S. 238 of IBC cannot Override PMLA in Cases Involving Proceeds of Crime: NCLAT [Read Order]

The Delhi bench of the National Company Law Appellate Tribunal (NCLAT) held that Section 238 of the IBC cannot override the PMLA in respect of proceedings involving proceeds of crime

In this case, the appeal has 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 Directorate of Enforcement (ED) to release the provisionally attached assets of the Corporate Debtor.

In this case, the appellant contends cust 4 days after the CRIP commenced, the ED issued the Provisional Attachment Order (PAO), and this constitutes a proceeding in breach of this moratorium under Section 14 of the IBC.

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One of the issues for determination before the bench was whether the IBC, by virtue of Section 238, overrides the PMLA in case of inconsistency, particularly in the context of resolution processes involving tainted assets.

The issue in this case is based on the potential conflict between the Insolvency and Bankruptcy Code, 2016 (IBC), and the Prevention of Money Laundering Act, 2002 (PMLA). The PMLA is a penal code that identifies, attaches, and confiscates properties associated with illicit actions like money laundering, whereas the IBC is a commercial statute that facilitates timely insolvency resolution for financially challenged companies.

The contention of the appellant is that due to the non-obstante clause and the fact that IBC is a later legislation, if the PMLA's attachment of corporate debtors' assets hinders a successful insolvency resolution, the IBC should take precedence.

The Respondent/ED argued that there was no consistency and that PMLA and IBC operate in different domains.

The bench followed a harmonious construction approach. It was of the opinion that PMLA is a penal law that aims to attach and confiscate the proceeds of crime, and that IBC is commercial and economic legislation.

The bench further noted that “the objectives of both statutes, though occasionally intersecting, are not inherently inconsistent. While the IBC aims at reviving commercial entities, the PMLA seeks to punish crime and prevent unjust enrichment through illicit means.”

The bench, by relying on the Delhi High Court’s decision in the case of ‘Deputy Director, ED v. Axis Bank [2019 SCC OnLine Del 7854]’ held that PMLA and IBC A operate in different fields and must be harmoniously construed and that under IBC tainted assets cannot be considered as a part of the resolution estate.

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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