East India Enterprise Thro ... vs Ministry Of Finance Department Of ...
2021 Latest Caselaw 6797 Guj

 R/SCR.A/8222/2019                             CAV JUDGMENT DATED: 24/06/2021




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

    R/SPECIAL CRIMINAL APPLICATION NO. 8222 of 2019


FOR APPROVAL AND SIGNATURE:


HONOURABLE MS. JUSTICE GITA GOPI

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1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2    To be referred to the Reporter or not ?

3    Whether their Lordships wish to see the fair copy
     of the judgment ?

4    Whether this case involves a substantial question

of law as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== EAST INDIA ENTERPRISE THRO PROPRIETOR RAJESHBHAI BHOLABHAI RAMANI Versus MINISTRY OF FINANCE DEPARTMENT OF REVENUE THROUGH THE DIRECTOR ========================================================== Appearance:

MS. KRUTI M SHAH(2428) for the Applicant(s) No. 1,2,3,4,5 DS AFF.NOT FILED (N)(11) for the Respondent(s) No. 10,11,12,13,14,15,16,17,18,20,3,5,6,7,8,9 MR ANIP A GANDHI (2268) for the Respondent(s) No. 19 MR DEVANG VYAS (2794) for the Respondent(s) No. 1,2 MR ADITYA GUNDECHA FOR MR NARENDRA L JAIN(5647) for the

MS MONALI BHATT, ADDL. PUBLIC PROSECUTOR(2) for the

==========================================================

CORAM:HONOURABLE MS. JUSTICE GITA GOPI

Date : 24/06/2021

CAV JUDGMENT

R/SCR.A/8222/2019 CAV JUDGMENT DATED: 24/06/2021

1. RULE. Service of notice of rule is waived by learned

advocates appearing for the respective respondents. With the

consent of both the sides, the matter is taken up for final

hearing today.

2. By way of this petition filed under Article 226 of the

Constitution of India read with Section 482 of the Code of

Criminal Procedure, the petitioners had made prayer in

paragraph-10(B) to vacate the Provisional Attachment Order :

PAO / MBZO-II / 02 / 2019 dated 18.06.2019 passed by the

Deputy Director, Mumbai Zonal Office-II, Directorate of

Enforcement, respondent No.2 herein, under sub-Section (1) of

Section 5 of the Prevention of Money Laundering Act, 2002

(for short, "the PMLA") whereby, the movable properties, i.e.

6170 Nos. of commercial vehicles of M/s. Siddhi Vinayak

Logistic Limited (Corporate Debtor), have been provisionally

attached under the provisions of the PMLA for a period of 180

days from the date of the order with the further condition that

the said properties shall not be removed, parted with or

R/SCR.A/8222/2019 CAV JUDGMENT DATED: 24/06/2021

otherwise, dealt with, without the prior permission from the

said authority.

2.1 Learned advocate Ms. Kruti M. Shah for the petitioners

referring to the order passed in Writ Petition (ST) No.280 of

2021 between Raman Roadways Private Limited v. State of

Maharashtra & others, submitted that a petition with similar

facts was moved before the High Court of Judicature at

Bombay and the matter of Provisional Attachment dated

18.06.2019 in relation to movable properties of 6170 vehicles

of the Corporate Debtor was dealt with. She stated that 4826

trucks which had been taken away by the Official Liquidator of

the Company In Liquidation under the provisions of the

Insolvency and Banking Code, 2016 (for short, "the IB Code")

was ordered to be released by the Adjudicating Authority

under the PMLA by order dated 03.12.2019 passed in O.C. No.

1160 of 2019 before which the complaint was filed by the

Deputy Director, Directorate of Enforcement, where the Official

Liquidator had filed his objections / reply. Learned advocate

Ms. Shah submitted that since the Provisional Attachment

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Order has been removed, she does not press for the relief

sought for in paragraph-10(B) of the petition.

2.2 The petitioners have also prayed to issue appropriate

directions to the respondent - Regional Transport Offices to

complete the proceedings of transfer of the vehicles purchased

by the petitioners from the Court appointed Official Liquidator

of the Corporate Debtor.

3. The facts, in a nutshell, are as under :-

The Bank Security & Frauds Cell (BS & FC) of C.B.I.,

Mumbai registered five different FIRs against M/s. Siddhi

Vinayak Logistics Ltd. (Corporate Debtor) and its Directors

between the years 2015 to 2018 invoking various sections

under the Indian Penal Code, 1860 and Sections 13(2) read

with Section 13(1)(d) of the Prevention of Corruption Act,

1988. Each FIR is based on the complaint filed by five

different Banks about cheating and forgery causing wrongful

loss to the Banks by the said Corporate Debtor and its

Directors. One of the Banks, i.e. Punjab National Bank

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approached the National Company Law Tribunal, Ahmedabad

Bench (for short, "the NCLT") filed an application under

Section 7 of the Insolvency and Bankruptcy Code, 2016 (for

short, "the IB Code") read with Rule 4 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016

with a prayer to initiate Corporate Insolvency Resolution

Process against the "Corporate Debtor", which application was

numbered as C.P. No. (IB) 89 of 2017. The said application

came to be disposed of by the NCLT by order dated

12.09.2017 by which the said Company was admitted under

the Corporate Insolvency Resolution Process (CIRP) and (i) Mr.

Dushyant C. Dave was appointed as the Insolvency Resolution

Professional (IRP) under Section 13(1)(c) of the IB Code and

the said IRP was directed to cause public announcement of the

initiation of "Corporate Insolvency Resolution Process" and to

call for submission of claims under Section 13(1)(b) read with

Section 15 of the IB Code and Regulation 6 of the Insolvency

and Bankruptcy Board of India (Insolvency Resolution Process

for Corporate Persons) Regulations, 2016 (ii) moratorium was

ordered under Section 13(1)(a) of the IB Code prohibiting

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certain acts, as specified in Section 14 of the IB Code.

Thereafter, the Insolvency Resolution Professional filed an

application under Section 33 of the IB Code before the NCLT

in I.A. No.411 of 2018 in C.P. (IB) No.89 of 2017 seeking

liquidation of the Corporate Debtor Company. After hearing

both the sides, the NCLT passed the order dated 19.11.2018 by

which the Insolvency Resolution Professional was appointed as

"Liquidator" under Section 34(1) of the IB Code. The

Liquidator took over custody and control of all the assets of

the Corporate Debtor under Section 35(1)(b) of the IB Code

and thereafter, issued the E-Auction Sale Notice on 08.02.2019.

The petitioners herein participated in the auction proceedings

and purchased certain number of vehicles, for which the

Official Liquidator has issued "Certificate of Sale of Movable

Property" in their favour. Pursuant thereto, the Official

Liquidator informed the respondent - Regional Transport

Offices to initiate and complete the process of transfer of

ownership of the vehicles in the name of the buyers - auction

purchasers.

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4. On 18.06.2019 the respondent No.2 issued the Provisional

Attachment Order : PAO / MBZO-11 / 02 / 2019 under sub-

Section (1) of Section 5 of the PMLA, by which the movable

properties, i.e. 6170 numbers of road vehicles of the Corporate

Debtor, were ordered to be provisionally attached for a period

of 180 days. The petitioners-auction purchasers made

representation dated 14.08.2019 to the respondent-Department

seeking release of the movable properties from attachment.

When no heed was given to the representation made by the

petitioners, they preferred the present petition before this

Court.

5. It appears that during the pendency of this petition, the

Adjudicating Authority (Under the PMLA) passed the order

dated 03.12.2019, by which the Provisional Attachment Order

dated 18.06.2019 was partially confirmed to the effect that out

of 6170 Trucks, 4826 Trucks were traced out and their

possession was secured and that out of the said 4826 Trucks,

2336 Trucks were sold in auction proceedings and the sale

proceeds have been deposited with Punjab National Bank;

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insofar as the remaining 2490 Trucks are concerned, the same

are yet to be auctioned by the Official Liquidator. Thus, out of

6170 Trucks, 4826 Trucks were with the Official Liquidator

and for the remaining 1334 Trucks, the attachment was

confirmed.

6. Learned advocate Ms. Kruti M. Shah appearing for the

petitioners submitted that the petitioners are not connected

with the proceedings initiated against the Company in

Liquidation - M/s. Siddhi Vinayak Logistic Limited in any

manner whatsoever. The petitioners had purchased the subject

vehicles in the E-auction proceedings conducted by respondent

No.4 - Official Liquidator in pursuance of the order dated

19.11.2018 passed by the NCLT. It is contended that when the

NCLT had already passed an order appointing an Official

Liquidator for the sale of the assets of the Company In

Liquidation, the Adjudicating Authority under the PMLA ought

not to have passed the Provisional Attachment Order dated

18.06.2019 in respect of the assets, particularly when, more

than 4000 vehicles had already been sold to different persons /

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entities through the E-auction. The said order of Provisional

Attachment of the subject vehicles has caused severe financial

loss and undue hardships to the petitioners, as the petitioners

had purchased the vehicles by obtaining by obtaining huge

loans from third parties and the value of the vehicles lying in

the parking yard would depreciate by each passing day.

6.1 Learned advocate Ms. Shah submitted that though the

petitioners had purchased the vehicles through E-auction, their

names have not been entered in the R.T.O. records and

therefore, the petitioners are not able to sell or ply the

vehicles. The petitioners are staring at huge financial loss and

they would have to close down its business, if the vehicles are

not transferred in their names as every passing day would

further deteriorate the physical condition of the vehicles. It

was, therefore, submitted that the order of attachment passed

by the Adjudicating Authority under the PMLA was unjust and

improper.

6.2 Learned advocate Ms. Shah further submitted that taxes

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are levied on vehicles using the road and not on vehicles

which did not use the road at all. Thus, the use of roads by

the vehicles is a relevant factor for the levy of taxes. In this

context, she has placed reliance upon a decision of the Apex

Court in the case of State of Gujarat and Ors. v. Kaushikbhai

K. Patel and Anr., (2006) SCC 615, wherein it has been held

that where a motor vehicle is not using the road, no tax could

be levied thereon.

7. Mr. Devang Vyas, learned Additional Solicitor General of

India appearing on behalf of respondent Nos.1 & 2, submitted

that the proceedings under the IB Code and under the PMLA

are independent proceedings. He submitted that the Company

In Liquidation and others had cheated the respondent-Banks to

the tune of Rs.1609.78 Crores, which is public money. The

preliminary investigations under the PMLA had revealed that

the Company In Liquidation had either brought back the

majority of loan amounts in their bank accounts or the said

loan amount was utilized for the repayment of their liability

on account of purchase of vehicles / loan amount, etc. The

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investigations also revealed that the majority of the amount so

received by the Company In Liquidation in their account was

utilized mainly for repayment of loan amount in respect of the

vehicles mortgaged with the bank authorities, for the payment

of the outstanding amount to the suppliers of vehicles. The

remaining amount was utilized by the said Company for other

purposes such as loans and advances and other expenses, etc.

Thus, it was found that a major part of the loan amounts were

directly and / or indirectly utilized for acquiring the vehicle

fleet.

7.1 It was urged by the learned Additional Solicitor General

that the proceeds generated out of the criminal activity was

routed, placed and integrated through complex web of

transactions so as to disguise the trail of the proceeds and its

origin. On the basis of the material collected during the

investigation, the Adjudicating Authority under the PMLA came

to the conclusion that the properties acquired / held by the

Company In Liquidation and its Directors were liable for

attachment and accordingly, passed the Provisional Order of

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Attachment and the subsequent order of partial attachment. It

was, accordingly, submitted that this Court may not interfere

with the orders of provisional / partial attachment passed by

the PMLA authority.

8. Learned Additional Public Prosecutor Ms. Bhatt submitted

that the petitioners have to comply with the mandatory

procedure prescribed under the Motor Vehicles Act and the

Rules framed thereunder for transfer of the vehicles in their

names. By relying on the documents produced by the

respondent Nos.5 & 6 - Regional Transport Offices at Vadodara

and Surat respectively, it is contended that the petitioners have

not completed necessary documentation and have also not paid

the mandatory amount of taxes / fees prescribed under the

relevant rules and therefore, their names could not be entered

in the R.T.O. records. It was, accordingly, urged that no relief

may be granted in favour of the petitioners.

9. Learned advocate Mr. Gundecha appearing for Mr.

Narendra Jain appearing for respondent No.4 - Official

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Liquidator submitted that the petitioners had purchased the

vehicles in the E-auction proceedings conducted in pursuance

of the order passed by the NCLT. He submitted that by

complying with the provisions of the Motor Vehicles Act and

the Rules framed thereunder can get ownership of the vehicles

transferred in their names. The Official Liquidator had already

made a request to the respondent - Regional Transport Offices

of Gujarat for the withdrawal of the Provisional Attachment

Order so as to permit transfer of the vehicles as and when the

relevant papers are submitted by the buyers.

10. Learned advocate Mr. Anip Gandhi appearing for

respondent No.19 - Bank adopted the submissions advanced by

the learned counsels for the respondents.

11. Before we advert to the merits of the case, it would be

useful to refer to certain provisions of the IB Code in order to

get a better insight into the issue on hand. Section 5(21) of the

IB Code defines the term 'operational debt' to mean a claim in

respect of the provision of goods or services including

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employment or a debt in respect of the repayment of dues

arising under any law for the time being in force and payable

to the Central Government, any State Government or any local

authority. Section 53 of the IB Code relates to 'Distribution of

assets'. It lays down the mechanism for the distribution of

proceeds from the sale of the liquidation assets. Priority is

given to secured financial creditors over unsecured financial

creditors. In other words, Section 53 provides with a waterfall

mechanism, which requires that higher-tiered creditors receive

interest and principal payments, while the lower-tiered

creditors receive principal payments after the higher-tiered

creditors are paid back in full. The dues of the Central and

State Government, including that of the respondent-Regional

Transport Offices, could be classified as 'operational debt' and

could be paid / settled in accordance with sub-Sections (e) and

(f) of Section 53 of the IB Code. In terms of the waterfall

mechanism, the dues of respondent-Regional Transport Office

comes much lower in priority.

12. At this stage, a reference to Section 238 of IBC would be

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relevant, which pertains to - "Provisions of this Code to

override other laws". It provides that the provisions of IB

Code shall have effect, notwithstanding anything inconsistent

therewith contained in any law for the time being in force or

any instrument having effect by virtue of any such law. In

other words, the IB Code has a overriding effect over any

other law for the time being in force, which includes the

Motor Vehicles Act and the Rules framed thereunder. Upon the

Corporate Debtor being sent to liquidation, it is the procedure

prescribed under the IB Code that comes into play and

becomes all encompassing for the purpose of realization of all

dues and debts by creditors or any other stakeholders from the

Corporate Debtor.

13. On a plain reading of the above provisions of the IB

Code, it is clear that statutory dues, which come within the

meaning of 'operational debt', could be claimed against the

Corporate Debtor only under the provisions of the IB Code and

not under any other law. All such claims have to be lodged

with the Official Liquidator and are payable under the

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waterfall mechanism provided in Section 53 of IB Code. The

petitioners have produced on record the demand Notice issued

against the Corporate Debtor by one of the respondent-

Regional Transport Offices claiming payment of taxes in respect

of some of the subject vehicles. However, the amounts so due

from the Corporate Debtor, considering that these are statutory

dues in respect of the vehicles which were sold by the Official

Liquidator and which belong to the Corporate Debtor, would

not be in terms of the provisions of the Motor Vehicles Act

and the Rules framed thereunder, but would necessarily have

to be under the provisions of the IB Code. In other words, the

dues relatable to the vehicles belonging to the Corporate

Debtor can only be recovered under the provisions of the IB

Code, i.e. the waterfall mechanism under Section 53 of the IB

Code and not from the petitioners, being the auction-

purchasers. The petitioners could be held liable to pay

statutory dues in respect of the subject vehicles, which have

been claimed by the respondent - Regional Transport Offices

after their purchase by the petitioners in April 2019, only from

the date when they had purchased the subject vehicles after

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having exercised their right to raise objections to such claim.

14. Considering the overall facts of the case and the

provisions of the IB Code, it would be appropriate to direct

the petitioners to make payment of the statutory dues from the

date of purchase of the subject vehicles by the petitioners,

which would be made subject to other proceedings in relation

to the said vehicles since the petitioners, being the auction

purchasers, could not be asked to make payment of the

statutory dues claimed against the Corporate Debtor in

liquidation in respect of vehicles prior to their date of

purchase by the petitioners.

15. For the foregoing reasons, the petition is partly allowed

subject to the following conditions:-

(i) The respondents - Regional Transport Offices,

Gujarat and Maharashtra are directed to complete the

transfer proceedings of the subject vehicles purchased by

the petitioners from the Court appointed Official

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Liquidator of M/s. Siddhi Vinayak Logistic Ltd., which

shall be subject to the outcome of the proceedings that

may be pending under the provisions of the PMLA or

under any other corresponding law.

(ii) The concerned respondent - Regional Transport

Offices are directed to inform the petitioners in writing

the statutory dues in respect of the subject vehicles

purchased by the petitioners FROM THE DATE OF THEIR

PURCHASE BY THE PETITIONERS on or before 15 th July

2021.

(iii) If the dues are informed in writing on or before the

said date, the petitioners shall make payment of FIFTY

PERCENT (50%) of the said amount within THREE

WEEKS from the date of such communication, which

shall be subject to the outcome of the proceedings before

the authority concerned under the Gujarat Motor Vehicles

Tax Act / Maharashtra Motor Vehicles Tax Act.

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(iv) The above process shall be concluded within FOUR

WEEKS from the date of receipt of writ of this order.

(v) The respondents are granted liberty to move the

respondent - Official Liquidator for their dues by making

appropriate application as required under the law.

With the above directions, the petition stands disposed

of. Rule is made absolute to the above extent. Direct service is

permitted. Registry to send a writ of this order by E-mail /

Fax forthwith.

( GITA GOPI, J )

PRAVIN KARUNAN