Section 32A Cannot Undo Pre-CIRP PMLA Attachments: NCLAT Restricts Insolvency Immunity to Statutory Limits
- REEDLAW
- 13 minutes ago
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REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal clarified that insolvency immunity under Section 32A of the Insolvency and Bankruptcy Code could not be stretched to invalidate or undo attachments lawfully imposed under the Prevention of Money Laundering Act prior to commencement of CIRP. The Tribunal emphasised that attachments attaining finality under PMLA continue to bind the property and cannot be released by the NCLT or NCLAT, as such remedies lie exclusively before the competent PMLA authorities.
The National Company Law Appellate Tribunal, New Delhi Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating the appeal, held that pre-CIRP attachments imposed under the Prevention of Money Laundering Act, having attained statutory finality, could not be undone by invoking Section 32A of the IBC. It was observed that neither the Resolution Plan nor the moratorium under Section 14 extinguished such attachments, as the jurisdiction to release or modify them vests exclusively with PMLA authorities, leaving no scope for intervention by the Adjudicating Authority or the Appellate Tribunal.
The Appeal had arisen from the order of the Adjudicating Authority which approved the Resolution Plan of the Successful Resolution Applicant but declined to grant reliefs relating to release of assets attached under the Prevention of Money Laundering Act, 2002. The Appellant had sought directions for lifting of attachments imposed prior to the commencement of the CIRP, relying on Section 32A of the Insolvency and Bankruptcy Code. The Adjudicating Authority rejected this request and held that the appropriate forum for such reliefs was the competent authority under the PMLA, leading to the present challenge limited to paragraphs 60 and 61 of the impugned order.
The Appellant’s Appeal had initially been allowed in August 2024, when the Tribunal set aside paragraph 60 and held that the Appellant was entitled to the protection under Section 32A. However, on an application filed by the Directorate of Enforcement seeking recall on the ground that it was a necessary party, the Tribunal recalled its judgment in January 2025 while preserving the approval of the Resolution Plan. Following impleadment, the Directorate of Enforcement filed its response, and the Appeal was reheard on merits. In the interim, the Corporate Debtor had continued to remain under the shadow of a provisional attachment order issued in January 2019, well before commencement of CIRP in March 2022. The Successful Resolution Applicant had incorporated in the Plan a request for release of attachments to enable complete implementation, especially as the attached properties formed part of the assets proposed for revival.
In the reheard proceedings, the Appellant argued that Section 32A immunised the Corporate Debtor’s assets from attachments relating to past offences once an eligible and unrelated resolution applicant took over management. It was emphasised that the Resolution Plan had been duly approved by the Committee of Creditors and the Adjudicating Authority, and that the legislative intent of Section 32A, as upheld in Manish Kumar v. Union of India and Another, REEDLAW 2021 SC 01515, was to ensure that a resolution applicant commenced operations with a clean slate. The Resolution Professional supported this position, submitting that provisional attachment did not divest the Corporate Debtor of ownership and therefore could not obstruct implementation of a duly approved Resolution Plan.
The Directorate of Enforcement contested the Appeal, asserting that Section 32A operated only from the date of approval of the Resolution Plan and did not disturb attachments predating the CIRP. It maintained that the attached properties were alleged proceeds of crime and therefore constituted encumbered assets that could not be automatically released. Supporting investors contended that the attachments were impeding revival, particularly when the Plan envisaged complete settlement of investor claims. The Directorate of Enforcement, however, maintained that the assets could not have been included in the Plan and that proceedings under PMLA operated independently.
The Tribunal examined the scope and legislative history of Section 32A in light of the Supreme Court’s detailed exposition in Manish Kumar v. Union of India and Another, REEDLAW 2021 SC 01515. It noted that the Supreme Court had upheld the validity of Section 32A and clarified that immunity from prosecution and attachment was available only when strict statutory conditions were met, including complete change in control to an unconnected person. The Tribunal summarised that Section 32A(1) cleansed the Corporate Debtor of past criminal liability, while Section 32A(2) protected its assets from attachment, provided the underlying offences pertained to the period before the commencement of CIRP and the resolution applicant satisfied the statutory safeguards.
The Tribunal held that the challenge to the NCLT’s refusal to release the attachment had to be considered within the framework laid down by the Supreme Court. It reiterated that the NCLT lacked jurisdiction to set aside or interfere with actions of statutory or quasi-judicial authorities under the PMLA, relying on the principles laid down in Embassy Property Developments Private Limited v. State of Karnataka and Others, REEDLAW 2019 SC 12501 and Kiran Shah, Resolution Professional of KSL and Industries Ltd. v. Enforcement Directorate, REEDLAW 2022 NCLAT Del 01502. It observed that the attachment in question was imposed and confirmed prior to CIRP and therefore did not fall within the cleansing effect contemplated under Section 32A. The Tribunal also clarified that precedents such as Anil Kohli did not consider Section 32A and could not be relied upon to expand its application beyond what was settled by the Supreme Court.
The Tribunal further distinguished judgments relied upon by the Appellant, including JSW Steel Limited v Mahender Kumar Khandelwal and Others, REEDLAW 2020 NCLAT Del 02577, noting that the factual matrix in those cases involved attachments or restrictions imposed after fulfilment of Section 32A conditions, unlike the present case where the attachment had attained finality long before plan approval. Reference was made to the Bombay High Court’s ruling in Shiv Charan and Others v. Adjudicating Authority under the Prevention of Money Laundering Act, 2002, Department of Revenue, Ministry of Finance, New Delhi and Another, REEDLAW 2024 Bom 03592, which recognised the mandatory cessation of attachments post-approval of a resolution plan but only where the statutory preconditions of Section 32A were satisfied. The Tribunal underscored that statutory immunity could not be invoked retrospectively to nullify attachments that became final before the plan approval.
In conclusion, the Tribunal held that the immunity under Section 32A did not extend to properties already under valid attachment before commencement of CIRP or approval of the Resolution Plan. It affirmed that the NCLT correctly declined to order release of the attached properties and rightly directed the Appellant to seek remedies under the mechanism provided in the PMLA. Consequently, the Appeal challenging paragraphs 60 and 61 of the NCLT’s order was dismissed.
Mr. Dhruv Mehta, Sr. Advocate with Mr. Palash S. Singhai, Mr. Harshal Sareen and Mr. Kartikey Shrarma, Advocates, represented the Appellant.
Ms. Prachi Johri and Ms. Mirgangi Parul, Advocates, represented the Intervenor in I.A. No. 1987/2025.
Mr. Vivek Gurnami, Mr. Vivek Gaurav and Mr. Satyam, Advocates, appeared for the respondent.
Mr. Krishnendu Datta, Sr. Advocate with Ms. Varsha Banerjee Advocates, appeared for the Respondent No. 1.
Mr. Zohab Hossain, Advocate, appeared as a Special Counsel for ED.
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