IBC Cannot Override PMLA on Attached Assets: NCLAT Ruling

The National Company Law Appellate Tribunal (NCLAT) has ruled that the Insolvency and Bankruptcy Code (IBC) cannot override the Prevention of Money Laundering Act (PMLA) when it comes to assets attached by the Enforcement Directorate (ED) as proceeds of crime.

Context of the Ruling

• Under Section 14 of the IBC, a moratorium is imposed on the debtor’s assets during insolvency resolution proceedings.
• However, if assets have been attached by the ED under PMLA and such attachment is confirmed by a competent authority, they cannot be included in the resolution estate.

NCLAT Observations

• Section 238 of the IBC, which gives the Code overriding powers, does not apply to assets attached under PMLA in cases involving proceeds of crime.
• The tribunal clarified that IBC and PMLA operate in different domains and there is no irreconcilable inconsistency between them.
• The ED is not a creditor, but a public enforcement agency acting to uphold penal laws and international obligations, including under the FATF and UN conventions.

Implications of the Ruling

• Assets attached by ED and adjudicated as proceeds of crime cannot be made available for corporate resolution under IBC.
• The ruling upholds the decision of the National Company Law Tribunal (NCLT) which had earlier rejected the inclusion of such attached assets in a resolution plan.

TET