NCLAT Rules, Assets Of Corporate Debtor Attached Under PMLA Are Not Part Of Resolution Estate, NCLT Cannot Direct Release Even If Attached During CIRP
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), has ruled that assets attached under the Prevention of Money Laundering Act, 2002 (PMLA) are not part of the resolution estate under the Insolvency and Bankruptcy Code, 2016 (IBC), even if such attachments are made during the Corporate Insolvency Resolution Process (CIRP). The Appellate Tribunal held that in cases where assets are alleged to be proceeds of crime, the moratorium under Section 14 of the IBC does not apply, and the NCLT has no jurisdiction to direct their release.
Background
Dunar Foods Ltd., the Corporate Debtor, defaulted on substantial credit facilities availed from a consortium of banks led by the State Bank of India. The company's accounts were declared Non-Performing Assets (NPAs) on August 26, 2014, and a recall notice was issued on December 8, 2014. Subsequently, on June 27, 2017, an application under Section 7 of the IBC was filed and admitted on December 22, 2017, initiating CIRP against the company.
Just four days after the CIRP began, the Directorate of Enforcement (ED), which had already commenced an investigation in 2013 under the PMLA against M/s PD Agroprocessors Pvt. Ltd. (an associate of Dunar Foods Ltd.), issued a Provisional Attachment Order (PAO) under Section 5(1) of the PMLA, attaching assets of the Corporate Debtor worth over ₹177 crore. The RP subsequently filed an application before the NCLT Mumbai seeking release of the attached properties on the ground that the moratorium under Section 14 IBC prohibits such attachment. The NCLT, however, dismissed the application, holding that the PAO did not fall within the ambit of the moratorium.
Contentions
The Appellant argued that the moratorium imposed under Section 14 prohibits any enforcement action against the Corporate Debtor’s assets, including attachments under the PMLA. It was further contended that the overriding clause in Section 238 IBC ensures that the IBC prevails over any conflicting provisions in other legislations. The Appellant asserted that failure to lift the attachment would render the resolution process futile and would defeat the objectives of asset maximization and value recovery.
The ED, on the other hand, submitted that the PMLA is a special penal legislation and the attached assets are proceeds of crime. It maintained that the ED was acting in the exercise of its powers under a different statutory scheme, and such actions cannot be interfered with by the NCLT or NCLAT. It was emphasized that the attachment order had already been confirmed by the Adjudicating Authority under Section 8(3) of the PMLA, and that the only remedy against such confirmation lay in appeal before the PMLA Appellate Tribunal under Section 26.
The Successful Resolution Applicant (SRA) submitted that despite the approval of the resolution plan, the attached assets had not been released, thereby prejudicing its rights. It argued that in light of Section 32A of the IBC and judicial precedents affirming the “clean slate” principle, the attached properties should be released to the SRA free of any encumbrances.
Findings and Observations
The Tribunal framed three key issues:
Whether the PMLA attachment violates the IBC’s moratorium;
Whether IBC overrides PMLA by virtue of Section 238;
Whether NCLT/NCLAT have jurisdiction to interfere with PMLA proceedings.
Addressing the first issue, the NCLAT held that although the PAO was issued after the initiation of CIRP, the ECIR investigation dated back to 2013, indicating that the attachment was based on a pre-existing criminal investigation. Relying on precedents like Varrsana Ispat Ltd [Company Appeal (AT) (Insolvency) No. 493 of 2018] and Embassy Property [(2019) SCC OnLine SC 1542], the Tribunal ruled that attachments under PMLA, even if subsequent to the CIRP commencement, are not in violation of Section 14 of the IBC where the property is alleged to be proceeds of crime.
On the second issue, the Tribunal acknowledged the non-obstante clause in Section 238 but clarified that such clauses only apply in the case of irreconcilable inconsistency between statutes operating in the same legislative field. It held that IBC and PMLA operate in distinct domains—the former in commercial insolvency and the latter in criminal law targeting illicit proceeds. Consequently, the IBC cannot override the PMLA merely because the attachment affects the resolution estate. Moreover, Section 32A of the IBC did not apply in this case as the attachment was made and confirmed before the resolution plan was approved.
On the third issue, the NCLAT referred to the recent Supreme Court ruling in Kalyani Transco vs. Bhushan Power and Steel Ltd [Civil Appeal No. 1808 of 2020], which held that the NCLT and NCLAT cannot exercise powers of judicial review over actions taken under special penal statutes like the PMLA. The Tribunal emphasized that the appropriate forum to challenge confirmed PAOs is the Appellate Tribunal under the PMLA and not the IBC forums.
Dismissing the appeal, the NCLAT held that the moratorium under the IBC does not extend to assets alleged to be proceeds of crime under the PMLA. It ruled that such assets are outside the purview of the resolution estate and cannot be released by NCLT/NCLAT. The Appellate Tribunal further held that Section 238 of the IBC does not override the PMLA in this context, and reiterated the lack of jurisdiction of IBC forums to interfere with PMLA orders. The appeal was therefore dismissed, and all interim applications were closed.
Appearance
For Appellant: Mr. Abhishek Anand, Mr. Karan Kohli & Ms. Ridhima Mehrotra, Advocates.
For Respondents: Mr. Zoheb Hossain, Advocate for R-1/ED. Mr. Himanshu Dubey, Ms. Shruti Manchanda, Advocates for R-2.
Cause Title: Mr. Anil Kohli Resolution Professional V. Directorate of Enforcement
Case No: Company Appeal (AT) (Ins.) No. 389 of 2018
Coram: Justice Rakesh Kumar Jain [Judicial Member], Mr. Naresh Salecha [Technical Member], Mr. Indevar Pandey [Technical Member]
