IBC-PMLA Conflict: Understanding the Clash Between Insolvency and Anti-Money Laundering Laws

IBC-PMLA Conflict Latest News

• The National Company Law Appellate Tribunal (NCLAT) gave an important ruling recently. 
• It held that the moratorium under the Insolvency and Bankruptcy Code (IBC) cannot protect assets from attachment under the Prevention of Money Laundering Act (PMLA)k, if those assets are alleged to be “proceeds of crime.” 
• This ruling came in a case involving Siddhi Vinayak Logistics Ltd. The tribunal used a strong phrase to explain its reasoning — it said Parliament did not create the IBC to act like “a holy Ganges” that washes away a company’s criminal wrongdoing.

Background of the Case

• Siddhi Vinayak Logistics Ltd. is at the centre of this dispute. Its promoters are accused of serious financial crimes — bank fraud, forgery, criminal conspiracy, and diverting loan funds worth more than ₹1,600 crore.
• The Enforcement Directorate (ED) started action under the PMLA and provisionally attached the company’s assets in 2017. This means the ED legally seized control of these assets on the suspicion they were linked to crime.
• A few months later, the company entered the Corporate Insolvency Resolution Process (CIRP) under the IBC. This automatically triggered a moratorium under Section 14 of the IBC.
  • A moratorium is basically a “pause button.” Once it kicks in, no one can start or continue legal proceedings to recover money, enforce security interests, sell company assets, or cancel important contracts against the company. 
  • The idea is simple: keep all the company’s assets safe and intact while the insolvency process figures out how to fairly repay creditors.

What Happened Despite the Moratorium?

• Even though the moratorium was in place, the ED still withdrew ₹2.29 crore from one of the company’s bank accounts. 
• Later, in 2019, while the company was going through liquidation, the ED provisionally attached more than 6,000 vehicles owned by the company.
• The liquidator (the official managing the company’s liquidation) challenged these ED actions before the National Company Law Tribunal (NCLT). 
• The liquidator argued that these actions violated the IBC moratorium, since they reduced the assets available to repay creditors. 
• The NCLT rejected this argument, so the matter went up to the NCLAT.

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Why Do the IBC and PMLA Clash?

• These two laws exist for very different purposes:
  • The IBC aims to resolve corporate insolvency in an orderly way. Its goal is to preserve a company’s assets so that creditors can recover what they’re owed.
  • The PMLA gives the ED power to identify, attach, and eventually confiscate any assets suspected to be “proceeds of crime.”
• The key legal question before the tribunal was this: does the protection given by the IBC moratorium also cover assets that are simultaneously under investigation by the ED under the PMLA?

What Did the NCLAT Decide?

• The NCLAT framed this as a conflict between two laws, not between the liquidator and the ED as parties. It held that both laws operate in separate legal territories.
• The tribunal’s key reasoning was this: the IBC was designed to help creditors recover value from a company’s legitimate assets. 
• It was never meant to legalise or protect wealth that came from criminal activity. So, the Section 14 moratorium only protects assets that were acquired lawfully — it does not extend to assets alleged to be proceeds of crime under the PMLA.
• The tribunal acknowledged that creditors often accept reduced recovery amounts during insolvency. 
• But it said the national interest behind anti-money laundering law cannot be sacrificed just because a company happens to be going through insolvency.
• This judgment settles an important question of law: insolvency proceedings under the IBC cannot be used as a shield to stop the ED from attaching or holding onto assets suspected to be proceeds of crime. 
  • In simple terms, going bankrupt does not offer any escape route from anti-money laundering action.

Can Insolvency Tribunals Question ED’s Attachment Orders?

• No. The NCLAT made this clear too. It said insolvency tribunals like the NCLT and NCLAT have no power to examine whether a PMLA attachment order is valid or not. 
• Any challenge to such an attachment must go through the special legal process set up under the PMLA itself.
• This part of the ruling relied on an earlier Supreme Court judgment — Embassy Property Developments Pvt. Ltd. v. State of Karnataka. 
• The tribunal also pointed to a 2025 circular from the Insolvency and Bankruptcy Board of India (IBBI). 
• This circular had already advised insolvency professionals to approach the Special Court under PMLA if they want attached assets returned.

Conclusion

• This ruling draws a clear boundary between two important laws. The IBC protects legitimate business recovery, but it cannot be misused to shelter alleged criminal wealth. 
• The judgment strengthens PMLA’s reach, reaffirming that insolvency cannot become a route to escape accountability for financial crimes.

Source: TH | IE