The Centre is in conversations with banks to work towards a regulatory system to transfer assets connected by various investigative agencies to consumers or successful bankruptcy applicant under the Insolvency & Bankruptcy Code (IBC).
At present, if investigating agencies such as the Enforcement Directorate have attached assets of a fraudulent bankrupt borrower, lenders are unable to include the asset in the corporate insolvency resolution process under the IBC.
For instance, in the case of Nirav Modi, allegedly involved in a multi-crore scam, the Enforcement Directorate moved to the Bombay High Court in March this year, challenging the special PMLA (Prevention of Money Laundering Act) court's October 19 order that permitted the Punjab National Bank to attach Nirav Modi's nine mortgaged properties worth Rs 424 crore.
A senior official confirmed that the government is engaged with the lenders on this matter. The consensus view is that the mechanism should protect the interests of all the stakeholders - lenders, government and agencies.
"While lenders have requested suitable amendments to the PMLA, we are willing to explore all possibilities, keeping in mind the recent judgments given by courts," said the officials.
Discussions are at an early stage and the contours of such a mechanism are still being discussed, the official said. Experts say the sooner this issue is settled, the better the expected outcome under IBC - both in terms of timing and valuations.
"Clarity is required in this battle, which has not been settled for long now. If bank debts are secured against such assets, they will certainly stake rights over them," said Ashish Chhawchharia, Head - of Restructuring Services, Grant Thornton Bharat.
In a ruling in November 2022, in the case of a petition filed by a resolution professional of Era Infra Engineering Ltd, the Delhi High Court noted that attachment under the PMLA does not result in the extinguishment or effacement of property rights.
"It is essentially a fetter placed upon the possessor of that property to deal with the same till such time as proceedings under the aforesaid enactment come to a definitive conclusion on the question of confiscation," it had said.
In 2022, the Enforcement Directorate told the Supreme Court that the timely attachment of proceeds of crime has led to the attachment of assets worth Rs 19,111.20 crore out of total fraud of Rs 22,585.83 crore by three fugitive offenders - Vijay Mallya, Nirav Modi, and Mehul Choksi.