Insolvency and Bankruptcy Code Cannot Override PMLA; ED’s Asset Attachment to Remain, Rules NCLAT
- REEDLAW
- 5 days ago
- 4 min read
The National Company Law Appellate Tribunal (NCLAT) has ruled that the Insolvency and Bankruptcy Code (IBC) cannot override the provisions of the Prevention of Money Laundering Act (PMLA), and consequently, the asset attachment effected by the Enforcement Directorate (ED) shall remain in force.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey, while adjudicating a company appeal, recently held that the NCLT and NCLAT lack jurisdiction to interfere with asset attachments made and confirmed under the Prevention of Money Laundering Act (PMLA), even during the pendency of the Corporate Insolvency Resolution Process (CIRP). The Tribunal ruled that such proceedings fall outside the ambit of the Insolvency and Bankruptcy Code (IBC), and that the protections under Section 32A of the IBC cannot override validly effected and confirmed attachments under the PMLA.
The National Company Law Appellate Tribunal (NCLAT) considered an appeal filed by Mr. Anil Kohli, the Resolution Professional of Dunar Foods Ltd., assailing the NCLT Mumbai’s order dated 21.05.2018, which declined to direct the Directorate of Enforcement (ED) to release assets provisionally attached under the Prevention of Money Laundering Act, 2002 (PMLA). The RP contended that the attachment, effected after the initiation of the Corporate Insolvency Resolution Process (CIRP), contravened the statutory moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) and frustrated the overarching objective of insolvency resolution. Emphasising the overriding effect of the IBC under Section 238, the RP urged that all enforcement actions, including those under the PMLA, must yield to the moratorium imposed under the Code. He relied upon judicial precedents that reinforced the primacy of the IBC in insolvency proceedings.
On the other hand, the Directorate of Enforcement opposed the appeal, maintaining that the NCLT lacked jurisdiction to interfere with attachments made under the PMLA. The ED submitted that the appropriate forum to challenge such attachment orders was the PMLA Appellate Tribunal, not the insolvency fora. It was further argued that the attached properties constituted alleged proceeds of crime and were therefore excluded from the asset pool meant for resolution under the IBC. The ED also stressed that the confirmation of the attachment by the PMLA Adjudicating Authority predated the approval of the resolution plan, rendering the protection under Section 32A of the IBC inapplicable. Any interference by the insolvency tribunal, according to the ED, would undermine the effectiveness of the anti-money laundering framework and compromise India’s international commitments to combat financial crimes.
During the pendency of the appeal, the resolution plan submitted by Respondent No. 2, the Successful Resolution Applicant (SRA), was duly approved. Mr. Anil Kohli was thereafter appointed as the Monitoring Professional for overseeing its implementation. The NCLAT had, through an order dated 20.10.2022, allowed the SRA to be impleaded in the present appeal. It was brought to the Tribunal’s attention that the resolution plan, approved on 26.11.2019 by the NCLT Mumbai, categorically declared that the SRA would not be held liable for any statutory dues or other pre-CIRP claims, and that the assets of the corporate debtor were to be handed over free from any encumbrances.
Despite having fulfilled all obligations under the approved resolution plan, including payment of interest for delayed remittances, the SRA continued to face hurdles in accessing the corporate debtor’s assets due to subsisting attachments by the ED. The SRA submitted that such actions were in violation of this Tribunal’s earlier order dated 10.06.2022, which had reiterated the principle of granting the resolution applicant a “clean slate.” Relying on various judgments of the Hon’ble Supreme Court and High Courts, including Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505, Manish Kumar v. Union of India and Another, REEDLAW 2021 SC 01515, Ghanashyam Mishra and Sons private Limited Through The Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through The Director and Others, REEDLAW 2021 SC 04534, and V. Hotels, the SRA argued that under Section 32A of the IBC, it was entitled to receive the assets of the corporate debtor unencumbered by any past liabilities or enforcement proceedings.
In light of the above submissions, the SRA prayed for directions for the release and transfer of the corporate debtor’s assets in an unencumbered, lien-free manner, as envisaged under the resolution plan and affirmed by the jurisprudence governing insolvency law.
Mr. Abhishek Anand, Mr. Karan Kohli and Ms. Ridhima Mehrotra, Advocates, represented the Appellant.
Mr. Zoheb Hossain, Advocate, appeared for the Respondent No. 1/ED.
Mr. Himanshu Dubey, Ms. Shruti Manchanda, Advocates, appeared for the Respondent No. 2.
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