NCLAT: Insolvency law cannot override PMLA

Insolvency & Bankruptcy Code cannot override the Prevention of Money Laundering Act (PMLA), said appellate tribunal NCLAT, adding assets of a debt-ridden firm once attached by the Directorate of Enforcement (ED) and confirmed by competent authority cannot be released for its resolution.

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Under section 14 of IBC, a moratorium is applied on those assets for the purpose of resolution. However, if the property is alleged to be "proceeds of crime" and is already under adjudication by competent authority under a penal statute, such property cannot be deemed to be part of the freely available resolution estate, the National Company Law Appellate Tribunal (NCLAT) said.

The appellate tribunal held that if there is any attachment by ED under the PMLA, which is "validly made and confirmed, it cannot be undone under IBC (Insolvency and Bankruptcy Code).

Citing section 238 of IBC, which has an overriding effect over other laws, a three-member NCLAT bench said it "cannot override the PMLA in respect of proceedings involving proceeds of crime."

PMLA and IBC operate in distinct spheres and there is no "irreconcilable inconsistency" exists between the two, said NCLAT adding ED does not act as a creditor, but as a public enforcement agency.