Battle of Statutes: PMLA-Income Tax-Benami-IBC-SARFAESI Part 1 of 4 — When PMLA Meets the IBC May 2026

Section 32-A IBC and Section 8(8) PMLA are complementary and increasingly operate as practical alternatives, where S. 8(8) operates where a charge has already been framed and S. 32-A remains a doctrinal shield triggered at plan approval.

Introduction

Imagine a single flat in Delhi. It is bought in the name of an employee, paid for with unrecorded foreign income never properly shown in the company’s tax returns. The Company that actually provided the money has since defaulted on its loans, and the same flat was mortgaged with a bank. On paper it is one property; to different authorities it means very different things — “proceeds of crime” for the Enforcement Directorate (ED) under Prevention of Money-Laundering Act, 2002(PMLA), “benami property” under the Benami Act, 1988 undisclosed “black money” for the Income Tax Department, part of the corporate debtor’s asset pool under the Insolvency and Bankruptcy Code, 2016 (IBC), and security for an unpaid loan under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). One flat, many labels, and several laws trying to freeze or sell the same asset.

The five lenses, in brief

The law approaches that one flat through five lenses, each with its own definition, attaching authority, and non obstante clause. PMLA targets it as “proceeds of crime” under Section 2(1)(u), allowing provisional attachment under Section 5 and confiscation under Section 8, with Section 8(8) preserving a narrow safe harbour for bona fide third parties. The Benami Act treats it as “benami” under Section 2(8) and vests it in the Central Government “free of all encumbrances” under Section 27. The Income-tax Act attacks it from the revenue side — provisional attachment under Section 281-B, recovery under Section 226, and treatment as undisclosed income under Sections 68—69-A taxed at the punitive rate under Section 115-BBE; for foreign assets, the Black Money Act’s Section 51 is now a scheduled offence under PMLA. The IBC sweeps the flat into the corporate debtor’s estate, freezes enforcement during the Section 14 moratorium, channels distribution through the Section 53 waterfall, and cleans the slate post-resolution under Section 32-A, with Section 238 asserting overriding effect. The SARFAESI Act lets the secured bank act under Section 13, claim priority under Section 26-E, and rely on its non obstante in Section 35. One flat, five regimes — each insisting it must prevail.

Why this matters

When many arms of the State and several private claimants chase the same property, who gets it in the end? This series unpacks ten two-statute permutations. Part 1 begins with the most actively litigated — the collision between PMLA and the IBC — where the deepest doctrinal questions of recent years have surfaced: whether a criminal attachment can survive a commercial moratorium, whether a clean-slate resolution erases the ED’s claims, and whether a tribunal can ever direct the ED to release tainted property.

PMLA and IBC

1. The moratorium question: Section 14 IBC

Section 14 IBC bars “the institution of suits or continuation of pending suits or proceedings against the corporate debtor”, while the ED may seek provisional attachment under Section 5 PMLA. The narrow question is whether Section 14 bars an ED attachment — distinct from what happens once a resolution plan is approved (governed by Section 32-A, dealt with below).

The answer is no. The Delhi High Court in Enforcement Directorate v. Axis Bank¹ held that PMLA and IBC operate in distinct domains: IBC is commercial, PMLA is penal. The Government, in attaching property, does not act as a creditor enforcing a debt; PMLA attachment falls outside the “legal proceedings” Section 14 was designed to halt. The National Company Law Appellate Tribunal (NCLAT) in Varrsana Ispat Ltd. v. Enforcement Directorate² confirmed this, and the Supreme Court dismissed the appeal on 22-7-2019. In Anil Kohli v. Enforcement Directorate³, the Tribunal extended the reasoning where the provisional attachment order (PAO) post-dated corporate insolvency resolution process (CIRP) but the underlying Enforcement Case Information Reports (ECIRs) predated it: Tainted assets are not insulated from penal action by reason only of the commercial moratorium.

The reasoning is unobjectionable for proceeds of crime stricto sensu. Difficulty arises with attachment of equivalent value under the second limb of Section 2(1)(u) PMLA, which can sweep in any asset and frustrate the going-concern objective the IBC seeks to preserve.

2. Section 32-A IBC: The post-approval immunity

Section 32-A is structurally distinct from the moratorium — a substantive immunity, not a procedural shield. Inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (effective 28 December 2019), it operates from approval of the resolution plan under Section 31. Section 32-A(1) extinguishes the corporate debtor’s liability for pre-CIRP offences; Section 32-A(2) bars any “action”: wide enough to encompass attachment, seizure or confiscation under PMLA against the corporate debtor’s property covered under the approved plan.

The immunity is conditional: the plan must result in a change in management or control, and the new management must not be a promoter, related party, or person who abetted or conspired in the offence. Personal liability of erstwhile promoters, Directors, and officers is preserved, the immunity attaches to the rehabilitated entity and its property, not to the wrongdoers. The Supreme Court upheld Section 32-A’s constitutional validity in Manish Kumar v. Union of India⁴, emphasising the “clean slate” rationale.

The high-water mark is the Delhi High Court in Rajiv Chakraborty (RP of EIEL) v. ED⁵, holding Section 32-A creates “an impregnable wall which cannot be breached by invocation of the provisions of the PMLA”.

Another endorsement comes from the Bombay High Court in Shiv Charan v. Adjudicating Authority⁶ (1-3-2024). The court upheld the National Company Law Tribunal’s (NCLT’s) orders directing the ED to release its attachment over the corporate debtor’s properties, holding that once a Section 32-A — compliant plan is approved the attachment “came to an end… by operation of statutory law”, and the NCLT possesses jurisdiction to direct the ED to formally communicate the release. The ED’s challenge in Deputy Director, ED v. Shiv Charan⁷ is pending before the Supreme Court, last heard on 6-2-2026; no stay has been granted, and the Shiv Charan ratio continues to bind on NCLT’s jurisdiction under Section 32-A vis-à-vis the ED.

The NCLAT Principal Bench took the same line in Vantage Point Asset (P) Ltd. v. Gaurav Misra⁸ (13-8-2024) directing the ED to lift its attachment after plan approval. That order was recalled on 9-1-2025⁹ because the ED had not been heard; the recall was confined to the ED-attachment limb and did not disturb the underlying plan approval. After impleadment and rehearing, the NCLAT by judgment dated 14-10-2025¹⁰ reaffirmed the position: Section 32-A operates retroactively, a PAO passed prior to CIRP ceases to operate on plan approval, and the Successful Resolution Applicant (SRA) need not approach the PMLA Authorities for release. The proposition in the case of Alchemist therefore stands restored. The order has been challenged before the Supreme Court; no stay has been granted.

3. The Bhushan Power saga: Where Section 32-A and Section 8(8) met

The most prominent illustration of the Section 32-A — PMLA interface is the Bhushan Power and Steel Ltd. (BPSL) saga. The NCLT approved JSW Steel’s resolution plan; the NCLAT, by judgment dated 17-2-2020¹¹, held that the ED’s provisional attachment over BPSL’s assets had ceased to operate under Section 32-A.

The ED, dissenting financial creditors and operational creditors carried the matter to the Supreme Court, where the appeals lay pending for almost five years. As JSW Steel pressed for restitution to give effect to its plan, on 11-12-2024, the Supreme Court directed the ED to hand over the attached BPSL properties (worth Rs 4,025 crore) to JSW Steel as restitution under Section 8(8) PMLA read with Rule 3-A, Prevention of Money-Laundering Act (Restoration of Property) Rules, 2016. The court expressly clarified that it had “not expressed any opinion on the interpretation of Section 32-A IBC or on the powers of the ED to attach the property of the corporate debtor — BPSL which is undergoing CIRP”.

On 2-5-2025, in Kalyani Transco v. Bhushan Power & Steel Ltd.¹², a two-Judge Bench reversed both forums — setting aside the resolution plan, directing liquidation, and observing that NCLT/NCLAT lack judicial review power over the PMLA. That ruling was recalled on 31-7-2025, and reheard. On 26-9-2025, in Kalyani Transco v. Bhushan Power & Steel Ltd.¹³, a three-Judge Bench dismissed all appeals and upheld the NCLAT’s 17-2-2020 judgment, observing that the recalled order had overlooked settled authority on the binding character of an approved plan and the limited scope of judicial review over commercial wisdom — Kalpraj Dharamshi v. Kotak Investment Advisors Ltd.¹⁴, Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.,¹⁵, Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta¹⁶ and Swiss Ribbons (P) Ltd. v. Union of India¹⁷.

Two caveats. Firstly, para 2.22 expressly preserved the court’s 11-12-2024 disclaimer on Section 32-A; paras 116—128 treat Section 32-A as background to delay attribution rather than for fresh interpretation, and the operative dismissal at paras 191—192 simply upholds the NCLAT’s 17-2-2020 ruling. The doctrinal question whether Section 32-A automatically vacates a PMLA attachment on plan approval therefore remains unsettled in express terms at the Supreme Court. Secondly, the jurisdictional observation that NCLT/NCLAT cannot review PMLA decisions, foundational to the recalled 2-5-2025 ruling, was neither affirmed nor negated — so reliance on that proposition (including in Anil Kohli case¹⁸) must be approached with care.

4. The Section 8(8) route as a substitute

The 11-12-2024 BPSL order created a temptation to treat the Section 8(8) PMLA + Rule 3-A route as an interchangeable substitute for Section 32-A IBC. Section 8(8) restitution under the second proviso (read with Rule 3-A) is anchored to the Special Court’s Section 8 jurisdiction and may be invoked once charges under Section 4 PMLA have been framed.

As the ED continued to challenge Section 32-A releases and to contest the NCLT’s jurisdiction, and as those challenges took years to reach finality, the Insolvency and Bankruptcy Board of India (IBBI) stepped in with the cooperation from ED. By Circular No. IBBI/CIRP/87/2025 dated 4-11-2025¹⁹, it observed that restitution of ED-attached assets can significantly enhance value for the corporate debtor and creditor realisation, and advised that in such cases the insolvency professional may file an application before the Special Court under Section 8(7) or Section 8(8) PMLA for restitution. Executive action has thus designated the Special Courts as the practical forum.

For applications under Section 8(7), the embargo in Nav Nirman Builders & Developers (P) Ltd. v. Union of India²⁰ that confiscation cannot conclude while the foundational Section 8(3) attachment is under challenge — applies, since Section 8(7) depends on the conclusion of the adjudication and any appeal. Section 8(8), by contrast, is not subject to that embargo and now becomes the fastest route to restitution.

Section 32-A IBC and Section 8(8) PMLA are therefore complementary and increasingly operate as practical alternatives, with Section 8(8) often the swifter option for cases where a charge has already been framed. Section 32-A remains a doctrinal shield triggered at plan approval; Section 8(8) is a fact-specific restitution route that, after the IBBI Circular, has become a recognised forum of choice for resolution applicants.

To be continued…

The IBC moratorium gives the corporate debtor breathing room from creditors — but not from the ED. Section 32-A promises a clean slate.

But PMLA is not done. The same ED that battles insolvency professionals also collides with the Benami Prohibition Unit, the Income Tax Department over whether undisclosed income can ever be “proceeds of crime”, and the registered secured creditor under the SARFAESI Act. Part 2 takes up those three remaining permutations and shows how the ED has fared in each.