Posted on 06/04/2024 (GMT 10: 50 hrs)
While searching through the intricacies and further implications of the DHFL Scam, we have come across a Linkedin article by CA (Dr.) Bishwadev Dash, which shows the incommensurabilities of having the IBC as well as PMLA at the same time:
Here are a few general excerpts (with relevant links from our website) from the above article:
Corporate Insolvency Resolution Process (CIRP; under the IBC, 2016) (…) this can potentially hinder the PMLA’s objective of seizing assets linked to money laundering. Additionally, Section 32A of the IBC shields the debtor from further prosecution for pre-insolvency offenses once a resolution plan is approved.
Section 32A of the IBC shields the debtor from further prosecution for pre-insolvency offenses once a resolution plan is approved.
Several courts have favored the IBC in conflicts with the PMLA. They cite the IBC’s “non-obstante” clause, mirrored in Section 71 of the PMLA. This clause suggests the PMLA prevails in most cases of conflicting provisions.
This interpretation of Section 32A benefits all stakeholders, particularly by attracting resolution applicants who might be deterred by the threat of penalties for past offenses.
Bona fide third-party purchasers can always seek release of attached assets from the adjudicating authority by proving their legitimate interest.
Regarding the IBC moratorium, courts have clarified that “proceedings” under Section 7 refer to those related to enforcing or recovering debts owed by the corporate debtor. This doesn’t extend to criminal or quasi-criminal proceedings concerning “proceeds of crime” or tainted property derived from illegal activities. Therefore, the IBC’s moratorium under Section 7 doesn’t prevent PMLA authorities from exercising their powers under Sections 5 and 8 during a CIRP.
32a Section 32A of the IBC, (was) introduced in December 2019. The Delhi High Court clarified that Section 32A’s immunity from prosecution only applies after a resolution plan or liquidation is approved. This clarifies when the IBC’s shield against prosecution comes into effect.
The IBC moratorium (Section 14) doesn’t prevent PMLA authorities from exercising their powers under Sections 5 and 8 during a CIRP. The government, under PMLA, isn’t considered a creditor seeking debt repayment; it’s aiming to take away ill-gotten gains.
The judgment also highlights the Supreme Court’s decision in Biswanath Bhattacharya v. Union of India. This case clarifies that the attachment powers under PMLA Sections 5, 6, and 8 are based on civil forfeiture principles. The aim is to deny money laundering offenders the benefits of their crimes. Asset attachment under PMLA is a form of civil forfeiture, allowing authorities to seize illegally acquired property. There’s no right to enjoy property derived from unlawful activities, making non-conviction-based asset forfeiture a globally accepted tool against money laundering and organized crime.
The Directorate of Enforcement v. Axis Bank judgment further clarifies that there’s no inherent conflict between the PMLA and IBC. Bona fide third-party purchasers can always seek release of attached assets from the adjudicating authority by proving their legitimate interest.
Non-Obstante Clauses (not notwithstanding a verdict)
Section 63 of IBC: This section emphasizes that the NCLT’s jurisdiction under IBC for debt recovery actions supersedes the jurisdiction of the adjudicating authority under PMLA during CIRP.
Courts have navigated the complex interplay between IBC and PMLA. While the IBC generally takes precedence during CIRP, there are exceptions, such as continued liability for promoters and directors involved in PMLA offenses. Understanding the nuances of relevant court decisions is crucial for navigating these situations.
(…)
Court rulings paint a nuanced picture of the interplay between IBC and PMLA. While the IBC, particularly Section 32A, often takes precedence during insolvency proceedings, exceptions exist. Promoters and directors implicated in PMLA offenses remain liable. Courts consistently emphasize the need for a strict definition of “proceeds of crime” with a clear link to criminal activity. The apparent tension between protecting creditors’ rights and preventing money laundering necessitates a careful balancing act. Recent judgments suggest a path toward harmonious interpretation, acknowledging the importance of Section 32A’s protections for corporate debtors. The conflicting judgments also highlight the need for a nuanced approach that avoids outright conflict and fosters co-existence.
The Supreme Court’s upholding of Section 32A’s constitutionality (Manish Kumar vs. Union of India) underscores its role in facilitating resolutions without burdening applicants with additional liabilities. To achieve a practical solution, a collaborative approach is key. PMLA authorities should consider the validity of creditor charges and ensure substantial evidence before taking action. Recognizing the global nature of money laundering and the importance of international cooperation can lead to a more cohesive application of both legislations. In conclusion, while PMLA remains a vital tool against financial crime, a pragmatic approach is crucial when dealing with bank-charged assets undergoing insolvency resolution under the IBC. Orderly resolution in such cases serves a broader public purpose, ensuring business continuity, job protection, and economic stability.
Since our focus has been on the DHFL Scam, the biggest scam in India’s financial history before the Hindenburg Report, we tried to analyze the article in the context of the DHFL, to get to the following interpretations:
We think that the article is an eye-opener. The IBC is an ill-conceived and fluid code introduced by the NDA Government in 2016. Since then, several provisions of the code have been amended (at least 35+ times). On the other hand, PMLA is an all-encompassing act for catching the money launderers. The IBC is not only incommensurable in itself as well as with the PMLA, the chaosophy (irrationally rational) can be illustrated by the Dewan Housing Finance Corporation Limited (DHFL)’s “resolution” process. The DHFL case was put under the IBC as a “test case” for legitimizing the insolvency code of the present ruling party by making the DHFL’s small investors mere guinea pigs:
1. Billionaire cum alleged insider trader Ajay Piramal (CBE), the secondary kin of Mr. Mukesh Ambani, declared: Prepare for two major shocks in the NBFC sector. How did he predict the Dewan Housing Finance Corporation Limited (DHFL) bankruptcy? (28/01/2019) Note that Mr. Piramal has donated 85 crores to the Bharatiya Janata Party (BJP), as we have come to know “all” (?) about the Electoral Bonds (EB) Scam in February-March 2024. On the other hand, DHFL’s contribution to the BJP via EB is not found in the published list of donors.
2. The very next day (29/01/2019), Cobrapost reported: DHFL committed financial fraud, including terror-funding with the ruling party. This “terror-funding”/political donation/political charity was done via the channel/unholy nexus or collusion among Dawood Ibrahim-Iqbal Mirchi-RKW Developers (Dheeraj Realty)-DHFL-BJP.
3. The Bombay High Court ruled: no further payments are to be made to the FD and NCD Holders in the case of Reliance Nippon Life Insurance v/s DHFL. (October 2019)
4. DHFL’s Board of Directors was removed, CoC was constituted, DHFL was put under the IBC (2016), CIRP initiated. (November—December 2019) It is to be remarked here that till then, DHFL had not defaulted in any of its payment obligations but was paying its FD and NCD holders on time, as per Mr. Kapil Wadhawan’s (the ex-promoter of DHFL) declarations. Despite that, why was such an ongoing, profitable, solvent company put under the IBC?
5. DHFL’s erstwhile promoter Kapil Wadhawan offered to repay DHFL’s creditors in full. CoC rejected it almost immediately. (14/12/2020)
6. Section 32A of the IBC, (was) introduced in December 2019 as an amendment.
7. 20+ CoC meetings took place without the participation of DHFL’s former promoters/suspended directors. Bidding war occurred between 20+ companies including Adani Group, Oaktree Capitals, Piramal CHFL etc. Piramal emerged as the successful bidder. Oaktree accused CoC for bias in favour of Piramal. (03/12/2019 — 17/01/2021)
8. RBI approved the Resolution Plan of Ajay Piramal. (18/02/2021)
9. The NCLT ordered the CoC to reconsider DHFL’s erstwhile promoter Wadhawan’s offer of 100% repayment within 10 days. (19/05/2021)
10. NCLAT set aside NCLT’s order after the Union Bank of India and Ajay Piramal approached the NCLAT with an urgent petition. The CoC did not even bother to answer the NCLT.HOW DID MR. AJAY PIRAMAL GET SUCH JUDICIAL PRIVILEGE IN NCLAT, GIVEN THE NUMBER OF PENDING CASES IN THE INDIAN COURTS? (25/05/2021)
11. NCLT is forced to approve the resolution plan in favour of the Piramals. (07/06/2021).
12. Mr. Ajay Piramal started disbursing merely 23.07% of the total FD amount to the respective FD Holders of DHFL on the basis of the lowest quasi-judicial body (NCLT)’s verdict, the rest of the amount going for a major haircut. He supposedly bought the DHFL, which was worth 45k crores of recoverable assets, for only a rupee. (September 2021)
13. Following the case filed by 63 Moons Technologies (the case questioned the deal of Piramal’s resolution plan, wherein the approx. 45k crore worth of assets were bought by paying only a rupee. 63 Moons cited the Section 66 of the IBC, which provides for the benefit of all the creditors of the insolvent company) the NCLAT passed an order that declared the illegality of the DHFL CoC, irregularities in its conduct and in the allocation of the resolution amount as well, which stood “void” and “contrary to law”. (27/01/2022)
14. Piramal approached the Supreme Court, challenging the NCLAT Second Order. (01/03/2022)
15. Wadhawan approached the Supreme Court with his previous offer that was rejected by the CoC. (08/03/2022)
16. The Supreme Court stayed the NCLAT Order. Despite the fact that the case is under adjudication or sub judice, Piramal CHF acquired DHFL (possibly through an alleged adverse possession) by using dubious company names: Piramal CHF and Piramal Finance. (11/04/2022)
17. On 24th February, 2023: “The Supreme Court on Friday sought response from the CBI on an appeal by Piramal Capital and Housing Finance (PCHF) seeking quashing of an FIR that names it along the erstwhile promoters of Dewan Housing Finance Corporation (DHFL), Kapil Wadhawan and Dheeraj Wadhawan. PCHF has raised a substantial question of law as to whether Section 32A of the Insolvency & Bankruptcy Code, 2016, forbids the subsistence of an FIR and continuation of the resultant criminal proceeding against the resolved corporate debtor (the new management) after successful completion of the corporate insolvency resolution process (CIRP) for offences allegedly committed by the previous management prior to the initiation of the insolvency proceedings.”
(…) “A Bench led by Chief Justice DY Chandrachud while issuing notice to the investigative agency orally observed that as per the mandate of section 32-A, PCHF had the protection against the prosecution but it would have to cooperate with the investigations that can help the CBI in its probe against the erstwhile promoters of DHFL.
Source: Top court seeks CBI reply on Piramal Capital and Housing Finance plea in DHFL case VIEW HERE ⤡ (As reported on 25th February, 2023 ©The Economic Times)
The IBC is subject to clearance from two quasi-judicial bodies, viz., NCLT and NCLAT, along with the High Courts and the Supreme Court of India. Thus, it is not an omniscient code.
The whole case-study triggers not only crony and monopoly capitalism as it prevails in India, but also shows the teeth and claws of the savage, canniballistic pre-debt-or capitalism.
With regard to the supposed “new” owner of the DHFL, you may say the following in continuation with our previous post:
Ratnākara’s trajectory from a dacoit to Rsi Valmiki might be cited here. When Ratnākara looted others’ private and personal properties, Narada Muni pointed him out that these are sinful acts (papa) and are not to be performed and requested Ratnākara to share the surplus burden of sin with his family members. However, the family members of Ratnākara refused to take that burden, though they had a share of his loots. Mr. Ajay Piramal the paramavaiṣṇava, after “owning” the Dewan Housing Finance Corporation Limited (DHFL), also refused to take the burden of so-called “prior offences” by alluding to the Section 32A (2019 amendment) of the IBC (2016), which provides the “freedom from persecution for prior offences” for the new management!
In other words, the PCHFL that allegedly “acquired” the DHFL argued by citing the Section 32A that the said legal provision prohibits the existence of an FIR and the criminal proceeding arising out of it against the new management, after the “successful completion” of the corporate insolvency resolution process (CIRP). Hence, sins are not to be “carried forward”! Paramavaiṣṇava Ajay Piramal can never be a “Saint” Vālmiki. Instead of singing out “mā niṣada pratiṣṭham tvamagamahaḥ” by seeing the DHFL victims suffer a “capital” punishment, he is actually playing the role of niṣāda or the hunter, the one who killed two innocent birds engaged in loving intimacy. Nevertheless, he has forgotten the burden of his own past deeds:
Mr. Ajay Piramal, “cleansed” by the IBC, is not free from the blame as the so-called “new owner” of the DHFL:1. Mr. Piramal is an alleged insider trader (2016)2. He is an environmental terrorist (for polluting Digwal, Telangana in 2019) and also who sought “blanket stay order” at the National Green Tribunal, which was rejected. In the case of the DHFL also, he wanted such a similar stay order on the “controversial” NCLAT second verdict (27/01/2022).3. He was involved in Flashnet Scam, 2018 (though Mr. Piramal was ready to defame The Wire, who first exposed the scam, for reporting the same, but till date: no such step has been taken by him)4. He is possibly involved in contempt of court during the DHFL resolution process by ignoring NCLT’s first verdict (19/05/2021) and skipping the points raised by the NCLAT second order (27/01/2022).View the following for more information:
There appears to be a “quid pro quo” affair amidst the BJP and Mr. Ajay Piramal in the cases of the Flashnet Scam (2018) and DHFL Scam (2019—).
As zoon polikon, we must take our recourse to political economy. Without strong understanding of Indian political scenario, it is very difficult to understand the collusion among business-tycoons, religious gurus and the political parties with the help of terrorist gangs and/or the underworld (grey zone of the shadow economy).
After four years of DHFL’s so-called “bankruptcy” and possible adverse possession in the hands of Mr. Ajay Piramal, the NCLT has recently admitted a victimizing “insolvency plea” against the Wadhawan brothers, turning its back against its own order (a 360 degree turn, so to say) on 19.05.2021 that stated that the Wadhawans’ proposal for full repayment should be reconsidered by the DHFL CoC.Source: NCLT admits insolvency resolution plea against the erstwhile promoter of DHFL Kapil Wadhawan VIEW HERE ⤡ (As reported on 4th April, 2024 ©The Economic Times)Not only that, this recent event took place after the appointment of Justice Ramalingam Sudhakar as the President of NCLT. Justice Ashok Bhushan, a former judge of the Supreme Court, was also appointed around the same time as the President of NCLAT. Both of these are controversial post-retirement jobs due to political collusion.Source: Govt. appoints Justice Ashok Bhushan as NCLAT chairperson, Justice R. Sudhakar as NCLT president VIEW HERE ⤡ (As reported on 29th October, 2021 ©The Hindu)In this case, we must cite Late BJP Minister Arun Jaitley’s statement:
Moreover,
The incumbent NHRC chairperson, an Ex-judge, Mr. Arun Kumar Mishra, is nothing more than a stooge of the ruling party. View the links below to know more:
Amit Shah’s ‘untiring efforts’ for peace in J&K, Northeast ‘have ushered in a new age’: NHRC chief VIEW HERE ⤡ (As reported on 12th October, 2021 ©Indian Express)
The Office of the United Nations High Commissioner for Human Rights (OHCHR) published some highly pertinent and factual reports⤡ on the rampant human rights’ violation cases in the state of J&K.
The Indian government reacted in the following manner:
Kashmir: India Hits Out At UN Human Rights Body Over ‘Baseless’ Report VIEW HERE ⤡ (As reported on 2nd December, 2021 ©Outlook)
The NHRC Chairman, however, has still defended alleged murderer Amit Shah’s so-called “new Kashmir era”:
NHRC chairman credits Home Minister Amit Shah for ‘new era in Jammu and Kashmir’ VIEW HERE ⤡ (As reported on 13th October, 2021 ©Indian Express)
Many Rights activists object to choice of NHRC chief A.K. Mishra VIEW HERE ⤡ (As reported on 2nd June, 2021 ©The Hindu).
Thus, the ruling party’s shadow governance de facto influences the decision-making process of the so-called de jure “impartial”, “independent” Indian Judiciary!
After going through the above account, I earnestly request you all to sign the following mass petition for the financially abused victims of the DHFL scam:https://chng.it/zJH6rzrfhh
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