INDIA Trends and Developments Contributed by: Vijayendra Pratap Singh, Priyank Ladoia, Arjun Narang and Puneet Dhanoa, AZB & Partners
AZB & Partners Plot No A-8 Sector – 4 Noida – 201301 Uttar Pradesh India Tel: +91 120 417 9999 Fax: +91 120 417 9900
Email: delhi@azbpartners.com Web: www.azbpartners.com
Introduction The relationship between the Insolvency and Bank - ruptcy Code, 2016 (IBC) and the Prevention of Mon - ey Laundering Act, 2002 (PMLA) has become one of the most significant areas of contemporary financial jurisprudence in India. Both statutes pursue important but distinct public objectives. The main purpose of the IBC is to ensure that the company undergoing insolvency proceedings is revived or liquidated expe - ditiously within a stipulated timeframe, whereas the objective of PMLA is to identify, attach and confiscate the proceeds of crime arising out of a criminal activity and to prosecute economic offenders. When these two statutory regimes intersect, particu - larly in cases involving large corporate frauds, the resulting legal tensions can be complex. In recent years, the challenge has been to ensure that enforce - ment actions under the PMLA do not unnecessarily frustrate legitimate insolvency resolution processes, while simultaneously preserving the ability of the State to pursue money-laundering investigations and pre - vent offenders from benefiting from illicit gains. This article examines the recent developments sig - nalling a policy shift towards a more harmonised approach that recognises that effective insolvency resolution and anti-money laundering enforcement are not mutually exclusive.
The Statutory Framework: the IBC and PMLA Objectives of the IBC The IBC was enacted to consolidate India’s fragment - ed insolvency regime and to introduce a time-bound, creditor-driven process with the goal of maximising the value of assets while balancing the interests of all stakeholders. The preamble of the IBC empha - sises the reorganisation and insolvency resolution of corporates in a manner that maximises asset value, promotes entrepreneurship, ensures credit availability and balances stakeholder interests. At the heart of the IBC is the corporate insolvency res - olution process (CIRP), which culminates in either the approval of a resolution plan or the liquidation of the corporate debtor. The resolution plan, once approved by the adjudicating authority under Section 31 of the IBC, becomes binding on the corporate debtor and all stakeholders, including creditors, employees, guaran - tors and government authorities. This statutory finality is critical since resolution applicants commit substan - tial financial resources based on the certainty that the approved plan will provide a clean slate and a predict - able liability landscape. The courts in India have, in a plethora of cases, repeat - edly reaffirmed this position, holding that the success of the IBC framework depends on said certainty. If resolution applicants remain exposed to unforeseen liabilities or enforcement actions affecting core assets, the incentive to participate in resolution processes would be significantly reduced. Thus, the IBC places
190 CHAMBERS.COM
Powered by FlippingBook