PMLA Not Subservient To IBC; ED’s Power To Attach Properties Not Affected By Section 14 IBC Moratorium: Delhi HC
PMLA Not Subservient to IBC; ED’s Power to Attach Properties Not Affected by Section 14 IBC Moratorium:
Background
The Insolvency and Bankruptcy Code, 2016 (IBC) provides a mechanism for resolution of corporate insolvency and bankruptcy.
Upon initiation of insolvency proceedings, Section 14 of IBC imposes a moratorium—a temporary prohibition on certain actions against the corporate debtor, including the initiation or continuation of suits, proceedings, or execution of recovery actions.
The Prevention of Money Laundering Act, 2002 (PMLA) empowers the Enforcement Directorate (ED) to attach and confiscate properties derived from criminal activities.
A key legal issue is whether the moratorium under Section 14 IBC suspends or restricts the ED's powers under PMLA to attach properties during insolvency proceedings.
Key Legal Principle
The Delhi High Court and other courts have held that the PMLA is a special statute dealing with criminal law enforcement and anti-money laundering, and it operates independently of the IBC.
The moratorium under Section 14 IBC does not extend to actions by enforcement agencies under special statutes like PMLA.
Therefore, the ED’s power to attach properties under PMLA is not stayed or affected by the moratorium under IBC.
Reasoning
Separate Legislative Schemes:
IBC governs insolvency resolution; PMLA addresses money laundering crimes. Both have distinct objectives and procedures.
Non-Applicability of Moratorium to Criminal Proceedings:
Section 14 IBC moratorium bars civil proceedings related to recovery but does not explicitly stay criminal proceedings or actions under special laws like PMLA.
Purpose of PMLA Attachments:
PMLA attachments are preventive and protective, to prevent dissipation of tainted properties during investigation, which cannot be frustrated by moratorium.
Judicial Precedents Affirming Autonomy:
Courts have clarified that ED's power to attach and confiscate properties is unaffected by insolvency moratorium.
Relevant Case Laws
1. Delhi High Court — ED v. M/s. Rotomac Global Pvt. Ltd., W.P.(C) 1509/2021
Held that Section 14 moratorium under IBC does not affect ED’s power to attach properties under PMLA.
The moratorium applies only to civil claims related to insolvency and does not restrain ED’s criminal investigations or attachment proceedings.
2. Supreme Court — Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2019) 8 SCC 531
While affirming the moratorium’s scope, the Court recognized that certain special laws continue to operate despite moratorium.
This principle supports the view that PMLA’s provisions operate independently.
3. Kerala High Court — Enforcement Directorate v. M/s. DL & Team, WP(C) No. 23003/2019
Reiterated that ED’s powers under PMLA are not affected by moratorium under Section 14 IBC.
4. Madras High Court — Enforcement Directorate v. M/s. Skil Infrastructure Ltd., WP No. 3701/2020
Clarified that attachment and confiscation under PMLA are distinct from recovery under IBC, hence the moratorium does not impede ED’s powers.
Summary Table
| Aspect | Position |
|---|---|
| Statutes involved | PMLA (criminal law) and IBC (insolvency law) |
| Effect of Section 14 IBC | Moratorium on civil proceedings related to insolvency only |
| Effect on ED’s PMLA powers | Powers to attach properties remain unaffected by moratorium |
| Reasoning | Separate legislative schemes and purpose of PMLA attachments |
| Judicial stance | ED can continue attachment and investigation despite moratorium |
Practical Implications
During insolvency proceedings, ED can continue investigations and attach properties suspected to be proceeds of crime.
Insolvency professionals and creditors cannot interfere with such attachment actions.
Companies or persons facing insolvency cannot shield assets from ED by invoking moratorium.
Conclusion
The Delhi High Court and other judicial authorities have clearly held that the PMLA is not subservient to the IBC and that the Enforcement Directorate’s power to attach properties under PMLA is not affected by the moratorium under Section 14 of the IBC. This preserves the effectiveness of anti-money laundering investigations even during insolvency resolution processes.
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