Moratorium u/s 14 of IBC Does Not Bar ED's Provisional Attachment Under PMLA: NCLAT [Read Order]

In this case, the appeal has been been filed under Section 61(1) of the Insolvency and Bankruptcy Code by Anil Kohli, the Resolution Professional (RP) for Dunar Foods Limited (Corporate Debtor), challenging the refusal of the Adjudicating Authority to direct the ED to release the provisionally attached assets of the Corporate Debtor.

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One of the main contentions that has been raised by the appellant is that the Corporate Insolvency Resolution Process (CRIP) objectives were being frustrated because the continued attachment of properties under the PMLA violates the moratorium under Section 14 of the IBC.

In gist, three issues were for determination in this case, and one of them was whether the provisional attachment of assets by the Directorate of Enforcement (ED) under the PMLA violates the moratorium imposed under Section 14 of the IBC.

It is to note that Section 14(1)(a) of the Insolvency and Bankruptcy Code states that once the CRIP proceedings commence, a moratorium is imposed that prohibits the institution or continuation of suits or proceedings against the corporate debtor, including execution of any judgment or order. The aim of the moratorium is to maintain the status quo of the debtor’s assets, protect the value of the debtor's estate, and also to make sure that the CRIP is carried out without disruption by individual enforcement actions.

It was argued by the appellant that just 4 days after the CRIP commenced, the ED issued the PAO, and this constitutes a proceeding in breach of this moratorium. It was contended that the moratorium under Section 14 applies to “all proceedings,” irrespective of their nature-civil, criminal, quasi-judicial, or otherwise, and hence includes attachment actions under PMLA.

The respondent contended that the actions under the PMLA are related to criminal law enforcement and not recovery or enforcement under Section 14 of the IBC. They further argued that the assets that were attached were alleged “proceeds of crime”, and by virtue of the PMLA, it is liable to be preserved, adjudicated, and confiscated in the interest of justice and public interest.

The tribunal by going through the timeline of events noted that the ED’s action occurred after the moratorium had commenced.

The NCLAT relied on its judgment in the case of ‘Varrsana Ispat Ltd. v. ED (Company Appeal (AT) (Ins.) No. 493 of 2018), in which the tribunal held that if attachment under PMLA is based on prior ECIRs and is duly confirmed under PMLA provisions, then such action cannot be interfered with by the IBC forum merely because CIRP is ongoing.

The bench noted that the ED’s proceedings were therefore rooted in pre-existing criminal investigation processes, and the assets involved were allegedly acquired as proceeds of money laundering, taking them outside the regular asset pool as contemplated under IBC.”

The NCLAT held that Section 14 of the IBC preserves lawful, unencumbered assets for resolution, and the PMLA, apart from the IBC, has its adjudicatory mechanism and remedy for challenging attachments.

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The tribunal affirmed that if the property is considered or alleged to be "proceeds of crime" and is already being adjudicated by a competent authority under a penal code, it cannot be included in the freely available resolution estate.

Thus, the bench held that the issuance of a PAO by ED under the PMLA does not violate the moratorium under Section 14 of the IBC.

The NCLAT, comprising Justice Rakesh Kumar Jain (Judicial Member), Naresh Salecha (Technical Member), and Indevar Pandey (Technical Member) dismissed the appeal.

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