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The Appellate Tribunal for Prevention of Money Laundering (AT PMLA) in a ruling regarding the Company Sterling Biotech Ltd threw light upon the primacy of Insolvency law governed by the Insolvency and Bankruptcy Code 2016 (IBC 2016) and the law on money laundering governed by the Prevention of Money Laundering Act 1976 (PMLA).
PMT Machines is a subsidiary of Sterling Biotech Ltd. In 2012 defaults made by the Company to many banks led to the banks approaching Court for recovery of debt. The UCO Bank started the long cycle of litigation by filing of a suit for recovery of debt before the Debts Recovery Tribunal in the year 2013.
The Enforcement Directorate (ED) pursuant to the same started to initiate legal action against Sterling Biotech. In 2017 the Enforcement Directorate (ED) started to search and seize the properties of Sterling Biotech. This included its subsidiary PMT Machines. Section 37 of the Foreign Exchange Maintenance Act 1999 (FEMA) empowers the Enforcement Directorate (ED) for search and seizure of properties along with Section 132 of the Income Tax Act 1961 (ITA). The Enforcement Directorate (ED) after a search of Sterling Biotech’s properties in Mumbai attached the assets of PMT Machines in the year 2018.
PMT Machines submitted before the Court that the attachment of properties was illegal and the properties were in no way related to the insolvency of the parent company Sterling Biotech. Further it submitted that the attachment of the property was delaying the insolvency resolution process of Sterling Biotech which applied for insolvency to the Mumbai Bench of the National Company Law Tribunal
The Appellate Tribunal Prevention of Money Laundering (AT PMLA) held that the attachment of the property by the Enforcement Directorate was invalid partly . It therefore ordered the release of some of the properties of PMT Machines .The Tribunal also threw light upon the primacy of insolvency law over the money laundering law. It held that the initiation of debt recovery and subsequent legal proceedings to be valid. The ruling however gave a clarification regarding the legality of ongoing and future insolvency proceedings by stating that “This ruling shall have no bearing in any proceedings initiated against the alleged accused including extradition proceedings pending or proposed to be initiated in any part of the world”
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