Detailed Briefing Note: Shiv Charan v. Adjudicating Authority (PMLA)
- Feb 28
- 5 min read
(i) Introduction
This case addresses the conflict between the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016), specifically Section 32A, and the attachment of assets by the Directorate of Enforcement (ED) under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The core issue revolves around the implications of Section 32A, which grants immunity to a corporate debtor and its assets upon the approval of a resolution plan, for enforcement agencies that have attached those assets.
The matter involved the Corporate Debtor, DSK Southern Projects Private Limited, which was subjected to a Corporate Insolvency Resolution Process (CIRP) starting December 9, 2021. Prior to the CIRP, the ED had filed an Enforcement Case Information Report (ECIR) (March 8, 2018) related to scheduled offenses, estimating the "proceeds of crime" at Rs. 8,522.27 crores. Pursuant to this, assets of the Corporate Debtor (four bank accounts and 14 flats, aggregating over Rs. 32.51 crores) were attached. This attachment was provisionally levied on February 14, 2019, and confirmed on August 5, 2019, well before the CIRP commenced.
A resolution plan, propounded by Mr. Shiv Charan and others ("Resolution Applicants"), was approved by the National Company Law Tribunal (NCLT) on February 17, 2023 ("Approval Order"). The Approval Order explicitly directed the ED to release the Attached Properties, relying upon Section 32A of the IBC, 2016.
The matter reached the High Court of Bombay through two petitions:
Writ Petition (L) No. 9943 of 2023 (Resolution Applicants): Seeking quashing of the ECIR and attachment orders related to the Corporate Debtor and directing the release of the Attached Properties pursuant to the Approval Order.
Writ Petition (L) No. 29111 of 2023 (ED): Challenging the NCLT’s authority to pass orders invoking Section 32A in a manner that renders the PMLA, 2002 nugatory, specifically challenging a subsequent NCLT order (April 28, 2023) that again directed the release of the Attached Properties.
(ii) Arguments by Both the Parties
Arguments by the Directorate of Enforcement (ED)
The ED, represented by Mr. Devang Vyas, Ld. ASG, presented the following core contentions:
Alternate Remedies: The Resolution Applicants should not have filed a writ petition as they had statutory, alternate, and efficacious remedies available under the PMLA, 2002, specifically Section 26(1) (appeal) or Section 8(8) (restoration application) after confiscation.
NCLT's Limited Jurisdiction: The NCLT’s jurisdiction under Section 60(5) of the IBC, 2016, is limited to interpreting the IBC alone. The NCLT should refrain from ruling on matters that have implications for other special legislations like the PMLA, 2002, as this amounts to indirectly interpreting PMLA provisions.
PMLA Precedence/Timing: The attachment was provisionally and finally confirmed well before the commencement of the CIRP. Section 32A cannot be read in a way that renders the special objectives of the PMLA, 2002 nugatory.
Scope of Section 32A: Section 32A’s effect cannot extend to curtailing the ED's powers to keep properties attached after the CIRP starts and before a resolution plan is approved.
Arguments by the Resolution Applicants
The Resolution Applicants, represented by Mr. Vikram Nankani, Ld. Senior Counsel, advanced the following submissions:
Section 32A Overrides PMLA: Section 32A is a non-obstante provision and, should a conflict arise, it overrides the provisions of the PMLA, 2002.
Automatic Discharge: Section 32A is a special automatic framework. Its jurisdiction is attracted only after a resolution plan is approved under Section 31 of the IBC, 2016, which is when the moratorium under Section 14 ends. The resolution applicant does not need to seek a positive grant of approval; the immunity operates automatically provided the conditions (like a clean change in management) are met.
Purpose of Attachment: Attachment under PMLA, 2002 is merely an interim measure aimed at eventual confiscation under Section 8(5). Since Section 32A of the IBC, 2016 protects against the ultimate end of confiscation, the interim measure of attachment must logically cease upon the approval of the resolution plan.
ED’s Failure to Challenge Approval Order: The ED did not challenge the initial Approval Order (dated February 17, 2023), which already directed the release of the Attached Properties based on Section 32A. Even if the subsequent April 2023 Order were set aside, the Approval Order remains binding on the ED.
(iii) Legal Issues/Questions the Court Answered
The High Court restricted itself to addressing the following core question:
Whether the NCLT had the jurisdiction to direct the ED to release the Attached Properties by invoking Section 32A of the IBC, 2016, given that Section 32A provides that all attachments over properties of a corporate debtor would cease once a qualifying resolution plan is approved.
Whether the legality of continuing attachment under PMLA, 2002, prevails in the face of Section 32A of the IBC, 2016.
As a necessary corollary, the Court examined the scope and jurisdiction of Section 60(5) of the IBC, 2016.
The Court specifically noted that it was unnecessary and irrelevant to rule on the conflict between the continuation of attachment under the PMLA, 2002, and the effect of the moratorium under Section 14 of the IBC, 2016, because the approval of the resolution plan triggered the jurisdiction of Section 32A, rendering the Section 14 issue moot.
(iv) Final Observations of the Court
The High Court of Bombay delivered its judgment with the following final observations and conclusions:
Supremacy of Section 32A: The Court held that Section 32A is a non-obstante provision that overrides the PMLA, 2002, once the resolution plan is approved and the attendant conditions (clean break/change in control) are met. The legislative intent behind Section 32A was to provide a "clean slate" to the corporate debtor, making a clean break from the past, as affirmed by the Supreme Court in Manish Kumar v. Union of India.
Immunity for Assets: Section 32A(2) explicitly protects the property of the corporate debtor, stipulating that "action against the property" includes the attachment, seizure, retention or confiscation of such property under such law as may be applicable (thereby including PMLA, 2002). Since prosecution of the corporate debtor ceases under Section 32A(1), conviction cannot follow, and consequently, the interim measure of attachment in aid of confiscation must necessarily abate and come to an end.
NCLT's Jurisdiction Affirmed: The NCLT was well within its jurisdiction to direct the ED to raise its attachment.
The NCLT, as the Adjudicating Authority under the IBC, 2016, has the duty under Section 31 to ensure effective implementation of the approved resolution plan.
Furthermore, Section 60(5) of the IBC, 2016 is also a non-obstante provision that explicitly confers jurisdiction on the NCLT to dispose of any question of law or fact arising out of or in relation to the insolvency resolution proceedings. Interpreting and applying the mandate of Section 32A falls squarely within this jurisdiction.
No Quashing Required: The Court observed that it was unnecessary to quash the ED’s instruments of enforcement (ECIR, attachment orders). By operation of Section 32A, these instruments are simply rendered inoperative and ineffective insofar as they relate to the corporate debtor and its assets.
Duty of Quasi-Judicial Authorities: The Adjudicating Authority under Section 8 of the PMLA, 2002, being a quasi-judicial officer, is bound by the law declared by the Hon’ble Supreme Court (Article 141). This authority must take judicial notice of the approval of the resolution plan and release the attachment on its own accord.
Final Directive: The attachment by the ED over the Attached Properties (bank accounts and 14 flats) came to an end on February 17, 2023 (the date of the Approval Order) by operation of Section 32A of the IBC, 2016. The ED must communicate the release of the attachment forthwith, within six weeks from the date of the judgment, to enable the properties to be deployed for the corporate debtor's revival.
Writ Petitions Outcome: The ED's challenge (WP 29111) was misconceived, and the Resolution Applicants' petition (WP 9943) was maintainable. The Court ruled that the NCLT was accurate in its valid exercise of explicit jurisdiction. The two Writ Petitions were disposed of, and the rule was made absolute in favor of the Resolution Applicants.
