IBC vis-à-vis PMLA: Does Section 32A Resolve the Question of Primacy?

[Manisha Arora is a 3rd year B.A., LL.B. (Hons.) student at Damodaram Sanjivayya National Law University, Visakhapatnam]

The absence of definitive jurisprudence on the interplay of the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Prevention of Money Laundering Act, 2002 (“PMLA”) has resulted in the uncertainty in their enforcement. While the IBC ensures the management of operations of a corporate debtor on a going concern basis during corporate insolvency resolution process (“CIRP”), the PMLA, on the contrary, provides for attachment, seizure or confiscation of assets derived from or involved in money laundering. One legislation at loggerheads with another, resultantly, precludes the way for a just and fair resolution process, placing CIRP at a standstill.

There have been considerable attempts in the past when the judiciary missed the opportunity to settle the position in law, but in some cases it has successfully established an interface between the IBC and other statutes, including the PMLA. It is noteworthy that although the IBC’s primacy is generally favoured, there are instances like Varrsana Ispat Limited v. Deputy Director, Directorate of Enforcement where, despite the judicial recognition of the doctrine of leges posteriores priores contraries abrogant (in the event two legislative enactments contain non-obstante clauses, the enactment later in time shall prevail) in Solidaire India Ltd. v. Fairgrowth Financial Services Private Limited, section 71 of the PMLA surprisingly took precedence over section 238 of the IBC. Be as it may, the insertion of section 32A (being a non-obstante provision itself) provided much-needed certainty and predictability, thereby safeguarding parties who may have acquired bona fide interest in the properties of the corporate debtor.

Pertinently, against the ambiguity surrounding the operation of non-obstante clauses, section 32A provides immunity to the corporate debtor and its assets from any prosecution, attachment or similar proceedings upon the approval of a resolution plan, if the resolution plan results in a change in the management or control of the corporate debtor. The provision, subsequently, passed the test for validity in JSW Steel Limited v. Mahender Kumar Khandelwal, the case that has been theorized to be the raison d’etre of the provision in the first place.

Most recently, National Company Law Appellate Tribunal (“NCLAT”) in Directorate of Enforcement v. Manoj Kumar Agarwal took a step forward in construing the overriding nature of the IBC and held that even if there existed an attachment order prior to the commencement of CIRP, the provisions of IBC would override those of PMLA and a moratorium would be applied to the attachment proceedings. In order to arrive at this finding, the NCLAT made reference to the very object and scheme of the IBC which warrants the effective revival of the corporate entity, which would stand frustrated if the resolution professional is not given charge of the properties of the debtor.

The focal point of discussion in intricately intertwined proceedings like the above is to decide whether the legislation with primarily multitude of civil and commercial implications can, in such manner, extensively override other legislation governing their respective individual fields. Admittedly, through its decision in Manoj Kumar Agarwal, the NCLAT broadened the scope of overriding powers of the IBC in relation to section 32A read with section 238, the reasoning and implications of which are discussed in this post.

Factual Matrix

The appeal in this matter arose from the order passed by the National Company Law Tribunal (“NCLT”), Mumbai bench in SREI Infrastructure Finance Ltd v. Sterling International Enterprises Ltd. A bare perusal of the facts illustrates that on July 16, 2018, the CIRP was initiated after admission of the application under section 7 of the IBC. Prior to this, however, on May 29, 2018, a provisional attachment order (“PAO”) directing attachment of the assets purchased from the proceeds of crime was issued. Shortly thereafter, on November 20, 2018 (i.e., post the initiation of CIRP), the said order was confirmed by the adjudicating authority under the PMLA. Being aggrieved by the PAO, the resolution professional moved an application before the NCLT seeking de-attachment of assets.

In a setback to Directorate of Enforcement (“ED”), the NCLT, after discussing various judicial precedents at length, held that the attachment order is void and non est in the light of sections 14(1)(a), 63 and 238 of the IBC, and thereby ordered the resolution professional to take control of the properties of the debtor.  

Before the NCLAT, the aforesaid order was challenged for various reasons, including that (a) the NCLT lacks the competence to decide any grievance related to attachment which, alternatively, should be decided by the adjudicating body under the PMLA; (b) the present proceedings are related to proceeds of crime and have no bearing on the realm of moratorium under section 14 which essentially applies to civil proceedings; and (c) the application of section 32A is ultra vires, as the same bars the attachment only after the resolution plan is approved.


In the above sequence, the NCLAT first ascertained the jurisdiction of the NCLT to interfere with the PAO under section 60(5)(c) of the IBC which stipulates that any question in relation to insolvency resolution can be decided by the NCLT. The ED contested that the adjudicating authority under the PMLA is the competent authority to settle any question relating to attachment order, and that the resolution professional could not have taken shortcut under section 60(5)(c). Whilst upholding the jurisdiction of the NCLT under the said provision, the NCLAT made a brief reference to the ruling of the Supreme Court in Manish Kumar v. Union of India where it was categorically held that the objective of the IBC would frustrate if the corporate debtor or the resolution professional is prevented from invoking its provisions.  

Regarding the ‘civil nature’ of proceedings, reliance was placed upon the NCLAT’s ruling in Varrsana Ispat with almost identical facts to argue that the proceedings under the PMLA are criminal in nature and, therefore, any application of section 14 moratorium would allow the erstwhile promoters to take benefit of ‘illegally acquired’ fruits of crime. However, despite the fact that the NCLAT’s findings in Varrsana Ispat were affirmed by the Supreme Court, the NCLAT in Manoj Kumar Agarwal took a progressive turn to observe that the act of attachment, and the subsequent event of confirmation by the PMLA Adjudicating Authority, are civil in nature. In essence, the NCLAT relied on the three-judge bench decision of the Supreme Court in Pareena Swarup v. Union of India to distinguish the attachment proceedings under section 5 and 8 of the PMLA conducted by the ED from a criminal complaint for offences under section 3 of the PMLA dealt exclusively by the special courts. Therefore, the attachment proceedings are independent civil proceedings to the extent that they do not warrant any penalty or punishment and their institution or continuation will, in all cases, hit by section 14 of the IBC.

Arguendo, even if the underlying proceedings could not come within the ambit of section 14, owing to their criminal nature, section 238 would still apply and the IBC, being a subsequent enactment, will override anything inconsistent contained in the PMLA. Having regard to the duties of the resolution professional in relation to the properties of the debtor, which includes management of its operations as a going concern, goes to establish the efficacy of the proceedings, and any obstruction created by attachment or other proceedings under the PMLA would be vitally detrimental to the interests of the debtor. Hence, in order to settle the question of primacy in relation to the two special statutes, the NCLAT interpreted the scheme of the IBC along with certain key provisions to hold that the non-obstante clause mentioned in section 238 will prevail.

Whilst parting, the NCLAT held that although the PMLA is not repugnant to the IBC, since both the statutes operate in two dissimilar fields, unbridled access to assets is imperative to achieve value maximization of the ailing corporate entity. Although section 32A can be triggered only when the matter has reached the stage of acceptance of the resolution plan, the provision could not be construed against the aims and objects of the IBC.


The Supreme Court in  Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and recently in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited expounded the ‘clean slate’ principle to indicate the imperative to extinguish past liabilities of the corporate debtor, which in turn ensures the fair value of the assets. This objective is distinctly in consonance with the Insolvency Law Committee Report, 2020 which opined that the “threat of liability falling on bona fide persons who acquire the legal entity, could substantially lower the chances of its successful takeover by potential resolution applicants”. While it was certain following courts’ verdicts and with the insertion of a sweeping section 32A that all claims stand extinguished after the approval of the resolution plan, there was still no clarity on the legality of the actions of statutory authorities taken against the debtor prior to the commencement of CIRP. The NCLAT, through Manoj Kumar Agarwal, is likely to bring the focus back on the extent of the IBC’s overriding powers under section 32A read with section 238. Although invoking section 32A is not directly instructive in this matter (since the resolution plan is yet to be approved), the objective behind its insertion cannot be overlooked and shall be complied with both in letter and spirit.  

Manisha Arora

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