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Reconciling the Insolvency and Bankruptcy Code with the Prevention of Money Laundering Act

Written By: Apoorv Agarwal, Aparna Iyer

I. Scope and Object

This article examines the continuing friction between the rehabilitative architecture of the Insolvency and Bankruptcy Code, 2016 (hereinafter “the Code”) and the punitive architecture of the Prevention of Money Laundering Act, 2002 (hereinafter “the Act”), with particular attention to the protection conferred by Section 32A of the Code upon a successful resolution applicant and the property of a corporate debtor once a resolution plan has been approved. The author proposes first to trace the legislative genesis of Section 32A and the doctrine of clean slate from which it draws its inspiration, thereafter to survey the principal pronouncements of the National Company Law Appellate Tribunal, the High Courts and the Supreme Court on the subject, and finally to offer a few observations on the residual tension that persists notwithstanding the apparent clarity of the statutory text.

II. The Doctrine of Clean Slate

The Code was conceived as a time bound mechanism for the resolution of corporate stress and not as a vehicle for the perpetuation of litigation against an enterprise that has, through the resolution process, passed into entirely new hands. The Supreme Court, in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, (2020) 8 SCC 531, recognised that a successful resolution applicant cannot be made to face undecided claims after the resolution plan has been approved, for such a result would leave him incapable of running the business of the corporate debtor and would, in due course, make him liable to face the consequences of the very plan he has proposed. This principle, commonly described as the doctrine of clean slate, found statutory expression through the insertion of Section 32A by the Insolvency and Bankruptcy Code (Amendment) Act, 2020, with effect from 28th December, 2019. The decision in Essar Steel has attained the status of settled law and continues to be applied without challenge across the insolvency jurisdiction.

Section 32A(1) of the Code provides, in terms that are explicit and self-contained, that the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan is approved, provided two conditions are satisfied. The first is that the plan results in a change in the management or control of the corporate debtor to a person who was not a promoter or in the management or control of the corporate debtor at the time of commission of the offence, or who is not otherwise disqualified for the purpose. The second is that such person was not abetting or conspiring in the commission of the offence. Sub-section (2) extends a parallel protection to the property of the corporate debtor, providing that no action shall be taken against such property in relation to an offence committed prior to the commencement of the corporate insolvency resolution process once the resolution plan stands approved or the property is sold under liquidation to a person otherwise eligible.

The constitutional validity of Section 32A was tested before the Supreme Court in Manish Kumar v. Union of India, 2021 SCC OnLine SC 30 [W.P.(C) No. 26 of 2020, decided 19.01.2021], wherein a three-judge bench comprising Rohinton Fali Nariman, Navin Sinha and K.M. Joseph JJ., in a judgment running to four hundred and sixty-five pages, upheld the provision in its entirety. The Court observed that the extinguishment of the criminal liability of the corporate debtor is apparently important to the new management in order to make a clean break with the past and start on a clean slate, and that attaining public welfare very often requires a delicate balancing of conflicting interests, the legislative value judgement underlying which the Court declined to second-guess. The Court was careful to add that the immunity is conditional and prospective, operating only from the date of approval of the resolution plan and only in favour of a management that is genuinely unconnected with the predicate offence. Manish Kumar has since attained finality and the constitutional position is no longer subject to any challenge.

III. The Tribunals Confront the Conflict

The difficulty has arisen most acutely where the Enforcement Directorate, acting under the Act, has already attached the assets of a corporate debtor before the approval of a resolution plan and seeks to maintain that attachment notwithstanding the subsequent change in management. Before examining the post-approval position, it is necessary to note that the moratorium under Section 14 of the Code does not bar the Enforcement Directorate from exercising its attachment powers under the Act during the pendency of the corporate insolvency resolution process. The Delhi High Court, per Yashwant Varma J., so held in Rajiv Chakraborty, Resolution Professional of EIEL v. Directorate of Enforcement, 2022 SCC OnLine Del 3703 [W.P.(C) 9531/2020, decided 11.11.2022], dismissing a writ petition challenging attachment orders made during the corporate insolvency resolution process on the ground that the Act seeks to subserve a larger public policy imperative and is not subservient to Section 14 of the Code. The court, while so holding, recognised in obiter that Section 32A of the Code creates a defining moment at the stage of plan approval — a moment upon which the property of the corporate debtor acquires immunity from further action. The writ petition itself stands dismissed; the Court, in terms of paragraph 116 of its judgment, clarified that the rights of the Enforcement Directorate over attached property would stand restricted to the extent recognised in that decision.

The National Company Law Appellate Tribunal has, on more than one occasion, given effect to the post-approval immunity in more emphatic terms. In the matter concerning Alchemist Infra Realty Limited, the Tribunal, presided over by Mr. Justice Ashok Bhushan (Chairperson) along with Mr. Barun Mitra and Mr. Arun Baroka as Technical Members, held in Vantage Point Asset Management Pte. Ltd. v. Gaurav Misra, Resolution Professional of Alchemist Infra Realty Ltd., Company Appeal (AT) (Insolvency) No. 1495 of 2024 [2025 SCC OnLine NCLAT 1652], that a provisional attachment order has to be treated as having ceased to operate by virtue of the legislative scheme of Section 32A, and that there is no necessity for a successful resolution applicant to obtain a separate order of release from the authorities constituted under the Act. The Tribunal expressly held that no confiscation order had been passed prior to the commencement of the corporate insolvency resolution process of Alchemist Infra Realty Limited, and that the assets lawfully remained part of the corporate debtor’s estate. The Tribunal relied, in this regard, upon its earlier decision in JSW Steel Limited v. Mahender Kumar Khandelwal, (2019) ibclaw.in 153 NCLAT, and upon the judgment of the Bombay High Court in Mr. Shiv Charan v. Adjudicating Authority, (2024) ibclaw.in 154 HC, both of which had taken the view that the immunity under Section 32A operates regardless of whether the attachment in question preceded the commencement of the corporate insolvency resolution process. It must be noted that the Bombay High Court decision in Shiv Charan is presently subject to challenge before the Supreme Court and does not carry the authority of a final pronouncement, a circumstance that the Appellate Tribunal in Vantage Point acknowledged while declining to rest its decision solely upon it. As regards Vantage Point itself, a Special Leave Petition was filed before the Supreme Court bearing SLP Civil Diary No. 68119/2025, and the Supreme Court, by order dated 06.02.2026, clarified that its order shall not stand in the way of money being disbursed to investors subject to verification by the Enforcement Directorate. No stay of the NCLAT order was granted, and the NCLAT’s findings on Section 32A remain operative.

It would, however, be inaccurate to suggest that the field is free of contrary authority. The Enforcement Directorate has, with some consistency, placed reliance upon the judgment of the Delhi High Court in Deputy Director, Directorate of Enforcement v. Axis Bank and Others, 2019 SCC OnLine Del 7854 [(2019) 259 DLT 500], which held that the Code and the Act operate in different fields and that property genuinely constituting proceeds of crime does not form part of the resolution estate merely by reason of its inclusion in an information memorandum. The Supreme Court, in Gautam Kundu v. Directorate of Enforcement, (2015) 16 SCC 1, had earlier cautioned that the Act is an important tool to prevent economic offences and that courts must give it due deference when construing overlapping legislative schemes, a caution that the Enforcement Directorate continues to invoke wherever it apprehends that the resolution process is being used to launder the proceeds of a scheduled offence. Both decisions continue to hold the field as binding authority. It bears noting, however, that Axis Bank and Gautam Kundu were rendered before the insertion of Section 32A in 2020, and neither directly engages with the overriding consequence of an approved resolution plan upon a pre-existing attachment. The more recent decisions of the Appellate Tribunal and of the Supreme Court itself have, accordingly, moved to occupy that space.

IV. The Jurisdictional Boundary Drawn by the Supreme Court

A further and distinct controversy concerns not the substantive content of Section 32A but the forum competent to enforce it. The National Company Law Tribunal and the National Company Law Appellate Tribunal both derive their existence from the Companies Act, 2013 (constituted under Sections 408 and 410 thereof respectively), and their jurisdiction over insolvency matters flows from the Code. The Supreme Court, since its decision in Embassy Property Developments Private Limited v. State of Karnataka, (2020) 13 SCC 308 [Civil Appeal Nos. 9170-9172 of 2019, decided 03.12.2019], has consistently held that these tribunals do not possess the power of judicial review over decisions taken by statutory authorities exercising functions in the realm of public law, and that the sweep of Section 60(5) of the Code, wide as it is, does not authorise the circumvention of statutory and quasi-judicial processes under special enactments. Embassy Property continues to hold the field without modification and is binding at all levels of the judicial hierarchy.

This principle was reaffirmed with considerable force in Kalyani Transco v. Bhushan Power and Steel Limited, Civil Appeal No. 1808 of 2020 [decided 02.05.2025 by the Supreme Court], where the Court held that neither the Tribunal nor the Appellate Tribunal was entitled to characterise an attachment order passed under the Act as illegal or without jurisdiction, that exercise being one reserved for the appellate and judicial fora created under the Act itself. The Court emphatically repudiated the approach taken by the Appellate Tribunal in the earlier round of proceedings in the Bhushan Power matter, which had ventured to declare the Enforcement Directorate’s attachment order illegal — an approach described by the Supreme Court as being clearly in the teeth of the law laid down in Embassy Property. Kalyani Transco is the current and final authority on the question of tribunal jurisdiction and has been decided by the highest court. The practical consequence is that a successful resolution applicant aggrieved by the continuance of an attachment must ordinarily approach the Adjudicating Authority or the Appellate Tribunal constituted under the Act, even though the substantive entitlement to relief flows from Section 32A of the Code.

The Supreme Court has, in more recent proceedings, demonstrated a willingness to calibrate this relief with some precision rather than to grant it in broad and unqualified terms. Where a resolution plan has been framed for the benefit of genuine and unconnected third parties, such as home buyers who have acquired units in a real estate project in good faith, the Court has permitted restitution of the attached property to the resolution applicant while preserving the attachment in respect of those specific units that are shown to bear a direct nexus with the proceeds of crime, invoking for this purpose the second proviso to Section 8(8) of the Act. This approach achieves a more nuanced equilibrium than a wholesale lifting of attachment, for it honours the protective purpose of Section 32A without permitting it to operate as a blanket amnesty for assets that remain genuinely tainted.

V. Concluding Observations

The trajectory of the case law, considered in its entirety, supports the proposition that Section 32A was designed precisely to prevent a successful resolution applicant, having paid valuable consideration and assumed the burdens of revival, from finding itself shackled by attachments rooted in the misconduct of a management with which it has severed every connection. Ut res magis valeat quam pereat — that the resolution plan may prevail rather than perish — remains the animating principle of Section 32A, read in conjunction with the object of the Code as a whole. At the same time, the jurisprudence emerging from Embassy Property and Kalyani Transco serves as a salutary reminder that the immunity under Section 32A is enforceable in the appropriate forum and is not a sword that the tribunals constituted under the Code may wield to override a public law statute on their own authority. The path forward lies not in the subordination of one statute to the other but in closer coordination between the agencies and tribunals operating under each, so that the promise of a clean slate is honoured in substance and not merely in the text of the provision. As the Latin maxim reminds us, lex non cogit ad impossibilia — the law does not compel the impossible — and it would be precisely that if the immunity solemnly enacted by Parliament were permitted to be made ineffective by procedural fragmentation across multiple forums.

Table of Cases

Case	Citation	Court / Forum	Status
Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta	(2020) 8 SCC 531	Supreme Court of India	Final. Foundational authority on the clean slate doctrine. No challenge pending.
Manish Kumar v. Union of India	2021 SCC OnLine SC 30; W.P.(C) No. 26 of 2020, decided 19.01.2021	Supreme Court of India (Three-Judge Bench: Nariman, Navin Sinha and K.M. Joseph JJ.)	Final. Constitutional validity of Section 32A upheld. No challenge pending.
Rajiv Chakraborty, Resolution Professional of EIEL v. Directorate of Enforcement	2022 SCC OnLine Del 3703; W.P.(C) 9531/2020, decided 11.11.2022	Delhi High Court (Yashwant Varma J.)	Final. Writ petition dismissed. Held PMLA attachment power not curtailed by Section 14 IBC moratorium; obiter recognition of Section 32A as a defining moment post plan approval.
JSW Steel Limited v. Mahender Kumar Khandelwal	(2019) ibclaw.in 153 NCLAT	NCLAT, Principal Bench	Final. Stood as precedent; relied upon in subsequent Section 32A cases.
Vantage Point Asset Management Pte. Ltd. v. Gaurav Misra, RP of Alchemist Infra Realty Ltd.	Company Appeal (AT) (Insolvency) No. 1495 of 2024; 2025 SCC OnLine NCLAT 1652	NCLAT, Principal Bench (Ashok Bhushan J., Chairperson)	NCLAT order operative. SLP (Civil Diary No. 68119/2025) filed before Supreme Court. SC by order dated 06.02.2026 declined to stay the NCLAT order. Verification by Enforcement Directorate of disbursements directed.
Mr. Shiv Charan v. Adjudicating Authority	(2024) ibclaw.in 154 HC	Bombay High Court	Subject to challenge before the Supreme Court. Does not carry finality as of the date of this article.
Deputy Director, Directorate of Enforcement v. Axis Bank and Others	2019 SCC OnLine Del 7854; (2019) 259 DLT 500	Delhi High Court	Final. Continues to be relied upon by the Enforcement Directorate for the proposition that tainted assets fall outside the resolution estate.
Gautam Kundu v. Directorate of Enforcement	(2015) 16 SCC 1	Supreme Court of India	Final. Authority for the principle that the Act is an important penal tool to which courts must give due deference. Decided prior to insertion of Section 32A.
Embassy Property Developments Private Limited v. State of Karnataka	(2020) 13 SCC 308; Civil Appeal Nos. 9170-9172 of 2019, decided 03.12.2019	Supreme Court of India (V. Ramasubramanian J.)	Final and binding. Foundational precedent on jurisdictional limits of NCLT and NCLAT over public law matters. Reaffirmed in Kalyani Transco.
Kalyani Transco v. Bhushan Power and Steel Limited	Civil Appeal No. 1808 of 2020, decided 02.05.2025	Supreme Court of India	Final. Definitively holds that NCLT and NCLAT lack power of judicial review over decisions of statutory authorities operating under the Act. Current and binding.