NCLT can release properties attached by ED, rules Bombay HC
The National Company Law Tribunal (NCLT) is empowered to declare the end of prosecution against the corporate debtor & attachment over its properties by agencies like Enforcement Directorate (ED)
The Bombay high court has said that the National Company Law Tribunal (NCLT) can release properties attached by Enforcement Directorate (ED) if conditions outlined in the Insolvency and Bankruptcy Code (IBC) 2016 are met.
The NCLT is empowered to declare the end of prosecution against the corporate debtor and the attachment over its properties by agencies like ED.
The division bench comprising justices BP Colabawalla and Somasekhar Sundaresan stated that under Sections 31 and Section 32A of the IBC, the NCLT has the authority to direct the ED to lift its attachment over properties of the corporate debtor once a resolution plan that qualifies for immunity under Section 32A is approved.
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“This is the clear mandate of the legislature as enshrined in Section 32A of the IBC, 2016,” the bench remarked while dismissing the petition filed by ED.
ED had approached the high court challenging the NCLT Mumbai’s order dated April 28, 2023, which declared the termination of prosecution of DSK Southern Projects Pvt Ltd and released its properties worth ₹32.51 crore, previously attached by the agency.
The agency contested the order, arguing that the Prevention of Money Laundering Act (PMLA), 2002 provides for an appeal against orders of attachment.
By releasing the properties from attachment, the NCLT, according to ED, rendered the provisions of the PMLA ineffective.
The agency insisted that the tribunal should have instructed the applicants—Hyderabad residents Shiv Charan, Pushpalata Bai, and Bharti Agarwal, whose resolution plan for DSK Southern Projects had been accepted by the NCLT on February 17, 2023—to file an appeal under PMLA instead of issuing the order itself.
However, the high court rejected the argument, stating that under Section 31(1) of the IBC, the NCLT is obligated to ensure that the resolution plan includes provisions for its effective implementation.
In essence, the court stated that while approving a resolution plan, the NCLT must ensure that the plan can be executed effectively.
With this provision in mind, the tribunal directed the ED to lift its attachment to the properties of the corporate debtor—DSK Southern Projects.
“Therefore, we do not believe that Mr Vyas (additional solicitor general Devang Vyas for the ED) is correct in his argument that the NCLT lacks the power to instruct the ED to lift its attachment imposed under the provisions of the PMLA, 2002,” said the bench.
Moreover, the bench stated that it is “entirely unnecessary” to compel the successful resolution applicant to file an appeal under PMLA to lift the attachment or to reverse confiscation.
“This is because Section 32A itself mandates that once a resolution plan is approved, no action can be taken against the properties of the corporate debtor concerning an offence committed prior to the commencement of the CIRP (Corporate Insolvency Resolution Process),” the court concluded.