NCLAT rules that IBC moratorium does not protect assets from ED attachment under PMLA, clarifying legal boundaries between the two laws.
New Delhi, India Jul 3, 2026 ALN: The story so far: The National Company Law Appellate Tribunal (NCLAT) recently delivered a significant ruling concerning the intersection of the Insolvency and Bankruptcy Code (IBC) and the Prevention of Money Laundering Act (PMLA). The tribunal determined that the moratorium provided under the IBC does not shield assets that are alleged to be “proceeds of crime” from being attached under the PMLA. This ruling emerged from a case involving Siddhi Vinayak Logistics Ltd., where the Enforcement Directorate (ED) had taken steps to attach the company's assets despite its entry into insolvency proceedings. The Principal bench of NCLAT emphasized that the legislative intent behind the IBC was not to absolve corporate debtors from allegations of criminality under the PMLA.
The case at hand revolves around Siddhi Vinayak Logistics Ltd., whose promoters have been implicated in serious allegations including bank fraud, forgery, criminal conspiracy, and the diversion of loan funds exceeding ₹1,600 crore. In response to these allegations, the ED initiated proceedings under the PMLA and provisionally attached the company’s assets back in 2017. Shortly thereafter, the company entered the Corporate Insolvency Resolution Process (CIRP), which triggered a moratorium under Section 14 of the IBC, designed to protect the company’s assets during the insolvency resolution process.
However, during this moratorium, the ED withdrew ₹2.29 crore from one of the company's bank accounts. In 2019, as liquidation proceedings commenced, the ED went further to provisionally attach over 6,000 vehicles owned by the company. The liquidator contested these actions before the National Company Law Tribunal (NCLT), arguing that they contravened the IBC moratorium by diminishing the assets available for creditors. When the NCLT rejected this plea, the case escalated to the Appellate tribunal, NCLAT, for further deliberation.
The IBC's moratorium is a critical component of the insolvency framework. It serves as a protective measure, preventing any judicial proceedings aimed at the recovery of debts, enforcement of security interests, sale or transfer of assets, or termination of essential contracts against the Corporate Debtor during the CIRP. The overarching goal of this moratorium is to preserve the corporate debtor's assets, providing a fair opportunity for the resolution process to unfold without external pressures that could lead to asset depletion.
In stark contrast, the PMLA serves a different purpose, focusing on the identification, attachment, and eventual confiscation of assets that are suspected to be derived from criminal activities. This law empowers the ED to act decisively to combat money laundering, ensuring that proceeds of crime do not circulate freely in the economy.
The legal conflict arises from the simultaneous application of these two statutes. The key question posed before the tribunal was whether the protective measures provided under the IBC moratorium extend to assets that are also under scrutiny under the PMLA.
The NCLAT ruling underscores the tension between the objectives of the IBC and the PMLA. The IBC aims to facilitate the resolution of corporate insolvency while maximizing recoveries for creditors by preserving the company’s legitimate assets. It does so through the moratorium, which is a shield for the corporate debtor against any claims that could jeopardize the resolution process.
On the other hand, the PMLA is focused on curtailing financial crimes and ensuring that assets associated with illegal activities are not used to the detriment of the economy. The ED’s mandate includes taking swift action to prevent the dissipation of alleged proceeds of crime, which can include freezing or attaching assets even when a company is undergoing insolvency proceedings.
Thus, the crux of the matter is whether the protections under the IBC can be invoked to safeguard assets that are under the purview of the PMLA, which has a distinct and critical public interest objective.
The NCLAT's ruling clarified that the conflict is not merely between the liquidator and the ED, but rather involves the broader legal principles governing the IBC and the PMLA. The tribunal concluded that the IBC was specifically designed to maximize value for creditors through the legitimate sale of assets and should not be construed as a means to legitimize wealth that may have been acquired through criminal means.
According to the tribunal, the moratorium under Section 14 of the IBC only protects assets that have been legitimately acquired. Therefore, it does not extend to assets that are alleged to be proceeds of crime as defined under the PMLA. The tribunal made it clear that while creditors might have to accept reduced recoveries during insolvency proceedings, the overarching national interest embodied in the PMLA must not be compromised.
The tribunal’s observations included a poignant remark that Parliament did not create the IBC to serve as a “holy Ganges,” capable of washing away the alleged criminality of corporate debtors or legitimizing “ill-gotten wealth.” This metaphor highlights the tribunal’s stance that the integrity of the financial and legal systems must be maintained and that the IBC cannot serve as a shield against allegations of serious financial misconduct.
Moreover, the tribunal ruled that insolvency tribunals do not possess the authority to challenge the validity of attachment orders issued under the PMLA. Instead, any grievances regarding such actions must be addressed through the established adjudicatory mechanisms under the PMLA. This aligns with the Supreme Court’s previous decision in Embassy Property Developments Pvt. Ltd. v. State of Karnataka, emphasizing the need for a clear jurisdictional boundary between the IBC and the PMLA.
The NCLAT also referenced a 2025 circular from the Insolvency and Bankruptcy Board of India, which advised insolvency professionals to approach the Special Court under the PMLA for any restitution of assets that have been attached. This further solidifies the legal framework that separates the two statutes and underscores the importance of following the appropriate legal channels when dealing with issues of asset attachment under the PMLA.
In conclusion, the judgment serves as a critical clarification that insolvency proceedings, as governed by the IBC, cannot be misused to obstruct the ED’s mandate under the PMLA. This ruling not only reinforces the integrity of the legal system but also highlights the importance of maintaining a clear distinction between the processes of corporate insolvency resolution and the enforcement of laws designed to combat financial crime.
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