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Synopsis

The Bombay High Court has recently ruled that once a resolution plan is approved the National Company Law Tribunal has the power to order the release of properties attached by the Enforcement Directorate of a company undergoing the Corporate Insolvency Resolution Process (CIRP).

The division bench of the high court, consisting of Justice BP Colabawalla and Justice Somesekhar Sundaresan, was hearing a petition filed by the resolution applicants proposing plans for the resolution of DSK Southern Projects Pvt Ltd, which was undergoing CIRP.

The Enforcement Directorate had filed a case against the company undergoing CIRP. The ECIR was filed against the company for cheating, which was part of the scheduled offence in the ED's case under the Money Laundering Act.

Subsequently, the agency attached the company's properties, which was also confirmed by the adjudicating authority in 2019. These properties, worth Rs. 32 crores, continued to be attached even after the commencement of CIRP.

The resolution applicants filed a petition before the high court, while the agency also filed a cross-petition.

The resolution applicant contended that despite the NCLT order, the ED did not release the properties.

On the other hand, the agency argued that the NCLT did not have the jurisdiction to order the release of the properties attached by the ED.

The division bench, while allowing the petitions, stated that Section 32A of the IBC 2016 states that no action can be taken against the properties of a corporate entity concerning the offence committed before the initiation of CIRP.

“Section 32A itself mandates that once a resolution plan is approved, no action can be taken against the properties of the corporate debtor in relation to an offence committed prior to the commencement of the CIRP of the corporate debtor, where such property is covered under a resolution plan approved by it under Section 31 of the IBC, 2016. It is it is wholly untenable to contend that the NCLT, and which is the Adjudicating Authority constituted under the IBC, 2016, is incompetent and/or powerless to either interpret or to give effect to the provisions of the very Act under which it was constituted” the order states.

The high court also observed that the jurisdiction of Section 32A of the IBC, 2016 would be attracted from the point at which a qualifying resolution plan is approved under Section 31 of the IBC, 2016.

The bench said that the protections afforded by Section 32A would become available only when the resolution plan is so approved, and such a resolution plan meets the other necessary ingredients to qualify for the immunity, namely, that there is a clean break with a change in ownership of, and control over, the corporate debtor.

Case title: Shiv Charan & Ors vs ED