovable and movable assets worth ₹ 177.33 crore, prompting the resolution professional (RP) of the firm to move NCLT seeking immediate de-attachment of the provisionally attached properties. However, the NCLT on May 21, 2018 dismissed the RP's application and held that the provisional attachment order issued by the ED under PMLA did not fall within the scope of the moratorium under Section 14 of the IBC. NCLT had said that PMLA is a special penal statute and has a 'distinct adjudicatory mechanism', hence unless and until the attachment was set aside by the PMLA adjudicating authority, the NCLT has no jurisdiction to direct its release. Aggrieved by this decision, Dunar Foods' RP then approached appellate tribunal NCLAT. Meanwhile, the lenders of Dunar Foods approved the resolution plan submitted by Amit Gupta in November 2019 during the pendency of the appeal in NCLAT. The appellate tribunal said though Provisional Attachment Order (PAO) was issued by ED after the commencement of CIRP, ECIR (Enforcement Case Information Report) investigation commenced as far back as 2013.
Time of India
03-07-2025
- Business
- Time of India
Insolvency proceedings cannot sidestep PMLA process: NCLT
Proceedings under the Insolvency & Bankruptcy Code cannot be used as a mechanism to "frustrate or sidestep" the process going under the Prevention of Money Laundering Act , the National Company Law Tribunal (NCLT) said. Rejecting the plea for dissolution of Shakti Bhog Snacks , which is under the lens of the Enforcement Directorate (ED) with a special PMLA Court taking cognisance of the complaint filed by the probe agency, NCLT said it "would amount to judicial overreach ". This will also "impair the ED's ability to complete its investigation, pursue trial, and recover proceeds of crime," said NCLT while dismissing the plea of the Resolution Professional of Shakti Bhog Snacks. A two-member NCLT bench further said the Supreme Court has already held that NCLT and the appellate tribunal NCLAT do not have jurisdiction to interfere with proceedings or orders passed under the PMLA, including attachment orders or criminal prosecution. "In view of the foregoing, we are of the considered opinion that permitting dissolution despite the pendency of the Special Court's cognizance 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," said a 14-page-long order by NCLT. Live Events NCLT cannot assume jurisdiction in a manner that would render Shakti Bhog Snacks unavailable for criminal liability, particularly when it stands named as an accused, and assets, however meagre, are under attachment. "It is not the quantum but the character of the proceedings that is determinative," said the NCLT bench comprising Members Sanjeev Ranjan and B V Balram Das. Shakti Bhog Snacks Ltd (SBSL) is the group company of Shakti Bhog Foods Ltd (SBFL), which was once a leader in the wheat flour segment. Insolvency proceedings against SBSL were initiated by NCLT in January 2023 after default was established by one of its operational creditors. It also appointed an interim resolution professional, who also formed the Committee of Creditors (CoC) as per the provisions of the IBC. However, RP could not get control of SBSL's physical assets and records as it was sealed by the Enforcement Directorate. Moreover, the company was not in operation. No person was available, and its land and building situated at Noida were already sold by the State Bank of India under the SARFAESI Act. Moreover, in CoC, SBI was the sole member, and it could not even liquidate SBSL due to the absence of assets, records, operations, and personnel. The CoC recommended dissolution of SBSL instead of liquidation and the RP approached NCLT, filing plea under Section 54 of the IBC for dissolution. NCLT on August 20, 2024, issued notice to the Registrar of Companies, Income Tax Department and others. After that, ED filed its reply before NCLT, opposing the dissolution of Shakti Bhog Foods, in view of the ongoing proceedings under the Prevention of Money Laundering Act, 2002 (PMLA). ED submitted that SBFL defaulted in repaying its loan obligations, and its account was classified as NPA and total outstanding dues to the consortium of banks stand at approximately Rs 3,269.42 crores as on 31.03.2020. ED submitted before NCLT that investigation revealed that Shakti Bhog Snacks, along with Shakti Bhog Foods was involved in the activities related to money laundering. SBSL acquired and possessed proceeds of crime to the tune of Rs 97.87 crore from six group entities of SBFL, the probe agency submitted before the insolvency tribunal. It transferred Rs 127.81 crore to these six group entities from FY'08 to FY'15 in the guise of investment and sale-purchase. The name of Shakti Bhog Snacks was used by Shakti Bhog Foods to rotate its loan funds against bogus invoices. The company layered and siphoned off the proceeds of crime received from Shakti Bhog Foods and further transferred them to the directors/promoters and their relatives. "The ED further submitted that SBSL carried out these transactions without any actual movement of goods. The group companies of SBFL involved in these transactions were shell entities, and no genuine business activities were conducted therein," said NCLT order while recording ED's submission. These transactions were carried out to inflate the financials of SBFL so that more credit facilities could be availed from banks," it said. Consenting to it, NCLT said: "Dissolution under Section 54 of the IBC results in the Corporate Debtor ceasing to exist as a legal entity. Such a consequence would inevitably frustrate the ongoing criminal prosecution under the PMLA and defeat the authority and jurisdiction of the Ld. Special Court, which is statutorily vested with the power to try offences under the PMLA and adjudicate upon related attachments and confiscation proceedings," it said.
