Authors: Mr. Ashish Pahariya (Partner), Ms. Anisha Kumar (Principal Associate) and Ms. Vinita Gaud (Senior Associate)
Introduction: Competing Non‑Obstante clauses and divergent objectives
The Insolvency and Bankruptcy Code, 2016 (“IBC”) which came into force on December 1, 2016, marked a decisive shift in India’s approach to insolvency and its resolution. It aimed to overcome a fragmented and delay ridden framework with a consolidated, timebound process designed to prioritize resolution over liquidation. By establishing a creditor-in-control model, imposing a moratorium under section 14, and embedding the “clean slate” principle under section 32A of IBC, IBC has achieved a lot in preserving enterprise value, ensuring certainty for resolution applicants, and facilitating the efficient revival of distressed companies. In contrast, statutes such as the Prevention of Money Laundering Act, 2002 (“PMLA”), the Customs Act, 1962, and the Companies Act, 2013 pursue distinct regulatory and penal objectives ranging from confiscation of proceeds of crime and enforcement of fiscal statutes to oversight of corporate governance and market discipline. Each of these enactments is animated by a different legislative purpose and operate within their own statutory architecture.
Where two special statutes contain competing non-obstante clauses, courts have consistently examined legislative intent, subject matter focus, and the overall scheme of the enactments to determine primacy in a given factual matrix. Section 238 of the IBC expressly provides that its provisions shall prevail notwithstanding anything inconsistent contained in any other law, underscoring Parliament’s intent to accord the IBC overriding effect in matters of insolvency resolution. The friction between the IBC’s resolution centric framework and the enforcement-oriented objectives of other special statutes raises a critical question: to what extent does the IBC’s overriding mandate displace parallel statutory claims when corporate insolvency intersects with penal or regulatory action?
IBC vs PMLA: Evolving Judicial Boundaries
The courts have held that proceedings relating to the attachment of alleged proceeds of crime under PMLA are penal and public law measures that do not fall within the sphere of civil recovery ordinarily stayed by Section 14 of the IBC[1]. As a result, the adjudicating authorities have been wary to interpret the moratorium as requiring the Enforcement Directorate (“ED”) to lift or withdraw attachments, particularly where the attachment predates the commencement of the CIRP or has already been confirmed by the adjudicating authority under the PMLA.
In Vantage Point Asset Pte. Ltd. v. Gaurav Misra (Resolution Professional of Alchemist Infra Realty Ltd.)[2], the NCLAT held that upon approval of the resolution plan, any provisional attachment of assets by the ED under PMLA ceases to have effect by operation of Section 32A of IBC, and there is no requirement for the successful resolution applicant to seek a separate order from PMLA authorities for release of the attached assets. The Tribunal emphasised that Section 32A was introduced to ensure a “clean slate” post-CIRP, protecting the corporate debtor and its assets from enforcement actions arising out of pre-CIRP offences.
In Kalyani Transco v. M/s Bhushan Power and Steel Ltd. & Ors.[3], the Supreme Court clarified that while Section 32A confers a substantive statutory immunity upon the corporate debtor and its property in respect of pre-CIRP offences, such immunity does not expand the jurisdiction of the NCLT or the NCLAT to exercise appellate or supervisory control over authorities constituted under other enactments. The court emphasised that the implementation of Section 32A must follow the procedural architecture prescribed under the relevant special statute, and that parties are required to pursue the appropriate statutory remedies to give effect to such immunity. This decision reinforces the principle that the IBC must be applied in a manner that remains confined within the distinct statutory domains and jurisdictional limits of authorities constituted under other enactments, rather than displacing parallel enforcement laws.
In the matter of Frost International Limited[4], the NCLT, Mumbai Bench, adopted a resolution-centric interpretation of Section 32A(2) of the IBC and directed that the attachment order in relation to the assets/properties of the corporate debtor shall stand lifted/vacated upon approval of the resolution plan by the NCLT. Conversely, in Dunar Foods Ltd. v. Directorate of Enforcement[5], the NCLAT reiterated that the IBC cannot be invoked to override proceedings under the PMLA where the property in question constitutes alleged proceeds of crime and is already subject to a valid and confirmed attachment. The Hon’ble Tribunal held that, in such circumstances, the attached asset cannot be treated as forming part of the corporate debtor’s estate for the purposes of the resolution process.
At the heart of these rulings lies a fundamental divergence in judicial approach. Frost International interprets Section 32A as enabling the release of attached assets upon approval of a resolution plan, thereby preserving the integrity of the insolvency estate and giving real effect to the “clean slate” principle. In contrast, Dunar Foods accords primacy to the continued operation of validly confirmed PMLA attachments, treating such properties as standing outside the resolution framework altogether.
The former perspective strengthens the primacy of insolvency resolution, while the latter affirms the autonomy and overriding character of anti-money laundering enforcement.
To reconcile this divergence in the two legislations, IBBI in consultation with ED has introduced a restitution mechanism under the IBC framework vide a circular issued on November 4, 2025, which contemplates an application by the resolution professional before the PMLA Adjudicating Authority/Special Court seeking release or restoration of attached assets to facilitate implementation of an approved resolution plan.
The emerging restitution application process has the potential to materially alter the risk matrix for resolution applicants. For a prospective resolution applicant, uncertainty around attached assets has always translated into further lower acquisition pricing leading to a much larger haircut for creditors, conditional bids, or, in some cases, complete withdrawal from the process. If a structured mechanism enables the Resolution Professional to approach the PMLA forum for restoration or release of assets upon plan approval consistent with Section 32A, it introduces a measure of predictability which in turn will allow a more accurate valuation of the corporate debtor’s asset base, and reduce the uncertain effect that parallel enforcement proceedings often create, thereby leading to value maximisation which is the very objective of IBC.
In practical terms, this could lead to more competitive bidding, better realisations for creditors, and smoother implementation of approved plans. It also aligns with the commercial objective of the IBC: revival over liquidation, value maximisation over asset fragmentation. The restitution mechanism could therefore recalibrate the balance between insolvency resolution and penal enforcement, not by diluting the latter, but by ensuring that bona fide third-party acquirers are not deterred from participating in the restructuring of distressed assets. That shift, in turn, may mark the next phase in harmonising the IBC with parallel regulatory regimes.
IBC vs Customs: Clear judicial preference for IBC during moratorium
In Sundaresh Bhatt (Liquidator of ABG Shipyard) v. Central Board of Indirect Taxes and Customs[6], the Supreme Court held that upon the imposition of a moratorium under Section 14 or Section 33(5) of the Insolvency and Bankruptcy Code, 2016, customs authorities may assess and determine statutory dues, but are restrained from initiating recovery proceedings, including the sale or confiscation of goods under Section 72 of the Customs Act. The court clarified that customs authorities are required to submit their claims in accordance with the insolvency framework, and that the title to such goods continues to remain with the corporate debtor and forms part of its assets. Consequently, customs authorities cannot confiscate such warehoused goods for the purpose of recovery of customs duties during the subsistence of the moratorium. The Supreme Court rejected the contention that non-completion of customs formalities results in any transfer of title to the customs authorities, holding that mere custody of the goods by the customs authorities does not effect a transfer of ownership and held that demand notices, or interpretations of deemed abandonment cannot be invoked to circumvent or defeat the operation of the moratorium under IBC. This position stands in marked contrast to the judicial approach under the PMLA. While PMLA jurisprudence reflects an ongoing contest over whether attached properties fall within the insolvency estate, customs-related litigation has produced a far clearer line of authority: during CIRP or liquidation, the IBC prevails, and recovery-driven action by customs authorities must yield to the collective insolvency framework.
Statutory first charges and insolvency priority: revisiting the impact of judgement in Rainbow Papers
The Supreme Court’s ruling in State Tax Officer (1) v. Rainbow Papers Limited[7] created uncertainty by recognizing certain statutory dues as secured dues where the statute confers a first charge when the underlying statute creates a first charge over the corporate debtor’s assets. In that case, the Court interpreted Section 48 of the Gujarat Value Added Tax Act, 2003, which provides that tax dues “shall be a first charge on the property of such dealer” thereby creating a security interest and accordingly treated the State as a secured creditor for insolvency priority purposes.
This interpretation generated confusion because the distribution waterfall under Section 53 of the IBC places government dues in a lower priority, below secured and unsecured creditors. To tackle that uncertainty, the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 has been introduced in the Lok Sabha to make Parliament’s intent explicit: statutory dues should not automatically become secured debts merely because a statute confers a first charge. The Bill proposes amendments to Sections 3(31) and 53 to clarify that statutory charges created by law do not equate to consensual security interests and that government dues will be considered as per Section 53’s waterfall—below secured creditors and within the designated priority classes irrespective of any statutory charge. The proposed change to the IBC framework aims to realign waterfall priority norms with the original intent of IBC and remove the interpretational hurdles caused by aforesaid ruling in Rainbow Papers.
Conclusion
The jurisprudence and legislative developments discussed above, when viewed holistically, reflect a consistent institutional effort to preserve the structural integrity of the IBC. Where fiscal or regulatory authorities seek to enforce recovery during the pendency of insolvency, the courts have generally leaned in favour of preserving the integrity of the IBC framework, as seen in the customs context and now through legislative correction of Rainbow Papers. Yet, in the PMLA matters, the reconciliation remains more complex, reflecting the penal law character of attachment proceedings. The evolving restitution mechanism, coupled with statutory clarification on priority of government dues, signal a conscious effort to restore coherence to the insolvency law.
[1] Varrsana Ispat Ltd. v. Deputy Director, Directorate of Enforcement, Company Appeal (AT) (Insolvency) No. 493 of 2018, NCLAT, decided on 2 May 2019, paras 8 & 12, holding that proceedings for attachment of “proceeds of crime” under PMLA constitute penal action and, being outside the realm of civil recovery proceedings, are not subject to the moratorium under Section 14 of the IBC.
[2] MANU/NL/0573/2024
[3] Civil Appeal No(s).1808/2020, decided on 02.05.2025
[4] Bank of India v. Frost International Limited in IA 196/2024 IA 2262/2024 in C.P. (IB)/973(MB)2020, Order dated 15.07.2024
[5] Company Appeal (AT) (Ins.) No. 389 of 2018, decided on 3.07.2025
[6] Civil Appeal No. 7667/2021
[7] 2022 SCC Online SC 1162
Disclaimer: This article represents our understanding and interpretation of the relevant laws as on the date hereof and is provided without expressing any opinion, advice, or recommendation. The interpretations set out herein are subject to change, and there can be no assurance that any regulator, authority, or judicial body will concur with or adopt a position consistent with our views expressed in this article. This article is furnished solely for academic and informational purposes and should not be construed as legal advice or relied upon for any purpose whatsoever.