The Insolvency and Bankruptcy Board of India (IBBI) and the Enforcement Directorate (ED) have found a resolution to a critical issue concerning the interplay between insolvency law and the Prevention of Money Laundering Act (PMLA) in the resolution of stressed assets. This collaboration aims to streamline the process and ensure that both laws are respected while resolving existing issues.
The conflict arises primarily from situations where assets involved in insolvency resolution under the Insolvency and Bankruptcy Code (IBC) are suspected of involving black money. Under the PMLA, the ED has the authority to attach such assets. However, the IBC imposes a moratorium on the assets of an entity undergoing the insolvency resolution process. This creates a conflict, potentially hindering the resolution of stressed assets.
IBBI Chairperson Ravi Mital shared that discussions with the ED have resulted in a solution that respects both the IBC and PMLA. The goal is to maintain the integrity of both legal frameworks while effectively resolving the challenges that arise when they intersect. Mital expressed optimism that a circular detailing the agreed-upon approach would be issued within a month or two.
The IBC, enacted in 2016, aims to provide a market-driven and timely resolution for stressed assets. Since its implementation, there have been six legislative interventions with amendments occurring in 2017, 2018, 2019 (twice), 2020 and most recently in 2021. In August, a bill proposing further amendments to the IBC was introduced in Lok Sabha and subsequently referred to a select committee after extensive consultations with stakeholders. The IBBI is currently drafting regulations for these proposed amendments.
Mital emphasized that this proactive approach aims to minimize delays once Parliament approves the changes. He also mentioned that the IBBI is working to implement Supreme Court directions from two recent judgements concerning the real estate sector and anticipates these implementations will be completed within two to three months.
The resolution between the IBBI and ED is expected to smooth asset resolution procedures in future cases and ensure that conflicts between insolvency law and money laundering regulations are minimized. This development marks a significant step towards a more efficient and coordinated approach to resolving stressed assets in the Indian economy.
