Discuss interplay between Insolvency and Bankruptcy Code and Prevention of Money Laundering Act. Does moratorium under IBC override ED's power to attach assets?

Q. Discuss interplay between Insolvency and Bankruptcy Code and Prevention of Money Laundering Act. Does moratorium under IBC override ED's power to attach assets? (15 marks, 250-350 words)

The IBC, 2016 is a commercial law aimed at value maximisation and time-bound revival, while the PMLA, 2002 is a penal law aimed at confiscating "proceeds of crime" [1][2]. Their overlap arises when a corporate debtor's assets are simultaneously the creditors' security and the suspected fruit of an offence.

Points of friction

• Section 14, IBC imposes a moratorium barring suits, recovery actions and asset transfers once CIRP is admitted, to keep the asset pool intact [1].
• PMLA empowers the Enforcement Directorate to provisionally attach property involved in money laundering, pending adjudication and confiscation [2][3].
• Conflict is sharpest where attachment precedes insolvency — as in the Siddhi Vinayak Logistics case, where ED attachment over alleged bank-fraud and loan-fund diversion of over ₹1,600 crore predated the debtor's insolvency [4].
• Practical effect: parallel proceedings run before the NCLT/Resolution Professional and the ED, shrinking the resolution pool and raising valuation risk for resolution applicants.

Does the moratorium override ED?

• No. Attachment under PMLA is a penal action against tainted property, not a creditor's "recovery" of debt, and therefore falls outside the mischief Section 14 seeks to prevent [1][2].
• The NCLAT has held that the moratorium protects only the debtor's legitimate assets and does not extend to proceeds of crime; insolvency tribunals lack jurisdiction to test the validity of ED action, which must be challenged before PMLA authorities and High Courts [4].
• The IBC does prevail in one calibrated sense: Section 32A grants the corporate debtor and its assets immunity from attachment after a resolution plan is approved with a genuine change in management — but this "clean slate" never shields erstwhile promoters [1][5].

Thus the two statutes are complementary rather than competing: criminality is punished before resolution, and finality is granted after it. Going forward, institutional coordination between the ED and Resolution Professionals, and early demarcation of tainted assets within CIRP timelines, would protect both creditor value and the integrity of the anti-money-laundering regime — serving the IBC's revival mandate without letting insolvency become a refuge for economic offenders.

(~330 words)

Sources: 1. Insolvency and Bankruptcy Code, 2016 — India Code — Section 14 moratorium; Section 32A immunity and its limits 2. Prevention of Money-Laundering Act, 2002 — India Code — confiscation of proceeds of crime; penal character of attachment 3. Directorate of Enforcement — What We Do — ED's mandate to trace and provisionally attach proceeds of crime 4. NCLAT — Liquidator of Siddhi Vinayak Logistics Ltd. v. Directorate of Enforcement — moratorium does not bar PMLA attachment; tribunal lacks jurisdiction over ED action 5. Punjab National Bank v. Kalyani Transco & Ors., 2025 INSC 1165 (Supreme Court) — post-approval "clean slate" protection under the resolution framework