High Court Upholds IBC Moratorium, Strikes Down FEMA Asset Seizure
- REEDLAW
- 12 minutes ago
- 4 min read
REEDLAW Legal News Network reports: In a significant ruling, the Calcutta High Court held that the moratorium under the Insolvency and Bankruptcy Code (IBC) prevails over the Foreign Exchange Management Act (FEMA). The Court clarified that no seizure or attachment of a corporate debtor’s assets is permissible during the Corporate Insolvency Resolution Process (CIRP) or post-liquidation, except in cases where individual directors or officers are personally liable.
The Single-Judge Bench of Justice Jay Sengupta, while adjudicating a Writ Petition, emphasised that the IBC moratorium shields corporate debtor assets from FEMA enforcement during CIRP and post-liquidation. Exceptions apply only where personal liability of directors or officers is clearly established, reinforcing the primacy of insolvency law in protecting the corporate debtor’s estate.
The High Court dealt with a writ petition filed by the Liquidator of the Corporate Debtor seeking the quashing of seizure notices issued under Section 37A of the Foreign Exchange Management Act, 1999 (FEMA). The CIRP of the Corporate Debtor had commenced in February 2018, and, subsequently, the National Company Law Tribunal directed liquidation in September 2018, appointing the writ petitioner as Liquidator. Despite the moratorium prescribed under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the bar under Section 33(5) post-liquidation, the Respondent authorities issued a provisional seizure order in November 2022, followed by a notice in January 2023. During the pendency of the writ, the seizure was confirmed in May 2023, which was challenged separately before the Appellate Tribunal.
The Liquidator contended that once CIRP was admitted, the assets of the Corporate Debtor could neither be attached nor seized, as such assets could only be dealt with in resolution or liquidation in accordance with the IBC. Reliance was placed on Section 32A(2) of the IBC, which barred actions against the property of the Corporate Debtor for offences committed prior to commencement of CIRP. It was further argued that Section 238 of the IBC, being a non-obstante clause, had an overriding effect over FEMA. Support was drawn from several precedents, including Paschimanchal Vidyut Vitran Nigam Limited v. Raman Ispat Private Limited and Others, REEDLAW 2023 SC 07609; Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, REEDLAW 2022 SC 08611; Duncans Industries Limited v. A.J. Agrochem, REEDLAW 2019 SC 10501; Innoventive Industries Limited v. ICICI Bank and Another, REEDLAW 2017 SC 08563; and Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited, REEDLAW 2018 SC 08558, where the IBC had prevailed over conflicting statutory provisions.
The Respondent argued that the proceedings under FEMA had commenced in 2016, much prior to liquidation, and hence the bar under Section 33(5) of the IBC was inapplicable. It was submitted that the seizure of properties and bank accounts was in continuation of earlier FEMA proceedings, and that the Liquidator had suppressed material facts relating to ongoing adjudication and appeals under FEMA and PMLA. The Respondent contended that the writ was not maintainable since the Liquidator had already availed appellate remedies.
The Court observed that Section 14 of the IBC not only prohibited initiation but also continuation of proceedings against the Corporate Debtor after commencement of CIRP. Further, once liquidation was ordered, Section 33(5) barred institution of proceedings against the Corporate Debtor except by the Liquidator with the Adjudicating Authority’s approval. Relying on Section 32A(2), the Court held that no action could be taken against the property of the Corporate Debtor in relation to any prior offences. Referring to Ramsarup Industries Ltd. v. Union of India and the above Supreme Court rulings, it reiterated that the IBC would override FEMA in view of Section 238.
Accordingly, the High Court quashed the impugned seizure order and notices, holding that they were issued in violation of the moratorium under IBC. However, the Court clarified that proceedings may still be initiated against erstwhile directors or officers of the Corporate Debtor if individual liability was established. The writ petition was, therefore, allowed.
Mr. Jishnu Chowdhury and Mr. Saptarshi Mondal, Advocates, represented the Petitioner.
Mr. Arijit Chakraborti, Mr. Deepak Sharma and Ms. Swati Singh, Advocates, appeared for the Respondent.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Â
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.