The Moratorium Stops Creditors Not the ED: NCLAT Draws the IBC-PMLA Line in Value Wise Consultancy

India’s corporate restructuring jurisprudence has increasingly been shaped by the interaction between two powerful statutory regimes. The Insolvency and Bankruptcy Code, 2016 (IBC) seeks to rescue distressed companies, preserve enterprise value and maximise recoveries through a collective insolvency process. The Prevention of Money Laundering Act, 2002 (PMLA), by contrast, empowers the State to trace, attach and confiscate property alleged to constitute proceeds of crime. For years, courts, insolvency professionals and creditors have debated the limits of the IBC moratorium. In a judgment delivered on 30 June 2026 in Value Wise Consultancy Pvt. Ltd. v. Deputy Director, Directorate of Enforcement¹, the National Company Law Appellate Tribunal (NCLAT), comprising Justice N. Seshasayee, Mr. Arun Baroka and Mr. Indevar Pandey, addressed that question directly. The Tribunal held that the commencement of insolvency does not automatically suspend attachment proceedings under the PMLA and that challenges to such proceedings must be pursued through the statutory framework created by the PMLA.

Jurisprudential Background

The early jurisprudence treated the IBC and the PMLA as operating in distinct fields. In Varrsana Ispat Ltd. v. Deputy Director, Directorate of Enforcement², the NCLAT held that the moratorium under Section 14 of the IBC does not prevent penal proceedings under the PMLA. The Delhi High Court adopted a similar position in Deputy Director, Directorate of Enforcement v. Axis Bank³, holding that attachment under the PMLA is not a debt-recovery mechanism. Its purpose is to prevent the enjoyment or dissipation of property derived from criminal activity. The Supreme Court’s decision in Embassy Property Developments Pvt. Ltd. v. State of Karnataka⁴ further clarified the jurisdictional position. The Court held that, although Section 60(5) gives the NCLT broad authority over questions arising from insolvency, it does not convert the Tribunal into a public-law court capable of reviewing statutory decisions taken under other enactments. The jurisprudence became more nuanced after P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd.⁵, where the Supreme Court held that cheque-dishonour proceedings under Section 138 of the Negotiable Instruments Act were covered by the Section 14 moratorium as against the corporate debtor. The Court described such proceedings as a “civil sheep in a criminal wolf’s clothing” because of their compensatory and debt-related character. Although P. Mohanraj did not concern the PMLA, insolvency professionals relied on its reasoning to argue that enforcement action which depleted the corporate debtor’s estate should also be stayed.

The Dispute

In Value Wise Consultancy, Siddhi Vinayak Logistics Ltd. entered the corporate insolvency resolution process on 12 September 2017. The company was already under investigation in connection with an alleged bank fraud exceeding ₹1,600 crore. Before commencement of the insolvency process, the Enforcement Directorate (ED) had provisionally attached certain assets. That attachment was later confirmed during the moratorium. On 2 August 2018, the ED withdrew approximately ₹2.29 crore from the company’s bank account. The resolution process failed, and the company was ordered into liquidation on 19 November 2018. During liquidation, the ED issued a fresh attachment order covering 6,170 commercial vehicles. The PMLA Adjudicating Authority subsequently confirmed the attachment in respect of 1,344 vehicles. The liquidator approached the NCLT under Section 60(5), arguing that the ED’s actions violated the protections available under the IBC and reduced the estate available to creditors. The NCLT dismissed the applications, leading the liquidator to challenge the decision before the NCLAT.

The NCLAT’s Decision

The NCLAT held that the Section 14 moratorium does not automatically apply to attachment proceedings under the PMLA. The Tribunal distinguished debt-recovery proceedings from action directed at property alleged to constitute proceeds of crime. In its view, the moratorium is directed at proceedings that seek to recover or enforce civil liabilities against the corporate debtor, not proceedings that exercise the State’s statutory power to identify and preserve alleged proceeds of crime. The fact that an attachment reduces the pool of assets available to creditors does not convert it into a civil recovery measure. The purpose of the proceedings under the PMLA remains decisive. They are directed at preventing the possession, transfer or enjoyment of property allegedly derived from criminal activity, rather than enforcing a debt against the corporate debtor. The NCLAT therefore declined to extend the reasoning in P. Mohanraj to PMLA attachment proceedings. The Appellate Tribunal adopted the same approach during liquidation. Section 33(5) restricts the institution of proceedings by or against the corporate debtor after a liquidation order, but it is not identical in scope to Section 14 and does not automatically neutralise proceedings under the PMLA. The judgment does not establish that the PMLA invariably overrides the IBC. Its narrower conclusion is that insolvency commencement, by itself, does not prevent the ED from exercising statutory powers in relation to alleged proceeds of crime.

Limits of the NCLT’s Jurisdiction

The NCLAT also reaffirmed the limits of the insolvency tribunal’s jurisdiction. Relying on Embassy Property Developments, it held that Section 60(5) cannot be used to challenge the validity of attachment orders, notices or other statutory action taken under the PMLA. Such disputes must be pursued before the authorities and courts designated under the PMLA. This distinction was relevant to the ₹2.29 crore withdrawn by the ED. The PMLA Appellate Tribunal had set aside the underlying attachment, while the ED’s challenge remained pending before the Bombay High Court. The NCLAT did not finally determine whether the ED was entitled to retain the money. It held instead that the insolvency tribunals were not the proper forums to decide that issue. The judgment is therefore as much about jurisdiction as it is about the moratorium. The NCLAT also referred to the IBBI Circular dated 4 November 2025. The circular provides that an insolvency professional may apply to the Special Court under Sections 8(7) or 8(8) of the PMLA for restitution of attached assets. Two remedies must be distinguished. A challenge to the attachment itself must follow the adjudicatory and appellate process under the PMLA. A request for restitution of attached property may be made to the Special Court, subject to the statutory conditions. The circular does not guarantee release of the assets. It identifies the forum through which such relief may be sought.

The Position After Resolution: Section 32A

The legal position changes after approval of a qualifying resolution plan. Section 32A provides statutory protection to the corporate debtor and its property where its conditions are satisfied. The provision is intended to allow an eligible and unconnected resolution applicant to acquire and revive the business without inheriting the consequences of wrongdoing by the former management. The protection is conditional. It depends on satisfaction of the statutory requirements, including a qualifying change in control and the absence of prohibited connections between the incoming management and those responsible for the offence. Section 32A does not erase the offence or protect former promoters, directors or officers, who may remain personally liable. Importantly, Value Wise Consultancy did not decide the application of Section 32A. The resolution process had failed, and the company had entered liquidation. The judgment should therefore not be read as limiting the protection available in an appropriate post-resolution case. Although not considered in Value Wise Consultancy itself, the distinction is illustrated by the PMLA Appellate Tribunal’s decision concerning Viceroy Hotels, where attachment orders were set aside after approval and implementation of a resolution plan and a qualifying change in management.

Conclusion

Value Wise Consultancy reinforces the institutional divide between insolvency adjudication and anti-money-laundering enforcement. The IBC protects the corporate debtor from fragmented creditor action and seeks to preserve value during insolvency. It does not automatically place property alleged to constitute proceeds of crime beyond the reach of the PMLA. At the same time, the judgment does not create an unrestricted rule of PMLA supremacy. It confirms that attachment during CIRP or liquidation must be challenged within the PMLA framework and not through the NCLT’s residuary jurisdiction. The position after resolution is distinct. Where the conditions of Section 32A are satisfied, the law may protect the rescued corporate debtor and its property while allowing proceedings to continue against the individuals responsible for the alleged wrongdoing. Value Wise Consultancy therefore reinforces a principle likely to shape future insolvency litigation: while the IBC protects the insolvency process, it does not, by itself, displace the statutory machinery for dealing with alleged proceeds of crime.

Citations

1. Value Wise Consultancy Private Limited v. The Deputy Director, Directorate of Enforcement & Ors. Company Appeal (AT) (Insolvency) No. 1226 of 2022 & 1227 of 2022 ↩︎
2. Varrsana Ispat Limited (Through the Resolution Professional, Mr. Anil Goel) v. Deputy Director, Directorate of Enforcement Company Appeal (AT) (Insolvency) No. 493 of 2018 ↩︎
3. Deputy Director, Directorate of Enforcement v. Axis Bank, 2019 SCC OnLine Del 7854. ↩︎
4. Embassy Property Developments Pvt. Ltd. v. State of Karnataka, (2020) 13 SCC 308 ↩︎
5. P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., (2021) 6 SCC 258 ↩︎

Expositor(s): Adv. Jahnobi Paul