Section 32A IBC Prevails Over PMLA Attachments Post-Resolution Plan Approval, Rules Bombay High Court

Mumbai: In a significant ruling clarifying the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prevention of Money Laundering Act, 2002 (PMLA), the Bombay High Court has held that the immunity granted under Section 32A of the IBC to a corporate debtor and its assets upon the approval of a resolution plan takes precedence over prior attachments made by the Enforcement Directorate (ED) under the PMLA.

Justice SomasekharSundaresan , presiding over two writ petitions, one filed by the successful resolution applicants and the other by the ED, affirmed that the National Company Law Tribunal (NCLT) has the jurisdiction under Section 60(5) of the IBC to interpret and give effect to Section 32A, including directing the release of attached properties.

Case Background

The case involved DSK Southern Projects Private Limited, a corporate debtor undergoing the Corporate Insolvency Resolution Process (CIRP) since December 9, 2021. Prior to the CIRP, in October 2017, FIRs were filed against the corporate debtor and its erstwhile promoters for scheduled offences under PMLA. The ED initiated proceedings, filing an ECIR and subsequently attaching bank accounts and 14 flats of the corporate debtor in February 2019. This attachment was confirmed in August 2019 and continued even after the commencement of CIRP and the subsequent approval of a resolution plan by the NCLT on February 17, 2023.

The approved resolution plan, which led to a change in management unconnected to the previous promoters, explicitly directed the ED to release the attached properties based on Section 32A of the IBC. Despite this, the ED maintained the attachment, leading the resolution applicants to file a writ petition seeking release. Separately, the ED challenged a subsequent NCLT order from April 2023 (issued on an earlier application by the Resolution Professional) which again directed the release of the properties, arguing that the NCLT lacked jurisdiction over PMLA matters.

Arguments Presented

The ED, represented by Additional Solicitor General Mr. Devang Vyas , contended that the NCLT’s jurisdiction under Section 60(5) is limited to interpreting the IBC and cannot extend to nullifying actions under the PMLA, a special statute. They argued that the resolution applicants had alternate remedies under the PMLA (appeal against attachment or seeking restoration post-confiscation). The ED also raised concerns about the NCLT directing release of attachment prematurely, even before the resolution plan was approved, and questioned the writ court's role as an execution court.

Conversely, Mr. Vikram Nankani, Senior Counsel for the Resolution Applicants, argued that Section 32A is a non-obstante provision specifically designed to override other laws, including PMLA, once a resolution plan is approved under Section 31 and the conditions regarding change in control are met. He submitted that Section 32A creates an automatic cessation of liability and action against the corporate debtor's property, and the NCLT, as the adjudicating authority under IBC, is empowered by Section 60(5) to give effect to this provision. He highlighted that the ED had not challenged the primary Approval Order that directed the release based on Section 32A.

Court's Reasoning and Decision

Justice Sundaresan , referring to the plain language of Section 32A, emphasized its non-obstante nature and the explicit protection it offers to the corporate debtor and its property from actions, including attachment and confiscation under any other law , once a resolution plan resulting in a clean break from past management is approved.

The Court held that the NCLT, as the Adjudicating Authority under the IBC, is vested with broad powers under Section 60(5) to decide any question of law or facts, arising out of or in relation to the insolvency resolution... under this Code , notwithstanding anything in any other law. Interpreting and applying Section 32A to direct the release of property attached under PMLA is squarely within this jurisdiction, as it is a question of law arising in relation to the insolvency resolution of the corporate debtor. The Court clarified that this does not amount to interpreting the PMLA, but rather giving effect to the overriding provisions of the IBC.

Citing the Supreme Court's judgment in Manish Kumar vs. Union of India , which upheld the constitutional validity of Section 32A, the High Court reiterated the legislative intent behind the provision: to provide a "clean slate" to the corporate debtor and its assets to attract resolution applicants, while ensuring that the individuals responsible for the crime remain liable. The Court reasoned that attachment under PMLA is an interim measure aiding eventual confiscation. Since Section 32A prevents the corporate debtor's conviction and thus confiscation of its property, the attachment cannot continue in a vacuum.

The Court dismissed the ED's arguments regarding alternate remedies under PMLA, stating that Section 32A provides an automatic statutory immunity upon plan approval, making such remedies unnecessary for the corporate debtor's assets. It also found the ED's challenge to the NCLT's April 2023 order misconceived, noting that even if that order were set aside, the unchallenged Approval Order of February 2023, which also directed release based on Section 32A, would stand.

Regarding the conflict between Section 14 (moratorium) of IBC and PMLA attachment before plan approval, the Court deliberately chose not to rule on this issue, deeming it irrelevant as the resolution plan had already been approved, triggering Section 32A.

The judgment concluded that the NCLT correctly exercised its jurisdiction under Section 60(5) by applying Section 32A, and the ED was duty-bound to comply with the law as declared, including the law laid down by the Supreme Court in Manish Kumar . The writ petition seeking compliance from the ED was held maintainable because a state agency was failing to discharge its statutory duty.

Conclusion

The Bombay High Court unequivocally ruled that the ED's attachment over the corporate debtor's properties ceased on February 17, 2023, upon the approval of the qualifying resolution plan under Section 31 of the IBC. This cessation occurs by operation of Section 32A of the IBC. The Court directed the ED to communicate the release of the attached properties within six weeks, enabling them to be utilized as per the approved resolution plan for the revival of the corporate debtor.

This judgment reinforces the protective shield offered by Section 32A to corporate debtors undergoing successful resolution under the IBC, ensuring that assets essential for the revival plan are not held hostage by pre-existing criminal proceedings against the erstwhile management.