Moratorium under IBC will not bar attachments under the PMLA Act

A Delhi High Court has ruled that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) will not bar attachments under the Prevention of Money Laundering Act (PMLA), 2002.

Era Infra Engineering Limited's Rajiv Chakraborty filed a petition challenging the validity of the Enforcement Directorate's Provisional Attachment Orders and their confirmation by the Adjudicating Authority. It was argued that once the moratorium under Section 14 of the IBC came into effect, the ED was deemed to be devoid of its authority under the PMLA.

According to the bench consisting of Justice Yashwant Varma, the provisions of PMLA are not subordinate to the moratorium provisions in Section 14 of the IBC. In spite of the fact that both statutes are special in general terms, they are both intended to serve independent and separate legislative objectives, and their subject matter and focus are very different. In addition, the Court held that the extent to which PMLA intended to capitulate to the IBC must be addressed based on Section 32A.

The Court noted that ED attachment does not cause property rights to be extinguished or effaced under the PMLA. Possession of that property is essentially restricted until proceedings under the enactment come to a definitive conclusion on the question of confiscation".

According to the Court, the assets obtained by the commission of a scheduled crime could not be treated as exempt or immune from the provisions of the PMLA. If this argument were accepted, it would not only violate legislative policy but undermine the legislative efforts to fight money laundering.

In addition, the court stated that while the government acted under the PMLA, it was not acting as a creditor seeking to enforce its debts.