PMLA V. IBC: ANALYSING THE SUPREME COURT’S APPROACH IN KALYANI TRANSCO CASE

[ Siddhanth Singhi and Aditya Belsare are 4th year students at the Gujarat National Law University ]

Introduction

The Hon’ble Supreme Court (“SC”) on 31 July 2025, has recalled its judgment in the case of Kalyani Transco v. Bhushan Power & Steel Ltd. (“Kalyani Transco Case”) and listed the matter for a detailed hearing on 7 August 2025. The 2-judge bench was of the view that the earlier judgment did not reflect the correct legal position and failed to take into account various considerations and arguments. 

The SC in the Kalyani Transco Case addressed the overlapping of National Company Law Tribunal (“NCLT”) and the Enforcement Directorate’s (“ED”) jurisdiction in the insolvency framework. The primary issue was the attachment of assets by ED after the initiation of insolvency proceedings. Settling various contrary High Courts and Tribunal decisions, the SC in Kalyani Transco Case stated that proceedings under the Insolvency & Bankruptcy Code, 2016 (“IBC”) cannot be used to frustrate the proceedings of the Prevention of Money Laundering Act, 2002 (“PMLA”). The article aims to analyze the SC judgment passed on 2 May 2025, particularly regarding the issue of such overlap.

Judicial Evolution: IBC-PMLA Interplay

IBC was designed to streamline the insolvency procedure by providing a unified framework for corporate debt resolution. PMLA, on the other hand, is a penal statute created to combat money laundering and recover the proceeds of crime, thereby prosecuting such offenders. Both laws were designed for entirely distinct objectives; however, the non-obstante clauses in these statutes have led to a longstanding tussle between the IBC and PMLA. The ratio of Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. is critical, wherein the SC had ruled that when two statutes with a non-obstante clause come into conflict, the later-enacted statute prevails. As the IBC Act, 2016 was enacted post PMLA, 2002, IBC takes precedence over PMLA in insolvency proceedings. However, ED has continued proceedings under PMLA despite the non-obstante clause conflict being in favour of IBC.

The High Courts, NCLT, and National Company Law Appellate Tribunal (“NCLAT”) have on various occasions ruled divergently on the intersection of PMLA and IBC, such as in Varrsana Ispat Ltd. v. Deputy Director (“Ispat case”),wherein the NCLAT held that the IBC and PMLA operate in different spheres, thus, there is no question of overriding each other. Similar rulings were given by various High Courts, in cases like Nitin Jain Liquidator PSL Limited v. Directorate of Enforcement & Directorate of Enforcement v. Asset Reconstruction Co. (India) Ltd., wherein precedence was given to PMLA over IBC. In these cases, actions by ED against the Corporate Debtor (“CD”) for actions of previous management were held valid despite the initiation of insolvency proceedings. On the other hand, the NCLAT in Enforcement Directorate v. Manoj K. Agarwal took a contrary view, ruling that PMLA attachments are impermissible post-insolvency proceedings. However, the NCLAT ruling was overruled in Kiran Shah v. Directorate of Enforcement, which restricted NCLT’s jurisdiction over PMLA matters, and the decision was further confirmed by the SC in Ispat case. However, the judicial position remained silent after Section 32A, IBC insertion, which specifically prohibited any action of attachment by ED post resolution plan approval.

SC’s Approach in Kalyani Transco Case

The Kalyani Transco Case revolved around the issue of attachment order by the ED post resolution plan approval. The NCLT approved the resolution plan of Bhushan Power and Steel Limited on 5^th September 2019 and declared JSW Steel as the Successful Resolution Applicant (“SRA”). On 10^th October 2019, the ED issued a provisional attachment order (“PAO”) which targeted the CD’s assets after NCLT approved the resolution plan and management was taken over by the SRA. Immediately, NCLAT stayed the ED’s PAO, and on 17^th February 2020, it passed an order, ruling that ED had no power to attach the assets of the corporate debtor in light of Section 32A, IBC. On appeal, the SC cited its earlier decision in the Embassy Property Development Limited v. State of Karnataka to rule that NCLT and NCLAT had no power to interfere with ED’s actions under PMLA, since the statutory bodies are acting under the realm of ‘public law’. Furthermore, due to procedural lapses, including a breach of the 330-day timeline under Section 12, IBC & non-compliance with Section 29A, the SC struck down the resolution plan and referred the matter to the NCLT to initiate liquidation proceedings.

Scope and Legislative Aim of Section 32A, IBC

Section 32A, IBC was inserted with a non-obstante clause, effective from 28^th December 2019, to address investor reluctance caused by potential criminal liabilities. It provides a clean slate to resolution plans approved post 28^thDecember 2019. A need was felt to prioritise the protection of the CD from prosecution and action against the property of CD and SRA to fulfil critical gaps in the IBC framework. Hence, Section 32A was inserted to ensure protection of CD’s property post resolution plan approval by NCLT, subject to fulfilment of certain conditions to ensure bona fides of the new management. Along with various High Courts terminating ED actions post resolution plan approval, the validity of Section 32A was upheld in Manish Kumar Case by the SC which noted that the section is necessary to extinguish CD’s liability post resolution plan approval for the new management to start with a clean slate without any burden of previous management crimes (clean state principle). The Court noted that Section 32A provided for safeguards and the legislative aim behind the insertion was to enhance investor confidence in insolvency proceedings by providing certainty to new management.

Analysis of Kalyani Transco’s Judgment: Confusion or Alignment

The SC cited the Embassy Property Development Limited case to reinforce the jurisdictional boundaries of NCLT and NCLAT over statutory authorities such as the ED. However, the Court failed to take into account the legislative intent behind the insertion of Section 32A by adopting a silent approach to Section 32A’s application to resolution plans approved before its insertion. The SC failed to use the protection granted to the CD under Section 32A for resolution plans approved before its insertion, i.e., 28^th December 2019. By doing so, the SC classified the resolution plans into 2 categories: (i) plans approved before Section 32A insertion & (ii) plans approved after Section 32A insertion, and the category (i) resolution plans were not granted protection of Section 32A. The silence of the SC resulted in ambiguity, risking retrospective PMLA actions on Category (i) resolution plans. This distinction is devoid of substantive justification and creates perverse incentives for ED to contest earlier resolutions on procedural grounds that can further destabilise the insolvency ecosystem.

The SC in Swiss Ribbons v. Union of India noted that the primary focus of IBC is to ensure revival of CD by protecting the CD from previous management and a corporate death by liquidation. The SC’s decision in the Kalyani Transco Caseto liquidate Bhushan Steel, despite a resolution plan successfully approved and implemented, contrasts with its earlier view held in the Swiss Ribbons Case. Despite procedural incompliances, the SC was not correct to set aside the entire insolvency process instead of awarding penalties or interests to the creditors. The judgment to liquidate was passed when JSW Steel employed 25000 workers and engaged in the successful revival of the stressed Bhushan Power & Steel Ltd. Failing to take into account the ground reality of the livelihood of 25000 workers and by focusing on procedural compliance, the SC’s decision missed the true legislative intent behind IBC.

Way Forward

The stark difference between resolution plans and liquidation rates already highlights a legal environment that is failing to foster corporate revival. The current framework is marred with economic inefficiencies due to its nature of protracted litigation and uncertainty. The failure of the apex court in the Kalyani Transco Case to decide on the Section 32A application and snatching NCLT’s jurisdiction to enforce its orders had generated an imbalance, exacerbating the investors’ uncertainty and confidence.

The authors recommend that NCLTs and NCLAT should not remain toothless tigers, and it becomes imperative to amend the IBC to empower the Tribunals to adjudicate disputes concerning Section 32A. Consistency and investors’ faith in NCLTs can be maintained if the adjudicating power for issues post-resolution plan approval is retained with the original forum, i.e., NCLT.

Secondly, the IBC should be amended to clarify the enforcement of Section 32A retroactively to all pending cases since the IBC’s inception. It’s required to remove the differential treatment between resolution plans approved pre-Section 32A insertion and post-Section 32A insertion, as it ultimately undermines the clean slate principle and investors’ confidence.

Thirdly, if the ED attaches the assets of CD post resolution plan approval, the authors recommend that the SRA should approach the PMLA Appellate Authority under Section 26, PMLA, to stop ED proceedings. A fruitful order from the NCLT can be challenged by the ED as the position regarding jurisdiction remains unsettled.

The SC’s decision to recall its judgment passed on 2 May 2025 is a step in the right direction, showcasing judicial acknowledgement that the decision is not in line with earlier settled decisions. The SC should harmoniously interpret PMLA and IBC to settle the jurisdictional issues while upholding the true intent of both legislations.