At the time of the investigation, it was revealed that various properties had been acquired in the name of the corporate debtor during the period when finances out of loans received from various banks through the corporate debtor were diverted and routed back as equity.
The Insolvency and Bankruptcy Code (IBC) has no power towards interfering with the provisional attachment order under Prevention of Money Laundering Act (PMLA), the enforcement directorate (ED) has stated in an affidavit towards the National Company Law Appellate Tribunal (NCLAT).
The investigation agency had also stated that its attachment order could only be examined by an adjudicating authority under PMLA and not by NCLAT and therefore, the NCLAT is required to vacate its order passed on 14th October directing the agency in the direction of releasing the attached assets of Bhushan Power and Steel Ltd (BPSL), stated the ED in an affidavit filed before the appellate tribunal.
The ED had on 10th October attached BPSL’s assets worth Rs 4,025.25 crore on alleged money laundering through the erstwhile promoters. In its provisional order, the NCLAT also posed a couple of queries which include whether the ED has jurisdiction to attach property of the corporate debtor (BPSL) or a part of it when corporate insolvency resolution procedure was still on. It also issued notice towards the ED.
In its reply, the ED also appealed the NCLAT towards dismissing the JSW Steel’s prayer.
the ED stated in the reply affidavit that it is prayed that this (appellate) tribunal might be pleased to vacate the interim order dated 14th October directing release of the provisional attachment in favour of the ‘Resolution Professional’ as well as dismiss the present Appeal in so far as it seeks protection in favor of the ‘Corporate Debtor’ or its assets against the powers conferred under the PMLA.
The ED has named numerous orders by the Supreme Court and the high courts as also through the NCLAT to drive home its point of argument that PMLA overrides the IBC and that in matters regarding money-laundering, PMLA has the exclusive jurisdiction and not IBC.
The ED stated that PMLA is the specific/special law governing money laundering in the country as well as no exceptions could be made to it unless specially provided for by the Parliament. There is no power under the IBC in the direction of interfering with a provisional attachment order under section 5 of the PMLA.
It is also submitted that just because the assets are subjected to a resolution proceeding under the Insolvency and Bankruptcy Code (IBC), it cannot be any escape route for any action under the PMLA, as it shall lead to exploitation of the procedure of law by money-launderers.
By investigating many documents, which include those received from the income tax and bank details, the ED had found that BPSL through its directors have availed many credit facilities from 33 different financial institutions, which also included banks between 2007 and 2014. BPSL purposely defaulted in repayment of loan amounts, forcing the lead lender Punjab National Bank to declare its account as non-performing assets (NPA) on 31st December 2015, which others followed.
The ED initially discovered unlawful diversion of funds from the accounts of BPSL on a raid carried out on BPSL’s Chandigarh premises on December 2014. It was found that BPSL, its directors as well as its employees dishonestly and fraudulently diverted Rs 2,348 crore into the accounts of different companies by showing them as advances between 2007 and 2014. They had also forged CENVAT invoices, paper bills as well as supporting documents such as GRs, transport documents, vouchers, etc for deceitful diversion of bank money without any corresponding supply of goods.
The ED stated that the investigation up until now has revealed circular diversion of money amounting to Rs 4,025.23 crore relating to criminal activity of scheduled offence. However, further search into the affairs is also under progress.
During the investigation, it was revealed that various properties were acquired in the name of the corporate debtor during the period when moneys out of loans received from various banks through the corporate debtor were diverted and routed back as equity.
The Corporate Debtor by way of illegal activity relating to scheduled wrongdoings had acquired huge amount of Rs 4025.23 crores in form of an infusion of equity capital, which was sourced from unlawfully diverted fund out of loans taken by the Corporate Debtor from various banks. So, this amount of Rs 4025.23 crores represented proceed of crime which was further utilized as well as projected as untainted business expenditures and in making of an asset base for the Corporate Debtor and henceforth is in its possession.
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