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IBC vs. PMLA: Supreme Court Reinforces Jurisdictional Boundaries in Kalyani Transco Case

The Insolvency and Bankruptcy Code, 2016 (“IBC”), was enacted to inter alia provide a consolidated framework to resolve insolvency in a time-bound manner and to maximise the value of assets. This objective is further aided by a moratorium under Section 14 that halts legal proceedings against the corporate debtor, and the immunity provision under Section 32A, which offers a fresh slate to resolution applicants upon plan approval.

On the other hand, the Prevention of Money Laundering Act, 2002 (“PMLA”), is a penal statute aimed at preventing and controlling money laundering and confiscating the proceeds of crime. Its enforcement mechanism rests with the Directorate of Enforcement (“ED”), which is empowered to provisionally attach assets derived from or involved in money laundering. The PMLA provides for a comprehensive structure and mechanism to deal with the menace of money laundering, which has a very serious impact on the economic health of the nation.

In recent years, with the increasing number of high-profile insolvency cases involving financial fraud, the intersection of IBC and PMLA has understandably gained prominence. The fundamental tension lies in the treatment of properties attached under the PMLA that are also a part of the corporate debtor’s assets in insolvency proceedings. With increasing overlaps in enforcement actions and insolvency proceedings, courts have played a pivotal role in navigating the jurisdictional boundaries of these two statutes.

The recent Supreme Court (“SC”) judgement in Kalyani Transco v. M/s Bhushan Power and Steel Ltd. & Ors.[1], has sent strong ripples across India’s insolvency landscape. It inter alia deals with the issue of jurisdiction of the National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) over decisions of statutory authorities, such as the ED, established under the PMLA.

This article explores the legal issues and the conflicting judicial approaches concerning the interplay between these two statutes. It also sheds light on the findings of the aforesaid SC judgement.

Relevant provision: Section 32A

Before delving into the nuances of this issue, it is essential to examine the relevant provision — Section 32A of the IBC.

It was introduced through the IBC (Amendment) Act, 2020, to resolve a crucial legal bottleneck that was hampering the efficacy and effectiveness of the CIRP. The provision grants immunity to the corporate debtor and its assets from prosecution for offenses committed prior to the commencement of the insolvency process, once a resolution plan is approved and there is a change in management or control. This “clean slate” principle ensures that resolution applicants are not deterred from bidding for insolvent companies due to the fear of being burdened with the past criminal liabilities of the company. However, the immunity does not extend to the erstwhile promoters or management, who were responsible for the commission of such offenses. Section 32A thus aims to balance the objective of reviving stressed entities with the need to hold wrongdoers accountable, as and when required.

The provision assumes significance when seen in the context of conflicts between the IBC and the PMLA, where enforcement actions by the ED, such as attachment of assets, can undermine the effectiveness of the resolution process. For example, when the ED attaches properties of the corporate debtor during the CIRP, especially those critical to the revival plan, it may threaten the feasibility of the resolution plan. This is particularly problematic when assets financed by secured creditors are confiscated as alleged crime proceeds under the PMLA.

The constitutional validity of Section 32A was challenged in the landmark Manish Kumar v. Union of India[2]case. The petitioners argued that the provision violates Articles 14, 19, 21, and 300A of the Constitution by granting immunity even when assets are deemed “proceeds of crime” under Section 2(u) of the PMLA. However, the SC upheld the validity of Section 32A, observing that the provision is critical to ensuring the success of the resolution process. SC noted that immunity is not blanket, but is conditional upon a genuine change in control and non-involvement of the new management in prior offenses. It emphasised the rationale behind the provision, to encourage resolution applicants to invest in distressed assets without the fear of criminal consequences stemming from the actions of the previous promoters. SC further clarified that Section 32A does not shield individuals who have committed any wrongdoing and also does not override the prosecution of those who were responsible for the criminal conduct. Instead, it ring-fences the corporate debtor post-resolution, enabling economic revival, while ensuring accountability for past misconduct.

Thus, Section 32A serves as a pivotal safeguard that strengthens the IBC framework and facilitates effective implementation of resolution plans, particularly in cases where prior misconduct by the former management would otherwise scare potential investors.

Legal Interplay and Judicial Perspectives

Both the IBC and the PMLA are special legislations that contain non-obstante clauses, i.e. Section 71 under the PMLA and Section 238 under the IBC. Such clauses ensure that the provisions of these special statutes have overriding effect over other inconsistent statutes. When two such statutes with non-obstante provisions come into conflict, the year in which each statute was enacted becomes a significant factor in determining which one prevails.[3] However, this factor may not always constitute the solitary principle of interpretation. Much would also depend on the intent and scope of the two competing statutes.

The courts have given divergent treatment to PMLA attachments, especially where the timing of such attachment precedes or follows CIRP, and this continues to muddy the waters for stakeholders, as is evident from several cases, some of which are discussed herein below.

The interplay between the PMLA and the IBC first came to be considered in Varrsana Ispat Limited v. Deputy Director, Directorate of Enforcement[4], and thereafter in Rotomac Global Private Limited v. Deputy Director[5]. In both these cases, NCLAT Mumbai held that both the PMLA and the IBC operate in distinct domain and thus there is no overriding impact of one statute over the other. Since the attachment of assets under the PMLA relates to ‘proceeds of crime’, Section 14 of the IBC is not applicable to such criminal proceedings. It was further held that since the assets were attached prior to CIRP initiation, no benefit can be derived out of Section 14 of the IBC, as the notice of attachment was already available to the relevant stakeholders.

In Directorate of Enforcement Vs Manoj Kumar Agarwal & Others[6], the NCLAT took a different position. In this case, a provisional attachment order was passed after the moratorium came into effect. NCLAT held that considering the aim and object of the IBC, it would be impermissible for the authorities under the PMLA to exercise the powers of attachment once the moratorium has come into effect. It was held that even if a property has been attached under the PMLA, and if CIRP is initiated, the property should become available to fulfil objects of the IBC.

The larger Bench of the NCLAT in Kiran Shah, RP of KSL and Industries Ltd. v. Enforcement Directorate, Kolkata[7],settled this issue. It was held that there is no repugnancy and inconsistency between the two statutes and that Section 14 of the IBC will not hinder proceedings under PMLA. The NCLAT furtherobserved that NCLT lacks the jurisdiction to handle issues that fall under the authority of another body, such as those governed by the PMLA.Further, the SC had confirmed the judgment in Varrsana Ispat Ltd. v. Deputy Director of Enforcement vide order dated July 22, 2019[8], and it became final. Thus, the decision in Manoj Kumar Agarwal was rejected and came to be rendered as contrary to the principles of stare decisis.

In Nitin Jain, Liquidator PS: Ltd. v. Enforcement Directorate[9], the Delhi High Court held that the two statutes operate over distinct subjects and subserve separate legislative aims and policies. It was held that the NCLAT has correctly determined that the moratorium would not prevent authorities under the PMLA from exercising powers conferred by Sections 5 and 8, notwithstanding the pendency of the CIRP.

In Joint Director, Directorate of Enforcement v. Asset Reconstruction Company India Ltd and Ors.[10], even the Madras High Court held that NCLT lacks jurisdiction over matters governed under the PMLA. It further held that Section 32A of the IBC, which deals with the liability for prior offences, becomes applicable only when the Adjudicating Authority approves a resolution plan under Section 31 of the IBC.

In Rajiv Chakraborty RP of EIEL v. Directorate of Enforcement[11], the Delhi High Court conclusively held that:

  • the power to attach under the PMLA would not fall prey to Section 14(1)(a) of the IBC. Section 14 cannot be interpreted to shut out actions under Sections 5 and 8 of the PMLA. The provisional attachment of properties would in any case not violate the primary objectives of Section 14 of the IBC.
  • attachment under the PMLA does not result in extinguishment or effacement of property rights. Attachment is essentially aimed at preventing private alienations and it does not confer a title on the authority which has taken that step. The attachment only enables authorities under the PMLA to restrain any further transactions with respect to the aforesaid property, till such time as a trial with respect to the commission of an offence of money laundering comes to an end.
  • Through Section 32A, the legislature has definitively established the terminal point beyond which the powers under the PMLA cannot be exercised. The authorities under the PMLA would cease to have power to attach or confiscate only when a resolution plan has been approved or where a measure towards liquidation has been adopted.
  • Section 32A, which was introduced by Amending Act No.1 of 2020, with retrospective effect from December 28, 2019, would constitute the pivot by virtue of being the later act and thus govern the extent to which the non obstante clause enshrined in the IBC would operate and exclude the operation of the PMLA.

In Directorate of Enforcement v. Axis Bank[12], it was held that the government authority, when it exercises its powers under the PMLA to seek attachment leading to confiscation of proceeds of crime, does not stand as a creditor, and neither is the value of the property a “debt” due or payable to the government authority. A third party who is a bona fide purchaser can always approach the adjudicating authority seeking release of the attached property by showing that interest in the property is bona fide, for lawful and adequate consideration.

The Gujarat High Court in Am Mining India Pvt Ltd v. Union of India[13] concluded that Section 32A of the IBC excludes the operation of PMLA, thus overriding the power of ED to attach properties under PMLA. Further, the Bombay High Court in Shiv Charan v. Adjudicating Authority[14], upheld the NCLT’s powers to direct the Directorate of Enforcement (“ED”) to release attached properties of a corporate debtor, once a resolution plan had been approved in terms of Section 32A, ensuring a clean slate for the entity post-insolvency resolution.

In a significant ruling, the apex court in Manish Kumar vs Union of India[15] upheld the constitutionality of Section 32A of the IBC, noting that its purpose was to strike a balance between prosecuting guilty individuals and facilitating economic revival. The Court stated that “the provision is not an escape route for the wrongdoer but a mechanism to save a corporate debtor which may still be a viable economic entity.” It is also in line with the doctrine of a clean or fresh slate, as was originally propounded by the SC in Committee of Creditors of Essar Steel Ltd v. Satish Kumar Gupta[16].

Recently, the SC in Kalyani Transco v. M/s Bhushan Power and Steel Ltd. & Ors.[17]has dealt with issue of whether NCLT and NCLAT has power of judicial review over decisions of statutory authorities under the PMLA.

Kalyani Transco v. M/s Bhushan Power and Steel Ltd. & Others

Factual Background

The Corporate Insolvency Resolution Process (“CIRP”) against M/s. Bhushan Power and Steel Limited (“BPSL”) was initiated on July 26, 2017, at the behest of Punjab National Bank. BPSL’s account was identified as one of the infamously known “dirty dozen”, constituting about 25% of total non-performing assets in the country. The CIRP of BPSL has been riddled with multiple rounds of disagreements, discussions and litigations involving a broad range of stakeholders, including operational creditors, financial institutions, government bodies and erstwhile promoters.

JSW Steel Limited (“JSW”) emerged as the Successful Resolution Applicant (“SRA”), with the NCLT eventually approving the resolution plan on September 05, 2019, with certain conditions. Those conditions were challenged by SRA before the NCLAT. Meanwhile, the ED passed a Provisional Attachment Order (“PAO”), dated October 10, 2019, provisionally attaching the assets of BPSL under Section 5 of the PMLA. This PAO was challenged before NCLAT by SRA and vide order dated October 14, 2019, this PAO was stayed. Several appeals also came to be filed by various parties before the NCLAT, challenging the order dated September 05, 2019, passed by the NCLT.

The NCLAT vide a single order dated February 17, 2020 (“Impugned Order”), decided the aforesaid batch of appeals and approved the judgment and order dated September 05, 2020, passed by the NCLT. Furthermore, the NCLAT  modified the conditions imposed on the Resolution Plan by the NCLT. Aggrieved by the Impugned NCLAT Order, the present batch of appeals were filed by certain operational creditors and erstwhile promoters of BPSL, and government authorities. The core of the grievance of various stakeholders lay in the procedural and legal lapses during the CIRP process and the implementation of the resolution plan.

Jurisdiction of NCLT/ NCLAT vis-à-vis actions of statutory authorities under public law

One of the most crucial issues addressed by the SC was the role and jurisdiction of the NCLT and NCLAT in overriding the enforcement actions initiated by statutory authorities, such as the ED under the PMLA.

In the present case, the NCLAT had stayed a PAO issued by the ED by an ex-parte order on October 14, 2019. Subsequently, Section 32A was inserted in the IBC with effect from December 28, 2019[18], to deal with the issue of liability of a corporate debtor for offenses committed prior to the commencement of CIRP. Shortly thereafter, the NCLAT vide Impugned Order held that in view of Section 32A of the IBC, the ED did not have the powers to attach assets of the Corporate Debtor upon approval of the Resolution Plan, and that the criminal investigations pending against the Corporate Debtor also would stand abated.

However, the SC in the present case overturned the findings of the NCLAT and has conclusively held that neither the NCLT nor NCLAT has jurisdiction to review decisions taken by statutory authorities on matters that are in the realm of public law. Their jurisdiction and powers under the IBC are well-circumscribed under Section 31 and Section 60 (for NCLT) and Section 61 (for NCLAT). The SC, citing its earlier judgment in Embassy Property Developments[19], clarified that the jurisdiction of the NCLT/ NCLAT under Section 60(5)(C) (which covers questions arising out of or in relation to insolvency resolution) does not extend to reviewing or interfering with decisions made by a statutory authority in the realm of public law, like actions under the PMLA.

It was further held that in light of the statutory scheme as culled out from the various provisions of the Code, it is clear that wherever a corporate debtor has to exercise a right that falls outside the purview of the IBC, especially in the realm of the public law, they cannot take a bypass and go before NCLT for the enforcement of such a right.

Since the NCLT cannot exercise judicial review powers falling outside the IBC or within public law, the NCLAT, as an Appellate Authority under Section 61, also cannot exercise power or jurisdiction beyond Section 61 of the IBC. Thus, the SC emphasised that deciding such an issue in a company appeal under Section 61 was beyond the jurisdiction of the NCLAT and that such interference resulted in judicial overreach and is thus ultra vires its statutory mandate. Thus, the findings recorded in the Impugned Order, on this issue being without any authority of law and without jurisdiction, were held by the SC to be coram non judice.

It is pertinent to note that while in the present case, the NCLAT did base its decision partly on the interpretation of Section 32A of the IBC, the SC did not express a definitive opinion on the interpretation of Section 32A(2) or the ED’s power to attach assets once moratorium is imposed upon a corporate debtor.

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Conclusion

The interplay of the PMLA and the IBC is a critical test for India’s evolving insolvency regime and the necessity to curb and control instances of money laundering. As courts continue to delineate the contours of their respective scopes and objectives, it is imperative that pragmatic and balanced approach is adopted — one that ensures accountability for wrongdoers without compromising the prospects of reviving economically viable business under the IBC framework.

From a plethora of judgements, including the ones enumerated herein, it stands established that while PMLA proceedings may continue against individuals, Section 32A of the IBC shields the corporate debtor and its assets post approval of resolution plan, provided there is change in management and no involvement of the new owner in past offences. While the SC’s verdict in Kalyani Transco has reaffirmed this understanding, it has also set out the jurisdictional boundaries of NCLT and NCLAT to review the decisions of the statutory authority under the PMLA.

[1] Civil Appeal No(s).1808/2020 – Decided by SC on 02.05.2025.

[2] WP. (C) No. 26 of 2020 – Decided by SC on 19.01.2021

[3] Rajiv Chakraborty Resolution Professional of EIEL v. Directorate of Enforcement, W.P.(C) 9531/2020; Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. ((2001) 3 SCC 71).

[4] Company Appeal (AT)(Insolvency) No. 493 of 2018 – Decided by NCLAT on 02.05.2019.

[5] Company Appeal (AT)(Insolvency) No. 140 of 2019 – Decided by NCLAT on 02.07.2019.

[6] Company Appeal (AT)(Insolvency) No. 575 of 2019 – Decided by NCLAT on 09.04.2021.

[7] Company Appeal (AT)(Insolvency) No. 817 of 2021 – Decided by three Member of NCLAT on 03.01.2022.

[8] Civil Appeal 5546 of 2019 – Decided by SC on 22.07.2019.

[9] W.P.(C) 3261 of 2021 – Decided by Delhi High Court on 15.12.2021.

[10] Writ Petition No. 29970 of 2019 – Decided by Madras High Court on 02.06.2020.

[11] W.P.(C) No. 9531 of 2020 – Decided by Delhi High Court on 11.11.2022.

[12] CRL.A. 143/2018 and Crl.M.A. 2262/2018 – Decided by Delhi High Court on 02.04.2019.

[13] R/Special Civil Application No. 808 of 2023 – Decided by Gujarat High Court on 24.08.2023.

[14] WP (L) No. 9943 of 2023 and WP (L) No. 29111 of 2023 – Decided by Bombay High Court on 01.03.2024.

[15] WP. (C) No. 26 of 2020 – Decided by SC on 19.01.2021.

[16] Civil Appeal No. 8766-67 of 2019 – Decided by SC on 15.11.2019.

[17] Civil Appeal No(s).1808/2020 – Decided by SC on 02.05.2025.

[18] Ins. by Act No. 1 of 2020, sec.10 (w.e.f. 28-12-2019).

[19] Embassy Property Developments Private Limited v. State of Karnataka & Ors. [3 (2020) 13 SCC 308].