IBC Current Affairs - 2019
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The Delhi High Court has ruled that Prevention of Money Laundering Act (PMLA) prevails over the Bankruptcy Act and insolvency code when it comes to attachment of properties obtained as ‘proceeds of crime’.
The Enforcement Directorate (ED) had challenged the orders of PMLA appellate tribunal on the pleas of various banks. PMLA Tribunal had held that third parties, banks in this case, which have legitimately created rights such as a charge, lien or other encumbrances, have a superior claim over such properties.
Observations made by Delhi High Court
- PMLA, Recovery of Debt and Bankruptcy Act (RDBA), Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act and Insolvency and Bankruptcy Code (IBC) must co-exist and be enforced in harmony.
- The Delhi High Court has set aside the verdict of the PMLA tribunal and held that the objective of PMLA being distinct from the purpose of RDBA, SARFAESI Act and IBC.
- RDBA, SARFAESI Act and IBC doesn’t not prevail over PMLA
- The attachment order under the PMLA will not be illegal only because a secured creditor has a prior secured interest [charge] in the property, within the meaning of the expressions used in RDBA and SARFAESI Act.
- Also mere issuance of an order of attachment under the PMLA does not ipso facto render illegal a prior charge or encumbrance of a secured creditor, the claim of the latter for release [or restoration] from PMLA attachment being dependent on its bonafides.
Delhi High Court has stated that by the virtue of Section 71, PMLA has the overriding effect over other existing laws in the matter of dealing with “money-laundering” and “proceeds of crime”.
Tags: Delhi High Court • ED • Enforcement Directorate • IBC • Insolvency and Bankruptcy Code • PMLA • Prevention of Money Laundering Act • RDBA • Recovery of Debt and Bankruptcy Act • SARFAESI Act • Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act
The Union Finance Minister Arun Jaitley has written a Facebook post titled ‘Two years of insolvency and Bankruptcy Code (IBC)”. In the post, he explains how things have been changed after the IBC was passed by the Parliament.
Once the IBC was passed by the government, the government took immediate steps to set up Insolvency and Bankruptcy Board of India and National Company Law Tribunal (NCLT).
Recovery of Debt
The Finance Minister states that the recovery under the IBC was satisfactory and highlights the ways under IBC through which the money was recovered:
- The section 29 A of IBC mandated that persons who have contributed to the defaults of the corporate debtor or are undesirable due to incapacities as specified in the section or are a ’related party’ to another defaulting party, are prevented from gaining control of the corporate debtor by being declared ineligible to submit a resolution plan under the Code.
- As a result, the companies are paying up in anticipation of not crossing the red line and being referred to NCLT.
- Many debtors are paying up once the creditor has filed the petition at a pre-admission stage so that the declaration of insolvency does not take place.
- NCLT has resolved some major cases & many are on the way of resolution.
There has been a definite improvement in the lending and borrowing behaviour, an increase in the conversion of NPAs into standard accounts and decline in new accounts are a testimony to this fact.
The Finance Minister notes that so far 1322 cases have been admitted by NCLT. 4452 cases have been disposed at the pre-admission stage and 66 have been resolved after adjudication. 260 cases have been ordered for liquidation. In 66 resolution cases, the realization by creditors was around Rs. 80,000 crores.