PMLA Asset Retention vs IBC Clean Slate: Key Lessons for Insolvency

PMLA Asset Retention and the IBC “Clean Slate”:
What N.K. Proteins Means for the Assets of a Corporate Debtor
Analysis of M/s N.K. Proteins Ltd. & Ors. v. Deputy Director, ED (Appellate Tribunal under SAFEMA, New Delhi, Final Order dated 21.05.2026)

1. Introduction

A recurring anxiety for every resolution professional, liquidator and prospective resolution applicant is the spectre of a parallel enforcement action under the Prevention of Money Laundering Act, 2002 (“PMLA”) that freezes the very assets being marshalled for resolution. The recent decision of the Appellate Tribunal under SAFEMA in M/s N.K. Proteins Ltd. & Ors. v. Deputy Director, Directorate of Enforcement, arising out of the National Spot Exchange Limited (“NSEL”) scam, is a forceful restatement of how far the Enforcement Directorate’s (“ED”) reach over property now extends — even to assets standing in the name of a non-accused family member, and even where no fresh prosecution complaint has been filed against the affected person.

This article examines the three core holdings of N.K. Proteins, and then turns to the question that matters most for insolvency practitioners: when these expansive retention principles collide with a Corporate Debtor (“CD”) undergoing CIRP or liquidation, which statute prevails — and what does that mean for the assets of the CD?

2. The Factual Matrix

The dispute traces back to FIR No. 216 of 2013 registered by the Mumbai Police against NSEL and various defaulters, alleging that genuine investors were defrauded through trading in non-existent commodities backed by bogus warehouse receipts. The said FIR filed under Sections 120-B (Criminal Conspiracy), 409 (Criminal Breach of Trust), 465, 467, 468, 471, 474 (Forgery and Cheating), and 477-A (Falsification of Accounts) of the Indian Penal Code (Predicate offence). An ECIR followed, and the ED issued three Provisional Attachment Orders attaching properties worth approximately Rs. 305.52 crore belonging to the N.K. Proteins group. A prosecution complaint (PMLA Case No. 4 of 2015) was filed before the Special Court, Mumbai, on 30.03.2015.

During later search and seizure operations in May 2018, the ED seized cash of Rs. 17 lakh and a fleet of vehicles — including a Range Rover and a Mercedes registered in the name of Shri Priyam Patel, the son of a director, who was not an accused either in the predicate offence or in the PMLA prosecution complaint. The Adjudicating Authority confirmed the retention, and the appeals challenged that confirmation.

2.1 How the matter reached the SAFEMA Appellate Tribunal

The pathway in this case was therefore: the ED’s search, seizure and freezing under Section 17, followed by an application for retention; confirmation of that retention by the PMLA Adjudicating Authority under Section 8(3) (the Impugned Order dated 14.11.2018); and an appeal against that confirmation under Section 26 of the PMLA, heard by the Appellate Tribunal under SAFEMA. A further appeal lies from this Tribunal to the High Court under Section 42 of the PMLA, on a question of law, within sixty days.

3. The Three Core Holdings

3.1 A pending prosecution complaint suffices — no fresh or supplementary complaint required

The appellants argued that since no supplementary prosecution complaint covering the newly seized assets had been filed within the statutory window, the retention must lapse under Section 8(3)(a) of the PMLA. The Tribunal rejected this. It held that Section 8(3)(a) permits retention to continue “during the pendency of the proceedings relating to any offence under this Act before a court,” and that the prosecution complaint of 30.03.2015 in the same ECIR was already pending. The provision does not require a fresh complaint for every newly discovered asset.

The Tribunal anchored this in the Supreme Court’s ruling in Union of India v. J.P. Singh (Criminal Appeal No. 1102 of 2025, decided 05.03.2025), where it was held that for Section 8(3)(a) it is not necessary that the person affected by the retention be named as an accused; it is enough that a complaint alleging an offence under Section 3 is pending before the competent court.

3.2 PMLA reaches the property, not merely the accused — non-accused family members are not immune

On the freezing of vehicles held by the non-accused Shri Priyam Patel, the Tribunal relied on the three-Judge Bench in Vijay Madanlal Choudhary v. Union of India [(2022) SCC OnLine SC 929], which held that the sweep of Section 5(1) is not limited to persons accused in the scheduled offence — it applies to any person involved in any process or activity connected with the proceeds of crime. The Tribunal applied this mutatis mutandis to seizures under Section 17.

It reinforced this with the Delhi High Court’s decision in Deputy Director, ED v. Amlendu Pandey (dated 21.11.2025), holding that Section 17 does not mandate that a searched or affected person be an accused; a person may be in possession of proceeds of crime without any criminal intent. The luxury vehicles, parked at the family residence and connected to a fraud of staggering magnitude, were therefore legitimately frozen pending verification of their source.

3.3 Section 8(3) confers a real power of retention — and the “over-attachment” and Section 20 objections fail

The appellants raised two further objections.

First, that the ED had already attached property exceeding the quantified proceeds of crime, making further seizure disproportionate. The Tribunal held that in an evolving investigation into multi-layered fraud, the quantum of proceeds of crime cannot be frozen at a static initial figure — here the gross liability asserted ran to Rs. 962.79 crore, and proceeds were yet to be fully traced.

Second, that no separate retention order under Section 20 had been passed. The Tribunal followed its own Final Order dated 02.04.2026 and the reasoning that the Delhi High Court’s contrary view in Rajesh Kumar Agarwal — which read Section 8(3) down to a mere power of “confirmation” — was per incuriam, being in conflict with Vijay Madanlal Choudhary. The word “or” in Section 8(3) separates two distinct powers: confirmation of a Section 5 attachment, and retention of property seized or frozen under Sections 17/18. The Adjudicating Authority therefore had an independent statutory power of retention. The appeals were dismissed in their entirety.

4. The Crossover: What This Means for the Assets of a Corporate Debtor

The principles in N.K. Proteins are calibrated for an ongoing, expanding investigation. The difficulty arises when the entity whose assets the ED seeks to retain is itself a Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 (“IBC”). The stages and contingencies below must be separated carefully.

4.1 During the moratorium (Section 14): PMLA attachment is not automatically stayed

The first hard truth for an RP is that the Section 14 moratorium does not, by itself, paralyse the ED. The Delhi High Court in Rajiv Chakraborty RP of EIEL v. Directorate of Enforcement held that the power to attach under the PMLA does not fall prey to Section 14, and the Supreme Court in Kalyani Transco v. Bhushan Power and Steel Ltd. (2025) expressly declined to decide whether the ED can attach during the moratorium, leaving that contest open. Applying N.K. Proteins, the ED can dynamically freeze newly discovered CD assets linked to the fraud without filing a fresh complaint — producing operational gridlock during the very phase when the RP needs assets free for value preservation.

4.2 On approval of the resolution plan (Section 32A): the clean slate operates by law

The decisive turn comes at plan approval. Section 32A of the IBC extinguishes the CD’s liability for offences committed prior to the commencement of CIRP, and immunises its property from attachment, seizure, retention or confiscation in relation to such offences — provided the resolution results in a change of management to a person who is not a related party or promoter of the accused and is untainted by abetment or conspiracy.

Crucially, the position has now firmed up in favour of the resolution applicant. The Bombay High Court in Shiv Charan v. Adjudicating Authority (2024) held that PMLA attachments must be raised once the Section 32A conditions are met, and affirmed the NCLT’s jurisdiction under Section 60(5) to so direct. More recently, the NCLAT has held that a PMLA Provisional Attachment Order ceases to operate by virtue of Section 32A upon approval of the resolution plan, and that the successful resolution applicant is not even required to separately approach the PMLA authorities for release. Section 32A is treated as retroactive, the trigger being approval of the plan; ownership of the attached asset is recognised as remaining with the CD, so its inclusion in the Information Memorandum is proper.

In short: while N.K. Proteins widens the ED’s grip during investigation, Section 32A functions as a firewall the moment ownership passes to a clean, unrelated bidder through the NCLT framework. The historical “taint” on the asset is wiped clean by operation of law.

4.3 The carve-out that survives: erstwhile promoters remain exposed

Section 32A immunity protects the CD and its assets — it does not protect the individuals who ran the CD. The N.K. Proteins logic continues to apply with full force to the personal assets of erstwhile promoters and directors, and to family members holding suspected proceeds of crime. A resolution plan does not launder the personal criminal liability of the wrongdoers; it only cleanses the corporate vehicle and its property.

4.4 Post-approval: must the resolution applicant separately approach the ED or Adjudicating Authority?

A practical question follows directly: once the NCLT approves the plan, must the successful resolution applicant (“SRA”) file a fresh application before the ED or the PMLA Adjudicating Authority to have the attachment lifted? The answer, on the current state of the law, is no — though prudent drafting still calls for a positive direction.

This is precisely the point on which the NCLT and the NCLAT diverged in the Alchemist Infra Realty resolution. The NCLT approved the plan (order dated 4 July 2024) but declined to release the ED’s provisional attachment, directing the SRA to pursue separate remedies under the PMLA — the appeal under Section 26(1) against attachment, and Section 8(8) for restoration of confiscated property. On appeal, the NCLAT (in Vantage Point Asset Management Pte. Ltd. v. Gaurav Misra) set aside those findings. Its first order of 13 August 2024 was passed without notice to the ED and was recalled on the ED’s application; after hearing the ED, the NCLAT reaffirmed the same conclusion by its operative order dated 14 October 2025, holding that Section 32A is a special, automatic framework triggered upon approval of the resolution plan, so that the SRA is not required to approach the authorities or court under the PMLA. The Tribunal held that the ED’s pre-CIRP provisional attachment ceases on plan approval and that PMLA remedies need not be pursued separately.

The position therefore operates at three levels. First, as a matter of law, no fresh application to the ED or the Adjudicating Authority is necessary — the attachment ceases by operation of Section 32A, and the NCLT has jurisdiction under Section 60(5) to declare as much. Second, as a matter of prudent conveyancing, the RP should build the prayer for vacation of attachment into the plan itself (as the applicant did in Vantage Point) and secure an express NCLT declaration that the attachment stands lifted on approval. That declaratory order is what the SRA can place before the ED, the Sub-Registrar, the RTO (relevant where vehicles are attached, as in N.K. Proteins) and the depositories — pre-empting ground-level refusal by officials who will not act on an “operation of law” theory alone. Third, the ED’s remedy is to appeal the NCLT order, not to insist on a parallel PMLA proceeding.

One caveat must be stated candidly: the Bombay High Court’s decision in Shiv Charan, on which this line substantially rests, is under appeal before the Supreme Court. The doctrine is settled at the NCLAT and High Court level, but is not yet beyond challenge.

4.5 When the CoC is composed of PE, AIF or NBFC investors rather than banks

Where the committee of creditors (“CoC”) is dominated not by banks but by private equity funds, alternative investment funds (“AIFs”) or non-banking financial companies (“NBFCs”), the analysis must be split along two axes — because the consequences are very different.

On the first axis, the composition of the CoC changes nothing about the Section 32A mechanism. Section 32A immunity is triggered by plan approval and a change of control to an unrelated party; the identity of the financial creditors who voted is irrelevant. A provisional attachment ceases on approval whether the CoC was led by a public sector bank or by an offshore AIF. The conclusions in paragraph 4.4 hold regardless of CoC composition.

On the second axis, however, a non-bank CoC sharply raises the Section 32A(1)(b) eligibility risk, and this is the real exposure. Section 32A immunity is available only if the new management is neither a promoter nor a related party of the CD or the accused, and is not a “connected person” within the wide net of Section 29A. Three problems recur in fund-led structures:

• The see-through test. Section 29A is, as the Supreme Court held in ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, a “see-through” provision — the de facto position is examined, not merely the de jure form, to discover the real persons acting jointly or in concert who have set up the corporate vehicle. A PE fund or AIF that held an existing exposure to, or a nominee director on the board of, the erstwhile promoter group can be drawn into the “connected person / related party” web — defeating Section 32A immunity for the very assets it hoped to free.
• Dual role as creditor and resolution applicant. Where an NBFC or AIF sits on the CoC as a financial creditor and simultaneously backs the resolution applicant, it must be tested against Section 29A(c) (NPA classification of any account it promotes or controls) and the Section 29A(j) connected-person extension. Bank-dominated CoCs rarely raise this; fund-dominated ones frequently do, because funds often hold cross-holdings across the promoter ecosystem.
• Related-party voting exclusion. A related-party financial creditor is excluded from the CoC under the first proviso to Section 21(2). PE/AIF/NBFC structures with promoter linkages can find their votes challenged — which in turn destabilises the very plan approval on which the entire Section 32A clean slate rests. If approval is later set aside, the attachment that had “ceased” revives.

The drafting consequence is concrete: with a non-bank CoC, the Section 32A(1)(b) eligibility diligence on the resolution applicant and its fund backers must be completed before relying on the clean-slate firewall against the ED. If the SRA is later found to be a connected person, the attachment was never extinguished — and the N.K. Proteins reasoning reasserts itself in full.

5. Practical Takeaways for RPs, Liquidators and Resolution Applicants

• Structure the plan to satisfy all Section 32A gates: a complete change in management and control, a resolution applicant who is neither a related party nor promoter of the accused, and no abetment or conspiracy by the incoming management. These are the conditions on which the firewall stands.
• Include attached assets in the Information Memorandum: ownership remains with the CD despite a provisional attachment, and recent NCLAT authority confirms this inclusion is proper.
• Use Section 60(5) before the NCLT: post-approval, the cleaner route is to seek a direction from the NCLT rather than to litigate release before the PMLA forum — the attachment ceases by operation of Section 32A.
• Do not assume the moratorium shields you mid-CIRP: until plan approval, the ED can act. Plan timelines and asset preservation strategies should be built around this reality, not against it.
• Do not file a fresh PMLA application post-approval — but secure a declaration: the attachment ceases by operation of Section 32A, and the SRA need not approach the ED separately; still, build a vacation-of-attachment prayer into the plan and obtain an express NCLT direction to use before the ED, Sub-Registrar, RTO and depositories.
• Run Section 32A(1)(b) eligibility diligence where the CoC is PE/AIF/NBFC: the clean slate fails if the resolution applicant or its fund backers are “connected persons” of the promoter group. Test cross-holdings, nominee directorships and dual creditor-applicant roles before relying on the firewall.
• If the predicate offence collapses, move immediately: a clean acquittal on merits or quashing of the FIR removes the foundation for any PMLA action; place the certified order before the Adjudicating Authority and Special Court at once.
• Advise promoters separately and candidly: the clean slate does not extend to them. Their personal and family assets remain fully exposed to the N.K. Proteins line of reasoning.

6. A Necessary Caution: The Position Is Not Beyond Challenge

Practitioners should not treat any of the above as immutable. Two layers of vulnerability deserve flagging.

First, the order in N.K. Proteins is a decision of the Appellate Tribunal under SAFEMA; it is itself appealable to the High Court under Section 42 of the PMLA on a question of law within sixty days, and the affected parties may well pursue that remedy. Until the appellate window closes or is exhausted, the holdings discussed here remain susceptible to revision.

Second, and more fundamentally for the IBC interface, the clean-slate position is presently before the Supreme Court — though the picture is more nuanced than a bare “under challenge” suggests. Two appeals matter, summarised below.

Status of pending appeals

The practical upshot is twofold. The proposition relied upon in paragraph 4.4 — that the attachment ceases on plan approval and the SRA need not separately approach the ED — currently holds the field, the NCLAT order not having been stayed; but it awaits the final word of the Apex Court, and an SRA must reckon with the interim restraint against alienation or encumbrance of the subject property pending that decision. As these interim orders can change at successive hearings, practitioners should verify the current status of the two appeals noted above at the time of reliance. Advice to clients should accordingly be framed as the current and well-reasoned position of the tribunals and the High Courts, qualified by these pending appeals — not as settled law of the land.

7. Conclusion

N.K. Proteins is a robust reaffirmation that the PMLA is, at its core, an in rem action against tainted property — indifferent to whether the holder is an accused, and unimpressed by arguments of over-attachment during a live investigation. Yet for the insolvency practitioner the message is not one of despair. The IBC’s Section 32A, as now interpreted by the Bombay High Court and the NCLAT, supplies a decisive counterweight: the moment a clean, unrelated resolution applicant takes over through the NCLT process, the asset is liberated from its criminal past by operation of law. The art lies in steering the resolution so that, when the two statutes meet, the clean slate prevails — while never pretending that the wrongdoers themselves walk free.

Notes:

¹ The PMLA does not have its own dedicated appellate tribunal. Instead, Section 25 designates the SAFEMA Appellate Tribunal in New Delhi to hear appeals against orders of the PMLA Adjudicating Authority.

² Shiv Charan v. Adjudicating Authority under the Prevention of Money Laundering Act, 2002, Writ Petition (L) Nos. 9943 and 29111 of 2023, Bombay High Court, decided 1 March 2024; in appeal, Civil Appeal Nos. 9692–9693 of 2024 (Supreme Court of India). See the “Status of pending appeals” box in Section 6.

³ Vantage Point Asset Management Pte. Ltd. v. Gaurav Misra, Resolution Professional of Alchemist Infra Realty Ltd., Company Appeal (AT) (Insolvency) No. 1495 of 2024, NCLAT (Principal Bench), operative order dated 14 October 2025 (2025 TAXSCAN (NCLAT) 377), passed after recall of the ex parte order dated 13 August 2024 and setting aside the NCLT’s refusal (order dated 4 July 2024) to direct release; in appeal before the Supreme Court of India (arising from Diary No. 68119 of 2025). See the “Status of pending appeals” box in Section 6.

⁴ ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 (Supreme Court of India, decided 4 October 2018).

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Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. Readers should seek independent professional advice on the facts of their specific case. Views are personal.

About the Author: Prakash K. Pandya is an Advocate, Insolvency Professional and Accredited Mediator practising through Chamber of Prakash K. Pandya, Mumbai. With over 25 years of experience in corporate law, his practice spans the Bombay High Court, NCLT, NCLAT and allied tribunals, with core specialisations in the Insolvency and Bankruptcy Code, corporate restructuring, criminal tax litigation, and alternative dispute resolution. He is empanelled as a mediator on the Bombay High Court Mediation and Conciliation Centre and is registered with the IBBI as an Insolvency Professional. He writes regularly on insolvency, corporate and regulatory developments.