PMLA Attachment Does Not Suspend Liquidator's Duty To Preserve Corporate Debtor's Assets: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has recently observed that a liquidator's obligation to preserve and protect assets forming part of the liquidation estate continues despite attachment under the Prevention of Money Laundering Act (PMLA), so long as such assets are not confiscated.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Sanjiv Dutt was dealing with an application filed by Kohinoor City Office Towers Industrial Estate & Premises Co-operative Society Ltd. against the liquidator of Firestar Diamond International Pvt Ltd.

“The Liquidator, being the custodian of all assets comprised within the liquidation estate, is therefore both empowered and obligated to take all measures necessary to preserve and protect such assets. This obligation is not extinguished, nor is it suspended merely by reason of a PMLA attachment, so long as the subject properties have not been confiscated and continue to vest in the Corporate Debtor,” the tribunal said.

The dispute arose over the society's claim for unpaid maintenance charges and property tax dues relating to commercial units owned by the corporate debtor, along with the classification of such dues as insolvency resolution process (CIRP) costs or liquidation costs.

The units had been attached by the Enforcement Directorate through orders passed between February 2018 and February 2019, and remained in its custody until May 2022, when they were released pursuant to orders passed under the PMLA and handed over to the liquidator.

The tribunal noted that the corporate insolvency resolution process commenced on September 25, 2019, and liquidation was ordered on February 26, 2020. It held that mere attachment under the PMLA does not divest ownership, and since the properties were not confiscated, they continued to vest in the corporate debtor and formed part of the liquidation estate.

On the issue of classification, the tribunal held that maintenance dues arising during the CIRP period could not be treated as CIRP costs in the absence of approval by the committee of creditors.

However, it did not accept the liquidator's contention that no liability arose during the period of attachment, holding that maintenance charges and property tax accruing during liquidation are necessary for preservation of the assets and qualify as liquidation costs.

“This Tribunal is of the opinion that maintenance charges payable to a cooperative housing are, charges levied for the upkeep and maintenance of common infrastructure, including lifts, corridors, security arrangements, water supply, and electricity to common areas. These are indispensable to the continued functionality and marketability of the units forming part of the liquidation estate,” it said.

The tribunal emphasised that non-payment of such dues could render the assets unusable and diminish their value, thereby prejudicing stakeholders.

Accordingly, the tribunal directed the liquidator to discharge outstanding maintenance charges and property tax dues accruing from the liquidation commencement date until the period of attachment by the Enforcement Directorate, treating them as liquidation costs.