Emphasising that IBC could not unwittingly become a camouflage or a shield to save the ill-gotten wealth of the corporate debtor and create a classification within the non-discriminatory character of the PMLA, the New Delhi Principal Bench of the National Company Law Appellate Tribunal (NCLAT) has held that the PMLA in its working neither differentiates nor discriminates the companies that are drawn into a CIRP and those which are considered financially safe by its creditors. It emphasised that Parliament did not legislate IBC with an intent to create a holy Ganges out of the IBC to wash the corporate debtor of its sin of criminality under the PMLA, or as a mechanism for legitimizing any ill-gotten wealth of the Corporate Debtor (CD).
The NCLAT explained that there is nothing in the IBC, that enables accommodating the wealth which is sourced by and out of a crime, in the resolution or liquidation process of a corporate debtor. The legislative intent behind the scheme of IBC only aims to deal with the issue of corporate insolvency, either in a CIRP or in a liquidation process, and to pay off the creditors of the corporate debtor through the sale proceeds of the legitimate assets of the corporate debtor either as a going concern or as liquidated assets, as the case may be, and not out of the ill-gotten wealth of the CD.
The Tribunal clarified that whether to attach or not to attach the properties of a corporate debtor is for the Enforcement Directorate to decide under the PMLA, and any challenge to such attachment, including notices issued under Section 50, PMLA, must be pursued only before the adjudicatory mechanism created under the PMLA and not before the NCLT or NCLAT under Section 60(5), IBC. The Tribunal held that moratorium under Section 14, IBC, and the restriction under Section 33(5), IBC, do not override attachment proceedings relating to proceeds of crime under the PMLA, because such proceedings operate in a different field and concern public law consequences rather than civil debt enforcement.
The NCLAT found no merit in the appeals and concurred with the Adjudicating Authority’s conclusion that the Liquidator must pursue remedies before the appropriate forum under the PMLA framework. It also observed that, so far as assets relieved by the PMLA Appellate Authority are concerned, since the correctness of that order is already under challenge before the Bombay High Court, the appellant may have to approach the High Court.
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The Larger Bench comprising Justice N. Seshasayee (Judicial Member), Arun Baroka (Technical Member) and Indevar Pandey (Technical Member) observed that the real conflict in the case was not merely between the Liquidator and the ED, but between the IBC and the PMLA, when both statutes operate at the same time. The Appellate Tribunal stressed that the PMLA is a law enacted to prevent money laundering, attach and confiscate proceeds of crime, and protect the integrity of the financial system, whereas the IBC is a law meant for insolvency resolution of a debt-ridden company.
The Tribunal observed that IBC cannot be treated as a mechanism to cleanse tainted assets or legitimise ill-gotten wealth of the corporate debtor. According to the Tribunal, the protection under Section 14, IBC during CIRP, and Section 33(5), IBC during liquidation, revolves around the legitimately acquired assets of the corporate debtor, and not assets that fall within the shadow of crime under the PMLA. It further observed that proceedings arising from penal statutes of public law nature, which do not add to the debt-liability of the corporate debtor, cannot be held to be hit by moratorium merely because they reduce the asset pool available in CIRP or liquidation.
The Tribunal also held that the jurisdiction of the NCLT and NCLAT under the IBC is not all-pervasive. Referring to Embassy Property Developments Private Limited v. State of Karnataka and Others [(2020) 13 SCC 308], it observed that the jurisdiction of the Adjudicating Authority is confined to what is necessary for the working of the IBC, and does not extend to examining the validity of attachment proceedings or coercive measures taken by authorities under the PMLA. The NCLAT noted that even the IBBI Circular No. IBBI/CIRP/87/2025 dated Nov 04, 2025 advises insolvency professionals to seek restitution of attached assets before the Special Court under Sections 8(7) or 8(8), PMLA, thereby reinforcing that the remedy lies within the PMLA framework and not before the tribunals constituted under the IBC.
Briefly, the appeal was filed by the Liquidator of M/s Siddhi Vinayak Logistics Ltd. against the NCLT Ahmedabad order dated July 19, 2022, which had dismissed two applications under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). The dispute arose because the Directorate of Enforcement (ED) had, before commencement of CIRP, issued notices under Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA) to the corporate debtor’s customers not to release monies to it, and had also provisionally attached its movable and immovable assets on June 08, 2017.
Although CIRP commenced on Sep 12, 2017 and moratorium under Section 14, IBC came into force, the ED later withdrew Rs. 2,29,10,131.06 from the corporate debtor’s ICICI Bank account on Aug 02, 2018 during the moratorium. After CIRP failed, liquidation was ordered on Nov 19, 2018, and the ED also issued a fresh provisional attachment order on June 18, 2019 in respect of the corporate debtor’s vehicles. The Liquidator sought withdrawal of the attachment orders, refund of the bank amount withdrawn by ED, quashing of the Section 50 communications, and release of receivables from the corporate debtor’s customers.
