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Introduction
The paths of the IBC1 and PMLA2, often intertwined, creating a legal labyrinth when the very assets needed for a company’s financial revival are simultaneously suspected of being the ill-gotten gains of crime. Imagine a failing company teetering on the brink, with creditors hoping the IBC will orchestrate a rescue through a swift resolution process. But what if, at the very same time, ED3 swoops in, alleging that some of the company’s most valuable properties – say, its sprawling factory or its high-tech machinery – are, in fact, “proceeds of crime” and attaches them under the PMLA?
This dramatic scenario immediately sparks a series of intriguing and complex legal skirmishes. Firstly, does this provisional attachment by the ED, aimed at freezing illicit assets, violate the crucial moratorium imposed under Section 14 of the IBC? This moratorium, a foundational pillar of the insolvency process, is designed to provide a calm harbor for the beleaguered corporate debtor, shielding it from all legal actions and asset seizures during the resolution period. Yet, the PMLA’s mandate is to track and seize tainted money without delay.
Secondly, the legal community grapples with a fundamental question of supremacy: Does the IBC, with its sweeping overriding effect granted by Section 238, trump the PMLA when it comes to inconsistency, particularly in the delicate context of resolution processes involving these ‘tainted’ assets? It’s a clash of titans – one statute aiming to maximize asset value for creditors and ensure corporate survival, the other meticulously pursuing criminal proceeds to uphold financial integrity.
Finally, and perhaps most critically, we face the jurisdictional quandary: Do the NCLT4 or the NCLAT5, bodies primarily tasked with insolvency matters, possess the authority to issue directions that could effectively undo or modify attachment orders already passed under the PMLA and confirmed by the PMLA Adjudicating Authority? It’s a delicate dance between judicial domains, each guarding its own turf while the fate of the company, and potentially the integrity of the financial system, hangs in the balance. These are not merely academic questions; they are the very real challenges that courts, companies, and creditors confront at the volatile intersection of financial distress and criminal investigation.
Addressing these very questions, the NCLAT New Delhi bench, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), recently rendered a significant judgment in Mr. Anil Kohli, RP for Dunar Foods Ltd. v. Directorate of Enforcement and Anr6.. The NCLAT definitively held that if a property is alleged to be proceeds of crime and is under adjudication by a competent authority under a penal statute, it cannot be considered part of the freely available resolution estate under the IBC.
Consequently, the Enforcement Directorate cannot be directed to release assets of a corporate debtor attached by it during the CIRP7 under the PMLA. This judgment, emerging from an appeal against an NCLT order that refused to release assets from ED’s attachment despite the ongoing CIRP of Dunar Foods Ltd., warrants a close introspection of the rationale and precedents upon which it is based. This article will delve into the intricacies of this ruling, examining the arguments presented by both sides and analyzing the implications for the interplay between insolvency law and anti-money laundering regulations in India.
The facts leading to this critical pronouncement are straightforward yet illustrative of the conflict at hand. Dunar Foods Ltd. entered CIRP after its accounts became NPAs. Simultaneously, the ED, investigating an associate company, traced alleged tainted funds to Dunar Foods Ltd., leading to the provisional attachment of its assets under the PMLA in December 2017. The NCLT dismissed the Resolution Professional’s plea to release these assets, ruling that the PMLA attachment was outside the scope of the IBC’s moratorium.
The NCLAT meticulously addressed the first fundamental question of whether the ED’s provisional attachment violated the moratorium imposed under Section 14 of the IBC.
The tribunal acknowledged that Section 14(1)(a) of the IBC prohibits the institution or continuation of suits or proceedings, including execution of judgments, against the corporate debtor upon CIRP commencement. This moratorium, as the Appellant contended, aims to preserve the debtor’s assets and ensure a disruption-free resolution process. The Appellant further emphasized that the ED’s Provisional Attachment Order, issued just four days after CIRP began, constituted a “proceeding” that should be covered by this moratorium, irrespective of its civil or criminal nature. They argued that such attachments impair the viability of CIRP by rendering locked assets inaccessible for monetization.
However, the NCLAT leaned into the Respondent’s counter-argument, which highlighted that PMLA proceedings pertain to criminal law enforcement, fundamentally distinct from the recovery or enforcement actions typically envisaged under Section 14 of the IBC. The ED asserted that the attached assets were not merely commercial properties but “proceeds of crime” subject to preservation, adjudication, and potential confiscation under the PMLA for justice and public interest.
While the NCLAT noted the temporal sequence – the ED’s action occurring after the moratorium commenced – it clarified that mere chronology was not determinative. The core issue was the nature of the ED’s attachment. Drawing upon judicial precedents, the NCLAT distinguished the scope of the moratorium. While acknowledging the Supreme Court’s broad interpretation of Section 14 in Alchemist ARC v. Hotel Gaudavan Pvt. Ltd8. (2017), which held that the moratorium covers all legal proceedings, the NCLAT pointed out that this case specifically dealt with civil and recovery suits. Crucially, the Tribunal relied on the Supreme Court’s ruling in Embassy Property Developments v. State of Karnataka9 (2019), which distinguished between the economic domain of the IBC and the criminal/public domain of other laws, asserting that the NCLT lacked jurisdiction over statutory or administrative actions arising under public law. Furthermore, the NCLAT reiterated its own prior decision in Varrsana Ispat Ltd. v. ED10), where it held that if a PMLA attachment is based on prior ECIRs and duly confirmed, IBC forums cannot interfere simply because CIRP is ongoing. In the present case, the NCLAT observed that the ED’s investigation (ECIR) dated back to 2013, significantly predating the CIRP. This established that the ED’s proceedings were rooted in pre-existing criminal investigations, and the assets were allegedly proceeds of money laundering, thereby placing them outside the regular asset pool contemplated for resolution under the IBC.
Based on this comprehensive analysis, the NCLAT concluded that Section 14 of the IBC aims to preserve lawful, unencumbered assets for resolution. However, property alleged to be “proceeds of crime” and already under adjudication by a competent authority under a penal statute cannot be considered part of the freely available resolution estate. Given that the PMLA provides its own distinct adjudicatory process and remedies for challenging attachments, separate from the IBC, the NCLAT definitively held that the issuance of the Provisional Attachment Order by the ED did not violate the moratorium under Section 14 of the IBC.
In its exhaustive examination, the NCLAT didn’t stop at the moratorium; it then plunged into Issue II: The perennial question of whether the IBC, armed with its overriding Section 238, trumps the PMLA when it comes to assets steeped in criminal allegations. This is where the legal frameworks of commercial rescue and penal forfeiture truly lock horns.
The Appellant ardently argued for the supremacy of the IBC. Given its non-obstante clause (Section 238) and its status as a later enactment, they contended that if PMLA attachments impeded a successful resolution, the IBC’s mandate for corporate revival must take precedence. Essentially, commercial expediency should prevail.
However, the ED countered with a critical distinction: the PMLA and IBC, they argued, operate in different universes.One, a criminal statute, is dedicated to stripping away illicit gains; the other, a commercial code, focuses on business turnaround. An asset tainted by crime, from the ED’s perspective, ceases to be a legitimate corporate asset available for mere commercial maneuvering.
The NCLAT, in its deliberation, acknowledged Section 238’s potent intent to prevent other laws from frustrating the IBC’s goals, referencing Innoventive Industries Ltd. v. ICICI Bank11 (2017) to underscore the IBC’s broad overriding power. Yet, the Tribunal introduced a crucial nuance: for Section 238 to apply, there must be a genuine inconsistency between the two statutes, and critically, they must operate in the same legislative field or address the same subject matter. This pivotal criterion became the lens through which both laws were scrutinized.
The NCLAT meticulously laid out the distinct objectives. The PMLA, a purely criminal enactment, traces, attaches, and confiscates proceeds of crime through a structured process involving investigations, provisional and confirmed attachments, and ultimate forfeiture. The IBC, conversely, is an economic legislation focused on facilitating resolution plans, creditor committees, and, if necessary, liquidation. Their aims, though occasionally converging on a specific asset, are fundamentally different: one punishes illicit enrichment, the other salvages economic entities.
Reinforcing this, the NCLAT cited the Delhi High Court’s stance in Deputy Director, ED v. Axis Bank12 (2019), which unequivocally held that the IBC and PMLA inhabit separate spheres and demand harmonious interpretation; tainted assets are simply not part of the IBC’s resolution estate. While the Tribunal recognized the practical challenge posed by ED attachments hindering value maximization for resolution, it firmly asserted that such an impediment could not invalidate the lawful operation of a penal statute. This principle found further backing in Gautam Kundu v. ED13 (2015), where the Supreme Court cautioned against commercial mechanisms inadvertently thwarting penal enforcement.
The Appellant’s reliance on the ‘clean slate’ provision of Section 32A of the IBC also met a critical timing hurdle. While Section 32A aims to grant immunity to the corporate debtor and its property post-resolution, ensuring a fresh start for new management, the NCLAT noted that in this case, the ED’s attachment and its confirmation predated the approval of the resolution plan. Thus, the statutory conditions for Section 32A’s immunity simply hadn’t been met when the property was legitimately seized. This alignment with the Supreme Court’s view on Section 32A’s prospective nature in Manish Kumar v. Union of India14 (2021) sealed this point.
Ultimately, the NCLAT championed the doctrine of harmonious construction. It declared that the IBC does not override the PMLA merely due to an interference with the CIRP. The ED, it clarified, acts as a public enforcement agency fulfilling penal and international obligations, not as a commercial creditor. Therefore, assets under PMLA attachment serve a higher purpose – upholding penal objectives – and are not simply part of the freely available resolution pool.
In summation, the NCLAT concluded that: (i) the PMLA and IBC operate in distinct domains; (ii) no irreconcilable inconsistency exists between them; (iii) Section 238 of the IBC cannot override the PMLA concerning proceeds of crime; and (iv) a validly confirmed PMLA attachment stands, regardless of an ongoing CIRP. Issue II, like its predecessor, was thus answered in the negative.
Moving onto the final battleground, Issue III centered on the NCLT/NCLAT’s jurisdictional authority to interfere with confirmed attachments under the PMLA. The Appellant, the Resolution Professional, maintained that their application was merely to facilitate the CIRP’s continuity, not to engage in “forum shopping” or usurp jurisdiction. The Respondent (ED), however, firmly contended that PMLA-confirmed attachments fall exclusively within the PMLA’s statutory framework, beyond the reach of the NCLT/NCLAT.
The NCLAT’s previous reasoning in Embassy Property Developments v. State of Karnataka15 (2019) had already set a precedent, affirming that the NCLT cannot meddle with decisions of statutory or quasi-judicial authorities operating under specialized public laws like the Mines and Minerals Act. By extension, this principle naturally applied to the PMLA. Since the Provisional Attachment Order (PAO) in the present case had been duly confirmed by the PMLA Adjudicating Authority, the NCLAT swiftly highlighted that the proper recourse for the Appellant was to file an appeal under Section 26 of the PMLA, before its dedicated Appellate Tribunal.
Crucially, the NCLAT also brought to light a landmark Supreme Court judgment delivered after the conclusion of the hearing in this very case: Kalyani Transco v. M/s. Bhushan Power and Steel Ltd and Others16 (Civil Appeal No. 1808 of 2020), dated May 2, 2025. This pronouncement from the apex court directly addressed the judicial review powers of the NCLAT vis-à-vis PMLA provisions, definitively settling the legal position.
The Supreme Court in Kalyani Transco unequivocally held that neither the NCLT nor the NCLAT, being tribunals constituted under the Companies Act and possessing circumscribed powers under the IBC, are vested with judicial review authority over decisions of government or statutory authorities operating in the realm of Public Law. Reaffirming its stance in Embassy Property, the Supreme Court clarified that while Section 60(5) of the IBC deals with questions arising “out of or in relation to insolvency resolution,” decisions by governmental or statutory authorities concerning Public Law matters cannot be shoehorned into this provision. It explicitly stated that where a corporate debtor needs to exercise a right outside the IBC’s purview, especially in Public Law, they cannot bypass the appropriate forums and approach the NCLT.
The Supreme Court further reasoned that if the NCLT cannot exercise judicial review over Public Law matters, then the NCLAT, as its appellate authority, certainly cannot exceed those bounds under Section 61 of the IBC. Specifically, appeals against NCLT orders approving a Resolution Plan under Section 31 can only be filed on the grounds enumerated in Section 61(3) of the IBC, none of which encompass the power to review PMLA orders.
In a poignant example, Kalyani Transco recounted how the NCLAT had stayed a Provisional Attachment Order issued by the ED against Bhushan Power and Steel Ltd. (BPSL) after the NCLT had approved its resolution plan. Despite the matter of this very PAO being under consideration by the Supreme Court itself, the NCLAT had ventured to interpret Section 32A of the IBC, declaring the corporate debtor’s assets immune from ED attachment post-resolution, and even deeming the ED’s attachment “illegal or without jurisdiction.” The Supreme Court emphatically rebuked this, stating that such an order was “clearly in teeth of the law laid down by this Court in Embassy Property Developments (supra).” It underscored that the PMLA, being a Public Law, meant the NCLAT completely lacked the power or jurisdiction to review a decision of a Statutory Authority under it. The Supreme Court declared these observations by the NCLAT as coram non judice – without legal authority and jurisdiction.
Drawing directly from this authoritative Supreme Court pronouncement, the NCLAT in the present case unequivocally held that it “lacks jurisdiction to interfere with the PAO, which has been subsequently confirmed by the Adjudicating Authority under the PMLA.” The law, it declared, has been definitively settled by Kalyani Transco.
Therefore, with all three crucial issues—the moratorium’s applicability to PMLA attachments, the IBC’s overriding effect over PMLA, and the NCLT/NCLAT’s jurisdiction over confirmed PMLA orders—answered in the negative, the appeal was summarily dismissed. The interplay between commercial insolvency and criminal forfeiture, at least in this scenario, has been clearly delineated, underscoring the distinct jurisdictional boundaries of these crucial legislative frameworks.
Conclusion
The NCLAT’s judgment in Mr. Anil Kohli, RP for Dunar Foods Ltd. v. Directorate of Enforcement and Anr., stands as a pivotal articulation of the delicate balance between India’s insolvency regime and its anti-money laundering framework. By answering all three contentious issues in the negative, the Tribunal has not merely dismissed an appeal; it has emphatically delineated the jurisdictional boundaries and the hierarchical relationship between the IBC and the PMLA when dealing with assets alleged to be proceeds of crime. The ruling underscores a clear judicial stance: the sanctity of assets tainted by criminal origins, undergoing adjudication under a penal statute like the PMLA, takes precedence and falls outside the freely available resolution estate contemplated by the IBC. This pronouncement reinforces the idea that the “clean slate” promised by the IBC to a new management isn’t a blanket shield against pre-existing criminal liabilities and validly executed penal actions.
The implications of this judgment are far-reaching for India’s corporate and legal landscape. It signals to resolution professionals, creditors, and prospective resolution applicants that due diligence must extend beyond conventional financial assessments to include potential criminal investigations or attachments under the PMLA. The risk of encountering “tainted assets” that remain beyond the reach of the CIRP, even after a resolution plan is approved, is now a confirmed reality. This could potentially influence the valuation of corporate debtors and the attractiveness of certain distressed assets, particularly those with a history of questionable financial dealings. Furthermore, the decision strengthens the hand of enforcement agencies like the ED, reaffirming their power to pursue criminal proceeds independently of ongoing insolvency proceedings, thereby bolstering the nation’s fight against financial crime.
While the NCLAT’s ruling, fortified by the Supreme Court’s pronouncement in Kalyani Transco, brings much-needed clarity to the current interplay, it also implicitly sets the stage for future legal considerations. As the lines between corporate fraud and genuine financial distress continue to blur, a pertinent question may arise: How will courts balance the imperative for penal action against the potential chilling effect on legitimate investors and the broader goal of value maximization for creditors, especially in scenarios where the link between the ‘proceeds of crime’ and the corporate debtor’s core operational assets becomes increasingly complex and disputed? This ongoing dance between two vital legislative objectives promises to keep India’s legal landscape dynamic and evolving.
Citations
Expositor(s): Adv. Anuja Pandit
