Conflicts and Convergence of IBC and PMLA- Update

Insolvency & Bankruptcy Code 2016 (IBC) and Prevention of Money Laundering Act, 2002 (PMLA) are operating into two different domains. IBC is primarily a civil law with primary focus on time bound insolvency, maximizing value of assets and facilitating ease of doing business. PMLA is basically a penal law for combating money laundering and confiscation of assets being proceeds of crime. Apparently, they are operating in separate spheres and there should not be any conflicts. No question of any primacy of one law over the other, as the legislature had made PMLA in 2002 and while making the IBC law 2016, the parliament was quite aware about the implications of various provisions being incorporated in IBC. In this article, let us explore the nuances of conflicting points, judicial attempts of reconciliation, recent IBBI circular and finally tips for the professionals/litigators/business.

 Conflicting Points under IBC:

• Under Section 14 of IBC, once the moratorium starts, no suit or proceedings including transfer of assets can be initiated or continued against the corporate debtor.
• Once resolution plan is approved, any action of attachment, seizure, confiscation etc by any authority for any prior offence before CIRP commencement shall stand extinguished. (Section 32A)
• Non-obstante clause of Section 238 gives overriding supremacy of IBC over any other law. (Section 238)

 Conflicting Points under PMLA

• Any assets being proceeds of crime can be attached and confiscated by the Enforcement Directorate. (Section 5, 8 and 9).
• Section 71 of PMLA gives overriding effects of PMLA, notwithstanding anything inconsistent therewith.

Thus, there is head-on collision between Section 238 of IBC and Section 71 of PMLA. The conflict arises due to the same assets under proceeds of crime under PMLA but the same assets may be part of resolution estate after moratorium. The tensions between respective regulators have been brewing since 2016. Judiciary has tried to mitigate the friction to some extent as below:

• NCLAT in Donar Foods Case, clarified regarding attachment prior to commencement of CIRP. So, the valid attachment under PMLA will not come under moratorium of IBC. Further, it elaborated that the moratorium under IBC covers civil recovery but exclude the penal proceedings under PMLA.
• In Case of Shiv Charan, the Bombay High Court stated that upon approval of resolution plan, the attached properties of CD must be released under Section 32A for offence committed prior to commencement of CIRP.
• In Bhushan Power and Steel case, the Supreme Court affirmed the primacy of power of quasi-judicial authority under PMLA.
• In Varsana Ispat case, NCLAT held that there are separate domains of IBC and PMLA and moratorium does not restrict the penal attachment.

In this background the recent Circular No. IBBI/CIRP/87/2025 | Dated: 4^th November, 2025 of IBBI is praiseworthy. However, before discussing the circular, let us discuss Section 8(7) and Section 8(8) of PMLA, which finds the way for the circular

As per Section 8(7) of PMLA, after conclusion of trial, the Special Court shall order confiscation of the attached property to the Central Government. Ownership of the assets will now onwards vest with the Central Government.

Section 8(8) provides a safety valve for scope of interpretation. The Special Court may direct the Central Government to restore such confiscated property to the claimant. Here RP can chip in. It is the discretionary power of the Special Court. But the claimant has to prove the legitimate interest in the property, the loss must be quantifiable and must prove the non-complicity in the money laundering offence.

As the IBBI Circular dated 4^th November 2025, the Insolvency Professional may file an application with the Special Court, along with an undertaking as provided. This will pave a long way for mitigating the conflicts and lead to convergence between the two laws. However, very nature of two laws will still have occasional conflicts. The primacy of two laws will depend on nature of assets, timing of attachment and investigation and stage of CIRP and other factors.

Practical Tips: Some practical tips for professionals and investors are as follows:

• Conduct thorough due diligence by checking ECIR (PMLA), provisional attachment order or investigations before or during CIRP.
• Segregate the tainted assets being proceeds of crime from other assets.
• Proper disclosure must be made to the regulators, courts and investors.
• Put specific clauses in the resolution plan and make specific carve outs for PMLA attached assets.
• Figure out the possibility of attachment of assets located outside India.
• Also, there is potential risk exposure of investigation of other agencies like SEBI, SFIO, RBI, MCA etc.

In case you have CIRP/PMLA cases, need any clarity, you may like to connect with us.

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Abhinarayan Mishra FCA, FCS, LL. B, IP, RV; Partner, SAM Law Associates LLP; KPAM & Associates, Chartered Accountants, New Delhi; +91 9910744992; ca.abhimishra@gmail.com; samlawassociates18@gmail.com