Attached properties in cases like Gitanjali Gems and Rotomac Pens can be freed from ED control and be distributed among creditors
In a major judgement by National Company Law Tribunal (NCLT) that would impact cases like Gitanjali Gems to Rotomac Pens, assets of disgraced Rei Agro would now be freed from the control of the Enforcement Directorate (ED) and get distributed among creditors, who collectively own Rs 10,800 crore dues from the company under liquidation.
"The ED Delhi Zone to hand over possession of attached properties of the corporate debtor under liquidation to the liquidator," Judge Madan Gosavi said in his ruling last week, citing Section 238 of the Insolvency and Bankruptcy Code.
"The significance of this order is that it would impact cases like Gitanjali Gems which is going for insolvency or Rotomac, where all assets were taken over by ED. This order will give relief to stakeholders in such cases," the company's liquidator Anil Goel of AAA Insolvency Professionals LLP told DNA Money.
The ED had arrested managing director Sandip Jhunjhunwala, for alleged money laundering and defrauding banks in January.
"In this first of its kind order, IBC supersedes authorities of agencies which are handling criminal laws. Till now Debt Recovery Tribunal, ED or Securities and Exchange Board of India or even authorities under Maharashtra Protection of Interest of Depositors Act were confiscating assets and selling them. Now it has been settled that the control and disposal of the assets would be done by the liquidator under the IBC," Goel said.
Earlier this month, efforts to free up attached assets of corporates to be repaid to lenders got a boost with the Appellate Tribunal under the PMLA Act in the Winsome Diamond case, allowing bankers such as Punjab National Bank and Standard Chartered to take possession of the attached assets.
"The Rei Agro case judgement goes further and is applicable to all assets of the company going for liquidation while the Winsome case order only covers the assets mortgaged to the banks," Goel said.
The Rei Agro judgement comes when the Adjudicating Authority of PMLA has ruled that 41 properties of absconding diamond jeweller Mehul Choksi attached by the ED are money laundering assets and ordered that their attachment should continue, as per a news agency report on Sunday.
But with this ruling, once a company goes under liquidation all its assets would have to be disposed of and the proceeds distributed.
"Earlier proceedings under NCLT didn't impact cases where criminal laws were involved. But this ruling settles the issue thus paving the way for the liquidation of companies where promoters are facing criminal proceedings," said Mamta Binani, former president of Institute of Company Secretaries of India and chairperson of ICC National Committee on IBC.
For a criminal agency to attach or continue holding the confiscated assets, it has to prove that those assets were acquired through criminal means.
"The judgement says the court established under the PMLA, being a criminal court, can only decide whether the properties attached could be said to be acquired using proceeds of crime. It is for NCLT to decide as to how the properties and assets of the corporate debtor under liquidation can be appropriated," she said.
BIG RELIEF
- Attached properties in cases like Gitanjali Gems and Rotomac Pens can be freed from ED control and be distributed among creditors
- The Rei Agro case judgement is applicable to all assets of the company going for liquidation
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