No Moratorium Cover for Tainted Assets: NCLAT on the Limits of ED’s Power Under PMLA

Introduction

The National Company Law Appellate Tribunal (NCLAT) has delivered a clear verdict on the interplay between insolvency law and anti-money laundering enforcement. In the case Value Wise Consultancy Private Limited v. Deputy Director, Directorate of Enforcement & Ors. (Company Appeal (AT) (Ins) Nos. 1226 & 1227 of 2022), the Tribunal ruled on a question that increasingly troubles insolvency practice: once a company slips into moratorium, can it also expect protection from a separate law built to chase down criminally acquired wealth? The Bench’s answer was that it cannot: a moratorium under the IBC has no bearing on what the Enforcement Directorate (ED) is empowered to do under the Prevention of Money Laundering Act (PMLA) with property suspected to be tainted.

Facts

The case arose from the insolvency proceedings of Siddhi Vinayak Logistics Ltd., a company under investigation for alleged bank fraud and diversion of funds. Following probes by the Central Bureau of Investigation (CBI), the Enforcement Directorate (ED) issued notices under Section 50 of the PMLA to various customers of the company, directing them not to release payments.

By September 2017, the company had entered the Corporate Insolvency Resolution Process (CIRP), which brought the Section 14 moratorium into force. This did not stop the ED, which went on to draw roughly ₹2.29 crore out of the company’s account with ICICI Bank the following year, in August 2018. The insolvency effort ultimately collapsed, sending the company into liquidation, and the ED responded by placing a fresh attachment on a large fleet of the company’s vehicles, running into the thousands, shortly afterward.

The Liquidator, through Value Wise Consultancy Private Limited, filed applications before the NCLT seeking return of the withdrawn funds, removal of attachments, and directions to debtors to clear outstanding payments. After the NCLT rejected these requests, the matter came before the NCLAT

Held

The Tribunal’s starting point was that the IBC and the PMLA are not two versions of the same idea wearing different labels; they answer to entirely different mandates. One is a commercial framework meant to rescue or wind up a company using whatever it has genuinely earned. The other is a penal regime built to hunt down money that was never legitimately earned at all, in service of an interest broader than any single company’s creditors. The Bench suggested that treating the two statutes as interchangeable misunderstands the purpose of each statute.

The Tribunal explained that the moratorium under Section 14 of the IBC is not unlimited. Its primary purpose is to preserve the corporate debtor’s estate and stop actions that would increase its liabilities. It does not, however, bar enforcement actions under the PMLA that target tainted property.

The bench cautioned that treating proceeds of crime as part of the insolvency pool would effectively turn the IBC into a shield for illegal wealth.

It also ruled that insolvency tribunals simply have no seat at the table when it comes to reviewing or reversing what the ED does under the PMLA. That power belongs elsewhere. The Tribunal highlighted that challenges to the ED’s actions fall within the jurisdiction of the forums established under the PMLA or the High Court, and not the NCLT or NCLAT.

The Tribunal further noted that although the PMLA Appellate Tribunal had previously set aside some attachments, the ED’s appeal against that order is still pending before the Bombay High Court.

Conclusion

This judgment provides significant clarity on how overlapping proceedings under the IBC and PMLA should be handled. It makes it clear that assets linked to criminal activity cannot be subsumed into the insolvency process. The ruling will be particularly relevant for liquidators and resolution professionals dealing with companies facing simultaneous ED investigations.

Case Title: Value Wise Consultancy Private Limited v. Deputy Director, Directorate of Enforcement & Ors.

Company Appeal (AT) (Ins) Nos. 1226 & 1227 of 2022

Date of Judgment: 30 June 2026