This article is written by: Lovish Loona and Muskan, 3rd and 4th year students at RGNUL, Punjab, and GNLU, Gandhinagar, respectively.

INTRODUCTION

The legal issues between the application of Insolvency and Bankruptcy Code, 2016 (“IBC”) and Prevention of Money Laundering Act, 2002 (“PMLA”) has continued for long, with regards to the assets being a part of Resolution Plan under Section 32A of IBC & being free from any liabilities; and the same being subject of ‘proceeds of crime’ by Enforcement Directorate (“ED”) under Section 5 of the PMLA. This tussle between the two acts has been ongoing since the Code’s inception, and even the courts have not settled this issue; deciding cases on facts and circumstances, without establishing a concrete interpretation of the statutes. This article delves into this question in light of   Kalyani Transco v. Bhushan Power & Steel Ltd., and the critique of that judgement, in light of the open-ended situations that it has posed, and how the judgment defeats the legislative intent behind the introduction of Section 32A.

INTERPRETATION OF THE SECTION

Section 32A of the IBC, inserted through the 2020 amendment, is a non-obstante clause providing a clean state mechanism. Section 32A (1), absolves the Corporate Debtor (“CD”) from any liability for the offence committed prior to institution of Corporate Insolvency Resolution Process (“CIRP”). Further, the word ‘offence’, is a wider term, and includes in itself the public/criminal offence, thus not limiting the application of the section to just private wrong. Section 32A (2), extends this protection to the assets forming part of Resolution Plan approved by the Adjudicating Authority.

As held in Varsanna Ispat Limited v. Deputy Director of Enforcement, (“Varsanna Ispat”), where the NCLAT observed that section 14 of IBC doesn’t apply to public offences, and because PMLA deals with ‘proceeds of crime’, it is outside its scope so moratorium will not apply to the prosecution started under PMLA act by the ED. This case was decided in 2019, when Section 32A was not enacted.

But in Section 32A, this is not the case, as the legislature has specifically used the word ‘offence’, which signifies not only a civil proceeding but also criminal proceedings. The Section 3(38) of General Clause Act, 1897, defines “offence” means “any act or omission made punishable by any law for the time being in force.” Thus, it covers in its umbrella, the public law, and PMLA is a part of it.

CONFLICT OF NON-OBSTANTE CLAUSES

Section 32A and Section 60 of IBC, as well as Section 71 of PMLA, are non-obstante clauses. Now, the conflict arises: if both the acts have non-obstante clauses, then the question arises about applicability of either statute. When this conflict arises, “doctrine of posteriores priores contraries abrogant” holds that the law that is enacted later prevails, as that statute represents the latest will of the legislature. However, in Rajiv Chakraborty Resolution Professional of EIEL vs. Directorate of Enforcement, this doctrine was not applied. The court distinguished this case from the applicability of this doctrine, as the object of both the statutes is different, and hence did not conflict inherently. But, the court did not examine how ED’s attachment of assets will negatively affect the bona fide Corporate Creditors, especially when Section 32A aims to protect them in cases of pre-CIRP offences.

CONUNDRUM OF THE INTERPRETATIONS VIS-À-VIS CONFLICTING OPINIONS OF THE COURTS

The conflict between the Section 32A clean-slate mechanism and attachment of the properties by ED under PMLA has persisted, with no comprehensive resolution from Courts.

Two significant rulings addressed the issue-

• Bombay High Court in Shiv Charan v. Adjudicating Authority(2024) (“Shiv Charan”),
• Supreme Court inKalyani Transco v. Bhushan Power & Steel Ltd. (2025) (“Kalyani Transco”).

In Shiv Charan, the Bombay High Court upheld the NCLT’s power to direct the ED to release attached properties, citing that section 32A nullifies attachments once the Resolution Plan got approved by the Adjudicating Authority. It affirmed that Section 60(5), also a non- obstante clause, gives NCLT authority to adjudicate matters related to CIRP.

The main contention that came before the Bombay High Court was whether NCLT has the power under the IBC code to direct the release of assets. The court went into the interpretation of the Section 32A, and opined that the section is constitutionally valid, as held in the case of Manish Kumar v. Union of India (“Manish Kumar”), and the protection is only granted after the approval of Resolution Plan under Section 31, and that too after the fulfilment of all the conditions under Section 32A. The court also highlighted that this provision was brought after the experiences that the legislature has felt overtime, since the implementation of the act. Also, the Bombay High Court opined that, Section 60 (5) is also a non-obstante clause, and authorises NCLT to adjudicate all the issues that arise in relation to the Resolution Process.

In this way, the court recognised the intent of the legislature, section and the act of IBC, that it is enacted for the welfare of the creditors, who are the beneficiaries and have no fault of their own, and they are not getting their money and investments back. The court acknowledged that PMLA is related to proceeds of crime, but when the question comes under the purview of Section 32A, then the welfare of the creditors gets a front hold. Further, in the peculiar circumstances, where there is not only a question under IBC, but also under PMLA, which has its own adjudicating authority under the Act, whether NCLT can adjudicate the said matter under Section 60 (5), is also a point of consideration. We can infer that court has given more importance to the rights of the corporate creditors in this regard, rather than attachment by ED, as they are the one who are suffering because of the ill-deeds of the Debtor. Also, the attachment of the assets can be challenged by the CD before the Adjudicating authority under PMLA, and a number of times, the Adjudicating Authority allows the de-attachment of the assets. Also, at trial end under PMLA, the assets are often released by the Adjudicating Authority, at the conclusion of the proceedings, as not being the ‘proceeds of crime’. Again, it would be both unfair and time-consuming for the Corporate Creditors to approach the Adjudicating Authority under PMLA, for the de-attachment of the assets, as it is time-consuming and  contrary to their rights, and makes Section 32A protection infructuous.

However, this position was reversed by the Supreme Court in the Kalyani Transco case, where the court held that the NCLT is not the appropriate authority to direct the ED to release the assets, as the ED operates under the PMLA, which is a public law that serves a greater public interest. The court based its ruling on the judgement of Embassy Property Developments Private Limited v. State of Karnataka (“Embassy Developments”), wherein the court held that the Section 60 (5) deals with the question of law or fact, concerning resolution process, while the decision of ED is arising out of Public law, and hence, it is out of the purview of NCLT under Section 60 (5) to decide the same. The court also did not get into the interpretation of Section 32A.

Though the court ordered that NCLT is not the appropriate authority, it also didn’t lay down who the appropriate authority is. But, what flows ultimately is what is left, which is the adjudicating authority under PMLA. Although Section 8 (7) of the PMLA gives recourse or scope to Corporate Creditors to approach the Special Court under PMLA for the release of assets, however, the same problem persists: authority has powers as per the PMLA, and it is responsible for deciding matters under the PMLA, not the IBC. Further, if the Corporate Creditors are asked to approach the Adjudicating Authority under PMLA, then the whole point of having tribunals for speedy justice gets defeated.

WAY FORWARD

The main debate surrounding the conflict between IBC and PMLA has reignited as the latest judgement in Kalyani Transco by the Supreme Court has opened Pandora’s Box. in another case Anil Kohli Resolution Professional v. Directorate of Enforcement, decided on 03/07/2025, the NCLAT made reference to Kalyani Transco and held that, the application of this judgement precludes the NCLAT from interfering with PAO made by ED. But this position is problematic, as this renders the whole mechanism under Section 32A toothless, and the creditors are suffering at the whim of ED.

When we took the point of harmonious construction of both the statutes, then the position laid down in Shiv Charan attracts greater credibility, as it balances both the statues on the basis of legislative intent, which is the law-making body. A balance can be created by laying down that, the CIRP and PMLA proceedings can go on simultaneously, where assets are being liquidated to satisfy the claims of the Creditors, and at the same time, ED is authorised to check those assets, and continue proceedings and investigations against the accused.