Gujarat High Court
Am Mining India Private Limited vs Union Of India on 24 August, 2023
Bench: Vaibhavi D. Nanavati
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 808 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
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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 ?
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AM MINING INDIA PRIVATE LIMITED
Versus
UNION OF INDIA
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Appearance:
MR RASHESH SANJANWALA, SENIOR ADVOCATE with MR KEYUR
GANDHI, MR RAHEEL PATEL, MS ANANYA GHOSHI AND MR AALAY
SHAH for GANDHI LAW ASSOCIATES(12275) for the Petitioner(s) No. 1
MR KSHITIJ AMIN, MR DEVANG VYAS(2794) for the Respondent(s) No. 1
MR SN SOPARKAR, SENIOR COUNSEL with MR MONAAL J
DAVAWALA(6514) for the Respondent(s) No. 2,3
MR. PARTH H BHATT(6381) for the Respondent(s) No. 1
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CORAM:HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 24/08/2023
ORAL JUDGMENT
1. The writ-applicant herein has approached this Court
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invoking the Article 226 of the Constitution of India seeking
the following reliefs :-
"(i) Quash / set aside the Impugned Order dated 21.09.2022
passed by Respondent No.1 to the extent the same is qua the
Subject Land and the Petitioner;
(ii) Quash/set aside all actions consequential to the
Impugned Order, including the Complaint, Show Cause Notice
and Final Order dated 14.03.2023 passed by the Adjudicating
Authority;
(iii) Pending admission, hearing and final disposal of the
present Special Civil. Application, stay the effect, operation
and implementation of the Impugned Order Notice qua the
Subject Land and the Petitioner, and all actions consequential
to the Impugned Order, including the Complaint and Show
Cause Notice, qua the Subject Land and the Petitioner;
(iv) Grant ex-parte ad-interim relief in terms of prayer (iii)
above; and
(v) Pass any other orders that this Hon'ble Court deems fit
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in the interest of justice.
2. Brief facts leading to the adjudication of the present writ-
application read thus :-
2.1 The writ-applicant herein, AM Mining India Private
Limited ("AMMIPL") is a private company incorporated on
31.10.2019 under the provisions of Companies Act, 2013. The
writ-applicant herein is a part of the Arcelor Mittal Nippon
Steel Group, which has caused successful resolution of stressed
assets, including the successful resolution and revival of the
erstwhile Essar Steel India Limited.
2.2 The Respondent No. 2 is ABG Shipyard Limited, a
company incorporated on 15 March 1985 under the provisions
of Companies Act, 1956 ("ABG Shipyard") which is under
liquidation in terms of Section 33 of the Insolvency and
Bankruptcy Code (for short 'IBC') in view of the Order dated
25.04.2019 in CP(IB) No.53/NCLT/AHM/2017 ("Liquidation
Order") passed by the Hon'ble National Company Law
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Tribunal, Ahmedabad ("NCLT").
2.3 Pursuant to an application filed by ICICI Bank Ltd .,
Corporate Insolvency Resolution Process ("CIRP") was initiated
against ABG Shipyard by the Hon'ble NCLT on 01.08.2017 in
CP(IB) No.53/NCLT/AHM/2017. Since no resolution of ABG
Shipyard could take place in terms of the IBC, vide the
Liquidation Order, the Hon'ble NCLT initiated liquidation
proceedings against ABG Shipyard and Shri Sundaresh Bhat,
was appointed as the Liquidator in terms of Section 33 of IBC
by the NCLT vide Order dated 09.11.2022, to carry out the
liquidation process of the company in terms of the IBC by
order dated 09.11.2022.
2.4 Thereafter, advertisements were issued on 14.12.2021,
24.12.2021, 07.01.2022 and 18.01.2022 in accordance with the
regulatory framework governing the liquidation process, for
initiating a bid process for inter alia sale of the Subject Land
admeasuring approximately 2,03,000 square metres, situated
near village Gaviar, Taluka Choryas, District Surat, Gujarat,
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referred to as ABG Shipyard 1 and 2.
2.5 The writ-applicant herein, on 25.01.2022, submitted a bid
for an amount of INR 189,50,00,000/- (Rupees One Hundred
Eighty-Nine Crore Fifty Lakhs only), for the purchase of the
Subject Land ("Sale Consideration") and was adjudged the
"Successful Bidder". Further, in accordance with proviso to
Section 35(1)(f) of IBC, the writ-applicant herein submitted an
affidavit to the Liquidator, declaring its eligibility in terms of
Section 29A of IBC ("29A Affidavit").
2.6 Pursuant to this, an Agreement to Sell dated 21.03.2022
was executed between ABG Shipyard (through Sh. Sundaresh
Bhat in his capacity as the Liquidator) and the writ-applicant
herein for sale and purchase of the Subject Land, which was
registered vide document no. 5867 on 21.03.2022 at Surat
("Agreement to Sell").
2.7 At the time of execution of the Agreement to Sell, the
writ-applicant herein had already remitted INR 68,22,00,000
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(Rupees Sixty-Eight Crores and Twenty-Two Lakhs only)
towards acquisition of the Subject Land.
2.8 Towards the balance of the Sale Consideration, the
Agreement to Sell, provided the following payment schedule :-
Particulars Time Period Amount
.... .... ....
Tranche 1 At the end of 7 months of INR
being declared as successful 18,95,00,000,.00
bidder (i.e. August 25, 2022) (Rupees Eighteen Crores
Ninety-Five Lakhs Only)
Tranche 2 At the end of 8 months of INR
being declared as successful 18,95,00,000,.00
bidder (i.e. September 25, (Rupees Eighteen Crores
2022) Ninety-Five Lakhs Only)
Tranche 3 At the end of 9 months of INR
being declared as successful 83,38,00,000.00
bidder (i.e. October 25, 2022) (Rupees Eighty Three
Crores Thirty Eight Lakhs
Only)
2.9 Accordingly, under UTR: HSBCR22022082517255864, the
writ-applicant herein on 25.08.2022 remitted an amount of INR
18,95,00,000.00 (Rupees Eighteen Crores, Ninety-Five Lakhs
only).
2.10 The writ-applicant herein was ready and willing to remit
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the balance amounts, in terms of the aforesaid payment
schedule set out in the Agreement to Sell. The writ-applicant
herein had, and continues to have, necessary wherewithal to
make the balance payments.
2.11 Subsequent to the aforesaid proceedings undertaken
before the NCLT wherein the writ-applicant herein was
declared as the highest bidder as referred above and having
remitted the amount of INR 18,95,00,000.00 the respondent
No.1 by order dated 21.9.2022 provisionally attached the
subject land under Section 5 of the Prevention of Money
Laundering Act (for short 'PMLA') against ABG Shipyard.
3. Being aggrieved by the impugned order passed by the
respondent No.1 herein, the writ-applicant herein approached
this Court by preferring the present petition challenging the
impugned order dated 21.9.2022 duly produced at page-30
Annex.P/1.
4. Notice came to be issued on 19.1.2023. Pending the
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present petition the respondent No.1 filed the complaint before
the adjudicating authority which in turn issued show cause
notice to the writ-applicant herein. The adjudicating authority
by an order dated 14.3.2023 passed final order under the
provisions of Section 8 of the PMLA confirming the order of
attachment of property made under Sub-section (1) of Section
5 of the PMLA. After issuance of notice Rule came to be
issued wherein the following order came to be passed :-
"1. Heard Mr. R.S. Sanjanwala, learned Senior Counsel,
appearing for Gandhi Law Associate for the petitioner and Mr.
Devang Vyas, learned Additional Solicitor General appearing
for respondent No.1 and Mr. Monaal Davawala, learned
advocate appearing for the respondent Nos.2 and 3.
2. The petitioner herein approached this Court under
Article 226 of the Constitution of India, being aggrieved by
the Provisional Attachment Order dated 21.9.2022 wherein
"Surat Shipyard 1 & 2" (subject land) (acquired by the
Petitioner in the liquidation process of ABG Shipyard Limited
("ABGSL" or "Corporate Debtor") was provisionally attached
by the Enforcement Directorate, ("respondent No.1" or "ED")
under Section 5(1) of Prevention of Money Laundering Act
("PMLA") and a subsequent complaint has been filed under
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Section 5(5) of the PMLA. Pending the present petition, the
respondent No.1, by order dated 14.3.2023, passed final order
of confirmation, which is also subject matter of challenge, by
way of draft amendment, which came to be allowed by this
Court by order dated 11.4.203. A Corporate Insolvency
Resolution Process ("CIRP") of the Corporate Debtor was
initiated by Hon'ble National Company Law Tribunal,
Ahmedabad ("NCLT") on 1.8.2017 in CP(IB) No.
53/NCLT/AHM/2017. Since the CIRP of the Corporate Debtor
remained unsuccessful, the Hon'ble NCLT initiated the
liquidation proceedings on 25.4.2019. Pursuant to the order,
Mr. Sundaresh Bhat was appointed as the liquidator. In
furtherance of the advertisement for sale of assets of ABGSL
issued by the Liquidator under the liquidation process, the
petitioner submitted its bid for the subject land. Upon being
adjudged as the successful bidder and making necessary
payments, an agreement to sell was drawn on 21.3.2022. On
21.9.2022, by way of the impugned order, the subject land
was provisionally attached under the PMLA, thereby enjoining
the parties from completion of the sale process and causing
handing over of the subject land to the petitioner, which
came to be confirmed by the impugned order passed by the
adjudicating authority dated 14.3.2023.
2.1 Mr. Sanjanwala, learned Senior Counsel vehemently
submitted that the petitioner herein is a successful bidder,
pursuant to the permission granted by the NCLT to the
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liquidator to sell the assets of ABG Shipyard by way of
private sale by order dated 2.12.2020. The petitioner on
25.01.2022, submitted a bid for an amount of INR
189,50,00,000/- for the purchase of the Subject Land ("Sale
Consideration") and was adjudged the "Successful Bidder". The
aforesaid culminated into agreement to sell dated 21.3.2022 ,
which came to be executed between ABG Shipyard (through
Mr. Sundaresh Bhat in his capacity as the Liquidator) and the
petitioner for sale and purchase of the subject land, which
was registered vide document No. 5867 on 21.3.2022 at Surat.
On execution of the agreement to sell, the petitioner has
already remitted INR 68,22,00,000 towards acquisition fo the
subject land.
2.2 Mr. Sanjanwala, learned Senior Counsel submitted that
the subject land was provisionally attached by the respondent
No.1 under Section 5 of the PMLA in connection with
allegations of money laundering against ABG Shipyard.
2.3 It was submitted that the aforesaid initiation of
proceedings under the PMLA by the respondent No.1, is in
clear breach of Section 33(5) of Insolvency & Bankruptcy
Code (IBC), wherein respondent No.1 initiated proceedings qua
the subject land under Section 5 of the PMLA post the
Liquidation Order i.e. after 25.4.2019 by :-
(i) passing the impugned order on 21.9.2022;
(ii) provisionally attaching the subject property for 180 days
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w.e.f 21.9.2022;
(iii) initiating the attachment proceedings against the subject
property vide complaint dated 20.10.2022 under Section 5(5)
of PMLA; and
(iv) causing issuance of the Show Cause Notice dated
25.10.2022.
(v) Final Order of Confirmation passed by the Respondent
No.1 dated 14.3.2023.
2.4 Placing reliance on the aforesaid submission, Mr.
Sanjanwala, the learned Senior Counsel submitted that the
aforesaid orders are passed in breach of Section 32A(2), 33(5)
and 238 of IBC.
3. Mr. Sanjanwala, learned Senior Counsel, to substantiate
the aforesaid submission, placed reliance on the order passed
in Special Civil Application No. 19387/2022 dated 17.2.2023
wherein facts of the dispute being identical to the present
petition, the said petition came to be allowed, quashing aside
the provisional attachment order passed by the respondent
authority.
4. Further, reliance was placed on 2022 SCC OnLine Del
3703 in case of Rajiv Chakraborty Resolution Professional of
EIEL v. Directorate of Enforcement. Mr. Sanjanwala, learned
Senior Counsel appearing for the petitioner submitted on the
merits of the matter. The contentions raised by Mr.
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Sanjanwala, the learned Senior Counsel, require consideration.
5. In view of the above, Issue Rule, returnable on
5.7.2023.
Mr. Devang Vyas, learned ASG waives service of notice of
Rule for and on behalf of respondent No.1. Mr. Monaal
Davawala, learned advocate waives service of notice of rule
for respondent Nos. 2 and 3."
5. Heard Mr. R. S. Sanjanwala, the learned Senior Counsel
assisted by Mr. Raheel Patel, the learned advocate appearing
for Gandhi Law Associates, the learned advocate appearing for
the writ-applicant, Mr. Kshitij Amin, the learned advocate
appearing for the respondent No.1 and Mr. S.N. Soparkar, the
learned Senior Counsel assisted by Mr. Monaal Davawala, the
learned advocate appearing for the respondent No.2 and 3.
Submissions on behalf of the writ-applicant herein :-
6 Mr. R. S. Sanjanwala, the learned Senior Counsel
vehemently submitted that the final order dated 14.3.2023
passed by the respondent No.1 is in teeth of Section 33(5) of
the IBC.
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(a) Placing reliance on the aforesaid submission Mr.
Sanjanwala, the learned Senior Counsel submitted that the
order impugned is in clear breach of provisions of Section
33(5) of the Indian IBC, the respondent No.1 having initiated
proceedings qua the subject land under Section 5 of the PMLA
post the liquidation order i.e. after 25.4.2019 i.e. by
(i) passing the impugned order on 21.9.2022
(ii) provisionally attaching the subject property for 180 days
with effect from 21.9.2022
(iii) initiating attachment proceedings against the subject
property vide complaint dated 20.10.2022 under Section 5(5)
of the PMLA and
(iv) causing issuance of show cause notice dated 25.10.2022.
(b) It was submitted that the aforesaid order is in clear
breach of Section 33(5) of the IBC and in view thereof after
liquidation order having been passed on 21.9.2022 all the
consequential actions are void ab initio.
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(c) It was submitted that the order impugned dated
14.3.2023 passed by the respondent No.1 is in gross violation
of Section 32A(2) of IBC. Placing reliance on the aforesaid
submissions it was submitted that the order impugned could
have been validly passed by the respondent No.1 after the
liquidation order. It was submitted that no criminal
proceedings can be initiated qua assets acquired under the
liquidation process by the writ-applicant herein under under
Section 32A(2) of the IBC.
(d) It was submitted that the writ-applicant herein satisfies
all the three conditions as enumerated under the provisions of
Section 32A(2) of the IBC and in view thereof the subject land
in the hands of the writ-applicant herein is protected from
attachment by virtue of Section 32A(2) of the IBC. This is
because :-
(i) Under the Liquidation Process of ABG Shipyard, the writ-
applicant herein has been declared the Successful Bidder qua
the Subject Land, has entered into the Agreement to Sell for
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acquisition of the Subject Land, and has paid substantial part
of the Purchase Consideration, acquiring an equitable interest
in the Subject Land;
(ii) The writ-applicant herein was not a promoter, manager
or related party of ABG Shipyard (the Corporate Debtor); and
(iii) There are no allegations in the Complaint of abetment or
conspiration qua the writ-applicant herein for commission of
any offence with ABG Shipyard (the Corporate Debtor).
(e) Placing reliance on the aforesaid submissions Mr.
Sanjanwala, the learned Senior Counsel submitted that the
protection granted under Section 33(5) and 32A(2) of the IBC
override the respondent No.1 power to attach properties under
Section 5 of the PMLA, since (i) Section 238 of the IBC
provides that the provisions of IBC will override anything
inconsistent with any other law in force and (iii) PMLA,
despite containing a similar overriding provision under Section
71, is subservient to the provisions of IBC, since IBC was
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enacted after PMLA. It was submitted that when there is two
enactments of non-obstante clauses (like the present one), the
enactment which is subsequent in time overrides the other.
Reliance was placed on the decision in the case of Bank of
India vs. Ketan Parekh and Ors., reported in (2008) 8 SCC 148
to substantiate the aforesaid contention.
(f) Mr. Sanjanwala, the learned Senior Counsel submitted
that the writ-applicant herein is bonafide purchaser of the
subject land and has no involvement into unlawful activities
allegedly carried out by the ABG Shipyard. The writ-applicant
herein is a successful bidder and pursuant to the liquidation
process undertaken by the respondent No.3 after the orders
came to be passed by the Hon'ble NCLT, the writ-applicant
herein having found, not to be "a related party" to ABG
Shipyard in terms of Section 29A of the IBC. It was submitted
that in view thereof, the subject land is being acquired by the
writ-applicant herein in terms of the legislatively sanctioned
procedure under the IBC and the writ-applicant herein is
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nothing but bonafide third party purchaser of liquidation asset.
Placing reliance on the aforesaid submissions, it was submitted
that all protections to such a purchaser under IBC, especially
the immunity under Section 32A, must be afforded to the writ-
applicant herein and its interest in the subject land be
protected.
(g) Mr. Sanjanwala, the learned Senior Counsel submitted
that the order impugned passed by the respondent No.1 is
wholly without jurisdiction as (i) the same is passed in
contravention of the procedural mandates and safeguards under
Section 5 of PMLA; (ii) in breach of Sections 32A(2), 33(5) and
238 of IBC, as explained in detail above; (iii) it interdicts and
seeks to override the Hon'ble Supreme Court's Order dated
26.08.2022 in Civil Appeal No.7667 of 2021 Sundaresh Bhat,
Liquidator Of ABG Shipyard V. Central Board Of Indirect Taxes
And Customs which directs the Liquidator to complete the sale
of assets of ABG Shipyard within a time bound period of four
weeks; and (iv) the Respondent No.1 does not have any right,
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power or authority to attach ABG Shipyard's assets that are
under the process of acquisition by third parties under the
liquidation process.
(h) It is submitted that the order impugned passed by the
respondent No.1 under Section 5 of the PMLA has failed to
give any reason for attachment of subject land as mandated
under Section 5 of the PMLA and the said order fails to
demonstrate how the subject land is proceeds of crime in the
hands of the writ-applicant herein. It was submitted that the
final order passed by the adjudicating authority is silent as
regard reasons of the adjudicating authority for confirmation of
the order passed of the PAO qua the subject land. The
impugned order is a non-speaking order as regards the reasons
contemplated under Section 8(3) of the PMLA for confirmation
of attachment of the subject land. The contents of paragraphs
XXI and XXII neither contain any findings as to how the
subject land is involved in money laundering nor how in
exercise of powers under Section 8(3), the adjudicating
authority has the authority to attach such assets.
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(i) Mr. Sanjanwala, the learned Senior Counsel placed
reliance on the order passed in the Special Civil Application
No.19387 of 2022 dated 17.2.2023 in case of Welspun Steel
Resources Pvt. Ltd., vs. Union of India, which set aside the
provisional attachment of similarly placed assets, holding that
the same could not have been attached in the first place under
the PAO, not being the proceeds of crime. Despite the same
having been brought to the notice of the adjudicating
authority, no reference is made by the adjudicating authority
while passing the final order dated 14.3.2023.
(j) It was submitted that the adjudicating authority was
bound by the order passed in the Special Civil Application
No.19387 of 2022 dated 17.2.2023 as referred above and in
view thereof also the present petition is required to be allowed
considering the fact that in an identical fact and situation with
respect to Welspun Steel Resources Pvt. Ltd., by exercising
extraordinary jurisdiction the respondent authority has quashed
the order of provisional attachment.
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(k) Placing reliance on the aforesaid submissions, it was
submitted that the order impugned is required to be quashed
and set aside on the aforesaid ground alone.
(l) Mr. Sanjanwala, the learned Senior Counsel submitted
that the final order being wholly without jurisdiction on
account of breach of provisions under the IBC the alternative
remedy is not a bar to exercise powers under Article 226 of
the Constitution of India.
(m) Placing reliance on the aforesaid submissions Mr.
Sanjanwala, the learned Senior Counsel submitted that the
order impugned passed by the respondent No.1 is required to
be quashed and set aside.
(n) Mr. Sanjanwala, the learned Senior Counsel placed
reliance on the following decisions to substantiate his
submissions :-
(i) (1998) 8 SCC 1, Whirlpool Corporation vs. Registrar of
Trade Marks, Mumbai (para-15)
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(ii) (2009) 14 SCC 338 (para-13)
(2021) 5 SCC page-1, Manishkumar vs. Union of India.
(iii) 2021 SCC OnLine SC 801, Magadh Sugar & Energy Ltd.,
vs. State of Bihar and Ors., (para-25, 26, 27 and 32)
(iv) (2021) 6 SCC 771, Radha Krishan Industries vs. State of
Himachal Pradesh and Ors. (Para 27)
(v) 2022 SCC OnLine Del 3703, Rajiv Chakraborty Resolution
Professional of EIEL vs. Directorate of Enforcement. (para 6, 7
and 12)
(vi) Special Civil Application No.19387 of 2022 dated
17.2.2023.
Submissions on behalf of the respondent No.1 :-
7. Per contra, Mr. Kshitij Amin, the learned advocate
appearing for the respondent No.1 at the outset submitted that
the order impugned is passed by the adjudicating authority
under Section 8 of the PMLA Act. It was submitted that the
order impugned is an appealable order wherein the writ-
applicant herein be relegated to avail alternative remedy by
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filing an appeal. It was submitted that no interference is called
for in the order impugned passed by the adjudicating authority
wherein the adjudicating authority has considered the facts of
the dispute in question and passed an order allowing the
provisional attachment under Section 5 of the Act.
7.1 It was submitted that when the statutory remedy
available, this Court were to relegate the writ-applicant herein
to avail the same in accordance with law. Reliance was placed
on the ratio as laid down by the Hon'ble Apex Court in the
case of
(a) Kelkar & Kelkar Vs. Hotel Pride Executive Pvt Ltd.,
reported in MANU/SC/0580/2022 and AIR 2004 SC 1467.
(b) Civil Appeal No.5121 of 2021 arising out of SLP (C)
No.13639 of 2021 @ D No.11555 of 2020
7.2 It was submitted that the same could not have been said
to be final until the sale deed is executed between the parties.
It was submitted that in the facts of the present case at the
stage of agreement to sell in view thereof this Court may not
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interfere with the order impugned passed by the respondent
authority.
7.3 Mr. Amin, the learned advocate submitted that the orders
impugned passed by the respondent authorities are in due
compliance of the Act and the reasons are recorded in
accordance with the provisions of law.
7.4 It was submitted that on the complaint being lodged
before the enforcement authority, investigation was carried out,
forensic audit was also carried out and it was found that there
was divergence in the fund and for the same, attachment was
held to be necessary.
8. Heard Mr. S. N. Soparkar, the learned Senior Counsel
appearing for the respondent No.2 Official Liquidator. Mr.
Soparkar, the learned Senior Counsel supported the submissions
made by the learned advocate appearing for the writ-applicant
herein. Mr. Soparkar, the learned Senior Counsel submitted
that the orders impugned are in violation of the provisions of
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Section 33(5) of the IBC. Mr. Soparkar, the learned Senior
Counsel also submitted that the findings recorded by the
respondent No.1 authority while passing the final order are
devoid of any reasons and the order impugned fails the test of
Section 8 of the PMLA wherein the basic ingredients of Section
8, the reason to believe for coming to a conclusion, that the
properties are proceeds of crime.
8.1 Mr. Soparkar, the learned Senior Counsel placed
reliance on (1993) 1 SCC page-78 wherein it was held that
recording of reasons is deterrent against the arbitrary action. It
was submitted that the order impugned is also in violation of
the provisions of the Section 33(5) and 32A of the IBC. The
properties were purchased by the writ-applicant herein in sale
process conducted in accordance with law and in compliance
with the orders passed by the Hon'ble Apex Court.
9. At this stage, it is apposite to refer to Section 32A, 33(5)
and Section 238 of the IBC.
"Section 32A. Liability for prior offences, etc .- (1) Notwithstanding
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anything to the contrary contained in this Code or any other law for
the time being in force, the liability a corporate debtor for an
offence committed prior to the commencement of the corporate
insolvency resolution process shall cease, and the corporate debtor
shall not prosecuted for such an offence from the date the resolution
plan has been approved the Adjudicating Authority under section 31,
if the resolution plan results in the change in the management or
control of the corporate debtor to a person who was not
(a) a promoter or in the management or control of the corporate
debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating
authority has, on the basis of material in its possession, reason to
believe that he had abetted or conspired for the commission of the
offence, and has submitted or filed a report or a complaint to the
relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the
corporate insolvency resolution process against such corporate debtor,
it shall stand discharged from the date of approval of the resolution
plan subject to requirements of this sub-section having been fulfilled:
Provided further that every person who was a "designated partner"
as defined in clause (j) of section 2 of the Limited Liability
Partnership Act, 2008 (6 of 2009), or an "officer who is in default",
as defined in clause (60) of section 2 of the Companies Act, 2013
(18 of 2013), or was in any manner incharge of, or responsible to
the corporate debtor for the conduct of its business or associated
with the corporate debtor in any manner and who was directly or
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indirectly involved in the commission of such offence as per the
report submitted or complaint filed by the investigating authority,
shall continue to be liable to be prosecuted and punished for such
an offence committed by the corporate debtor notwithstanding that
the corporate debtor's liability has ceased under this sub-section.
(2) No action shall be taken against the property of the
corporate debtor in relation to n offence committed prior to the
commencement of the corporate insolvency resolution of the
corporate debtor, where such property is covered under a resolution
plan by the Adjudicating Authority under section 31, which results
in the change control of the corporate debtor to a person, or sale of
liquidation assets under the of Chapter III of Part II of this Code to
a person, who was not-
(i) a promoter or in the management or control of the
corporate debtor or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating
authority has, on the basis of material in its possession reason to
believe that he had abetted or conspired for the commission of the
offence, and has submitted or filed a report or a complaint to the
relevant statutory authority or Court.
Explanation .- For the purposes of this sub-section, it is hereby
clarified that ,
(i) an action against the property of the corporate debtor in relation
to an offence shall include the attachment, seizure, retention or
confiscation of such property under such law as may be applicable
to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action
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against the property of any person, other than the corporate debtor
or a person who has acquired such property through corporate
insolvency resolution process or liquidation process under this Code
and fulfils the requirements specified in this section, against whom
such an action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in sub-sections (1) and (2),
and notwithstanding the immunity given in this section, the
corporate debtor and any person who may be required to provide
assistance under such law as may be applicable to such corporate
debtor or person, shall extend all assistance and co-operation to any
authority investigating an offence committed prior to the
commencement of the corporate insolvency resolution process."
"Section 33 (5) Subject to section 52, when a liquidation order has
been passed, no suit or other legal proceeding shall be instituted by
or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by
the liquidator, on behalf of the corporate debtor, with the prior
approval of the Adjudicating Authority."
"Section 238 : Provisions of this Code to override other
laws
The provisions of this Code shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by
virtue of any such law."
10. Sections 5 and 8 of the PMLA Act;
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"Section 5 : Attachment of property involved in money-laundering
(1) Where the Director or any other officer not below the rank of
Deputy Director authorised by the Director for the purposes of this
section, has reason to believe (the reason for such belief to be
recorded in writing), on the basis of material in his possession,
that -
(a) any person is in possession of any proceeds of crime; and
(b) such proceeds of crime are likely to be concealed, transferred
or dealt with in any manner which may result in frustrating any
proceedings relating to confiscation of such proceeds of crime
under this Chapter, he may, by order in writing, provisionally
attach such property for a period not exceeding one hundred and
eighty days from the date of the order, in such manner as may be
prescribed:
Provided that no such order of attachment shall be made unless, in
relation to the scheduled offence, a report has been forwarded to a
Magistrate under Section 173 of the Code of Criminal Procedure,
1973 (2 of 1974), or a complaint has been filed by a person
authorised to investigate the offence mentioned in that Schedule,
before a Magistrate or court for taking cognizance of the scheduled
offence, as the case may be, or a similar report complaint has
been made or filed under the corresponding law of any other
country:
Provided further that, notwithstanding anything contained in clause
(b), any property of any person may be attached under this section
if the Director or any other officer not below the rank of Deputy
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Director authorised by him for the purposes of this section has
reason to believe (the reasons for such belief to be recorded in
writing), on the basis of material in his possession, that if such
property involved in money-laundering is not attached immediately
under this Chapter, the non-attachment of the property is likely to
frustrate any proceeding under this Act.
(2) The Director, or any other officer not below the rank of Deputy
Director, shall, immediately after attachment under sub-section (1),
forward a copy of the order, along with the material in his
possession, referred to in that sub-section, to the Adjudicating
Authority, in a sealed envelope, in the manner as may be
prescribed and such adjudicating Authority shall keep such order
and material for such period as may be prescribed.
(3) Every order of attachment made under sub-section (1) shall
cease to have effect after the expiry of the period specified in that
sub-section or on the date of an order made under sub-section (2)
of section 8 , whichever is earlier.
(4) Nothing in this section shall prevent the person interested in
the enjoyment of the immovable property attached under sub-
section (1) from such enjoyment.
Explanation.-For the purposes of this sub-section, "person
interested" in relation to any immovable property, includes all
persons claiming or entitled to claim any interest in the property.
(5) The Director or any other officer who provisionally attaches
any property under sub-section (1) shall, within a period of thirty
days from such attachment, file a complaint stating the facts of
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such attachment before the Adjudicating Authority."
"Section 8 : Adjudication
(1) On receipt of a complaint under sub-section (5) of section 5 ,
or applications made under sub-section (4) of section 17 or under
sub- section (10) of section 18 , if the Adjudicating Authority has
reason to believe that any person has committed an offence under
Section 3 or is in possession of proceeds of crime , he may serve a
notice of not less than thirty days on such person calling upon him
to indicate the sources of his income, earning or assets, out of
which or by means of which he has acquired the property attached
under sub-section (1) of section 5 , or, seized 15 "or frozen" under
section 17 or section 18 , the evidence on which he relies and
other relevant information and particulars, and to show cause why
all or any of such properties should not be declared to be the
properties involved in money- laundering and confiscated by the
Central Government:
Provided that where a notice under this sub-section specifies any
property as being held by a person on behalf of any other person,
a copy of such notice shall also be served upon such other person:
Provided further that where such property is held jointly by more
than one person, such notice shall be served to all persons holding
such property.
(2) The Adjudicating Authority shall, after-
(a) considering the reply, if any, to the notice issued under
sub-section (1);
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(b) hearing the aggrieved person and the Director or any
other officer authorised by him in this behalf; and
(c) taking into account all relevant materials placed on
record before him, by an order, record a finding whether all
or any of the properties referred to in the notice issued
under sub-section (1) are involved in money-laundering:
Provided that if the property is claimed by a person, other than a
person to whom the notice had been issued, such person shall also
be given an opportunity of being heard to prove that the property
is not involved in money- laundering.
(3) Where the Adjudicating Authority decides under sub-section (2)
that any property is involved in money-laundering, he shall, by an
order in writing, confirm the attachment of the property made
under section (1) of section 5 or retention of property
or 16 "record seized or frozen under Section 17 or Section 18 and
record a finding to that effect, whereupon such attachment or
retention or freezing of the seized or frozen property" or record
shall-
(a) continue during the pendency of the proceedings relating
to any "offence under this Act before a court or under the
corresponding law of any other country, before the
competent court of criminal jurisdiction outside India, as the
case may be; and"
(b) become final alter an order of confiscation is passed
under sub-section (5) or sub-section (7) of Section 8 or
Section 58-B or sub-section (2-A) of Section 60 by the
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Adjudicating Authority.
(4) Where the provisional order of attachment made under sub-
section (1) of section 5 had been confirmed under sub-section (3),
the Director or any other officer authorised by him in this behalf
shall forthwith take the possession of the property attached under
Section 5 or frozen under sub-section (1-A) of Section 17, in such
manner as may be prescribed:
Provided that if it is not practicable to take possession of a
property frozen under sub-section (1-A) of Section 17, the
order of confiscation shall have the same effect as if the
property had been taken possession of..
(5) Where on conclusion of a trial of an offence under this Act, the
Special Court finds that the offence of money-laundering has been
committed, it shall order that such property involved in the
money-laundering or which has been used for commission of the
offence of money-laundering shall stand confiscated to the Central
Government.
(6) Where on conclusion of a trail under this Act, the Special
Court finds that the offence of money-laundering has not taken
place or the property is not involved in money-laundering, it shall
order release of such property to the person entitled to receive it.
(7) Where the trial under this Act cannot be conducted by reason
of the death of the accused or the accused being declared a
proclaimed offender or for any other reason or having commenced
but could not be concluded, the Special Court shall, on an
application moved by the Director or a person claiming to be
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entitled to possession of a property in respect of which an order
has been passed under sub-section (3) of Section 8, pass
appropriate orders regarding confiscation or release of the property,
as the case may be, involved in the offences of money-laundering
after having regard to the material before it."
11. At this stage, it is also apposite to refer to the position
of law as held in the case of Rajiv Chakraborty Resolution
Professional of EIEL v. Directorate of Enforcement, reported in
2022 SCC OnLine Del 3703, paragraphs 8, 12, 20, 104, 107,
114 and 115.
"8. Having noticed the essential facts, which would be relevant for
the purposes of disposal of the instant writ petition and before
proceeding to consider the arguments addressed on merits, the Court
deems it appropriate to deal with the preliminary objections which
were raised by Mr. Hossain. Mr. Hossain had firstly referred to the
petitioner having filed I.A. No. 2576/2019 before the NCLT and
submitted that an identical prayer for the lifting of the attachment
orders made by the ED had been moved before the said Tribunal.
Learned counsel had also drawn the attention of the Court to the
order dated 26 June 2020 passed on the aforesaid application
whereby the Tribunal had restrained the respondent from realisation
of the funds based on the attachment order, the validity of which
was questioned. It was further contended that the writ petition as it
stands has only impugned the provisional attachment orders dated
08 July 2020 and 05 August 2020. It was further contended that
insofar as the PAO dated 08 July 2020 was concerned, that also
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formed subject matter of I.A. No_____/2020 (placed at page 343 of
the paper book) in which Signature Not Verified Digitally Signed
By:NEHA Signing Date:11.11.2022 15:55:22 Neutral Citation Number:
2022/DHC/004739 too, the petitioners had sought issuance of
directions requiring the respondents to desist from proceeding
further with the conformation of the PAO. It was lastly urged that
the orders in terms of the which the PAO came to be confirmed by
the Adjudicating Authority have also not been assailed in the writ
petition.
9. On behalf of the petitioners, it was contended that the jurisdiction
of the Court to rule upon the challenge which stands raised in the
writ petition would have to be considered bearing in mind the
nature and extent of the jurisdiction which could be exercised either
by the NCLT or the Appellate Tribunal constituted under the PMLA
bearing in mind the principles laid down in Embassy Property.
Learned counsel for the petitioner submitted that both the aforenoted
Tribunals exercise jurisdiction over matters entrusted to them under
their respective statutes. It was submitted that they would thus
clearly have no authority to rule on the question which arises and
touches upon the interplay between the provisions and powers
conferred by the IBC and the corresponding power and authority
which stands conferred upon the ED under the PMLA. Learned
counsel for the petitioner also drew the attention of the Court to the
conflicting views which had been rendered on the interplay between
IBC and PMLA and referred to the decision in Directorate of
Enforcement vs. Manoj Kumar Agarwal13 which had held that the
Enforcement Directorate would have no jurisdiction to interfere or
interdict proceedings under the IBC once a moratorium came into
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effect. Learned counsel also invited the attention of the Court to
the 2021 SCC OnLine NCLAT 121 Signature Not Verified Digitally
Signed By:NEHA Signing Date:11.11.2022 15:55:22 Neutral Citation
Number: 2022/DHC/004739 conflicting views which had been
expressed in Varrsana Ispat Limited vs. Deputy Director of
Enforcement14 as well as Andhra Bank vs. Sterling Biotech
Limited15, Rotomac Global Private Limited vs. Deputy Director,
Directorate of Enforcement16 on the one hand and Manoj Kumar
Agarwal on the other and contended that in light of the flux in the
legal position, it would but be appropriate for this Court to
effectively rule upon the questions which arise. The attention of the
Court was also drawn to the judgement rendered by a larger bench
of the National Company Law Appellate Tribunal17 in Kiran Shah v.
Enforcement Directorate18 which had taken a view diametrically
opposed to what was held in Manoj Kumar Agarwal. In view of the
aforesaid, it was urged that the Court should render an authoritative
pronouncement on the questions which arise for determination.
20. Appearing for the respondents, Mr. Zoheb Hossain, learned
counsel appearing for the ED argued that "proceeds of crime" as
defined under Section 2(1)(u) of PMLA is not an operational debt as
per the provisions of Section 5(21) of the IBC. It was submitted that
ED would not fall within the definition of an operational creditor as
defined by Section 5(20) of the IBC. Learned counsel submitted that
when the ED proceeds to attach properties representing proceeds of
crime, it is not doing so by virtue of being a creditor of the
corporate debtor. Mr. Hossain submitted that while an operational
debt would mean a debt arising under any law for the time being in
force, proceeds of crimes stand on a completely different pedestal
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and relate Signature Not Verified Digitally Signed By:NEHA Signing
Date:11.11.2022 15:55:22 Neutral Citation Number: 2022/DHC/004739
to ill gotten assets derived or obtained from the commission of a
scheduled offence. In view of the aforesaid, learned counsel would
submit that it would be wholly incorrect to proceed on the basis that
orders of attachment made in respect of properties which constitute
proceeds of crime is akin to an action taken by a creditor against the
assets of a debtor. Learned counsel submitted that while proceeding
to attach and confiscate proceeds of crime, the action of the ED is
essentially aimed at taking away from a person or an entity all that
may have been illegitimately secured by indulging in prescribed
criminal activity. In support of the aforesaid submissions, Mr.
Hossain, firstly, placed reliance upon the following passages as
appearing in the decision of this Court in Deputy Director of
Enforcement, Delhi v. Axis Bank & Ors 22:-
"105. It is vivid that the legislature has made provision for
"provisional attachment" bearing in mind the possibility of
circumstances of urgency that might necessitate such power to be
resorted to. A person engaged in criminal activity intending to
convert the proceeds of crime into assets that can be projected as
legitimate (or untainted) would generally be in a hurry to render
the same unavailable. The entire contours of the crime may not be
known when it comes to light and the enforcement authority
embarks upon a probe. The crime of such nature is generally
executed in stealth and secrecy, multiple transactions (seemingly
legitimate) creating a web lifting the veil whereof is not an easy
task. The truth of the matter is expected to be uncovered by a
detailed probe which may take long time to undertake and
conclude. The total wrongful gain from the criminal activity
cannot be computed till the investigation is completed. The
authority for "provisional" attachment of suspect assets is to ensure
that the same remain within the reach of the law.
xxx xxx xxx
141. This court finds it difficult to accept the proposition that the
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jurisdiction conferred on the State by PMLA to confiscate the
"proceeds of crime" concerns a property the value whereof is
"debt" 2019 SCC OnLine Del 7854 Signature Not Verified Digitally
Signed By:NEHA Signing Date:11.11.2022 15:55:22 Neutral Citation
Number: 2022/DHC/004739 due or payable to the Government
(Central or State) or local authority. The Government, when it
exercises its power under PMLA to seek attachment leading to
confiscation of proceeds of crime, does not stand as a creditor, the
person alleged to be complicit in the offence of money-laundering
similarly not acquiring the status of a debtor. The State is not
claiming the prerogative to deprive such offender of ill-gotten
assets so as to be perceived to be sharing the loot, not the least so
as to levy tax thereupon such as to give it a colour of legitimacy
or lawful earning, the idea being to take away what has been
illegitimately secured by prescribed criminal activity.
xxx xxx xxx
143. The proceeds of crime, there is no doubt, are not even
remotely covered by the expressions "revenues, taxes, cesses" or
other "rates." The word "revenue" is the controlling word, the
expressions following (taxes, cesses, rates) taking the colour from
the same. The word revenue, in the context of Government is to
be understood to be conveying taxation [Gopi Pershad v. State of
Punjab, AIR 1957 Punjab 45 (DB)]. This is how the expression is
defined by Black's Law Dictionary, Eighth Edition as also by
Cambridge English Dictionary (accessible online). The reliance by
the respondents on the use of the expression "non-tax revenue"
with reference to PMLA under major accounting head "0047 Other
Fiscal Services" in the list of Heads of Accounts of Union and
States issued by Controller General of Accounts, Department of
Expenditure in the Ministry of Finance, Government of India under
the Government of India (Allocation of Business) Rules, 1961 is
misplaced. The use of the expression for accounting purposes - to
take care of receipts flowing into the Consolidated Fund - cannot
give to the value of proceeds of crime realised by sale of
properties confiscated under PMLA the colour of taxation."
104. Section 5(2) enjoins the Director to forward a copy of the
order of provisional attachment along with all other materials in
his possession to the Adjudicating Authority for such purpose. On
the receipt of the aforesaid order and the accompanying material,
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the Adjudicating Authority is enjoined by law to place persons
who are alleged to have committed an offence under Section 3 to
appear and show cause why the properties so attached
under Section 5 be not declared to be properties involved in
money laundering and confiscated by the Union Government. On a
culmination of the aforesaid proceedings, the Adjudicating
Authority would ultimately either pass an order of confirmation or
is in case he differs with the conclusions arrived at by the Director
and after considering any response that may be received, annul the
provisional attachment.
107. The Court had while noticing the submissions addressed on
behalf of the petitioner taken note of the contention that Section
238 of the IBC would confer primacy upon the said statute and
thus it would override the provisions of the PMLA bearing in mind
that it was a special statute and had come to be promulgated later
in point of time.
114. On a consideration of the aforesaid, the Court comes to the
conclusion that Section 32A would constitute the pivot by virtue of
being the later act and thus govern the extent to which the
non obstante clause enshrined in the IBC would operate and
exclude the operation of the PMLA. As has been observed
hereinabove, while both IBC and the PMLA are special statutes in
the generic sense, they both seek to subserve independent and
separate legislative objectives. The subject matter and focus of the
two legislations is clearly distinct. When faced with a situation
where both the special legislations incorporate non obstante
clauses, it becomes the duty of the Court to discern the true intent
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and scope of the two legislations. Even though the IBC and Section
238 thereof constitute the later enactment when viewed against the
PMLA which came to be enforced in 2005, the Court is of the
considered opinion that the extent to which the latter was intended
to capitulate to the IBC is an issue which must be answered on the
basis of Section 32A. The introduction of that provision in 2020
represents the last expression of intent of the Legislature and thus
the embodiment of the extent to which the provisions of the PMLA
are to give way to proceedings initiated under the IBC.
115. The Court has independently come to the conclusion that
the power to attach under the PMLA would not fall within the ken
of Section 14(1)(a) of the IBC. Through Section 32A, the Legislature
has authoritatively spoken of the terminal point whereafter the
powers under the PMLA would not be exercisable. The events
which trigger its application when reached would lead to the
erection of an impregnable wall which cannot be breached by
invocation of the provisions of the PMLA. The non obstante clause
finding place in the IBC thus can neither be interpreted nor
countenanced to have an Signature Not Verified Digitally Signed
By:NEHA Signing Date:11.11.2022 15:55:22 Neutral Citation
Number: 2022/DHC/004739 impact far greater than that envisaged
in Section 32A. The aforesaid issue stands answered accordingly."
12. The present writ-applicant herein i.e. AM Mining India
Pvt. Ltd., is identically placed with the writ-applicant herein of
the Special Civil Application No.19387 of 2022 i.e. Welspun
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Steel Resources Pvt. Ltd., vs. Union of India having
approached this Court challenging provisional attachment order
dated 21.9.2022. In the said application Welspun Steel
Resources Pvt. Ltd., was held to be the highest successful
bidder and paid the entire sale consideration as the writ-
applicant herein for specified assets on 21.9.2022. The
respondent No.1 passed an impugned order in respect of assets
that were sold to the writ-applicant herein by order dated
21.9.2022. The facts of the present case being identical to the
facts of the said case, the relevant paragraphs of the said order
passed in the Special Civil Application No.19387 of 2022 dated
17.2.2023 read thus :-
"6. Having considered the submissions made by the learned
advocates for the respective parties, the legality of the order
under challenge has to be addressed from the point of view
whether the assets acquired by the petitioners can at all be
said to be 'proceeds of crime'. This is not only in light of the
manner and the method in which the specified assets have
been acquired by the petitioners but also in light of the
provisions of the IBC. From the chain of events narrated in the
earlier part of this judgement what is evident is that ABG
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Shipyard Limited went into liquidation. Assets of the company
'corporate debtor' were offered for sale pursuant to an auction
held under the directions of the Apex Court. The petitioners
were successful bidders and had after depositing the entire sale
consideration received sale certificates. Certainly can it not be
said that the assets which are 'specified assets' which the
petitioners have acquired are those assets which are acquired as
a result of criminal activity and therefore can be said to be
'proceeds of crime'. In the decision in the case of Manish
Kumar (supra), the Apex Court while considering the
constitutionality of Section 32(A) of IBC held as under:
"320. Coming to sub-Section (2) of Section 32A, it declares
a bar against taking any action against property of the
corporate debtor. This bar also contemplates the connection
between the offence committed by the corporate debtor
before the commencement of the CIRP and the property of
the corporate debtor. This bar is conditional to the property
being covered under the Resolution Plan. The further
requirement is that a Resolution Plan must be approved by
the Adjudicating Authority and, finally, the approved plan,
must result in a change in control of the corporate debtor
not to a person, who is already identified and described in
subSection (1). In other words, the requirements for invoking
the bar against proceeding against the property of the
corporate debtor in relation to an offence committed before
the commencement of the CIRP, are as follows:
320.1 There must be Resolution Plan, which is approved by
the Adjudication Authority under Section 31 of the Code;
320.2 The approved Resolution Plan must result in the
change in control of the corporate debtor to a person, who
was not - (a) a promoter; (b) in the management or control
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of the corporate debtor or (c) a related party of the
corporate debtor; (d) a person with regard to whom the
investigating authority, had, on the basis of the material,
reason to believe that he has abetted or conspired for the
commission of the offence and has submitted a Report or a
complaint. If all these aforesaid conditions are fulfilled then
the Law Giver has provided that no action can be taken
against the property of the corporate debtor in connection
with the offence;
321. The Explanation to sub-Section (2) has clarified that the
words "an action against the property of the corporate
debtor in relation to an offence", would include the
attachment, seizure, retention or confiscation of such
property under the law applicable to the corporate debtor.
Since the word "include" is used under sub-clause (i) of the
Explanation, the word "action" against the property of the
corporate debtor is intended to have the widest possible
amplitude. There is a clear nexus with the object of the
Code. The other part of the clarification, under the
Explanation, is found in the second sub-clause of the
Explanation
322. Under the second limb of the Explanation, the Law
Giver has clearly articulated the point that as far as the
property of any person, other than the corporate debtor or
any person who had acquired the property of the corporate
debtor through the CIRP or liquidation process under the
Code and who otherwise fulfil the requirement under Section
32A, action can be taken against the property of such other
person. 323. Thus, reading sub-Section (1) and subSection(2)
together, two results emerge:
323.1 Subject to the requirements embedded in sub- Section
(1), the liability of the corporate, debtor for the offence
committed under the CIRP, will cease.
323.2 The property of the corporate debtor is protected from
any legal action again subject to the safeguards, which we
have indicated.
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323.3 The bar against action against the property, is
available, not only to the corporate debtor but also to any
person who acquires property of the corporate debtor under
the CIRP or the liquidation process. The bar against action
against the property of the corporate debtor is also available
in the case of a person subject to the same limitation as
prescribed in sub-Section (1) and also in sub- Section (2), if
he has purchased the property of the corporate debtor in the
proceedings for the liquidation of the corporate debtor.
324. The last segment of Section 32A makes it obligatory on
the part of the corporate debtor or any person, to whom
immunity is provided under Section 32A, to provide all
assistance to the Investigating Officer qua any offence
committed prior to the commencement of the CIRP.
325. The contentions of the petitioners appear to be that this
provision is constitutionally anathema as it confers an
undeserved immunity for the property which would be
acquired with the proceeds of a crime. The provisions of the
Prevention of Money-Laundering Act, 2002 (for short, the
PMLA) are pressed before us. It is contended that the
prohibition against proceeding against the property, affects
the interest of stakeholders like the petitioners who may be
allottees or other creditors. In short, it appears to be their
contention that the provisions cannot stand the scrutiny of
the Court when tested on the anvil of Article 14 of the
Constitution of India. The provision is projected as being
manifestly arbitrary. To screen valuable properties from
being proceeded against, result in the gravest prejudice to
the home buyers and other creditors. The stand of the Union
of India is clear. The provision is born out of experience.
The Code was enacted in the year 2016. In the course of its
working, the experience it has produced, is that, resolution
applicants are reticent in putting up a Resolution Plan, and
even if it is forthcoming, it is not fair to the interest of the
corporate debtor and the other stake holders.
326. We are of the clear view that no case whatsoever is
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made out to seek invalidation of Section 32A. The
boundaries of this Court's jurisdiction are clear. The wisdom
of the legislation is not open to judicial review. Having
regard to the object of the Code, the experience of the
working of the code, the interests of all stakeholders
including most importantly the imperative need to attract
resolution applicants who would not shy away from offering
reasonable and fair value as part of the resolution plan if
the legislature thought that immunity be granted to the
corporate debtor as also its property, it hardly furnishes a
ground for this this Court to interfere. The provision is
carefully thought out. It is not as if the wrongdoers are
allowed to get away. They remain liable. The extinguishment
of the criminal liability of the corporate debtor is apparently
important to the new management to make a clean break
with the past and start on a clean slate. We must also not
overlook the principle that the impugned provision is part of
an economic measure. The reverence courts justifiably hold
such laws in cannot but be applicable in the instant case as
well. The provision deals with reference to offences
committed prior to the commencement of the CIRP. With
the admission of the application the management of the
corporate debtor passes into the hands of the Interim
Resolution Professional and thereafter into the hands of the
Resolution Professional subject undoubtedly to the control by
the Committee of Creditors. As far as protection afforded to
the property is concerned there is clearly a rationale behind
it. Having regard to the object of the statute we hardly see
any manifest arbitrariness in the provision."
6.4 Therefore, what is clear is that it is only such property
which is derived or obtained directly or indirectly as a result of
a criminal activity can be regarded as proceeds of crime. In the
facts of the case, obviously apparent it is that the only
allegation and the gist that had been discussed is that the
corporate debtor used the credit raised from the bank for
purposes other than intended purposes to carry out circular
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transactions with various group companies and making overseas
investments. There is no explanation as to how the properties
standing in the name of corporate debtor and which form part
of the assets sold to the petitioners are proceeds of crime
especially since these assets are neither overseas assets or that
of the group companies.
7. Sine qua non to arrive at a determination that the assets are
proceeds of crime, the foremost requirement is that the author
has to have 'reason to believe' on the basis of material in his
possession. 'Reason to believe' cannot arise from mere
suspicion, gossip or rumour. Merely because the impugned
order records alleged fraudulent transactions and diversion of
funds, it cannot automatically lead to a conclusion that the
properties acquired by the petitioners are proceeds of crime. In
order to arrive at a conclusion that 'reason to believe' exists,
there must be some material to suggest such formation of
opinion. The decisions in the cases of Madhya Pradesh
Industries Ltd.(supra), S. Ganga Saran and Sons (Pvt.) Ltd.
(supra), Sheo Nath Singh (supra), Radha Krishan Industries
(supra), Calcutta Discount Co. Ltd. (supra) and Lakhmani Mewal
Das (supra) have set out principles where the courts have held
that reason to believe must be founded on sufficient material. It
cannot be founded on mere suspicion but based on evidence. It
must be held in good faith, cannot be merely a pretense. It is
always open for the court to examine whether the reason to
believe has a rational connection or a relevant bearing to the
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formation of the belief and the reasons are not extraneous or
irrelevant to the purpose. Reading the contents of the order
indicates that such observations are based on only on suspicion
and are such which one that cannot be arrived at by an honest
and a reasonable person but are based on mere suspicion,
gossip or rumour.
8. As far as the aspect of alternative remedy is concerned,
which is vehemently pressed into service by the learned ASG
Mr. Vyas, as discussed hereinabove, when the assumption of
jurisdiction by the authorities itself is non-existent and the
respondent proceeds on facts which have no nexus to the
objects sought to be achieved, and the opinion is not based on
any tangible material, 'reason to believe' is a jurisdictional fact
and in absence of such 'reason to believe' arrived at by the
authorities, the bar of alternative remedy cannot oust the
jurisdiction of this court.
9. As far as section 8 of the PMLA is concerned, what is
evident on reading the provision is that the onus shifts on the
petitioners once the adjudicating authority decides to take
action and therefore section 8 cannot be a ground on which the
petitioner can be ousted from securing a relief in exercise of
powers under Article 226 of the Constitution of India.
10. For the aforesaid reasons therefore, the petition is allowed.
The order dated 21.09.2022 insofar as it attaches the specified
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assets of the petitioners as shown in para 12 of the impugned
order in the schedule of properties at Sr. Nos. 13, 14, 15, 17,
18, 19 and 20 shall be treated as assets not falling within the
purview of and having acquired from 'proceeds of crime'. The
order holding so is without jurisdiction and the assets are
directed to be released from such attachment. Order
accordingly. Rule is made absolute. No costs. "
Analysis :-
13. The following emerge for the consideration of the
present dispute in question;
Whether the respondent authority under the PMLA Act,
2002 would retain jurisdiction or authority to proceed against
the properties of a corporate debtor once liquidation measures
have been approved in accordance with the provisions of IBC
Act, 2016 ?
14(A) Pursuant to an application filed by the ICICI Bank
Ltd., Corporate Insolvency Resolution Process (CIRP) was
initiated against the ABG Shipyard by the Hon'ble NCLT on
1.8.2017 CP(IB) No.53/NCLT/AHM/2017. Since there was no
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resolution of ABG Shipyard to take place in terms of the IBC,
vide the Liquidation Order, the Hon'ble NCLT initiated
liquidation proceedings against ABG Shipyard and Shri
Sundaresh Bhat was appointed as the Liquidator in terms of
Section 33 of IBC. The Liquidator conducted five public
auctions for the sale of assets of ABG Shipyard which were
unsuccessful. Consequent to the unsuccessful public auction,
Shri Sundaresh Bhat (being the Liquidator) approached the
Hon'ble NCLT seeking permission to sell the assets of ABG
Shipyard by way of private sale in terms of Regulation 33(2)
read with Schedule I, Clause 2 of IBBI (Liquidation Process)
Regulations, 2016. The Hon'ble NCLT, vide its order dated
02.12.2020, permitted Respondent No. 2 to sell the assets of
ABG Shipyard through private sale. The said order is duly
attached at Annexure-P6. The advertisements were issued on
14.12.2021, 24.12.2021, 07.01.2022 and 18.01.2022 in
accordance with the regulatory framework governing the
liquidation process, for initiating a bid process for sale of the
Subject Land admeasuring approximately 2,03,000 square
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metres, situated near village Gaviar, Taluka Choryasi, District
Surat, Gujarat, referred to as ABG Shipyard 1 and 2. The
advertisements are duly produced at Annexure P-7 and details
of subject land are duly produced at Annexure P-8.
(B) The writ-applicant herein on 25.01.2022 submitted a bid
for an amount of INR 189,50,00,000/- (Rupees One Hundred
Eighty-Nine Crore Fifty Lakhs only), for the purchase of the
subject land ("Sale Consideration") and was adjudged the
"Successful Bidder". Further, in accordance with proviso to
Section 35(1)(f) of IBC, the writ-applicant herein submitted an
affidavit to the Liquidator, declaring its eligibility in terms of
Section 29A of IBC ("29A Affidavit"). The copy of the bid
submitted and the affidavit submitted by the writ-applicant
herein are duly produced at Annexure P-9 and Annexure P-10
respectively. A copy of the communication informing
declaration of "Successful Bidder" is duly produced at
Annexure P-11.
(C) Pursuant to the aforesaid, an Agreement to Sell dated
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21.03.2022 was executed between ABG Shipyard (through Shri
Sundaresh Bhat in his capacity as the Liquidator) and the writ-
applicant herein for sale and purchase of the Subject Land,
which was registered vide document No.5867 on 21.03.2022 at
Surat ("Agreement to Sell").
(D) At the time of execution of the Agreement to Sell, the
writ-applicant herein had already remitted INR 68,22,00,000
(Rupees Sixty-Eight Crores and Twenty-Two Lakhs only)
towards acquisition of the Subject Land.
(E) Towards the balance of the Sale Consideration, the
Agreement to Sell, provided the following payment schedule :-
Particulars Time Period Amount
.... .... ....
Tranche 1 At the end of 7 months of INR
being declared as successful 18,95,00,000,.00
bidder (i.e. August 25, 2022) (Rupees Eighteen Crores
Ninety-Five Lakhs Only)
Tranche 2 At the end of 8 months of INR
being declared as successful 18,95,00,000,.00
bidder (i.e. September 25, (Rupees Eighteen Crores
2022) Ninety-Five Lakhs Only)
Tranche 3 At the end of 9 months of INR
being declared as successful 83,38,00,000.00
bidder (i.e. October 25, 2022) (Rupees Eighty Three
Crores Thirty Eight Lakhs
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Only)
(F) Accordingly, under UTR: HSBCR22022082517255864, the
writ-applicant herein on 25.08.2022 remitted an amount of INR
18,95,00,000.00 (Rupees Eighteen Crores Ninety-Five Lakhs
only). The bank statement to the said effect is duly produced
at Annexure P-13.
(G) The writ-applicant herein was ready and willing to remit
the balance amounts, in terms of the aforesaid payment
schedule set out in the Agreement to Sell.
(H) Despite acquisition of the subject land by the writ-
applicant herein, the terms of the aforesaid, on 21.9.2022, by
way of an impugned order, the subject land came to be
provisionally attached by the respondent No.1 under Section 5
of the Prevention of Money Laundering Act (for short 'PMLA')
in connection with the allegation of money laundering against
ABG Shipyard. The said provisional attachment resulted in
passing of the final order by the adjudicating authority dated
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14.3.2023 under Section 8 of the PMLA Act.
15. Having considered the aforesaid submissions advanced
by the learned advocates appearing for the respective parties
and the ratio as referred above the following emerge:-
(i) Under the liquidation process of ABG Shipyard, the writ-
applicant herein has been declared as successful bidder qua the
subject asset, has entered into agreement to sell for acquisition
of subject asset, and has paid substantial part of purchase
consideration, acquiring an equitable interest in the subject
asset and on depositing the entire sale consideration received
the sale certificate.
(ii) The writ-applicant herein was neither a promoter,
manager or related party to the ABG Shipyard (corporate
debtor) and an appropriate affidavit under Section 29A was
submitted by the writ-applicant herein which is duly produced
at Annexure P-10 page-551.
(iii) The writ-applicant herein is a bonafide purchaser of the
subject land.
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(iv) There are no allegations in the complaint with respect to
abatement or conspiracy qua the writ-applicant herein for
commission of any offence with ABG Shipyard, the corporate
debtor.
(v) No steps have been taken by the respondent No.1 for
setting aside the process of sale before the adjudicating
authority. In terms of Section 60 of the IBC, any challenge
to process of sale in course of liquidation, must necessarily lie
before the NCLT. Further in view of Section 63, the
jurisdiction of civil court and all other authorities, to entertain
any suit or proceeding as regards the same, stands ousted.
16. The respondent authority proceeded to attach the
properties in question acquired by the writ-applicant herein
after following due procedure under the IBC invoking the
provisions of PMLA Act.
17. In the opinion of this Court, confirmation of attachment
interdicts and interferes with the consummation of the sale
process which is part of liquidation of ABG Shipyard. The
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aforesaid interjection by the respondent No.1, in the opinion of
this Court, is in teeth of the provisions of Sections 32A, 33(5)
and 238 of the IBC.
18. In the facts of the present case, by an order dated
17.2.2023 passed in the Special Civil Application No.19387 of
2022 the order of provisional attachment dated 21.9.2022
passed under Section 5(1) PMLA Act, 2002, wherein the writ-
applicant in the said petition i.e. Welspun Steel Resources Pvt.
Ltd., was identically placed at Serial No.3 as that of the
present writ-applicant herein in the said schedule, wherein the
writ-applicant herein figures at Serial No.12 in the schedule of
property duly produced at page-214 para-12 wherein the
order of provisional attachment dated 21.9.2022 passed under
Section 5(1) of the PMLA Act, 2002 has been quashed and set
aside by the said judgment.
18.1 While quashing the order of provisional attachment
under Section 5(1) of the PMLA Act by order dated 17.2.2023
passed in the Special Civil Application No.19387 of 2022 it was
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held that the "reason to believe" has been arrived by the
respondent authority without any basis and in absence of any
material and evidence. It was further held that the property
which is derived or obtained directly or indirectly as a result
of criminal activity can be regard as proceeds of crime. It is
further held that, the only allegation and the gist that has
been discussed is that the corporate debtor used the credit
used from the Bank for the purposes other then intended
purposes to carry out circular transaction with various group
companies and making overseas investment. It was further
held that no explanation as to how the properties standing in
the name of corporate debtor and which form part of assets
sold to the writ-applicant herein are proceeds of crime,
especially since the assets are neither overseas assets or that
the group of companies. As discussed in para-6.4 to 9 of the
said order, wherein the Court proceeded to pass the final order
in para-10 quashing and setting aside the provisional
attachment order of the properties duly annexed at Serial
Nos.13, 14, 15, 17 to 20. The writ-applicant herein is placed
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at Serial No.12 and is identically placed as the writ-applicant
in the Special Civil Application No.19387 of 2022.
19. While passing the impugned order under Section 8 the
respondent authority proceeded to confirm the order of
provisional attachment passed under Section 5(1) of the Act as
referred above. No separate finding or independent
adjudication has been undertaken by the adjudicating
authority. Without considering the submissions advanced by the
writ-applicant herein and the written submissions that were
placed on record by the writ-applicant herein the adjudicating
authority proceeded to pass final order and has also failed to
take into consideration the order passed in the Special Civil
Application No.19387 of 2022 and proceeded to pass final
order dated 14.3.2023 which reads thus :-
"I have carefully considered the written replies filed by the
Defendants to the notice to show cause under section 8(1). I have
also considered the rejoinders filed by the Complainant to the
written replies. The role of the Defendants with reference to property
attached and its involvement in money laundering has also been
brought on Para 3 page 24 to 27 of this order. I have also heard the
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Counsels for the Complainant and defendants. The written
submissions subsequent to the final argument filed by the Defendants
and the Complainant have been gone through. I have considered all
the relevant materials placed on record before me. Considering the
material in O.C ., the written replies and rejoinders, I find that the
immovable/movable properties provisionally attached by PAO No.
08/2022 dated 21.09.2022 i.e ., movable/immovable properties
mentioned on page no. 185 to 190 of PAO and at page no. 09 to 15
of OC of the instant order, mentioned in the name of Defendants are
proceeds of crime in terms of section 2(1)(u) of the PMLA, 2002,
and therefore, involved in money laundering.
Further, there is failure on part of the Defendants to discharge the
burden as required to be discharged under the provisions of section
8 of PMLA and in view of the presumption under section 24 of
PMLA as herein above referred, which is not rebutted.
a. I, therefore, hereby confirm the attachment of the
property made under sub-section (1) of Section 5 of PMLA. I,
therefore, order that the said Attachment shall continue during
pendency of the proceedings relating to anywwwoffence under
the prevention of Money-Laundering Act, 2002 before the
Special Court; and become final after an order of confiscation is
passed under Subsection (5) or sub-section (7) of section 8 of
PMLA by the Special court.
b. PAO No. 08/2022 dated 21.09.2022 is hereby
confirmed subject to the order dated 17.02.2023 of the Hon'ble
High Court of Gujarat as mentioned at page of this order.
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c. Hence OC no. 1824/2022 is allowed subject to the
order dated 17.02.2023 of the Hon'ble High Court of Gujarat as
mentioned at page of this order.
Order is pronounced on 14.03.2023 through video conference.
Vinodanand Jha
Chairperson
An appeal against this order lies to The Hon'ble Appellate
Tribunal, PMLA, New Delhi under section 26 of the PMLA Act.
The Appeal may be filed within a period of 45 days from the
date of receipt of the order.
Vinodanand Jha
Chairperson
The soft copy of the order will be uploaded on email of the
Defendant (wherever available) within 48 hours from the
pronouncement of the order. One hard copy of the order is also
dispatched simultaneously on the address available with the
Adjudicating Authority. Further, the certified copy of the order
will be made available within seven working days after the
deposit of required fee with the Registrar of Adjudicating
Authority, PMLA.
Registrar/AO
AA-PMLA"
19.1 Without assigning any reasons, without any
independent finding on "reason to believe" the order of
provisional attachment under Section 5 of the PMLA has been
confirmed. In the opinion of this Court, the order of
provisional attachment dated 21.9.2022 came to be quashed by
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order passed in the Special Civil Application No.19387 of 2022
dated 17.2.2023. In view thereof, the respondent authority has
erred in not arriving at an independent finding considering the
fact that the case of the writ-applicant stands at identical
footing to that of the writ-applicant in the Special Civil
Application No.19387 of 2022. Though the order under Section
5 is quashed and set aside, the respondent authority has
proceeded to confirm the order of provisional attachment
passed under Section 5(1) which can be said to be an order
passed without any application of mind.
While passing the impugned order pursuant to the show
cause notice wherein a detailed reply came to be filed by the
petitioner and written submissions came to be filed after
personal hearing for release of the subject land for attachment.
The impugned order is passed by the adjudicating authority
without considering the submissions advanced by the petitioner
herein and has proceeded to conclude that the properties
attached are proceeds of crime and, therefore, involved in
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money laundering.
19.2 It is apposite to refer to the ratio as laid down in the
case of Assistant Commissioner, Commercial Tax Department,
Works Contract And Leasing, Kota Versus Shukla And Brothers,
reported in (2010) 4 SCC 785, paragraphs 13 to 19
"13. The principle of natural justice has twin ingredients; firstly, the
person who is likely to be adversely affected by the action of the
authorities should be given notice to show cause thereof and
granted an opportunity of hearing and secondly, the orders so
passed by the authorities should give reason for arriving at any
conclusion showing proper application of mind. Violation of either
of them could in the given facts and circumstances of the case,
vitiate the order itself. Such rule being applicable to the
administrative authorities certainly requires that the judgment of the
Court should meet with this requirement with higher degree of
satisfaction. The order of an administrative authority may not
provide reasons like a judgment but the order must be supported by
the reasons of rationality. The distinction between passing of an
order by an administrative or quasi-judicial authority has practically
extinguished and both are required to pass reasoned orders. In the
case of Siemens Engineering and Manufacturing Co. of India Ltd. V/
s. Union of India and Anr. [AIR 1976 SC 1785], the Supreme Court
held as under:-
"6. ......If courts of law are to be replaced by administrative
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authorities and tribunals, as indeed, in some kinds of cases,
with the proliferation of Administrative Law, they may have to
be so replaced, it is essential that administrative authorities and
tribunals should accord fair and proper hearing to the persons
sought to be affected by their orders and give sufficiently clear
and explicit reasons in support of the orders made by them.
Then alone administrative authorities and tribunals exercising
quasi-judicial function will be able to justify their existence and
carry credibility with the people by inspiring confidence in the
adjudicatory process. The rule requiring reasons to be given in
support of an order is, like the principle of audi alteram
partem, a basic principle of natural justice which must inform
every quasi-judicial process and this rule must be observed in
its proper spirit and mere pretence of compliance with it would
not satisfy the requirement of law. ..."
14. In the case of Mc Dermott International Inc. V/s. Burn Standard
Co. Ltd. and Ors. (2006) SLT 345, the Supreme Court clarified the
rationality behind providing of reasons and stated the principle as
follows:-
". . . Reason is a ground or motive for a belief or a course of action,
a statement in justification or explanation of belief or action. It is in
this sense that the award must state reasons for the amount
awarded. The rationale of the requirement of reasons is that
reasons assure that the arbitrator has not acted capriciously.
Reasons reveal the grounds on which the Arbitrator reached the
conclusion which adversely affects the interests of a party. The
contractual stipulation of reasons means, as held in Poyser and
Mills' Arbitration in Re, `proper adequate reasons'. Such reasons
shall not only be intelligible but shall be a reason connected with
the case which the Court can see is proper. Contradictory reasons
are equal to lack of reasons. . . ."
15. In Gurdial Singh Fijji V/s. State of Punjab [(1979) 2 SCC 368],
while dealing with the matter of selection of candidates who could
be under review, if not found suitable otherwise, the Court
explained the reasons being a link between the materials on which
certain conclusions are based and the actual conclusions and held,
that where providing reasons for proposed supersession were
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essential, then it could not be held to be a valid reason that the
concerned officer's record was not such as to justify his selection
was not contemplated and thus was not legal. In this context, the
Court held -
"... "Reasons" are the links between the materials on which
certain conclusions are based and the actual conclusions. The
Court accordingly held that the mandatory provisions of
Regulation 5(5) were not complied with by the Selection
Committee. That an officer was "not found suitable" is the
conclusion and not a reason in support of the decision to
supersede him. True, that it is not expected that the Selection
Committee should give anything approaching the judgment of a
Court, but it must at least state, as briefly as it may, why it
came to the conclusion that the officer concerned was found to
be not suitable for inclusion in the Select List."
16. This principle has been extended to administrative actions on
the premise that it applies with greater rigor to the judgments of
the Courts. In State of Maharashtra V/s. Vithal Rao Pritirao Chawan
[(1981) 4 SCC 129], while remanding the matter to the High Court
for examination of certain issues raised, this Court observed:
". . . It would be for the benefit of this Court that a speaking
judgment is given".
17. In the cases where the Courts have not recorded reasons in the
judgment, legality, propriety and correctness of the orders by the
Court of competent jurisdiction are challenged in absence of proper
discussion. The requirement of recording reasons is applicable with
greater rigor to the judicial proceedings. The orders of the Court
must reflect what weighed with the Court in granting or declining
the relief claimed by the applicant. In this regard we may refer to
certain judgments of this Court.
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18. A Bench of Bombay High Court in the case of M/s. Pipe Arts
India Pvt. Ltd. V. Gangadhar Nathuji Golamare [2008 (6)
Maharashtra Law Journal 280], wherein the Bench was concerned
with an appeal against an order, where prayer for an interim relief
was rejected without stating any reasons in a writ petition
challenging the order of the Labour Court noticed, that legality,
propriety and correctness of the order was challenged on the ground
that no reason was recorded by the learned Single Judge while
rejecting the prayer and this has seriously prejudiced the interest of
justice. After a detailed discussion on the subject, the Court held:-
"The Supreme Court and different High Courts have taken the
view that it is always desirable to record reasons in support of
the Government actions whether administrative or quasi
judicial. Even if the statutory rules do not impose an obligation
upon the authorities still it is expected of the authorities
concerned to act fairly and in consonance with basic rule of
law. These concepts would require that any order, particularly,
the order which can be subject matter of judicial review, is
reasoned one. Even in the case of Chabungbambohal Singh V/s.
Union of India and Ors. 1995 (Suppl) 2 SCC 83, the Court held
as under:
"His assessment was, however, recorded as "very good"
whereas qua the appellant it had been stated unfit. As the
appellant was being superseded by one of his juniors, we do
not think if it was enough on the part of the Selection
Committee to have merely stated unfit, and then to recommend
the name of one of his juniors. No reason for unfitness, is
reflected in the proceedings, as against what earlier Selection
Committees had done to which reference has already been
made."
In the case of Jawahar Lal Singh V/s. Naresh Singh and Ors.
(1987) 2 SCC 222, accepting the plea that absence of
examination of reasons by the High Court on the basis of
which the trial Court discarded prosecution evidence and
recorded the finding of an acquittal in favour of all the
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accused was not appropriate, the Supreme Court held that the
order should record reasons. Recording of proper reasons would
be essential, so that the Appellate Court would have advantage
of considering the considered opinion of the High Court on the
reasons which had weighed with the trial Court.
In the case of State of Punjab and Ors. V/s. Surinder Kumar
and Ors. [(1992) 1 SCC 489], while noticing the jurisdictional
distinction between Article 142 and Article 226 of the
Constitution of India, the Supreme Court stated that powers of
the Supreme Court under Article 142 are much wider and the
Supreme Court would pass orders to do complete justice. The
Supreme Court further reiterated the principle with approval
that the High Court has the jurisdiction to dismiss petitions or
criminal revisions in limini or grant leave asked for by the
petitioner but for adequate reasons which should be recorded
in the order. The High Court may not pass cryptic order in
relation to regularisation of service of the respondents in view
of certain directions passed by the Supreme Court under Article
142 of the Constitution of India. Absence of reasoning did not
find favour with the Supreme Court. The Supreme Court also
stated the principle that powers of the High Court were
circumscribed by limitations discussed and declared by judicial
decision and it cannot transgress the limits on the basis of
whims or subjective opinion varying from Judge to Judge.
In the case of Hindustan Times Ltd. V/s. Union of India and
Ors. [(1998) 2 SCC 242], the Supreme Court while dealing with
the cases under the Labour Laws and Employees' Provident
Funds and Miscellaneous Provisions Act, 1952 observed that
even when the petition under Article 226 is dismissed in
limini, it is expected of the High Court to pass a speaking
order, may be briefly.
Consistent with the view expressed by the Supreme Court in
the afore-referred cases, in the case of State of U.P. V/s.
Battan and Ors. [(2001) 10 SCC 607], the Supreme Court held
as under:
"The High Court has not given any reasons for refusing to
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grant leave to file appeal against acquittal. The manner in
which appeal against acquittal has been dealt with by the High
Court leaves much to be desired. Reasons introduce clarity in
an order. On plainest consideration of justice, the High Court
ought to have set forth its reasons, howsoever brief, in its
order. The absence of reasons has rendered the High Court
order not sustainable."
Similar view was also taken by the Supreme Court in the case
of Raj Kishore Jha V/s. State of Bihar and Ors. JT 2003
(Supp.2) SC 354.
In a very recent judgment, the Supreme Court in the case of
State of Orissa V/s. Dhaniram Luhar (2004) 5 SCC 568 while
dealing with the criminal appeal, insisted that the reasons in
support of the decision was a cardinal principle and the High
Court should record its reasons while disposing of the matter.
The Court held as under:
"8. Even in respect of administrative orders Lord Denning,
M.R. In Breen V/s. Amalgamated Engg. Union observed:
"The giving of reasons is one of the fundamentals of good
administration." In Alexander Machinery (Dudley) Ltd. V/s.
Crabtree it was observed: "Failure to give reasons amounts to
denial of justice." "Reasons are live links between the mind of
the decision-taker to the controversy in question and the
decision or conclusion arrived at." Reasons substitute
subjectivity by objectivity. The emphasis on recording reasons
is that if the decision reveals the "inscrutable face of the
sphinx", it can, by its silence, render it virtually impossible for
the Courts to perform their appellate function or exercise the
power of judicial review in adjudging the validity of the
decision. Right to reason is an indispensable part of a sound
judicial system; reasons at least sufficient to indicate an
application of mind to the matter before Court. Another
rationale is that the affected party can know why the decision
has gone against him. One of the salutary requirements of
natural justice is spelling out reasons for the order made; in
other words, a speaking-out. The "inscrutable face of the
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sphinx" is ordinarily incongruous with a judicial or quasi-
judicial performance."
Following this very view, the Supreme Court in another very
recent judgment delivered on 22nd February, 2008, in the case
of State of Rajasthan V/s. Rajendra Prasad Jain Criminal
Appeal No. 360/2008 (Arising out of SLP (Crl.) No. 904/2007)
stated that "reason is the heartbeat of every conclusion, and
without the same it becomes lifeless." Providing of reasons in
orders is of essence in judicial proceedings. Every litigant who
approaches the Court with a prayer is entitled to know the
reasons for acceptance or rejection of such request. Either of
the parties to the lis has a right of appeal and, therefore, it is
essential for them to know the considered opinion of the Court
to make the remedy of appeal meaningful. It is the reasoning
which ultimately culminates into final decision which may be
subject to examination of the appellate or other higher Courts.
It is not only desirable but, in view of the consistent position
of law, mandatory for the Court to pass orders while recording
reasons in support thereof, however, brief they may be. Brevity
in reasoning cannot be understood in legal parlance as absence
of reasons. While no reasoning in support of judicial orders is
impermissible, the brief reasoning would suffice to meet the
ends of justice at least at the interlocutory stages and would
render the remedy of appeal purposeful and meaningful. It is a
settled canon of legal jurisprudence that the Courts are vested
with discretionary powers but such powers are to be exercised
judiciously, equitably and in consonance with the settled
principles of law. Whether or not, such judicial discretion has
been exercised in accordance with the accepted norms, can
only be reflected by the reasons recorded in the order
impugned before the higher Court. Often it is said that absence
of reasoning may ipso facto indicate whimsical exercise of
judicial discretion. Patricia Wald, Chief Justice of the D.C.
Circuit Court of Appeals in the Article, Blackrobed Bureaucracy
Or Collegiality Under Challenge, (42 MD.L. REV. 766, 782
(1983), observed as under:-
"My own guiding principle is that virtually every appellate
decision requires some statement of reasons. The discipline of
writing even a few sentences or paragraphs explaining the basis
for the judgment insures a level of thought and scrutiny by the
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Court that a bare signal of affirmance, dismissal, or reversal
does not."
The Court cannot lose sight of the fact that a losing litigant
has a cause to plead and a right to challenge the order if it is
adverse to him. Opinion of the Court alone can explain the
cause which led to passing of the final order. Whether an
argument was rejected validly or otherwise, reasoning of the
order alone can show. To evaluate the submissions is obligation
of the Court and to know the reasons for rejection of its
contention is a legitimate expectation on the part of the
litigant. Another facet of providing reasoning is to give it a
value of precedent which can help in reduction of frivolous
litigation. Paul D. Carrington, Daniel J Meador and Maurice
Rosenburg, Justice on Appeal 10 (West 1976), observed as
under:-
"When reasons are announced and can be weighed, the public
can have assurance that the correcting process is working.
Announcing reasons can also provide public understanding of
how the numerous decisions of the system are integrated. In a
busy Court, the reasons are an essential demonstration that the
Court did in fact fix its mind on the case at hand. An
unreasoned decision has very little claim to acceptance by the
defeated party, and is difficult or impossible to accept as an
act reflecting systematic application of legal principles.
Moreover, the necessity of stating reasons not infrequently
changes the results by forcing the judges to come to grips with
nettlesome facts or issues which their normal instincts would
otherwise cause them to avoid."
The reasoning in the opinion of the Court, thus, can effectively
be analysed or scrutinized by the Appellate Court. The reasons
indicated by the Court could be accepted by the Appellate
Court without presuming what weighed with the Court while
coming to the impugned decision. The cause of expeditious and
effective disposal would be furthered by such an approach. A
right of appeal could be created by a special statute or under
the provisions of the Code governing the procedure. In either
of them, absence of reasoning may have the effect of negating
the purpose or right of appeal and, thus, may not achieve the
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ends of justice. It will be useful to refer words of Justice
Roslyn Atkinson, Supreme Court of Queensland, at AIJA
Conference at Brisbane on September 13, 2002 in relation to
Judgment Writing. Describing that some judgment could be
complex, in distinction to routine judgments, where one
requires deeper thoughts, and the other could be disposed of
easily but in either cases, reasons they must have. While
speaking about purpose of the judgment, he said,
"The first matter to consider is the purpose of the judgment.
To my mind there are four purposes for any judgment that is
written: -
(1) to clarify your own thoughts;
(2) to explain your decision to the parties;
(3) to communicate the reasons for the decision to the public;
and
(4) to provide reasons for an appeal Court to consider."
Clarity of thought leads to proper reasoning and proper
reasoning is the foundation of a just and fair decision. In
Alexander Machinery (Dudley) Ltd. V/s. Crabtree 1974 ICR 120,
the Court went to the extent of observing that "Failure to give
reasons amounts to denial of justice". Reasons are really
linchpin to administration of justice. They are link between the
mind of the decision taker and the controversy in question. To
justify our conclusion, reasons are essential. Absence of
reasoning would render the judicial order liable to interference
by the higher Court. Reasons are the soul of the decision and
its absence would render the order open to judicial chastism.
The consistent judicial opinion is that every order determining
rights of the parties in a Court of law ought not to be
recorded without supportive reasons. Issuing reasoned order is
not only beneficial to the higher Courts but is even of great
utility for providing public understanding of law and imposing
self- discipline in the Judge as their discretion is controlled by
well established norms. The contention raised before us that
absence of reasoning in the impugned order would render the
order liable to be set aside, particularly, in face of the fact
that the learned Judge found merit in the writ petition and
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issued rule, therefore, needs to be accepted. We have already
noticed that orders even at interlocutory stages may not be as
detailed as judgments but should be supported by reason
howsoever briefly stated. Absence of reasoning is impermissible
in judicial pronouncement. It cannot be disputed that the order
in question substantially affect the rights of the parties. There
is an award in favour of the workmen and the management
had prayed for stay of the operation of the award. The Court
has to consider such a plea keeping in view the provisions of
Section 17-B of the Industrial Disputes Act, where such a
prayer is neither impermissible nor improper. The contentions
raised by the parties in support of their respective claims are
expected to be dealt with by reasoned orders. We are not
intentionally expressing any opinion on the merits of the
contentions alleged to have been raised by respective parties
before the learned single Judge. Suffice it to note that the
impugned order is silent in this regard. According to the
learned Counsel appearing for the appellant, various
contentions were raised in support of the reliefs claimed but all
apparently, have found no favour with the learned Judge and
that too for no reasons, as is demonstrated from the order
impugned in the present appeals."
19. The principles stated by this Court, as noticed supra, have been
reiterated with approval by a Bench of this Court in a very recent
judgment, in State of Uttaranchal V/s. Sunil Kumar Singh Negi
[(2008) 11 SCC 205], where the Court noticed the order of the High
Court which is reproduced hereunder:-
"I have perused the order dated 27.5.2005 passed by
Respondent 2 and I do not find any illegality in the order so as
to interfere under Article 226/227 of the Constitution of India.
The writ petition lacks merit and is liable to be dismissed."
and the Court concluded as under:-
"In view of the specific stand taken by the Department in the
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affidavit which we have referred to above, the cryptic order
passed by the High Court cannot be sustained. The absence of
reasons has rendered the High Court order not sustainable.
Similar view was expressed in State of U.P. V/s. Battan1. About
two decades back in State of Maharashtra V/s. Vithal Rao
Pritirao Chawan2 the desirability of a speaking order was
highlighted. The requirement of indicating reasons has been
judicially recognised as imperative. The view was reiterated in
Jawahar Lal Singh V/s. Naresh Singh3. In Raj Kishore Jha V/s.
State of Bihar4 this Court has held that reason is the heartbeat
of every conclusion and without the same, it becomes lifeless.
"8. ... Right to reason is an indispensable part of a sound
judicial system; reasons at least sufficient to indicate an
application of mind to the matter before court. Another
rationale is that the affected party can know why the decision
has gone against him. One of the salutary requirements of
natural justice is spelling out reasons for the order made;...."
As observed in State of Orissa vs. Dhaniram Lunar (2004) 5 SCC 568
In the light of the factual details particularly with reference to the
stand taken by the Horticulture Department at length in the writ
petition and in the light of the principles enunciated by this Court,
namely, right to reason is an indispensable part of sound judicial
system and reflect the application of mind on the part of the court,
we are satisfied that the impugned order of the High Court cannot
be sustained."
19.1 Besides referring to the above well-established principles, it
will also be useful to refer to some text on the subject. H.W.R.
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Wade in the book "Administrative Law, 7th Edition, stated that the
flavour of said reasons is violative of a statutory duty to waive
reasons which are normally mandatory. Supporting a view that
reasons for decision are essential, it was stated:-
".....A right to reasons is, therefore, an indispensable part of
a sound system of judicial review. Natural justice may
provide the best rubric for it, since the giving of reasons is
required by the ordinary man's sense of
justice... .....Reasoned decisions are not only vital for the
purposes of showing the citizen that he is receiving justice:
they are also a valuable discipline for the tribunal itself....."
Considering the aforesaid ratio as laid down by the
Hon'ble Apex Court it was incumbent for the respondent
authority to pass a reasoned order which in the opinion of this
Court is indispensable. The reasoning reflects application of
mind on the part of the respondent authority.
19.3 Section 8 requires the adjudicating authority to
record "reason to believe" before issuance of show cause notice.
At para-9 sub-para 22 at page-657/130 the adjudicating
authority records as under :-
"It is evident from perusal of records including reasons
recorded under Section 8 (1) by the undersigned that in this
case the alleged criminal activity falling under scheduled
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offence as enumerated under the PMLA, 2022, resulted in
generation of proceeds of crime. Out of this generation of
proceeds of crime the ED could not lay hands on the direct
deployment of proceeds of crime and hence it has gone for
attachment of property as value of the proceeds of crime. As
evident from the contents of the Original Complaint the
following properties attached under section 5(1) as mentioned
on page 09 to 15 of OC and at page 185 to 190 of PAO have
been stated to be properties attached as value of the proceeds
of crime".
No reasons are recorded by the adjudicating authority
while issuing show cause notice in terms of Section 8(1).
Having failed to record "reasons to believe" in terms of
Section 8(1), in the opinion of this Court, the adjudicating
authority has passed the impugned confirmation order dated
14.3.2023 which is liable to be quashed and set aside by
exercising extraordinary jurisdiction under Article 226 of the
Constitution of India.
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20. At this stage, it is apposite to refer to position of law
wherein the Hon'ble Supreme Court has consistently laid down
the ratio that it is always open for the Court to exercise its
extraordinary jurisdiction where there has been violation of
principles of natural justice or where the order or proceedings
are wholly without jurisdiction or vires of an Act are
challenged. Considering the aforesaid, in the facts of the
present case, the proceedings initiated by the respondent No.1,
in the opinion of this Court are without jurisdiction
considering the fact that once the proceedings under IBC were
initiated prior to the proceeding initiated under PMLA there is
a bar under Section 32A of the IBC Act and Secton 33(5) of
the IBC Act as also Section 238 of the IBC .
Further considering the orders passed by the competent
authorities wherein the order under Section 5 of the PMLA
wherein order of provisional attachment passed, has been
quashed in the Special Civil Application No.19387 of 2022 by
order dated 17.2.2023. While passing the impugned order
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under Section Section 8 of the PMLA as referred above, the
same is without assigning any independent reasoning and in
view thereof the orders impugned dated 21.9.2022 and
14.3.2023 are required to be quashed and set aside and the
same is quashed and set aside.
20.1 It is apposite to refer to (1998) 8 SCC 1, Whirlpool
Corporation vs. Registrar of Trade Marks, Mumbai para-15 read
thus :-
"15. Under Art. 226 of the Constitution, the High Court, having
regard to the facts of the case, has a discretion to entertain or not
to entertain a Writ Petition. But the High Court has imposed upon
itself certain restrictions one of which is that if an effective and
efficacious remedy is available, the High Court would not normally
exercise its jurisdiction. But the alternative remedy has been
consistently held by this Court not to operate as a bar in at least
three contingencies, namely, where the writ petition has been filed
for the enforcement of any of the Fundamental Rights or where
there has been a violation of the principle of natural justice or
where the order of proceedings are wholly without jurisdiction or
the vires of an Act is challenged. There is a plethora of case-law on
this point put to cut down this circle of forensic Whirlpool, we
would rely on some old decisions of the evolutionary era of the
constitutional law as they still hold the field."
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20.2 Civil Appeal No.5121 of 2021 arising out of SLP (C)
No.13639 of 2021 @ D No.11555 of 2020. The aforesaid
judgment relied upon by Mr. Kshitij Amin, the learned
advocate wherein the Hon'ble Supreme Court held that
wherein efficacious alternative remedy is available, the parties
are relegated to avail the said remedy. Reliance was placed on
page-8 of the said judgment. However, in the same judgment
para-11 wherein exception are carved out, para-11 reads
thus :-
"11. The respondent had a statutory remedy under section 107.
Instead of availing of the remedy, the respondent instituted a
petition under Article 226. The existence of an alternate remedy is
not an absolute bar to the maintainability of a writ petition under
Article 226 of the Constitution. But a writ petition can be
entertained in exceptional circumstances where there is:
(i) a breach of fundamental rights;
(ii) a violation of the principles of natural justice;
(iii) an excess of jurisdiction; or
(iv) a challenge to the vires of the statute or delegated
legislation."
The case of the present writ-applicant herein, in the
opinion of this Court falls under Clause (iii) of para-11 wherein
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the order passed is in excess of jurisdiction.
20.3 In the case of State of Maharashtra and Ors. vs.
Greatship (India) Ltd., reported in 2022 SCC OnLine SC 1262
which relied upon by Mr. Kshitij Amin, the learned advocate
appearing for the respondent No.1 holds that the writ-applicant
herein be relegated to availing of statutory remedy. However,
in the opinion of this Court, the parties would normally be
relegated to avail the statutory remedy. In the facts of the
present case, the writ-applicant herein has carved out a case
wherein the orders impugned are passed after the IBC
proceedings came to be initiated, orders impugned are beyond
the jurisdiction of competent authority and without any
independent adjudication on the merits. In view thereof, in the
opinion of this Court, no useful purpose would be served
relegating the writ-applicant herein to avail statutory remedy
by filing an appeal under Section 14 of the PMLA Act.
21. Considering the aforesaid, this Court is inclined to pass
the following order:-
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The action undertaken under IBC Act wherein liquidation
of ABG Shipyard commenced on 25.4.2019 under the
provisions of IBC Act, was prior to the provisional attachment
order issued by the respondent No.1 under Section 5 of the
PMLA on 21.9.2022. The action undertaken by the respondent
No.1 under PMLA by provisionally attaching the properties of
the writ-applicant came to be issued on 21.9.2022 which
resulted in the final adjudication by the impugned order dated
14.3.2023 under Section 8 of the PMLA which is subsequent to
the proceedings initiated under IBC and, therefore, in the
opinion of this Court,
(a) Section 32A of the IBC Act would govern to the extent to
which the non-obstante clause enshrined in the IBC would
operate and exclude the operation of PMLA.
(b) The protection granted under Section 33(5) and Section
33(a)(2) of the IBC Act would override the power of the
respondent No.1 to attach the properties under the PMLA Act.
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Further Section 238 of the Act provides that the provisions of
IBC would override anything inconsistent with any other law.
Though the PMLA has similar provision under Section 71, the
same is subservient to the provisions of IBC Act, since IBC Act
was enacted after PMLA Act. When there are two enactments
of non-obstante clauses, like the present one, the enactment
which is subsequent in time overrides the other in line with
the ratio as laid down in (2008) 8 SCC 148.
(c) The provisional attachment order which was subject
matter of challenge and the writ-application herein being
identically placed in the Special Civil Application No.19387 of
2022, the said order was quashed by order dated 17.2.2023.
However, without considering the aforesaid and without
assigning any "reasons to believe" while issuing show cause
notice, the same having culminated in final adjudication under
Section 8 of the Act, in the opinion of this Court, the
respondent authority has passed the impugned order without
considering the aforesaid and proceeded to pass an unreasoned
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order.
(d) Though Mr. Kshitij Amin, the learned advocate appearing
for the respondent authority submitted that the writ-applicant
be relegated to avail alternative remedy by filing an appeal
before the Tribunal, in the opinion of this Court, the facts of
the present case wherein extraordinary jurisdiction under
Article 226 of the Constitution of India is required to be
exercised considering the ratio as referred above, wherein this
Court has come to a conclusion that the orders impugned
passed by the respondent authority are beyond jurisdiction.
22. For the foregoing reasons, by exercising extraordinary
jurisdiction under Article 226 of the Constitution of India the
order impugned dated 21.9.2022 passed by the respondent
No.1 to the extent the same is qua the subject land and the
writ-applicant and the consequential action to the impugned
order including the complaint, show cause notice and final
order dated 14.3.2023 passed by the adjudicating authority qua
the subject land and the writ-applicant are quashed and set
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aside. The writ-application stands allowed.
(VAIBHAVI D. NANAVATI,J)
K.K. SAIYED
