Rescue or Refuge? The IBC–PMLA Faultline Through the Gensol Lens

The intersection of India’s Insolvency and Bankruptcy Code, 2016 (IBC) and the Prevention of Money Laundering Act, 2002 (PMLA) has become a flashpoint. IBC provides distressed companies with a time-bound resolution process and a broad moratorium that halts suits or proceedings against the debtor. PMLA, by contrast, is a penal regime empowering the Enforcement Directorate (ED) to seize “proceeds of crime.” Recently, corporates facing ED/PMLA action have initiated insolvency to gain relief, prompting courts to delineate the contours of each law. This article examines how IBC is being invoked in the PMLA context and why enforcement agencies refuse to yield, using the Gensol Engineering Ltd. case as an illustrative example. We analyse key provisions (Sections 14, 32A, 238 IBC; Sections 5–19, 32A PMLA) and survey recent judgments to scrutinise the strategy of seeking IBC relief from PMLA enforcement and chart the evolving jurisprudence, showing that tribunals and courts have largely kept money-laundering probes beyond insolvency’s reach.

Legal Framework: IBC Moratorium and PMLA Attachments

Under Section 14 IBC, a moratorium automatically arises on CIRP commencement, forbidding “the institution or continuation of any suits or proceedings” against the corporate debtor, and preservation of its assets. The enactment of Section 32A IBC further shields the post-plan corporate debtor and its assets from prosecution for offences committed by prior management, subject to plan approval and change in control. Crucially, Section 32A immunity is conditional and prospective. Section 238 IBC contains a non-obstante clause, ostensibly giving the IBC an override over conflicts with other laws, but courts impose strict conditions before applying it.

PMLA operates in a different domain as the ED can provisionally attach property which, if confirmed by an Adjudicating Authority (PMLA AA), becomes the State’s property. Thus, PMLA’s objective is penal, “to deprive wrongdoers of unlawful gains”, whereas IBC’s is economic recovery. These “distinct fields” were emphasised by the Delhi High Court in Axis Bank v. Directorate of Enforcement: the court held that Section 14’s moratorium does not inhibit the ED’s statutory powers, lest offenders exploit insolvency to pay debts with illicit assets. In other words, to hold otherwise would “allow offenders to discharge debts with illegitimate assets”, undermining PMLA’s purpose.

This statutory dissonance often arises when a corporate debtor undergoing CIRP is also accused under the PMLA. Two primary questions arise: (1) Does Section 14 protect an asset under provisional attachment by ED, or does PMLA enforcement supersede the insolvency moratorium? (2) Can Section 32A (post-plan immunity) lift pre-CIRP ED attachments? Judicial responses have been mixed, but the prevailing trend is that ED/PMLA actions proceed largely unaffected by the IBC moratorium.

Case Law Highlights

Early tribunal and high court rulings treated PMLA actions as outside the IBC moratorium. For instance, in Varrsana Ispat Ltd. v. Deputy Director (ED) and Rotomac Global v. Deputy Director (ED), NCLAT benches held that ED proceedings targeting alleged “proceeds of crime” run on an independent track and are not stayed by Section 14. In Axis Bank, the court echoed this approach: it emphasised that the Government exercising PMLA powers is not a “creditor” and that IBC does not override PMLA. In other words, ED’s seizure of tainted assets need not be limited to insolvency, since PMLA and IBC have distinct objectives.

Other tribunals initially took a different view to protect the insolvency process. In Manoj Kumar Agarwal v. ED, the tribunal was concerned with preserving the debtor as a going concern. It held that allowing ED to attach assets post-CIRP would negate the intent of insolvency: if critical assets are frozen, the IBC’s time-bound resolution objectives suffer (prospective resolution applicants may bulk if key assets are attached). Thus, in this case, Section 14 was held to apply even to PMLA attachments, making the criminal enforcement secondary to insolvency goals. This creditor-friendly stance, however, has been largely superseded by subsequent decisions favouring criminal enforcement.

More recent decisions have firmly limited insolvency tribunals’ reach into PMLA matters. In Kiran Shah (RP) v. ED, the tribunal stressed that an NCLT cannot sit in appeal over PMLA authority orders. A Section 60(5) IBC application concerning a confirmed PMLA attachment was found “not maintainable” because the NCLT lacks jurisdiction over matters falling squarely under PMLA. Similarly, in Shailendra Singh (RP of Foxdom Tech) v. ED, the Tribunal held it could not order ED to “defreeze” an account once the PMLA Adjudicating Authority had attached it; only the PMLA appellate mechanism applies. These rulings confirm that once the ED attaches property under PMLA, those assets effectively lie outside the CIRP estate and cannot be unilaterally released by an insolvency forum.

This was crystallised in two seminal judgments in 2025. In Anil Kohli (RP of Dunar Foods Ltd) v. ED, the tribunal expressly held that IBC cannot override the PMLA. It held that assets validly attached as “proceeds of crime” under PMLA are beyond the IBC’s reach, and the ED, as an enforcement agency pursuing penal goals, is not a creditor entitled to marshalling those assets for creditors. It follows that tainted assets are not protected by the moratorium, and the non-obstante clause in Section 238 of the IBC cannot reduce PMLA enforcement of that asset. The Supreme Court further entrenched this boundary between the two regimes in Kalyani Transco v. Bhushan Power & Steel. It held that under Section 60(5) IBC, neither the NCLT nor the NCLAT has jurisdiction to review or set aside statutory orders passed by PMLA authorities. Any insolvency order purporting to stay or vacate an ED attachment was ultra vires. In essence, criminal enforcement decisions (public-law decisions) are outside the insolvency code and can be challenged only by the PMLA appellate mechanism. Together, these cases reveal a clear pattern. Non-tainted assets of a corporate debtor may be dealt with in CIRP, but assets identified as money-laundering proceeds remain in the grip of the PMLA authorities. The IBC framework yields to the special PMLA code when it comes to attached property. Insolvency forums will no longer unravel confirmed PMLA attachments; instead, PMLA’s own mechanisms must be used to contest those orders.

The Gensol Engineering Case

Facts and Timeline - Gensol Engineering Ltd. (GEL) is an Ahmedabad-based renewable energy firm. In 2024–25, it became embroiled in a fraud investigation. Regulators found that GEL’s promoters (Anmol and Puneet Jaggi) had diverted corporate funds to personal uses and engaged in misleading disclosures. In April 2025, SEBI issued an interim order barring the Jaggi brothers and demanding a forensic audit. Days later, ED carried out PMLA raids at Gensol’s offices, seizing records under suspicion of money laundering. Reports indicate ED even “confiscated a stake in Gensol” and was examining the promoters under PMLA. Meanwhile, Gensol’s lenders (IREDA and PFC) had complaints of forged “no-default” certificates and unpaid loans

On May 14, 2025, IREDA, the company’s largest creditor, filed a Section 7 IBC petition against Gensol for Rs. 510 crore default. The NCLT, Ahmedabad, admitted the petition on June 13, 2025 and appointed an Interim Resolution Professional (IRP). The Tribunal noted that Gensol was “headless” after its leadership resigned under regulatory pressure, posing a risk to ongoing projects. Simultaneously, the central government, via the MCA/Finance Ministry, obtained orders freezing Gensol’s bank accounts and safe deposit lockers by May 28, 2025. Gensol’s promoters and related entities (including EV firm BluSmart and Matrix Gas) appealed to the NCLAT to lift this freeze, but were told to seek relief from the NCLT. No exemption was granted.

Contention and Procedure. In Gensol, the IRP’s task and the creditors’ goal are clear: salvage value from ongoing EPC projects. But the company’s assets are under a cloud: SEBI has barred fund transfers, ED is probing for criminal liability, and accounts are frozen. Gensol and its promoters have sought breathing space via IBC. For instance, Gensol itself asked NCLAT to expunge NCLT observations on the IRP’s independence. While that petition concerned a conflicted IRP nomination, implicitly raised a broader question: can insolvency relief coexist with PMLA action without impairing either?

IBC as a “Shield” Against PMLA/ED?

Companies in situations like Gensol’s might hope that IBC’s safeguards (the moratorium and Section 32A immunity) could shield corporate assets from PMLA action. For example, the moratorium under Section 14 could ostensibly delay any enforcement, and Section 32A, once a plan is approved, could protect the company’s assets from prosecution. Indeed, the very filing of insolvency petitions by Gensol’s creditors suggests a belief that the IBC process might allow asset preservation or resolution free from some regulatory interference.

But do the statutes allow this? Current jurisprudence strongly indicates “No” for ED/attached assets, and “Maybe, eventually” for Section 32A. The ED’s stand is that IBC cannot be used to dilute PMLA processes. Key observations:

• Under Section 14’s broad stay, no explicit carve-out for penal laws exists. Some tribunals have therefore concluded that ED actions (being criminal law) proceed despite the moratorium. As NCLAT held in Dunar Foods, where ED’s provisional attachment pre-dated or coincided with CIRP, Section 14 did not cover it because those assets were already “under adjudication by competent authority under a penal statute” In that case, the ED was tracing a moneylaundering trail and had attached Rs.177 crore. The NCLT had refused to free the assets, and NCLAT agreed: “the attachment of assets under PMLA … did not fall within the scope of the moratorium” Gensol’s case is analogous: the ED had attached or frozen assets as suspected proceeds. Under Dunar Foods, those assets simply aren’t part of the resolution estate.
• Even before Dunar Foods, it was often said that IBC’s overrides did not operate here. The Delhi HC in Axis Bank v. ED explained that IBC and PMLA are not irreconcilably inconsistent as they cover different subjectmatter and must be harmoniously applied. Thus, Section 238 IBC does not grant carte blanche to overturn PMLA actions where there is no direct conflict. Put simply, PMLA provisions are not subsidiary to the IBC merely because insolvency has occurred..
• As a result, courts refuse to use IBC to “freeze” ED investigations. In Dunar Foods Ltd., NCLAT said plainly: “once attached by ED under PMLA and confirmed by competent authority, [assets] cannot be released for resolution under IBC” The tribunal stressed that ED is not a creditor seeking recovery but an enforcement agency upholding penal objectives, including international obligations. The ED’s assets are not to satisfy creditors but to punish crime. Therefore, any attempt by an insolvency professional (or company) to claw back ED-frozen assets via NCLT is forbidden.
• NCLAT and SC decisions in Kalyani Transco seal the limit: no insolvency forum can review ED actions. The Supreme Court reiterated that, under Section 60(5) IBC, NCLT/NCLAT only hear “matters arising out of or in relation to insolvency.” They “lack jurisdiction” to entertain questions of law or fact under PMLA, a public law statute. Thus, Gensol (or anyone) cannot persuade the NCLT to lift ED attachment orders, only an ED appellate tribunal or the PMLA special court has that power.
• The NCLT’s Foxdom decision drives home this jurisdictional rule: even a liquidator’s plea to defreeze ED-frozen accounts was rebuffed. The NCLT held that it could not direct ED on freezing matters. Only “authorities authorised by [PMLA]” deal with attachment issues. Ergo, during Gensol’s CIRP and liquidation, the ED can continue its probe and enforcement activities, unaffected by the insolvency proceedings. An IBC practitioner must yield to the penal code’s scheme.
• Does Section 32A change the game? Section 32A provides immunity to the corporate debtor and its assets for past offences, but only once a resolution plan is approved and there’s a bona fide change in control. In Manish Kumar v. UOI, the SC upheld Section 32A’s validity but stressed its limits: immunity is not blanket, and applies prospectively from plan approval. Thus, any PMLA attachment or crime committed before resolution continues to bind the former promoters, but not the new owner and assets post-plan. Crucially, if Gensol’s IRP eventually gets a resolution plan approved, only then could Section 32A arguably shield the company from further prosecution on old crimes. Until that point, Section 32A offers no reprieve.

Gensol: Insolvency as “Protector” or Not?

Viewed in light of these principles, IBC seems a poor shield for Gensol against ED action:

• No automatic stay on ED: The NCLT’s freeze order on Gensol’s accounts was not stayed by insolvency. Gensol’s challenge at NCLAT was rebuffed as beyond its scope. Any attempt by Gensol’s IRP to “release” ED-attached assets via NCLT would contravene settled law. Indeed, the Mumbai bench of the NCLT in Dunar Foods refused the RP’s application to vacate ED’s attachment, implicitly reaffirming that ED actions “did not fall within the scope of Section 14 moratorium” The same reasoning likely applies to Gensol. In practice, Gensol’s assets already identified as tainted will not return to the corporate estate simply because a CIRP is on.
• Moratorium limitations: While Section 14 stayed many suits and debts, courts have explicitly excluded penal attachments. Axis Bank already held that a moratorium should not help criminals. Thus, Gensol cannot argue that the invocation of CIRP “froze” all liabilities; ED’s powers run in parallel. The ED can continue investigations, question directors, and even seek fresh provisional attachments as per PMLA’s timelines. By contrast, Nitin Jain v. ED went the other way: once liquidation is on, ED cannot issue a fresh PAO. But that only forbids new attachment post-liquidation, and does not restore already frozen assets.
• Section 238 no panacea: Even though Section 238 grants IBC supremacy over “inconsistent” laws, courts will not read this to let IBC override the PMLA’s core aims. As the NCLAT in Dunar Foods noted, an ED attachment made during insolvency “does not fall within moratorium”, and a valid PMLA order “cannot be undone” by insolvency. The ED was emphatic that IBC’s override cannot be invoked “in respect of proceedings involving proceeds of crime”. Hence, Gensol’s counsel cannot lean on Section 238 to trump ED.
• Practical interplay: Creditors may proceed with claims and assets not tainted. E.g., the NCLT in State Bank of India allowed the CIRP even though the ED had attached certain machinery, reasoning that creditors could still recover their loans, and attached assets could later be dealt with under PMLA law. Similarly, a liquidator may sell unencumbered assets as a going concern while keeping proceeds separately for ED, as in Pankaj Dhanuka v. ED, held. In Gensol, IREDA and others can pursue debt recovery via IBC and DRT. But they cannot invoke CIRP to force ED’s hand on tainted assets. The path seems to be: resolve what can be resolved, and treat ED attachments as carved out.
• Section 32A’s limited promise: Hypothetically, if Gensol’s CIRP culminates in a plan, Section 32A might immunise the company from past offences. But that would not undo ED’s earlier orders on formerly tainted assets. Manish Kumar held that Section 32A “becomes applicable only when the Adjudicating Authority approves a resolution plan”. As of 2026, Gensol has not reached that stage. And, if it ever does, Section 32A simply means new management won’t be prosecuted as the company for old crimes. It does not annul established PMLA attachments unless the specific conditions of the plan extinguish them (e.g. by paying back some debt or through a fresh arrangement approved by the court).

Critique and Implications

The Gensol scenario underlines a fraught “tug of war” between economic and penal objectives. On one hand, lawmakers intended IBC to provide a fresh start to viable businesses, and Section 32A to instil confidence in resolution plans. On the other hand, permitting the cleansing of all traces of crime could undermine investor and public trust. The challenge is balancing these.

Our review suggests that, so far, the courts have favoured enforcement over bailout when it comes to proceeds of crime. Even commentaries note that IBC’s moratorium is broad and “blanket”, but in practice, judges have carved out penal action exceptions. The result is somewhat paradoxical: companies can enter insolvency, but their illicit assets remain frozen, potentially hampering any real rescue. Creditors may scramble to salvage the untainted business, but the proven looting cannot be cloaked by the CIRP.

One might critique this outcome as depriving creditors of resources needed for resolution. However, the counter-argument is that allowing criminals to shield property under insolvency would create perverse incentives. The judiciary has been wary of IBC being “misused as a tool for legitimising illicit proceeds”. Gensol’s promoters, for example, cannot simply walk away with money diverted to BluSmart and call it “insolvency”; that would defeat PMLA’s strict legislative intent.

At the same time, the simultaneous enforcement and insolvency proceedings do create practical headaches. The IRP must cooperate with ED (providing information) while also preserving value for creditors. Courts have suggested pragmatic measures: for instance, allowing asset sales while keeping the proceeds in a ring-fenced account for ED, or allowing the resolution run in parallel without prejudging criminal outcomes. In theory, a future plan purchaser under Section 32A could offer to compensate all creditors, and even perhaps ED, under a global scheme, but this is contingent and untested in the marketplace.

Finally, Gensol may test the group insolvency concept. Gensol Electric Vehicles (BluSmart) and Gensol’s other subsidiaries are implicated in the same fraud. If NCLT consolidates their CIRPs, will ED attachments be treated jointly? Current law is unclear, but Kalyani Transco signals that any PMLA issues will have to be handled outside IBC tribunals even if cases are consolidated.

Conclusion

In sum, IBC has not proved a sanctuary from PMLA/ED enforcement, despite corporates’ hopes. Judicial pronouncements, culminating in the Supreme Court’s Kalyani Transco ruling, make it clear that insolvency courts cannot nullify or detain ED attachments. The Gensol case exemplifies this: even under CIRP, its assets already frozen for money laundering will likely remain so. At best, the resolution professional can manage untainted assets and debts; at worst, the fraud allegations have placed Gensol outside the protection IBC normally affords. The policy balance struck by courts so far errs on preserving PMLA’s integrity over IBC expediency.

Going forward, Gensol might still achieve some “clean slate” benefits through Section 32A after a plan, if any, resolves its large debt, but only under strict conditions. Meanwhile, creditors and practitioners must recognise that IBC is no get-out-of-jail-free card for corporate malfeasance. Future reforms may clarify the interface, but until then, the jurisprudence is settled that the IB Code does not absolve a company of PMLA consequences.

*Authored by - Abdul Haseeb, 5th year B.A.LL.B (Hons) student at Dr. Ram Manohar Lohiya National Law University, Lucknow. Views expressed are personal.