The National Company Law Appellate Tribunal (NCLAT) has ruled that the Insolvency and Bankruptcy Code (IBC) cannot override the Prevention of Money Laundering Act (PMLA) when assets are attached by the Enforcement Directorate (ED). The appellate tribunal clarified that assets confirmed as proceeds of crime under the PMLA by the ED, and adjudicated by a competent authority, fall outside the scope of IBC's resolution proceedings.

The NCLAT's decision reinforces that if the ED has validly attached assets under the PMLA, and this attachment has been confirmed, it cannot be undone through the IBC. A three-member NCLAT bench stated that Section 238 of the IBC, which generally gives the IBC overriding effect over other laws, does not apply in cases involving proceeds of crime.

The ruling came in response to a plea filed by the resolution professional of Dunar Foods, challenging an NCLT ruling that had declined to instruct the ED to release provisionally attached assets of the debt-ridden company. The NCLT had reasoned that the PMLA is a special penal statute with a distinct adjudicatory mechanism, and thus, it lacked the jurisdiction to order the release of assets attached under the PMLA unless the attachment was set aside by the PMLA adjudicating authority.

The NCLAT emphasized that the PMLA and IBC operate in distinct spheres and that there is no irreconcilable inconsistency between the two laws. The tribunal noted that the ED acts as a public enforcement agency, not as a creditor. According to the NCLAT, the ED's attached assets are intended to uphold penal objectives and international obligations under the Financial Action Task Force (FATF) and United Nations Conventions, rather than to satisfy creditors.

The NCLAT also cited a Supreme Court directive in the Embassy Property matter, stating that it lacks the jurisdiction to interfere with the Prevention of Attachment Order (PAO) that has been confirmed by the Adjudicating Authority under the PMLA.

It's important to note that there can be instances where the NCLAT has ordered the ED to lift PMLA attachment on a corporate debtor’s asset, citing Section 32A of the IBC, which protects Successful Resolution Applicants (SRA).