Kiran Raj

The National Company Law Tribunal (NCLT), New Delhi, has declined to direct the Enforcement Directorate (ED) to lift the freeze on the bank account of a corporate debtor undergoing insolvency proceedings, stating that such matters fall exclusively under the jurisdiction of authorities designated under the Prevention of Money Laundering Act, 2002 (PMLA). The tribunal held that it lacked the authority to adjudicate issues arising from actions taken under PMLA and advised the resolution professional to seek appropriate remedies before the competent forum.

The matter was heard by Judicial Member Bachu Venkat Balaram Das and Technical Member Atul Chaturvedi. The application was filed by the resolution professional of the corporate debtor, seeking directions to lift the debit freeze imposed by the ED on the company's bank account with ICICI Bank Ltd. The resolution professional contended that the freeze was hampering the ongoing Corporate Insolvency Resolution Process (CIRP) and affecting the interests of creditors, stakeholders, and employees.

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The corporate debtor was admitted into insolvency proceedings by an order of the NCLT dated February 3, 2023, under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Upon admission, a moratorium under Section 14 of IBC was imposed, and the applicant was appointed as the interim resolution professional, later confirmed as the resolution professional. In compliance with Regulation 6(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, a public announcement was made in newspapers on February 11, 2023, inviting claims from creditors.

The resolution professional assumed control over the corporate debtor's bank accounts, including Account No. 000705050228 maintained with ICICI Bank Ltd at Connaught Place, New Delhi. The Committee of Creditors (CoC), consisting of a sole financial creditor, ratified the use of this account for making CIRP-related payments. However, on July 11, 2023, a cheque issued by the resolution professional was dishonored by the bank due to the account being frozen on the written instructions of the Assistant Director, Directorate of Enforcement, Delhi Zonal Office.

The resolution professional made multiple attempts to resolve the issue with ICICI Bank Ltd and the ED. On July 13, 2023, the resolution professional sought a copy of the ED's letter directing the freeze and requested the bank to initiate the process of unblocking the account. Upon receiving no response, a follow-up request was sent on July 17, 2023. ICICI Bank subsequently informed the resolution professional that the account had been frozen under Section 17(1A) of PMLA following a search conducted by the ED on July 8, 2023.

According to the ED, the freeze was imposed as part of an investigation into a case registered under an FIR dated September 4, 2021, by the Cyber Crime Police Station, Dehradun, invoking Sections 120-B and 420 of the Indian Penal Code, 1860. The ED recorded an Enforcement Case Information Report (ECIR) on February 27, 2023, and conducted a search at a premises in Delhi on July 8, 2023. During the search, the corporate debtor’s bank account details were found, and the ED ordered the freeze, citing ongoing money laundering investigations.

The ED further stated that Jitendra Sharma, a director of the corporate debtor, was an accused in the case and had been arrested by the Uttarakhand Police. The ED had filed an application before the Adjudicating Authority under PMLA seeking retention of seized records and freezing of two bank accounts, including that of the corporate debtor. The matter was pending adjudication under PMLA at the time of the resolution professional’s application to the NCLT.

The tribunal examined the primary issue of whether it had the jurisdiction to direct the ED to unfreeze the corporate debtor’s bank account while insolvency proceedings were ongoing. The resolution professional argued that the freeze was disrupting the CIRP, affecting creditors and stakeholders, and sought relief under Section 60(5) of IBC, which grants NCLT jurisdiction over matters related to insolvency proceedings.

The ED, however, contended that the moratorium under Section 14 of IBC does not apply to proceedings under PMLA and that NCLT lacks the authority to intervene in matters concerning the enforcement of money laundering laws. The ED cited precedents where the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court upheld that PMLA proceedings operate independently of the IBC process.

The tribunal recorded:

"The law is well settled as held by the Hon’ble Supreme Court in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., 2019 SCC OnLine SC 1542, and by the Hon’ble NCLAT in Kiran Shah v. Enforcement Directorate [Company Appeal (AT) (Insolvency) No. 817/2021], wherein it was held that the NCLT is not empowered to decide the questions of law or fact falling under the purview of another authority under PMLA. The only remedy that is available to the applicant herein is to approach the Adjudicating Authority under PMLA where the matter is presently sub-judice."

The tribunal also relied on the NCLAT's decision in Varrsana Ispat Ltd. v. Deputy Director of Enforcement [Company Appeal (AT) (Insolvency) No. 493 of 2018], which held that Section 14 of IBC does not apply to proceedings under PMLA. The Supreme Court had upheld this decision by dismissing a civil appeal against it.

Further, the tribunal cited DSK Motors Pvt. Ltd. v. Deputy Director, Directorate of Enforcement [I.A No. 1854/2020 in CP No. 512/2019], in which the Mumbai Bench of the NCLT held:

"While PMLA concentrates on preventing money laundering and recovering proceeds of crime, IBC aims at the resolution of the  corporate debtor. This tribunal, having derived its powers under the I&B Code, has no jurisdiction per se to decide on an order passed by the Adjudicating Authority under PMLA and to direct the ED to release attachment unless Section 32A of the Code is triggered."

Based on these precedents, the tribunal found that the resolution professional must seek recourse under PMLA rather than through NCLT.

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The tribunal disposed of the application, holding that it lacked jurisdiction to direct the ED to lift the account freeze. The order stated:

"In light of the settled legal position and the provisions of the Code read with the Prevention of Money Laundering Act, 2002, we are of the considered view that this Adjudicating Authority does not have the power to issue directions to the ED to defreeze the account of the Corporate Debtor when the account was frozen as per the directions of the Adjudicating Authority under PMLA."

The tribunal stated that the resolution professional is at liberty to seek appropriate remedies under PMLA before the competent authority.

Advocates Representing the Parties

The applicant resolution professional was represented by Advocate M.S. Vishnu Shankar.

 The respondent Directorate of Enforcement was represented by Advocate Zoheb Hossain (ED Special Counsel), Advocate Vivek Gurnani, Advocate Kartik Sabharwal, and Advocate Adhiraj Singh. ICICI Bank Ltd was represented by Advocate Chandrashekhar A. Chakalabbi and Advocate G. Anusha.

Case Title: M/s. Shimping Technology Pvt Ltd v. M/s. Foxdom Technologies Pvt Ltd
Case Number: IA No. 4689/2023 in IB-102(ND)/2022
Bench: Bachu Venkat Balaram Das (Member Judicial) & Atul Chaturvedi (Member Technical)

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