Reconciling PMLA with IBC: Tribunal Affirms ED’s Right to Attach Assets During CIRP

Introduction

The intersection of insolvency law and anti-money laundering legislation often raises jurisdictional questions, particularly when enforcement actions overlap with insolvency proceedings. In State Bank of India v. Deputy Director, Directorate of Enforcement[i], the Appellate Tribunal under SAFEMA, New Delhi, examined whether the moratorium under s. 14 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) restrains the Enforcement Directorate (‘ED’) from attaching properties under the Prevention of Money Laundering Act, 2002 (‘PMLA’) and whether financial creditors could claim immunity under s. 32A of the IBC when a Corporate Insolvency Resolution Process (‘CIRP’) is pending. This judgment offers interesting insights into the hierarchy and coexistence of these two legislations in asset attachment scenarios.

Brief Facts

• Multiple first information reports (FIRs) were registered by various banks including State Bank of India ('SBI'), Bank of Baroda, Allahabad Bank, Corporation Bank, and State Bank of Bikaner and Jaipur against M/s SaiInfosystem (I) Ltd., the corporate debtor (‘CD’) and its director Sunil S. Kakkad for availing fraudulent credit facilities through inflated stock and receivables statements and by opening letters of credit in favour of related parties that were later dissolved, thereby siphoning off funds and causing wrongful losses to banks.

• Based on these FIRs, the ED registered Enforcement Case Information Reports (‘ECIRs’) and provisionally attached 10 immovable properties belonging to the CD and related entities valued at Rs. 56.22 crores. These properties were mortgaged to SBI and other financial institutions.

• CIRP was then initiated against the Corporate Debtor on 30.11.2017 by the National Company Law Tribunal (‘NCLT’) and a moratorium under s. 14 of the IBC came into effect from that date. CIRP was also initiated against M/s Atrium Infocomm Pvt. Ltd. (another related CD) on 10.07.2019.

• Despite the moratorium, the ED provisionally attached the properties on 08.11.2019, and the adjudicating authority under PMLA confirmed the attachment on 27.07.2020.

• SBI filed appeals against the confirmation order, contending that the moratorium under s.14 of the IBC barred any attachment by ED during CIRP. Further, under s. 32A of the IBC, the liability of the corporate debtor for offences committed prior to CIRP ceases once a resolution plan (‘Plan’) is approved, and the attached properties should be released. The mortgaged properties were acquired much before the commission of the alleged offences (2009–2013), were untainted and not proceeds of crime under s. 2(1)(u) of the PMLA.

• In counter, ED argued that the moratorium under s. 14 of the IBC does not apply to proceedings under PMLA, which are independent criminal confiscation measures. Additionally, they contended that immunity under s. 32A of the IBC would apply only after the Plan is approved under s. 31, and no such Plan was produced by the SBI. Under PMLA, even property mortgaged prior to the commission of an offence can be attached if it represents the value of the proceeds of crime or if the actual proceeds are untraceable.

• Other financial institutions and parties adopted the submissions of SBI, while ED contested the appeals on all grounds.

Issues

1. Does IBC s. 14 moratorium prohibit ED from attaching properties under PMLA during CIRP?

2. Is SBI entitled to immunity under s. 32A(2) IBC in the absence of an approved Resolution Plan?

3. Can properties mortgaged prior to the alleged crime be attached as ‘proceeds of crime’?

4. Does the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI’) have priority under s. 26E override ED’s attachment powers under PMLA?

Held

• The Tribunal held that the moratorium under s. 14 IBC does not bar attachment under the PMLA. It relied on the Delhi High Court decision in Rajiv Chakraborty Resolution Professional of EIEL  v. Directorate of Enforcement[ii]. It reiterated that the moratorium under IBC serves to protect the assets of the corporate debtor for insolvency resolution. While PMLA operates with a distinct purpose, which is to confiscate proceeds of crime in the public interest, it is not akin to debt enforcement.

• The Tribunal further clarified that immunity under s. 32A (2) applies only after approval of a Plan under s. 31 IBC, which is subject to conditions such as new management must be unrelated to the erstwhile promoters or no involvement in the predicate offence. SBI failed to produce evidence of an approved Plan. Hence, the claim for immunity was rejected. The Tribunal affirmed PMLA’s independent authority to attach tainted property or its equivalent in value.

• The Tribunal observed that under PMLA’s s. 2(1)(u) even properties acquired before the offence can be attached if proceeds of crime have been laundered or are untraceable. This was reaffirmed by JM Financial Asset Reconstruction Co. Ltd. v. The Deputy Director, Directorate of Enforcement[iii]. It was clarified that attachment protects victims and financial creditors by preserving property until confiscation, at which stage creditors may apply for release under ss. 8(6) to 8(8) of the PMLA.

• The Tribunal held that the priority of secured creditors under SARFAESI does not override the attachment powers under the PMLA, as s. 26E governs debt recovery, not criminal confiscation.

Situation	Attachment Allowed?
CIRP pending, but moratorium in force	YES
Resolution Plan approved	NO
Property mortgaged before the offence	YES
Secured creditor claims under SARFAESI	YES

Our Analysis

The main takeaway from this judgment is that when enforcement actions clash with insolvency proceedings, it is not always a matter of who arrives first, but rather who manages to stay longer. This judgment emphasizes an ongoing trend that even when a company is going through financial distress, PMLA cases can keep moving forward. It makes it clear that insolvency is not a safe hiding spot from criminal investigations. This challenges the common belief that the CIRP and the moratorium automatically put a halt to all legal actions, especially for banks with secured assets.

For lenders, it is a reminder to act quickly and be aware of attachment risks when assessing distressed assets, particularly if there is a history of financial fraud involved. Those applying for resolution should also be cautious, unless they can clearly prove that the conditions under s. 32A(2) are met, assets might still be at risk. Ultimately, the case reaffirms a harsh truth that resolving insolvency does not guarantee resolving exposure.

End Notes

[i] [2025] 173 taxmann.com 250.

[ii] MANU/DE/4428/2022.

[iii] [2021] 125 taxmann.com 212.

Authored by Muskaan Jain, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.