6 min readNew DelhiJul 2, 2026 05:32 PM IST
First published on: Jul 2, 2026 at 05:32 PM IST
The National Company Law Appellate Tribunal (NCLAT) recently held that insolvency proceedings cannot be used to shield assets allegedly linked to money laundering.
It said that the Insolvency and Bankruptcy Code (IBC), the law meant to help creditors recover dues, was never intended to become “holy ganges” that could wash away a corporate debtor’s “sin of criminality” under the Prevention of Money Laundering Act (PMLA).
Dismissing a liquidator’s plea to recover funds and assets seized by the Enforcement Directorate (ED) before the insolvency process began, the principal bench held that PMLA and IBC operate in distinct spheres.
What was the case about?
It concerned Siddhi Vinayak Logistics Ltd, a company which came under ED investigation over FIRs alleging bank fraud and diversion of loan funds exceeding Rs 1,600 crore. The ED had provisionally attached its assets and issued notices to customers directing them not to release payments to it.
After the company entered the Corporate Insolvency Resolution Process in September 2017, the IBC moratorium on pending suits or proceedings against it came into force. The ED later confirmed the attachment and later withdrew Rs 2.29 crore from one of the company’s bank accounts. The company eventually went into liquidation.
In 2019, the ED issued a fresh attachment covering over 6,000 vehicles belonging to the company. An appellate tribunal under PMLA had set aside the original 2017 attachment, which was later challenged in the Bombay High Court, where the matter remains pending.
What the law says
Section 14(1) (a) of the IBC bars “the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment decree or order in any court of law,” once an insolvency resolution begins. This moratorium exists to freeze the debtor’s position in order to deal with the creditors collectively rather than through individual recovery.
The liquidators, appointed to wind up the company’s affairs, argued that the ED’s withdrawal of Rs 2.29 crore was contrary to this provision and “constituted unlawful depletion of the insolvency estate”. They relied on the Supreme Court’s 2021 ruling in P. Mohanraj v. Shah Brothers Ispat, which held that coercive recovery actions during a moratorium are impermissible even where adjudicatory proceedings may continue.
However, Section 41 of the PMLA runs the other way. It states that “No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Director, an Adjudicating Authority or the Appellate Tribunal is empowered by or under this Act to determine.”
The ED argued this provision walled off its attachment and withdrawal from scrutiny. It contended that its proceedings concerned “proceeds of crime”, which is money generated from an unlawful activity, under a separate statute altogether, that is, the PMLA. It argued that neither the NCLT nor the NCLAT possessed jurisdiction to interfere with attachment proceedings under it.
They relied on the SC order in Embassy Property Developments v State of Karnataka, which held that the jurisdiction of insolvency tribunals is confined to what the IBC’s own working requires and does not extend to reviewing decisions taken by other statutory authorities.
What the tribunal held
The bench framed the dispute as one between statutes, not parties. It said that “the dispute is not appellant Vs the Enforcement Directorate but IBC Vs PMLA, when both the legislations are in action.”
It drew a line between a company’s legitimately acquired assets, meant to be sold off to pay creditors, and assets sourced “by and out of a crime.” On the first count, the IBC operates freely.
On the second, it held that Parliament “did not legislate IBC with an intent to create… a mechanism for legitimizing any ill-gotten wealth”. The bench said that the attachment mechanism under the PMLA is meant to enable eventual confiscation of proceeds of crime and is part of a legislative framework for “tracking and hunting” ill-gotten assets. An insolvency moratorium does not extend to assets attached as proceeds of crime, it said.
On the scope of the moratorium, the bench read Section 14 narrowly. It held that the freeze applies only to proceedings that add to the company’s civil debt and that “those crimes which spring from penal statutes of public law nature, with no prospect of adding to the debt-liability of civil nature of the Corporate Debtor, cannot be allowed to be impacted by the moratorium,” even where they shrink the pool of assets available to creditors.
Weighing the two interests at stake, it noted that creditor recovery is “compromisable” through the haircuts or lower repayment that every creditor accepts in insolvency, whereas “national interest at all times remains uncompromisable.”
The liquidator had also invoked Section 32A of the IBC, which grants immunity from prior offences once a resolution plan succeeds. The bench declined to engage with it, noting simply that “Sec.32(A) operates only where there is a successful insolvency resolution process” and this company had gone into liquidation instead.
On the point of jurisdiction, relying on the Embassy Property case, the tribunal held that the NCLT’s powers extend only as far as the IBC’s own working requires and that the ED’s actions must be contested before PMLA authorities alone.
The bench said that said that “the dispute is not appellant Vs the Enforcement Directorate but IBC Vs PMLA, when both the legislations are in action." (Express photo by Amit Mehra) 
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