NCLAT Ruling on IBC and PMLA Conflict

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Key takeaways

The NCLAT ruled that the moratorium under Section 14 of the IBC, 2016 cannot protect crime proceeds from attachment under the PMLA, 2002.
In the Siddhi Vinayak Logistics Ltd. case, the tribunal clarified that commercial insolvency recovery cannot override criminal anti-money laundering enforcement.
Section 41 of the PMLA, 2002 bars civil tribunals like the NCLT from reviewing attachment orders issued by the Enforcement Directorate.
The national priority of confiscating illegal assets takes precedence over financial write-offs or haircuts accepted by creditors during company resolution.

The National Company Law Appellate Tribunal (NCLAT) ruled that the IBC, 2016 moratorium cannot shield crime proceeds from attachment under the PMLA, 2002.
This ruling arose during insolvency proceedings for Siddhi Vinayak Logistics Ltd., where the Enforcement Directorate (ED) attached assets despite ongoing resolution process.
The company liquidator cited the P. Mohanraj v. Shah Brothers Ispat (2021) judgment, which prevents coercive recovery actions during the insolvency moratorium.
In response, the ED cited the Embassy Property Developments v. State of Karnataka (2019) case, which limits insolvency tribunals from reviewing decisions made by independent statutory bodies.

The tribunal held that the IBC, 2016 and the PMLA, 2002 operate in completely distinct statutory legal domains.
While the IBC, 2016 manages corporate resolution and creditor recovery, the PMLA, 2002 focuses on tracing and confiscating illegal assets.
The moratorium under Section 14 of the IBC, 2016 protects only legitimately acquired assets of a company.
Public criminal law actions under the PMLA, 2002 do not create civil debt and cannot be stopped by an insolvency moratorium.
Furthermore, Section 41 of the PMLA, 2002 prevents civil courts from interfering in matters that money laundering authorities decide.
The NCLAT stressed that national interest in seizing illegal money takes priority over financial haircuts taken by commercial creditors.
Insolvency tribunals like NCLT lack the legal power to challenge attachment orders passed by the Enforcement Directorate.

The primary goal of the IBC, 2016 is rescuing failing companies, whereas the PMLA, 2002 aims to seize illegal wealth.
The IBC, 2016 functions as a civil commercial law, while the PMLA, 2002 acts as a criminal public law.
The IBC, 2016 protects valid business assets, whereas the PMLA, 2002 targets tainted property regardless of corporate status.
Under Section 14, the insolvency moratorium stops civil suits, but it does not stop the Enforcement Directorate from freezing illegal assets.
Insolvency matters are decided by the NCLT and NCLAT, while money laundering issues are handled by designated PMLA courts.