FEMA Proceedings Cannot be Continued During Moratorium u/s 33(5) of IBC: Calcutta HC [Read Order]

The Calcutta High Court has held that in light of the bar under Section 33(5) of the Insolvency and Bankruptcy Code, 2016 (Code), all proceedings, including those that were ongoing at the time of the order, under the Foreign Exchange Management Act, 1999 (FEMA), cannot be continued or new proceedings can be started once a liquidation order against the corporate debtor is issued.

Cera Sanitaryware wins on Section 14A issue; improper invocation of Rule 8D leads to deletion of Rs.4.70 lakh disallowance [Read Order]

The petitioner, Anup Kumar Singh, attempted to revoke notices given under the FEMA on November 30, 2022, and January 30, 2023. By order of the National Company Law Tribunal (NCLT), Kolkata, the Shree Ganesh Jewellery House (I) Pvt. Ltd. ("Shree Ganesh") began its Corporate Insolvency Resolution Process (CIRP) on February 12, 2018. Following the start of the CIRP, Section 14 of the Code forbids the filing or continuing of lawsuits or other legal actions against the corporate debtor. The NCLT appointed the petitioner as liquidator and ordered Shree Ganesh's liquidation on September 14, 2018.

The petitioner got a Provisional Seizure Order under Section 37A of FEMA on November 30, 2022. A notice requesting confirmation and a personal appearance was sent on January 31, 2023. According to the petitioner, these acts were against the Code's Section 33(5) moratorium. On May 23, 2023, the seizure order was confirmed, pending the resolution of the current writ petition. If the writ petition is successful, this confirmation order, which is lis pendens, would become ineffectual. In the current petition, the aforementioned order and notices have been contested.

Get a Handbook on TDS Including TCS as Amended up to Finance Act 2024, Click Here

The Petitioner submitted that the requirements of the IBC would trump the provisions of the FEMA. Therefore, the moratorium under the IBC would supersede the provisions of the FEMA. First of all, the Congress passed the IBC after the FEMA was already in effect, making it a later Act.

Reassessment Without Proper Consideration of Evidence: ITAT Restores Rs.15.88 Lakh Addition for Fresh Verification [Read Order]

On the contrary, the Respondent argued that since the petitioner was the Accused/Corporate Debtor's liquidator, he lacked the authority to even request the quashing and/or setting aside of the entirety of Annexure P-3, which also included the seizure of immovable properties that did not belong to the Accused/Corporate Debtor.

The court acknowledged that, in accordance with the Code's requirements, the CIRP for Shree Ganesh officially began on February 12, 2018, following an order issued by the NCLT in Kolkata. Following the start of CIRP, Section 14 of the Code forbids the filing of new lawsuits against the corporate debtor or the continuation of existing lawsuits or procedures.

According to Justice Jay Sengupta's single bench, it doesn't matter that the FEMA process was started in 2016 before Section 14 of the Code went into effect in 2018 because Section 14 deals with the start and continuation of ongoing lawsuits or proceedings.

The corporate debtor may be sold as a going concern or its assets may be sold after liquidation. As a result, once CIRP is accepted, the corporate debtor's assets cannot be seized and must be handled through liquidation or CIRP. The court quashed the notice as the proceedings pending under the Code and the orders passed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates