PMLA vs. Moratorium under the Insolvency and Bankruptcy Code: The NCLAT Clarifies the Scope of Section 14
The decision of the National Company Law Appellate Tribunal (NCLAT) in Value Wise Consultancy Pvt. Ltd v. Deputy Director, Directorate of Enforcement (30.06.2026) is an important development in defining the relationship between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prevention of Money Laundering Act,2002 (PMLA). The case addressed whether the moratorium imposed under Section 14 of the IBC prevents the Enforcement Directorate (ED) from attaching or dealing with assets alleged to be proceeds of crime.
Factual Background
The dispute arose from an Enforcement Directorate (ED) investigation into Siddhi Vinayak Logistics Ltd. regarding alleged bank fraud and the diversion of loan funds. Prior to the initiation of the Corporate Insolvency Resolution Process (CIRP), the ED issued notices under Section 50 of the PMLA to the corporate debtor’s customers including Ashok Leyland Ltd. and Haldia Petrochemicals Ltd, directing them not to release funds.
Following the commencement of CIRP and the enforcement of Section14 moratorium, the ED withdrew over rupees 2.29 crore from the Corporate Debtor’s ICICI Bank account and subsequently issued fresh provisional attachments during the liquidation phase. The liquidator approached the adjudicating authority seeking the refund of these funds and the quashing of the Section 50 notices. The NCLT dismissed the application for lack of jurisdiction, prompting the appeals to the NCLAT.
Distinct Legislative Objectives
The NCLAT affirmed NCLT’s decision. It held that the PMLA and the IBC operate in distinct legal spheres and pursue different legal objectives. While the IBC is intended to facilitate insolvency resolution and maximize value for creditors, the PMLA seeks to prevent money laundering and ensure confiscation of proceeds of crime. Thereby, assets alleged to be tainted cannot be protected merely because insolvency proceedings have commenced. Further it was highlighted by the Tribunal that IBC serves to resolve corporate insolvency which involves balancing the compromisable interests of creditors. Whereas, the legislative intent behind enacting PMLA was to fulfill India’s international obligations to combat money laundering and economic terrorism, The Tribunal categorized the tracking and confiscation of crime proceeds under the PMLA as an uncompromisable national interest.
The Limits of the IBC Moratorium
Another major finding of the court was that moratorium under Section 14 (and Section 33(5) during liquidation) applies strictly to the legitimate assets of Corporate Debtor and prevent coercive actions that would increase civil liabilities. It does not extend to criminal or penal proceedings under public law statutes such as the PMLA. According to the Tribunal, allowing proceeds of crime to become part of the insolvency estate would undermine the very purpose of the PMLA and would be contrary to public policy.
The NCLAT firmly stated that the IBC cannot be utilized as “Holy -Ganges” to cleanse a corporate debtor of its criminality or as shield to legitimize the tainted assets.
Jurisdictional Boundaries
As a result of this, the NCLAT held that insolvency tribunals lack the authority to review or interfere with ED actions. This finding drew on the Supreme Court’s jurisprudence in Embassy Property Developments, It was also noted that even though the PMLA Appellate Tribunal had previously set aside an earlier attachment order which the ED challenged before the Bombay High Court without obtaining a stay the NCLAT determined that the liquidator’s remedy still lies exclusively within the PMLA’s adjudicatory framework. To reinforce this, the Tribunal referenced an Insolvency and Bankruptcy Board of India (IBBI) Circular dated November 4, 2025, which explicitly advises resolution professionals to seek the restitution of attached assets before the Special Court under Sections 8(7) or 8(8) of the PMLA.
Conclusion
This decision strictly demarcates the boundaries of commercial insolvency, establishing that the IBC’s overriding effect cannot supersede public law penal proceedings or halt the statutory tracing of proceeds of crime. The judgement clarified the scope of moratorium under the IBC is not confined to the CIRP stage alone, it operates under Section 14 during CIRP and continues in substance under Section 33(5) during liquidation. The NCLAT’s ruling applies to both phases, since the Enforcement Directorate’s actions in this case spanned the two: the withdrawal of INR 2.29 crore occurred during CIRP, while the fresh attachment of vehicles occurred after the Corporate Debtor entered liquidation. Another facet of the judgement is that it did not hold that the PMLA overrides the IBC as a blanket proposition. Rather, its finding is asset-specific: the moratorium, in either phase, protects only the Corporate Debtor’s legitimately acquired assets and was never intended to shield assets alleged to be proceeds of crime. Another notable point is that since the CIRP failed and liquidation was ordered, the statutory immunity otherwise available under Section 32A remained entirely inapplicable. The judgement leaves an absolute mandate that corporate debt resolution will not pave a path to escape criminal accountability, and remedies against state attachments must be strictly adhered before the specialized fora of the PMLA.
Disclaimer: The views expressed herein are solely for legal research purposes and do not constitute legal opinion, legal advice, solicitation, or professional guidance of any nature. The views are personal to the author and do not necessarily reflect those of PJ Law Offices (www.pjlaw.in), its principal, representatives, associates, retainers, affiliates (collectively, “PJLaw”). Readers are advised to seek independent legal counsel before acting on any information contained herein. PJLaw makes no representation or warranty, express or implied, regarding the accuracy or completeness of the contents and expressly disclaims all liability arising from reliance upon or use of the same.
