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The RFMLR Editorial Board recently interviewed Dr. Abhimanyu Chopra, Partner, AZB & Partners on the topic, "IBC and PMLA Interplay: Key Challenges at the Crossroads of Insolvency and Anti-Money Laundering Laws."
Dr. Abhimanyu Chopra is a Partner in the Litigation and Disputes team at AZB & Partners. He has over 13+ years of experience in handling civil, commercial and criminal disputes, domestic and international arbitrations (both institutional and ad hoc), Insolvency and Bankruptcy Law (“IBC”), IPR, Telecom, Gaming and Competition Law.
He regularly represents HNIs, leading banks and financial institutions, private equity funds and various multinational companies before all major fora in India. He also holds a PhD specializing in Cyber and Constitution law. Abhimanyu is also a certified mediator with the High Court of Delhi as well as the International Arbitration and Mediation Centre, Hyderabad.
What factors sparked your interest in white-collar crimes and insolvency law? Additionally, what are the most complex challenges legal professionals face in these fields, and what do you find most rewarding?
Answer: My interest in white-collar crimes was piqued early in my career through exposure to cases and the organizations that I worked with, which demanded an in-depth understanding of legal intricacies intertwined with financial frameworks and the interplay of different laws. White-collar crime cases often involve corporate fraud, insider trading and/or financial misconduct, where legal strategy intersects with a forensic evaluation of financial data. I was particularly drawn to the challenge of unearthing complex financial evidence with the interplay of different laws and presenting it effectively in court.
Insolvency law, on the other hand, revolves around economic restructuring. The implementation of the Insolvency and Bankruptcy Code (IBC) in 2016 introduced a paradigm shift in India’s approach to resolving distressed assets. I had the opportunity of working on one of the first corporate insolvencies under the IBC i.e. the US$ 7.4 billion acquisition of Bhushan Steel Limited, which was the first successful resolution through CIRP from the list of initial 12 companies compulsorily referred for resolution under the Insolvency and Bankruptcy Code by the Reserve Bank of India. Being involved in such a complex transition in the insolvency law regime at the early stages was not only intellectually stimulating but offered a profound opportunity to influence the survival of businesses, creditor settlements and stakeholder interests and learn the intricacies of Insolvency Law and this area continues to evolve where I represent various clients.
The most complex challenges legal professionals face in white-collar crime and insolvency law stem from the intersection of multiple legal frameworks and the intricacies involved in analyzing financial data. The challenge lies in unravelling layers of financial transactions, often across jurisdictions and effectively presenting these findings in court.
Despite these challenges, what I find most rewarding is the opportunity to work on cases that have a real, lasting impact. In white-collar crime cases, bringing accountability to financial misconduct can restore investor confidence and ensure justice for stakeholders while upholding the rule of law particularly in the Indian regime. In insolvency, there is a sense of satisfaction in finding a resolution that not only addresses the creditors' concerns but also has the potential to preserve jobs and maintain business continuity.
The imposition of a moratorium under the IBC restricts the confiscation powers of PMLA authorities over a corporate debtor's assets. How can a balance be struck between the competing interests of PMLA authorities in combating money laundering and the IBC’s objective of maximizing value for creditors?
Answer: The conflict between the IBC’s moratorium and the PMLA’s confiscation powers highlights the differing objectives of these laws. While the IBC seeks to rehabilitate distressed companies and maximize creditor value, the PMLA focuses on curbing money laundering by attaching assets. A possible balance can be achieved by distinguishing between assets linked to criminal activities and those essential for insolvency resolution.
Recent judicial decisions, such as Rajiv Chakraborty Resolution Professional of EIEL v. Directorate of Enforcement, indicate a growing judicial preference for a clear distinction between the IBC and PMLA. In this case, the Delhi High Court reaffirmed that although the PMLA operates independently of the IBC, it cannot override the IBC’s moratorium unless there is concrete evidence linking the debtor’s assets to money laundering. The court also clarified that the government, under the PMLA, does not act as a creditor seeking to recover debts but rather works to deprive wrongdoers of unlawfully acquired assets. This approach is consistent with earlier rulings, such as Directorate of Enforcement v. Axis Bank and P. Mohanraj v. Shah Bros. Ispat, which emphasized that the PMLA and IBC function autonomously.
In my opinion, achieving better alignment between the PMLA and IBC requires enhanced coordination between PMLA authorities and insolvency professionals. Additionally, legislative clarity distinguishing between ‘tainted’ assets and legitimate corporate resources is essential to ensure that the objectives of both laws are fulfilled without one overriding the other. This could be accomplished either through parliamentary amendments or through judicial interpretation in this area.
Resolution professionals face challenges in managing assets subject to simultaneous PMLA attachment orders and IBC proceedings. What are the specific difficulties encountered, and how can these be addressed to ensure effective asset management, while reconciling the competing demands of PMLA and IBC?
Answer: It would be an understatement to say that Resolution Professionals(“RP”) face challenges upon their appointment. In my view, there is constant pressure on the RP from all aspects of the IBC and various and diverse stakeholders. However, to the question at hand, a significant development in resolving such conflicts is Section 32A of the IBC, which protects corporate debtors and their assets from legal action, including PMLA proceedings, post-resolution. However, this provision does not absolve promoters or directors involved in financial crimes, maintaining personal accountability while allowing the debtor’s assets to be restructured or sold to new investors.
This balance allows the company to emerge from insolvency while ensuring that individuals responsible for misconduct face legal repercussions. The Supreme Court’s affirmation of Section 32A’s constitutionality in Manish Kumar v. Union of India solidifies this harmonization. I believe clearer guidelines on asset management during insolvency proceedings could further help resolution professionals navigate this challenging terrain.
How do you interpret the conflict between Section 71 of the PMLA and Section 238 of the IBC, both containing non-obstante clauses? What legal or procedural measures do you believe should be implemented to ensure that both laws function in harmony, without being at loggerheads with each other?
Answer: The non-obstante clause in Section 238 of the IBC, as a latter statute, should prevail over the PMLA’s Section 71. Section 71 grants overriding power over pre-existing laws, but the IBC was enacted later and is meant to govern insolvency proceedings comprehensively. Judicial precedents have largely sided with the IBC in these conflicts.
Further, the Courts have already held that the PMLA and IBC function autonomously. However, I believe that in the future, legislative amendments could provide further clarity, ensuring that unless a corporate debtor’s assets are directly tied to money laundering, they remain under the resolution professional’s control during insolvency proceedings. This would help prevent unnecessary overlap and conflicts between the two laws.
Section 32A of the IBC introduces the 'clean slate' doctrine, absolving corporate debtors of liabilities emerging from offences committed prior to the commencement of the CIRP. However, this provision risks being exploited. What measures can be taken to prevent abuse while maintaining the doctrine’s intended purpose?
Answer: The origins of Section 32A can be linked to the JSW Steel Ltd v. Mahender Kumar Khandelwal & Ors. Case, where the NCLAT had to determine whether the Enforcement Directorate could attach the assets of Bhushan Power & Steel Ltd. (BPSL), the corporate debtor, even though JSW's resolution plan had already been approved. In this case, the NCLAT emphasized that stakeholders, including government agencies, must raise any objections before the resolution plan is approved by the NCLT.
Once the plan is approved, no further objections are allowed, and all stakeholders are required to comply with the approved plan. This decision underscored a critical principle that after a resolution plan is finalized, incoming investors cannot be held accountable for the past wrongdoings of the corporate debtor. This protection was formalized in Section 32A of the IBC, ensuring that new investors are shielded from liabilities tied to the debtor’s prior offences, thus encouraging investment and the revival of distressed companies as being the intent of IBC.
The introduction of Section 32A was certainly investor-friendly. Many bidders who were previously scared off by the corporate debtor's prior criminal responsibilities have been saved thanks to the modified clause. The revision is likely to improve India's ease of doing business, boosting the country's position in the World Bank's Ease of Doing Business rankings. However, on the other hand, the idea that ‘criminal proceeds’ are somehow dissolved into the assets of the corporate debtor goes against established notions of justice and equity.
As regards measures for preventing misuse, I feel laying down safeguards in the form of exceptions and limits to those exceptions can help evolve the jurisprudence around the said provision which may evolve to prevent unfairness and fraud. The courts also have a major role to play as they can look past the veil of incorporation to find the actual culprits hiding behind the corporate facade because of the limited exceptions to an autonomous corporate personality.
How does the ambiguity in the application of Section 32A and the CIRP framework affect investor confidence, and how can legislative reforms balance the enforcement of obligations under the PMLA with the need to attract post-CIRP distressed asset investments?
Answer: The ambiguity surrounding the application of Section 32A, particularly in cases where conflicting laws like the PMLA come into play, can indeed create uncertainty for potential investors. When there is a lack of clarity on whether assets may still be subject to attachment or confiscation after the resolution plan is approved, it risks undermining the core purpose of Section 32A, which is to protect new investors from liabilities arising out of the corporate debtor’s past conduct. This uncertainty can deter investments in distressed assets post-CIRP, as investors may hesitate to engage if they feel exposed to future litigation or enforcement actions.
I believe that Legislative reforms should focus on a clearer delineation of liabilities and the role of PMLA within the IBC framework. Allowing courts to segregate assets directly linked to criminal activity from those necessary for insolvency resolution could restore confidence in the system. By doing so, both the goals of attracting investments and upholding anti-money laundering efforts can be achieved.
What advice would you give to young professionals and law students aspiring to build a career in white-collar crime and insolvency law?
Answer: For young professionals and law students aspiring to enter the field of white-collar crime and insolvency laws, my first piece of advice would be to develop a strong foundation in both criminal and corporate/financial laws, as these fields demand a deep understanding of business operations and regulatory frameworks. Mastering concepts like corporate governance, financial fraud and the intricacies of insolvency proceedings will certainly give a critical edge in navigating complex cases. Additionally, supplementing one’s legal knowledge with a basic understanding of finance, accounting and forensic investigation techniques along with specialized internships will aid in this.
Beyond technical expertise, I would encourage young professionals to remain adaptable and cultivate a strategic mindset. These areas of law are constantly evolving, especially with frequent regulatory changes and the rise of global enforcement.
Keeping up with new developments in both domestic and international legal frameworks is crucial. At the same time, focus on honing your advocacy, negotiation, and analytical skills, as cases in white-collar crime and insolvency often require multi-disciplinary approaches, including regulatory negotiations and courtroom advocacy. Building a career in these fields requires persistence, but the opportunity to work on high-stakes, intellectually challenging cases makes it an incredibly rewarding path.
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