Can the ED attach a company’s assets after it enters insolvency? | Explained

The story so far: The National Company Law Appellate Tribunal (NCLAT) has held that the Insolvency and Bankruptcy Code (IBC) moratorium cannot shield assets alleged to be “proceeds of crime” from attachment under Prevention of Money Laundering Act (PMLA). The ruling came in a case involving Siddhi Vinayak Logistics Ltd., where the Enforcement Directorate (ED) had attached assets despite the company entering insolvency proceedings. “Parliament did not legislate IBC with an intent to create a holy Ganges out of the IBC to wash the corporate debtor of its sin of criminality under the PMLA”, the Principal bench of NCLAT observed on June 30.

What is the matter?

The case arose from proceedings against Siddhi Vinayak Logistics Ltd., whose promoters are accused of bank fraud, forgery, criminal conspiracy and diversion of loan funds exceeding ₹1,600 crore.

The ED initiated proceedings under the PMLA and provisionally attached the company’s assets in 2017. A few months later the company entered the Corporate insolvency resolution process (CIRP), triggering moratorium under section 14 of the IBC.

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The moratorium in terms of IBC is described as a period wherein no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can be instituted or continued against the Corporate Debtor. The main purpose of declaring the moratorium period is to keep the Corporate Debtor’s assets intact during the CIRP, which otherwise may be attached by any competent court of law during the pendency of proceedings against the Corporate Debtor.

During the moratorium, the ED withdrew ₹2.29 crore from one of the company’s bank accounts. In 2019, while liquidation proceedings were under way, it provisionally attached more than 6,000 vehicles belonging to the company. The liquidator challenged these actions before the National Company Law Tribunal (NCLT), arguing that they violated the IBC moratorium by reducing the assets available for creditors. After the NCLT rejected the plea, the matter reached the Appellate tribunal, NCLAT.

Why do the IBC and the PMLA come into conflict?

The dispute lies at the intersection of two laws with different objectives.

The IBC seeks to resolve corporate insolvency by preserving a company’s assets and ensuring that creditors recover their dues in an orderly manner. To facilitate this, Section 14 imposes a moratorium that generally bars proceedings and recovery actions against the corporate debtor once insolvency proceedings begin.

The PMLA, on the other hand, empowers the ED to identify, attach and eventually confiscate assets alleged to be “proceeds of crime”.

The legal question before the tribunal was whether the protection available under the IBC moratorium extends to assets that are simultaneously the subject of proceedings under the PMLA.

What is the ruling and why does it matter?

The tribunal described the dispute as one between the IBC and the PMLA rather than between the liquidator and the ED, holding that the two statutes operate in distinct fields.

It held that the IBC was enacted to maximise value for creditors through the sale of a company’s legitimate assets and was not intended to legitimise wealth allegedly derived from criminal activity. The moratorium under Section 14, therefore, protects only legitimately acquired assets and does not extend to assets alleged to be proceeds of crime under the PMLA.

The tribunal observed that while creditors routinely accept reduced recoveries, during insolvency proceedings, the national interest underlying the PMLA cannot be compromised. It remarked that Parliament did not enact the IBC to create a “holy Ganges” capable of washing away a corporate debtor’s alleged criminality or legitimising “ill-gotten wealth”.

The tribunal held that insolvency tribunals cannot examine the validity of attachment orders passed under the PMLA. Relying on the Supreme Court’s decision in Embassy Property Developments Pvt. Ltd. v. State of Karnataka, it held that any challenge to such actions must be pursued through the adjudicatory mechanism established under the PMLA. It also referred to a 2025 circular issued by the Insolvency and Bankruptcy Board of India advising insolvency professionals to approach the Special Court under the PMLA for restitution of attached assets.

The judgment clarifies that insolvency proceedings cannot be used to prevent the ED from attaching or retaining assets alleged to be proceeds of crime.