PMLA and the Insolvency and Bankruptcy Code: Attachment, Resolution and Section 32A

When a corporate debtor enters insolvency while its assets are attached under PMLA, two statutory objectives collide: preserving proceeds of crime and rescuing a viable business through a clean resolution. The answer depends on timing, ownership, the nature of the property and satisfaction of Section 32A of the Insolvency and Bankruptcy Code, 2016.

Moratorium is not the whole answer

Section 14 IBC imposes a moratorium on specified proceedings against the corporate debtor, but PMLA attachment is a sovereign enforcement measure directed at alleged proceeds of crime. Decisions have resisted treating the moratorium as an automatic eraser of every PMLA action. The forum must examine the exact proceeding and relief.

Section 32A and the successful resolution applicant

Section 32A can protect the corporate debtor from liability for pre-resolution offences and protect its property from action in relation to such offences after an approved resolution plan results in a qualifying change of control. The protection is conditional. It does not extend where the new controller is a promoter, a person in management or control, a related party, or a person whom the investigating authority has reason to believe abetted or conspired in the offence, subject to the statutory language.

Former promoters and responsible individuals remain exposed. A clean corporate transition does not extinguish their personal criminal liability or protect their independent property.

Cooperation continues

Even where Section 32A applies, the corporate debtor and persons managing its affairs must provide assistance required by investigating authorities. Records cannot be destroyed or withheld under the guise of resolution.

Practical resolution planning

The resolution professional and applicants should map every attachment, identify whether the property belongs to the corporate debtor, obtain order copies, quantify alleged proceeds and disclose the litigation in the information memorandum. The plan should address cooperation, custody of records and the legal route for release after approval.

The Supreme Court upheld Section 32A in Manish Kumar v. Union of India, (2021) 5 SCC 1, recognising the legislative policy of giving a qualifying new management a clean start while preserving action against wrongdoers.

The governing balance is neither universal PMLA supremacy nor automatic IBC cleansing. Section 32A protection begins only when its detailed conditions are met and must be applied property by property.

Sources

Insolvency and Bankruptcy Code, 2016, Sections 14 and 32A: https://www.indiacode.nic.in/handle/123456789/2154

Supreme Court of India, Manish Kumar v. Union of India, (2021) 5 SCC 1.

Prevention of Money-Laundering Act, 2002, Sections 5, 8 and 71: https://www.indiacode.nic.in/handle/123456789/15402

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