NCLT, NCLAT can't review PMLA decision: Supreme Court in BPSL case

The Supreme Court has ruled that NCLT and NCLAT lack judicial review power over statutory decisions under the PMLA in the Bhushan Power and Steel liquidation case

The National Company Law Tribunal (NCLT) and its appellate body, the National Company Law Appellate Tribunal, do not have the powers of judicial review of the Prevention of Money Laundering Act (PMLA), 2002, the Supreme Court observed in its 

judgment on Bhushan Power and Steel Ltd (BPSL) on May 2. 

While rejecting JSW Steel’s (henceforth JSW) resolution plan for BPSL and directing its liquidation — four years after its (BPSL’s) acquisition under the Insolvency and Bankruptcy Code (IBC) — the court held that as the PMLA was a public law (law governing relations between individual and government and its arms), the National Company Law Appellate Tribunal (NCLAT) did not have the powers or jurisdiction to review the decision of the statutory authority under the PMLA. 

 

The NCLT and NCLAT are constituted under Sections 408 and 410 of the Companies Act, 2013, and not under the IBC, noted the court. 

How it unfolded 

The reference to the PMLA in the BPSL matter cropped up after the Enforcement Directorate (ED) issued a provisional attachment order (PAO) of BPSL’s assets, valued at ₹4,025.23 crore, in October 2019 for alleged violation by its erstwhile promoters under the PMLA. It came a month after the NCLT approved JSW’s resolution plan. 

JSW had challenged the powers of the ED to pass the PAO by appealing to the NCLAT. The appellate tribunal in an order dated October 14, 2019, stayed the PAO. 

The Supreme Court noted that a couple of months later Section 32A came to be inserted into the IBC with effect from December 12, 2019. 

Section 32A and NCLAT order 

The Section protects the corporate debtor from prosecution for an offence committed prior to the commencement of the corporate insolvency resolution process (CIRP) once the resolution plan has been approved by the adjudicating authority. 

The NCLAT, while upholding JSW’s resolution plan, held that in view of Section 32A, the ED/investigating agencies did not have the powers to attach assets of the corporate debtor (BPSL) and that criminal investigation against it would stand abated. 

The PAO was also challenged before the Supreme Court in the special leave petitions filed by the committee of creditors (CoC). The order was stayed on December 18, 2019. 

The apex court said that apart from the fact that the matter was pending before it, and therefore the NCLAT should not have decided on the issue, it was beyond its jurisdiction to do so.   

In December last year, the Supreme Court disposed of appeals filed by the CoC and the ED by directing handing over the provisionally attached properties to JSW. 

It, however, said it had not expressed any opinion on the interpretation of Section 32A (2) of the IBC or on the powers of the ED to attach the property of the corporate debtor undergoing the corporate insolvency resolution process. 

Drawing the line 

The judgment reaffirms that the NCLT or NCLAT does not possess powers of judicial review over decisions of statutory authorities, and therefore cannot declare attachments by the ED or Economic Offences Wing illegal or void, said Shiju PV, senior partner, IndiaLaw LLP. “Any such determination lies solely within the jurisdiction of the appropriate forums prescribed under public law, including constitutional courts and designated special courts,” he explained. 

Vijay K Singh, senior partner, S&A Law Offices, pointed out that while the judgment set the limits of the NCLAT’s jurisdiction, it would lead to delays in resolution. 

Matters involving public law, such as attaching assets by the ED under the PMLA, now need to be adjudicated in separate forums, such as special courts/tribunals rather than being resolved within the IBC framework, he said. 

Binoy Parikh, partner, Katalyst Advisors, a firm that advises on mergers and acquisitions, said the ruling signalled a narrowing of the “clean slate” theory under Section 32A of the IBC. 

While Section 32A grants immunity to the corporate debtor and new management from prosecution for pre-CIRP offences, it does not override or nullify action under public criminal laws like the PMLA, he said. 

What it means for BPSL 

After the Supreme Court order on the liquidation of BPSL, do things change? 

According to Alay Razvi, managing partner, Accord Juris, the clean slate mechanism under Section 32A does not apply to the BPSL matter following the liquidation order. “This fundamentally alters the risk profile of liquidation-stage companies with prior criminal exposure,” Razvi emphasised. 

Shubha R Yadav, partner, RS Law Chambers, noted that since liquidation had been ordered, the ED could continue with proceedings and the courts under the PMLA retain jurisdiction, inter alia to continue attachment proceedings till any of the measures specified in Regulation 32 of the Liquidation Regulations, 2016, are adopted and approved by the adjudicating authority. The liquidator will be bound by any orders passed by PMLA courts under Section 8 of the PMLA, Yadav underlined. 

What SC said

 

-  NCLT and NCLAT are constituted under Section 408 and 410 of the Companies Act, 2013, not under the IBC

 

-  Neither NCLT nor NCLAT is vested with powers of judicial review over decision taken by the government or statutory authority in any matter of public law

 

-  PMLA being a public law, NCLAT did not have any power to review the decision in Bhushan Power case