Corporate Rescue Without Criminal Amnesia: PMLA Attachments, IBC Moratorium and Section 32A

When a company facing allegations of money laundering enters the corporate insolvency resolution process, two public-law objectives meet. The Prevention of Money-Laundering Act, 2002 seeks to identify, restrain and ultimately confiscate proceeds of crime. The Insolvency and Bankruptcy Code, 2016 seeks a time-bound rescue of a viable business, maximisation of value and a clean transfer to an eligible new management. Neither statute can be applied by slogan. The result depends on the stage of insolvency, the identity and ownership of the property, the date and nature of the alleged offence, and whether every condition of Section 32A of the IBC has been satisfied.

Three questions that must not be merged

The first question is whether an investigation or prosecution may continue. The second is whether a particular asset may remain attached, seized, retained or confiscated. The third is whether the corporate debtor, its former officers, or a successful resolution applicant bears criminal liability. Section 14 and Section 32A answer different parts of this problem.

Section 14 creates a moratorium when the insolvency application is admitted. Its text stays specified proceedings, enforcement of security interests and recovery of property by an owner or lessor. Section 32A, introduced with effect from 28 December 2019, creates a later and carefully conditioned immunity for the corporate debtor and its property. Treating the Section 14 moratorium as if it were Section 32A would erase the conditions Parliament deliberately placed in Section 32A. Conversely, ignoring Section 32A after those conditions are fulfilled would frustrate the statutory clean-break policy.

The PMLA side of the equation

Under Section 2(1)(u) PMLA, “proceeds of crime” means property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence, and includes the value of such property. Section 5 authorises provisional attachment when its jurisdictional conditions are met. Section 8 provides notice, adjudication, confirmation and the route to confiscation or release. Sections 17 and 20 regulate search, seizure, freezing and retention. Section 71 gives PMLA overriding effect where its provisions are inconsistent with another law.

The IBC also contains an overriding clause in Section 238. The existence of competing non-obstante clauses does not justify a mechanical declaration that one enactment always defeats the other. The provisions must first be harmonised. Section 32A is the IBC's specific legislative answer to criminal liability and property action after a qualifying resolution or liquidation transaction.

What Section 32A(1) protects

Section 32A(1) addresses the liability of the corporate debtor for an offence committed before commencement of its CIRP. That liability ceases, and the corporate debtor cannot be prosecuted for that offence from the date the adjudicating authority approves the resolution plan under Section 31, only if the plan produces a qualifying change in management or control.

The incoming controller must not be a promoter, a person who was in the management or control of the corporate debtor, or a related party of such a person. Protection is also unavailable where the relevant investigating authority, on material in its possession, has reason to believe that the incoming person abetted or conspired in the offence and has submitted or filed the prescribed report or complaint. If prosecution of the corporate debtor was instituted during CIRP, the statutory consequence follows only after these requirements are fulfilled.

This is entity-level relief, not an amnesty for human wrongdoers. The designated partner, officer in default, person in charge of or responsible for the business, or any person directly or indirectly involved in the offence remains liable despite cessation of the corporate debtor's liability.

What Section 32A(2) protects

Section 32A(2) deals separately with property. No action may be taken against property of the corporate debtor in relation to an offence committed before CIRP where the property is covered by an approved resolution plan and the plan results in the qualifying change required by Section 32A. The statutory explanation is unusually clear: “action against the property” includes attachment, seizure, retention or confiscation under the applicable law.

The protection can also operate when property is sold in liquidation to a person who satisfies the statutory independence conditions. But it does not protect property of someone other than the corporate debtor or the qualifying acquirer. Property personally owned by an erstwhile promoter, an officer, an abettor or another third party remains open to lawful action. Therefore, the title and ownership of every restrained asset must be established; the fact that an asset was used by the company does not necessarily make it property of the corporate debtor.

Manish Kumar: why the Supreme Court upheld Section 32A

In Manish Kumar v Union of India, (2021) 5 SCC 1, judgment dated 19 January 2021, the Supreme Court examined a constitutional challenge to Section 32A. Paragraphs 252 to 255 analyse its three limbs. The Court explained that entity immunity arises only after approval of a plan that changes management or control to an eligible person; persons involved in the offence continue to be exposed; property protection is confined by the terms of subsection (2); and subsection (3) preserves the duty to assist investigators.

At paragraphs 256 and 257, the Court rejected the argument that insulating property allegedly connected with crime was manifestly arbitrary. It accepted that experience under the IBC had shown that unresolved criminal exposure deterred genuine applicants, depressed resolution values and obstructed rehabilitation. Parliament could give a bona fide new management a clean break while continuing proceedings against the actual wrongdoers. The Court stressed that the statutory design did not allow those wrongdoers to escape.

The significance of Manish Kumar is therefore precise. Section 32A is constitutionally valid, but its immunity is neither immediate upon admission of CIRP nor available to every purchaser. The conditions are the boundary of the protection.

The Bhushan Power litigation and its essential qualification

The long litigation concerning Bhushan Power and Steel Limited illustrates the commercial damage caused by uncertainty, but it must be cited with procedural accuracy. In Kalyani Transco v M/s Bhushan Power and Steel Limited, 2025 INSC 1165, judgment dated 26 September 2025, the Supreme Court recorded that CIRP commenced on 26 July 2017; the resolution plan was approved by the NCLT on 5 September 2019; and the Enforcement Directorate issued a provisional attachment order on 10 October 2019 in an ECIR founded on a CBI case. Section 32A was then introduced on 28 December 2019.

The Court recorded at paragraphs 116 to 118 the purpose and operation of Section 32A and the practical obstruction caused by continuing ED action. However, the disposal of the attachment controversy itself had occurred earlier by a consent-based order dated 11 December 2024. Under that arrangement, ED was directed to hand control of the attached properties to JSW by treating the transfer as restitution under Section 8(8) PMLA read with Rule 3A of the 2016 Restoration Rules. The Court expressly stated that it was not deciding the interpretation of Section 32A(2) or the general power of ED to attach a corporate debtor's property during CIRP.

That limitation matters. Kalyani Transco is strong contemporary authority on the legislative purpose of Section 32A and on the factual harm caused by unresolved attachment. It is not a universal ruling that every PMLA attachment made during CIRP is void. The final judgment of 26 September 2025 followed recall, on 31 July 2025, of the earlier judgment dated 2 May 2025; the recalled decision should not be presented as the surviving disposition.

Stage-by-stage legal position

Before CIRP begins, PMLA authorities may exercise statutory powers subject to the jurisdictional and procedural safeguards in the PMLA. Insolvency planning does not retrospectively invalidate a lawful attachment.

After admission of CIRP but before approval of a resolution plan, Section 14 operates according to its own text. Section 32A protection has not yet matured. A resolution professional should not assume that taking control of the business automatically cancels a PMLA order, nor should an enforcement authority ignore the custody and value-maximisation structure of the IBC. The exact order, asset, ownership and relief must be placed before the forum competent to grant it.

On approval of a qualifying plan, subsections (1) and (2) must be examined separately. Corporate prosecution for a pre-CIRP offence ceases only within subsection (1). Property action is barred only for property and an acquirer satisfying subsection (2). A plan clause cannot manufacture statutory immunity when these requirements are absent.

In liquidation, Section 32A(2) expressly contemplates protection for property sold to an eligible person. This does not mean that every asset found at the company's premises enters the liquidation estate. Section 36 requires an ownership inquiry, and third-party assets do not become corporate property merely through possession or accounting treatment.

No conflict between rescue and investigation

Section 32A(3) requires the corporate debtor and any person who may be required to assist under the applicable law to provide all assistance and cooperation to the investigating authority. A successful applicant must preserve books, email, devices, ledgers and transaction data; identify custodians; comply with lawful summons; and maintain a defensible chain of custody. Immunity from prosecution or property action is not a licence to suppress evidence.

Former directors, promoters and officers remain exposed to prosecution, arrest, trial, confiscation of their own property and other lawful measures. Where alleged proceeds moved through several entities, the authority must still establish the statutory nexus and identify whose property is being restrained. Section 32A protects a qualifying rescue; it does not rewrite the definition of proceeds of crime or adjudicate ownership by assumption.

Forum and remedy

The NCLT has jurisdiction under Section 60(5) over questions of law or fact arising out of or in relation to insolvency resolution or liquidation. But insolvency jurisdiction is not a substitute criminal court, PMLA adjudicating authority or PMLA appellate forum. A party should frame relief around the particular statutory consequence it seeks: recognition of Section 32A immunity after plan approval, release or control of a specified corporate asset, challenge to a PMLA attachment before the designated statutory forum, or protection of the insolvency estate. Broad pleas that “IBC overrides PMLA” conceal the necessary analysis.

Practical diligence for resolution applicants and lenders

A serious resolution process should maintain an asset-by-asset schedule recording title, possession, valuation, charge, attachment number, date, ECIR or scheduled-offence reference, stage of Section 8 proceedings and pending appeal. The applicant should investigate whether the alleged property is actual proceeds, transformed proceeds or value-equivalent property; whether it belongs to the corporate debtor; and whether another person claims a prior interest.

The plan should disclose criminal and attachment exposure, identify the proposed change in control, record the eligibility analysis, preserve cooperation obligations, allocate litigation responsibility and avoid promising release that depends on a judicial or statutory order. Lenders should price delay and title risk honestly. The resolution professional should preserve records and promptly disclose subsequent coercive orders to the committee of creditors and applicants.

Conclusion

The lawful balance is a clean corporate rescue without criminal amnesia. Section 14 does not itself supply the complete immunity later created by Section 32A. Once an approved plan or qualifying liquidation sale meets every statutory condition, Section 32A protects the corporate debtor or acquired corporate property within its defined field. It leaves the architects and beneficiaries of the alleged offence answerable, preserves investigation and cooperation, and does not shelter unrelated property.

Sources

Supreme Court of India, Manish Kumar v Union of India, Writ Petition (Civil) No. 26 of 2020 and connected matters, judgment dated 19 January 2021, (2021) 5 SCC 1, especially paragraphs 246–257: https://api.sci.gov.in/supremecourt/2020/583/583_2020_33_1501_25559_Judgement_19-Jan-2021.pdf

Supreme Court of India, Kalyani Transco v M/s Bhushan Power and Steel Limited, Civil Appeal No. 1808 of 2020 and connected matters, judgment dated 26 September 2025, 2025 INSC 1165, especially paragraphs 2.11–2.26 and 108–120: https://api.sci.gov.in/supremecourt/2020/7358/7358_2020_1_1501_64744_Judgement_26-Sep-2025.pdf

Supreme Court of India, Directorate of Enforcement v Committee of Creditors of Bhushan Power and Steel Limited, order dated 11 December 2024: https://api.sci.gov.in/supremecourt/2020/7358/7358_2020_11_25_57755_Order_11-Dec-2024.pdf

Insolvency and Bankruptcy Code, 2016, Sections 14, 30, 31, 32A, 36, 60 and 238: https://www.indiacode.nic.in/handle/123456789/2154

Prevention of Money-Laundering Act, 2002, Sections 2(1)(u), 5, 8, 17, 20 and 71: https://www.indiacode.nic.in/handle/123456789/15402

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