Corporate Assets At Crossroads: The IBC – PMLA Interface

Statutory Landscape of PMLA and IBC

The Prevention of Money Laundering Act, 2002 (“PMLA”)¹, is India’s key legal framework for combating financial crimes. The legislation criminalizes the process of money laundering and establishes a comprehensive mechanism for investigation, prosecution, and confiscation of assets obtained from “proceeds of crime”.

In order to effectively implement these objectives, the Enforcement Directorate (“ED”) is designated as the adjudicating authority under PMLA, and is vested with extensive powers, including conducting investigations, provisional attachment of property, and initiating proceedings against individuals involved in illegal activities and obtained proceeds from such illegal activities.

While PMLA focuses on combating financial crimes and tracing illicit assets, a separate legislative framework governs the resolution of financially distressed companies in India. The Insolvency and Bankruptcy Code, 2016 (“IBC”)², represents a landmark reform in India’s economic and legal landscape, designed to provide a time-bound mechanism for the resolution of insolvency and bankruptcy, and facilitate the revival of financially distressed businesses.

In doing so, it attempts to maximize the value of a debtor’s assets and maintain a fair balance between the interests of various stakeholders, including creditors, employees, investors, and the debtor itself.

Despite the distinct objectives of these two statutes, complexities arise when the insolvency framework intersects with enforcement proceedings, particularly when both authorities assert jurisdiction over the same assets of a corporate debtor. Such situations frequently involve secured creditors who have a legitimate charge over assets of a corporate debtor, while enforcement authorities under PMLA seek to attach or confiscate those very assets on the grounds that they constitute the “proceeds of crime”.

Non-Obstante Clauses – A Statutory Conflict:

Both IBC and PMLA contain non-obstante clauses, i.e., Section 238 of IBC and Section 71 of PMLA, which often give rise to interpretational challenges when these provisions intersect.

Section 238 of IBC provides that: “The provisions of this Code shall have effect notwithstanding anything inconsistent therewith contained in any other law.”³

Similarly, Section 71 of PMLA provides: “The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law.”⁴

Where two special statutes contain non-obstante clauses, the statute enacted subsequently, prevails. This principle has been recognised in several judicial pronouncements, including Maruti Udyog Ltd. vs. Ram Lal & Ors.⁵, wherein the Apex Court observed that even though courts must attempt to harmoniously construe both statutes, in the event of an irreconcilable conflict, the later enactment would ordinarily prevail.

However, this principle is not applied mechanically. The determination ultimately depends upon the legislative intent, object, and scope of the statutes in question. In this regard, the Hon’ble Delhi High Court in the decision of Rajiv Chakraborty Resolution Professional of EIEL vs. Directorate of Enforcement⁶, observed that where two special statutes contain competing non-obstante clauses, the court must examine the purpose and scope of the provisions in order to discern the true legislative intent.

The ultimate test therefore, while giving effect to intersecting provisions of the two statutes, would be “the intent and scope of the statute” or “intent of incorporating a particular provision in the statute,” which needs examination.

Most recently, in Anil Kohli Resolution Professional for Dunar Foods Ltd. Vs. Directorate of Enforcement⁷, the National Company Law Appellate Tribunal (“NCLAT”) observed that for Section 238 of IBC to override any other statute, two conditions must be satisfied: (a) both the statutes must operate in the same legislative domain; and (b) there must be a clear inconsistency between their provisions. Further, the NCLAT held that Section 238 of IBC cannot override the provisions of PMLA in respect of proceedings involving the attachment of “proceeds of crime”. Another critical dimension of this statutory interaction arises in relation to the moratorium under IBC and the attachment powers exercised under PMLA.

Jurisdictional boundaries of NCLT

The IBC vests the National Company Law Tribunal (“NCLT”) with residuary jurisdiction under Section 60(5)(c). However, this jurisdiction is confined to matters arising out of or relating to the IRP or liquidation of the corporate debtor and does not confer inherent or plenary powers upon the Tribunal.⁸

The jurisdictional limits of NCLT have also been examined by the judiciary. In Kalyani Transco Vs. Bhushan Power and Steel Ltd. and Ors.⁹, the Apex Court applied a strict interpretation of the statute to set aside the resolution plan submitted by JSW Steel. This plan had previously been approved by both the NCLT and the NCLAT. Consequently, the Court directed the initiation of liquidation proceedings against the corporate debtor.

The Court clarified the jurisdictional limits of adjudicatory bodies under IBC. It noted that the NCLT does not possess the power of judicial review over administrative or executive actions of the Government or statutory authorities, particularly in matters involving public law. Accordingly, they cannot adjudicate issues arising under other statutory regimes, such as PMLA.

This position was affirmed by the Hon’ble Apex Court in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors.¹⁰, wherein it was clarified that NCLT cannot usurp the jurisdiction of other courts or statutory authorities where the dispute does not arise from the insolvency of the corporate debtor.

Accordingly, matters concerning attachment and confiscation of property under PMLA, particularly where such attachment has been confirmed by the Adjudicating Authority under Section 8(3) of PMLA, fall outside the jurisdiction of the NCLT.

Can “Proceeds of Crime” form part of the insolvency estate?

Another critical issue is whether property alleged to constitute “proceeds of crime”, can be treated as part of the asset pool of the corporate debtor, available for resolution under IBC.

Section 17 of PMLA¹¹, in this regard, states that the ED exercises its powers to attach and freeze accounts suspected of owing “proceeds of the crime”, which means “any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property [or where such property is taken or held outside the country, then the property equivalent in value held within the country] 4[or abroad];” as provided under Section 2(u) of PMLA.

In Anil Kohli Resolution Professional for Dunar Foods Ltd. (supra), the NCLAT held that where a property is alleged to constitute “proceeds of crime” and is subject to adjudication under a penal statute, such property cannot be regarded as part of the freely available resolution estate of the corporate debtor.

In a similar vein, the Hon’ble Delhi High Court in Deputy Director, Directorate of Enforcement vs. Axis Bank¹², clarified that IBC and PMLA operate in distinct domains and must be harmoniously construed. The Court further observed that assets tainted as “proceeds of crime” cannot be treated as part of the resolution estate under IBC. 

Importantly, the ED does not act as a creditor, but as a public enforcement authority. Consequently, attachment of assets under PMLA is not intended to satisfy creditor claims, but to fulfil penal objectives and international obligations relating to anti-money laundering.

The Moratorium Barrier: Can PMLA Attachments Continue?

Section 14 of IBC¹³ provides for the declaration of a moratorium by the Adjudicating Authority, upon the admission of an application for initiation of the Corporate Insolvency Resolution Process (“CIRP”). During this period, the institution of fresh suits or proceedings against the corporate debtor is prohibited, and the continuation of any pending suit or proceeding against such corporate debtor is stayed, thereby preserving the status quo and safeguarding the assets of the corporate debtor.

On one hand, the moratorium functions as a protective shield for the efficient resolution of insolvency by preserving and maximising the value of the corporate debtor’s assets. On the other hand, PMLA empowers the ED to attach property in order to prevent individuals from benefiting from the proceeds of crime.

However, this protective ambit of Section 14 of IBC is not absolute, particularly when a criminal enforcement statute is involved. The NCLAT in the case of Varrsana Ispat Limited vs. Deputy Director, Directorate of Enforcement¹⁴ held that criminal proceedings arising from violations affecting public policy fall outside the scope of the moratorium. The tribunal further observed that enforcement proceedings under PMLA are primarily directed against individuals, such as directors and officers responsible for the alleged offence, rather than the corporate debtor itself. This distinction has enabled the ED to proceed with the attachment of assets despite the moratorium, on the basis that the liability arises from the personal wrongdoing of individuals rather than from the corporate debtor as a whole.

Judicial interpretation has further clarified the scope of this protection in Rajiv Chakraborty, Resolution Professional of EIEL(supra)¹⁵, while relying on the decision of Nitin Jain, Liquidator of PSL Limited. v. Enforcement Directorate¹⁶, in which the Court recognised that, subject to the conditions prescribed under Section 32A, the properties of a corporate debtor are generally protected from attachment or confiscation under PMLA for offences that predate the commencement of CIRP. This distinction is significant as it preserves the value of the corporate debtor’s assets and ensures that the resolution or liquidation process can proceed in an effective and orderly manner, without being undermined by parallel enforcement actions.

However, these decisions were rendered prior to the introduction of Section 32A of IBC. The issue was subsequently examined in the Directorate of Enforcement v. Manoj Kumar Aggarwal ¹⁷, wherein the NCLAT accorded primacy to Section 32A and held that once a resolution plan is duly approved by the NCLT, the corporate debtor is entitled to a statutory immunity from prosecution for offences committed prior to the commencement of the CIRP, including proceedings under the PMLA. The decision underscored the importance of ensuring finality in insolvency proceedings and safeguarding bona fide resolution applicants from the consequences of past misconduct attributable to the previous management.

Legislative intent behind the introduction of Section 32A of IBC

Against this legislative backdrop, Section 32A of IBC¹⁸, was introduced to encourage resolution applicants to revive distressed companies, without the fear of inheriting past criminal liabilities. In this regard, under Section 14 of IBC¹⁹, once a resolution plan is approved, this provision grants the corporate debtor immunity from prosecution for offenses committed prior to the commencement of the insolvency resolution process (“IRP”), subject to the fulfilment of certain conditions, i.e., a protection is afforded to the new management from past liabilities/actions of the previous promoters.

While this provision facilitates corporate revival and attracts potential investors, it also raises important questions when the underlying offenses relate to money laundering. The interaction between Section 32A of IBC and enforcement actions under PMLA has therefore become a significant area of legal debate, highlighting the broader challenge of reconciling insolvency resolution with the state’s duty to combat financial crime.

The constitutional validity and scope of Section 32A were examined by the Apex Court in the case of Manish Kumar v. Union of India and Ors.²⁰, wherein the Petitioner contended that Section 32A of IBC violated Articles 14²¹, 19²², 21²³, and 300A²⁴ of the Constitution, on the ground that it granted immunity to a corporate debtor even when its assets could be treated as “proceeds of crime” under PMLA.

The Hon’ble Apex Court upheld the constitutional validity of Section 32A and observed that the said provision is crucial for ensuring the success of the IRP. It clarified that the immunity provided under Section 32A is not absolute and applies only when there is a genuine change in the management or control of the corporate debtor and when the new management has not been involved in any past wrongdoing.

The Court further explained that the purpose of this provision is to encourage potential investors to take over distressed companies without fear of facing criminal liability for actions committed by the previous promoters or management. Without such protection, resolution applicants may hesitate to invest in companies undergoing insolvency, which would weaken the objectives of IBC.

The Court also clarified that Section 32A does not protect individuals who were responsible for the offences, and those who committed the wrongdoing can still be investigated and prosecuted under relevant laws. The provision under this statute merely protects the corporate debtor after a successful resolution, thereby enabling the company to continue its operations and achieve financial recovery.

Therefore, Section 32A acts as an important safeguard within IBC framework as it protects the corporate debtor after resolution, while ensuring that individuals responsible for past misconduct remain accountable. This balance helps promote investor confidence and supports the successful implementation of resolution plans.

Notwithstanding the clarity sought to be introduced through Section 32A, questions continue to arise when the provisions of IBC intersect with other special statutes, such as PMLA. One such principal basis for this conflict lies in the presence of non-obstante clauses in both legislations.

Regulatory developments under IBC – IBBI Circular

Recognising the complexities arising from the intersection of insolvency and anti-money laundering laws, the Insolvency and Bankruptcy Board of India (“IBBI”) issued Circular No. IBBI/CIRP/87/2025 dated 4 November, 2025²⁵. The Circular advises insolvency professionals to approach the special court under Sections 8(7) or 8(8) of PMLA, for restitution of attached assets to the corporate debtor where appropriate. This approach seeks to maximise the value of assets available for resolution while respecting the statutory framework governing proceeds of crime.

Secured creditors vs. PMLA attachments: The battle for priority

Within the framework of IBC, secured creditors occupy a position of relative priority. A central feature of this structure is Section 52 of IBC, which provides secured creditors with a critical choice during insolvency proceedings to either enforce their security interest independently, outside the liquidation estate, or relinquish that security interest and participate in the distribution of assets under Section 53 of IBC.²⁶

Where secured creditors choose to relinquish their security and participate in the liquidation estate, the Code accords them a position of high priority in the statutory waterfall. Their claims rank immediately after IRP costs and liquidation expenses, ensuring that secured creditors are paid before operational creditors, government dues, and equity shareholders. This prioritisation underscores the Code’s recognition of the contractual and proprietary interests underlying secured lending.²⁷

The Apex Court has also affirmed the importance of this dual-choice framework in the decision of India Resurgence Arc Private Limited v. Amit Metaliks Limited & Ors.²⁸, wherein it was emphasised that IBC is fundamentally a creditor-driven regime in which the commercial wisdom of financial creditors holds primacy. The Court recognised that secured creditors possess enforceable rights and such rights cannot be diluted or overridden by other statutory regimes unless the legislature expressly provides for such interference. However, the exercise of these rights becomes complicated when assets of the corporate debtor are simultaneously subjected to enforcement actions under PMLA.

This institutional conflict becomes particularly visible when a company implicated in financial misconduct enters the CIRP. In such circumstances, the ED, may move to attach the company’s assets on the ground that they constitute proceeds of crime. Simultaneously, IBC also seeks to safeguard those very assets within the resolution estate so that creditors can recover their claims and the corporate entity can continue as a going concern.

In this regard, the Apex Court, in its decision in National Spot Exchange Limited v. Union of India and Ors.²⁹, examined the status and priority of secured creditors where assets had been attached under the Maharashtra Protection of Interest of Depositors Act (“MPID”) and PMLA Act, particularly in light of the moratorium provisions contained in IBC. While analysing this issue, the Apex Court held that the attached properties could still be made available for the execution of decrees despite the declaration of a moratorium under IBC. The Court’s reasoning rested on the chronology of events of the attachment proceedings under the MPID Act which had been initiated prior to the commencement of IBC moratorium. Consequently, since this vesting occurred before the insolvency proceedings began, the Court concluded that such properties fell outside the scope of the moratorium subsequently imposed under IBC.

Clean-Slate Doctrine: Can resolution applicants obtain a clean title?

The “Clean-Slate Doctrine”, recognised under IBC framework, provides that once a resolution plan is approved, the successful resolution applicant takes over the corporate debtor without any liabilities arising from the past conduct of the corporate debtor.

In the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors.³⁰, the Hon’ble Apex Court held that once a resolution plan is approved by the NCLT, all claims not forming part of the resolution plan stand extinguished. Consequently, no person can initiate or continue proceedings in respect of claims not provided for in the approved resolution plan.

This doctrine ensures certainty for resolution applicants and facilitates the revival of the corporate debtor by enabling it to commence operations on a clean slate.

Conclusion

The interaction between IBC and PMLA has generated significant jurisprudential debate, particularly in situations where enforcement actions under anti-money laundering legislation intersect with corporate insolvency proceedings. While both statutes operate in distinct domains, one aimed at corporate rescue and value maximisation, and the other at preventing the laundering and enjoyment of illicit proceeds, their overlap has frequently given rise to conflicts concerning control over the assets of a corporate debtor.

In practice, judicial interpretation has sought to balance these competing objectives by adopting a harmonised approach. However, courts have often accorded primacy to the public policy considerations underlying PMLA, particularly the identification, attachment, and confiscation of “proceeds of crime.” At the same time, efforts have been made to ensure that the insolvency resolution process is not unduly frustrated, especially in cases involving bona fide resolution applicants.

The evolving jurisprudence thus indicates that while both statutory regimes are intended to operate concurrently, where corporate assets are demonstrably linked to proceeds of crime, enforcement actions under PMLA have, in effect, prevailed over the insolvency framework. This reflects a broader judicial inclination to prevent the legitimisation of tainted assets, even as the courts continue to strive for a careful reconciliation of the objectives underlying both enactments.

Footnotes

1. The Prevention of Money Laundering Act, 2002, Act No. 15 of 2003.

2. The Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

3. S. 238 of the Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

4. S. 71 of the Prevention of Money Laundering Act, 2002, Act No. 15 of 2003.

5. Maruti Udyog Ltd. vs. Ram Lal & Ors., (2005) 2 SCC 638.

6. Rajiv Chakraborty Resolution Professional of EIEL Vs. Directorate of Enforcement, 297 (2023) DLT 181.

7. Anil Kohli Resolution Professional for Dunar Foods Ltd. Vs. Directorate of Enforcement, MANU/NL/0523/2025.

8. S. 60(5)(c) of the Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

9. Kalyani Transco Vs. Bhushan Power and Steel Ltd. and Ors., MANU/SC/0630/2025.

10. Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., (2020) 13 SCC 308.

11. S. 17 of the Prevention of Money Laundering Act, 2002, Act No. 15 of 2003.

12. Deputy Director, Directorate of Enforcement vs. Axis Bank, 2019 SCC OnLine Del 7854.

13. S. 14, The Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

14. Varrsana Ispat Limited Vs. Deputy Director, Directorate of Enforcement, (2019) 4 CompLJ 189.

15. Rajiv Chakraborty Resolution Professional of EIEL, Supra Note 6.

16. Nitin Jain, Liquidator of PSL Ltd. v. Enforcement Directorate, 287 (2022) DLT 625.

17. Directorate of Enforcement v. Manoj Kumar Aggarwal, 2021 SCC Online NCLAT 121.

18. S. 32A, The Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

19. S. 14, Supra Note 13.

20. Manish Kumar Vs. Union of India (UOI) and Ors., (2021) 5 SCC 1.

21. India Const. art. 14.

22. India Const. art. 19.

23. India Const. art. 21.

24. India Const. art. 300A.

25. Circular No. IBBI/CIRP/87/2025 dated 04.11.2025.

26. S. 52, The Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

27. S. 53, The Insolvency and Bankruptcy Code, 2016, Act No. 31 of 2016.

28. India Resurgence Arc Private Limited v. Amit Metaliks Limited & Ors., (2021) 19 SCC 672.

29. National Spot Exchange Limited v. Union of India and Ors., (2025) 8 SCC 393.

30. Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors., (2020) 8 SCC 531.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.