India: NCLT seeks clarity on the action of ED

September 27, 2018


In the market of changing scenarios, the companies are faced by numerous challenges on the business front. At times they may be confronted with such financial crisis that it is no longer practical to continue the business operations and deal with the mounting losses. In such situations, the companies may be referred for insolvency resolution.

Guiding light

The Government introduced the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) with the aim to making availability of credit more transparent by maximizing the value of the assets in a time-bound manner. IBC restores the faith in the judicial mechanism and prevents the unscrupulous debtors from escaping the repayment of their debts by taking recourse to insolvency.

Clash between penal provisions and IBC

The liquidator appointed for the insolvency resolution of Rotomac Global Private Limited (hereinafter referred to as “Rotomac”) filed an application to the Allahabad Bench of National Company Law Tribunal (hereinafter referred to as “NCLT”) seeking clarity on the validity of attachment of Rotomac’s properties by the Enforcement Directorate (hereinafter referred to as “ED”). The NCLT has referred the matter for the opinion of the Central Government


The ED had ordered for provisional attachment of the assets under the provisions of the Prevention of Money Laundering Act, 2002 vide order dated May 28. 2018. The said properties are also a part of the liquidation process. Thus, the liquidator appointed sought a direction from the NCLT for the detachment and restoration of the same.

As per the liquidator, by the said attachment of assets the ED violated the provisions of Section 33(5) of IBC whereby once a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor. It has been contended that the attachment also contravenes Section 238 which states that IBC shall have overriding effect to anything inconsistent therewith contained in any other law for the time being in force.

Recent approach

NCLT ordered ED of Delhi Zone to hand over to the liquidator, the possession of attached properties of the corporate debtor – REI Agro, one of the former renowned rice processing unit and now under liquidation.[2] In this first of its kind order, NCLT settled that the control and disposal of the assets would be done by the liquidator appointed under the IBC thus allowing it preference against the authorities handling criminal cases.

Considering the objective of ensuring an efficient mechanism for the resolution of insolvency proceedings initiated against a company without jeopardising the rights of the bona-fide creditors, the IBC has been introduced by the Government.

While the enforcing judicial system- NCLT has accorded an overriding effect to the IBC against the attachment of the assets under penal proceedings, NCLT Allahabad has however referred the issue to the Central Government for taking the final decision.



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