Kolkata: Observing that the Insolvency and Bankruptcy Code (IBC) prohibits initiation of suits or continuation of pending suits or proceedings against the corporate debtor following the initiation of Corporate Insolvency Resolution Process (CIRP), Calcutta High Court quashed notices issued by the Enforcement Directorate (ED) under the Foreign Exchange Management Act (FEMA) against a Kolkata-based jewellery company under liquidation process.
The bench of Justice Jay Sengupta was moved by the petitioner who was the liquidator appointed by the National Company Law Tribunal (NCLT) to complete the liquidation process of the company as per the provisions of the IBC. He prayed for quashing two notices issued under FEMA provisions for seizure of assets of the said company.
The petitioner’s counsel submitted that pursuant to an NCLT Kolkata order, the CIRP of the company began on February 12, 2018 under IBC. On September 14, 2018, NCLT directed for liquidation of the company. Incidentally, the proceeding against the corporate debtor/accused (company) under the FEMA was initiated on November 15, 2016.
The court observed that mere fact that FEMA proceeding was initiated in 2016 before Section 14 of the IBC came into operation in 2018 would be irrelevant as Section 14 (IBC) speaks not only about the initiation, but also about the continuation of pending suits or proceedings.
After liquidation order, the corporate debtor might be sold as a going concern or the assets might be sold. Therefore, once CIRP was admitted, the assets of the corporate debtor could not be attached.
They would be sold in CIRP or in liquidation. Further, Section 32A(2) of the IBC provides that no action will be taken against property of the corporate debtor in relation to any offence committed prior to the commencement of the CIRP, the court observed.
The court observed that the moratorium under the IBC would override the provisions of the FEMA. Not only was the IBC enacted while FEMA was in existence, but Section 238 of the IBC also clearly provided for a non-obstante clause which FEMA didn’t.
The court, however, observed that a proceeding can fairly be initiated against the erstwhile director and the officer of the company if they are found to be individually liable.