SARFAESI Enforcement, IBC and PMLA: Where Debt Recovery Meets Insolvency and Money-Laundering Law
India’s framework for dealing with distressed assets becomes particularly complicated when enforcement under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) intersects with the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prevention of Money-Laundering Act, 2002 (PMLA). These statutes address fundamentally different problems. SARFAESI gives secured creditors mechanisms to enforce security interests and recover dues; the IBC creates a collective insolvency-resolution and liquidation framework; and the PMLA is a penal statute concerned with attachment and eventual confiscation of property connected with money laundering. The Supreme Court has expressly recognised these different statutory purposes, observing that the recovery statutes and the IBC operate in the field of debt and insolvency, whereas PMLA proceeds against property connected with criminal activity.
The first major intersection arises when a bank has a mortgage or other security over property and subsequently the Enforcement Directorate (ED) attaches that property under the PMLA. This creates a difficult question: does the bank’s prior security interest prevail because SARFAESI and the Recovery of Debts and Bankruptcy Act provide statutory priority to secured creditors, or does the PMLA attachment take precedence because the property is alleged to be “proceeds of crime”?
The answer is not simply determined by which proceeding started first. The Supreme Court’s decision in Vijay Madanlal Choudhary v. Union of India examined the relationship between PMLA and other recovery statutes and emphasised the fundamentally different nature of PMLA proceedings. The Court explained that the State’s action under PMLA is not equivalent to a government claim for repayment of a debt. The objective is to prevent an offender from retaining property derived from criminal activity and ultimately to confiscate property falling within the statutory definition of proceeds of crime.
A significant development came in March 2026 from the Bombay High Court in litigation involving HDFC Bank and the Enforcement Directorate. The dispute concerned properties that had already been mortgaged to the bank before PMLA attachment proceedings were initiated. The bank had classified the account as an NPA and commenced SARFAESI enforcement, while the ED treated the properties as connected with alleged proceeds of crime. The Court was therefore required to reconcile the secured creditor’s rights under SARFAESI and the RDB Act with the overriding provisions of the PMLA.
The Bombay High Court held that a PMLA attachment is not simply another competing debt claim. Section 71 of the PMLA gives the statute overriding effect where there is inconsistency with another law. The Court concluded that a secured creditor does not acquire an automatic statutory priority over property that has been attached as proceeds of crime merely because its mortgage or security interest arose earlier. At the same time, the Court recognised that the existence of a prior bona fide security interest is legally relevant and indicated that a secured creditor can pursue the statutory mechanism for restoration of property under Section 8(8) of the PMLA.
This distinction is crucial. A bank’s security interest and the State’s PMLA claim are not necessarily claims competing for the same legal purpose. SARFAESI seeks recovery of a legitimate debt owed to the secured creditor, while PMLA seeks to prevent an alleged offender from retaining the benefit of criminal activity. Therefore, simply establishing that a mortgage existed before the ED attachment does not necessarily mean that the bank can proceed to sell the property free from PMLA consequences.
The timing of the security interest can nevertheless become highly important. A bank that accepted property as collateral in good faith before the alleged criminal activity or before the relevant PMLA proceedings may have a substantially different position from a creditor that knowingly participated in a transaction designed to conceal or facilitate the proceeds of crime. The 2026 Bombay High Court decision specifically noted the relevance of the secured creditor’s bona fides when considering relief concerning property under PMLA attachment.
The second major intersection is between SARFAESI and the IBC. SARFAESI is fundamentally an individual enforcement mechanism: a secured creditor can, subject to the statutory conditions, enforce its security interest against the secured asset. The IBC takes a different approach once a corporate insolvency resolution process (CIRP) begins. It creates a collective process in which individual enforcement is generally displaced by the insolvency framework, with the objective of preserving and maximising the value of the corporate debtor’s assets for resolution.
Section 14 of the IBC imposes a moratorium after commencement of CIRP. This prevents, among other things, the institution or continuation of specified proceedings against the corporate debtor and restricts actions against its assets. Consequently, once CIRP begins, a secured creditor ordinarily cannot simply continue an independent SARFAESI recovery process as though the insolvency proceeding did not exist. The creditor’s rights have to be considered within the structure of the IBC.
This does not mean, however, that every action by the ED under the PMLA automatically becomes subject to the IBC moratorium. PMLA is a penal and anti-money-laundering statute rather than a debt-recovery statute. Courts have therefore had to distinguish between proceedings intended to recover a debt and proceedings intended to attach or confiscate property because it allegedly represents proceeds of crime. Recent litigation has continued to test the boundaries of Section 14 in precisely this context.
The distinction becomes particularly important where the ED’s attachment takes place shortly before or shortly after the commencement of CIRP. In Anil Kohli v. Directorate of Enforcement, the NCLAT examined whether PMLA attachment proceedings were barred by the IBC moratorium and whether the IBC’s overriding provision could displace PMLA enforcement. The dispute illustrates the continuing tension between the IBC’s objective of preserving the insolvency estate and PMLA’s objective of preventing criminally tainted property from remaining available to the alleged wrongdoer.
The most important statutory bridge between the IBC and PMLA is Section 32A of the IBC. Parliament introduced Section 32A to protect a corporate debtor and its property, subject to specified conditions, after an eligible resolution plan results in a change of management or control. The provision is designed to provide a degree of certainty to a new resolution applicant that it will not inherit criminal consequences arising from offences committed by the previous management before commencement of CIRP.
The Supreme Court upheld the constitutional validity of Section 32A in Manish Kumar v. Union of India. The Court’s reasoning emphasised the importance of enabling a genuine new management to obtain a “clean slate” while making clear that the provision does not allow the individuals responsible for the earlier wrongdoing to escape criminal liability. Persons who were directly involved in the offence can continue to face prosecution and other consequences even though the corporate debtor receives the statutory protection after satisfying the requirements of Section 32A.
Section 32A therefore should not be misunderstood as a general amnesty for financial crime. Its protection is conditional and is directed toward the corporate debtor and qualifying new management. The former promoters, directors, officers or other persons implicated in the underlying offence do not automatically receive immunity merely because a resolution plan has been approved.
The provision has become especially important when a resolution applicant is considering a company whose assets are subject to PMLA attachment. A purchaser or resolution applicant needs to know whether the statutory conditions of Section 32A are satisfied, whether the change of control is genuine, whether the applicant is connected with the former management, and whether the relevant property falls within the statutory protection.
Recent proceedings have also demonstrated that the existence of Section 32A does not necessarily mean that an NCLT or NCLAT can simply exercise appellate or judicial-review powers over an ED attachment under the PMLA. The Supreme Court has emphasised the jurisdictional distinction between the insolvency tribunals and statutory authorities exercising powers under separate legislation. In particular, the Supreme Court’s jurisprudence has cautioned against treating Section 60(5) of the IBC as a general power enabling the NCLT to review decisions of public authorities acting under statutes such as the PMLA.
That jurisdictional distinction has considerable practical importance. An insolvency professional may need relief concerning an attached asset for purposes of implementing a resolution plan, but the question of whether a PMLA attachment was lawfully imposed can fall within the statutory PMLA adjudicatory and appellate structure rather than the ordinary jurisdiction of the NCLT.
At the same time, courts have recognised that Section 32A can have substantive consequences for an existing PMLA attachment once a qualifying resolution plan has been approved. NCLAT decisions have considered whether a successful resolution applicant must separately approach the PMLA authorities for release of attached assets or whether Section 32A itself produces the relevant statutory consequence. The jurisprudence remains fact-sensitive, particularly where the ED challenges the manner in which the insolvency process was conducted or alleges that the new management is connected with the previous wrongdoing.
The Bhushan Power and Steel litigation illustrates how complicated this intersection can become. The company’s assets had been subject to ED action while the insolvency process was underway, and the subsequent litigation involved the relationship between the approved resolution plan, PMLA attachment and Section 32A. The Supreme Court’s proceedings ultimately involved questions concerning the binding nature of an approved resolution plan and the proper limits of NCLT and NCLAT jurisdiction over PMLA action. The case has become an important reference point for understanding why insolvency resolution and anti-money-laundering enforcement cannot simply be treated as two versions of the same recovery process.
The intersection becomes even more complicated when the asset is already subject to SARFAESI enforcement before CIRP begins. If a secured creditor has taken possession under SARFAESI, questions can arise about whether the creditor’s rights have crystallised sufficiently to survive subsequent insolvency proceedings. The answer can depend on the precise stage reached under SARFAESI, whether possession was symbolic or physical, whether the asset had been sold, whether the sale had been completed and what rights had legally vested before commencement of CIRP.
Recent judicial proceedings demonstrate why chronology is critical. In March 2026, the Bombay High Court considered a situation in which SARFAESI action had already been taken and subsequently another statutory authority sought to attach the same property. The Court noted the significance of an existing SARFAESI order that had not been challenged through the statutory mechanism and considered whether a subsequent attachment under another statute could simply nullify rights that had already crystallised under SARFAESI. Although the case concerned the Maharashtra Protection of Interest of Depositors framework rather than PMLA, the reasoning illustrates the broader importance of determining exactly when and how rights in secured property became legally enforceable.
For banks, the practical consequence is that due diligence cannot end with checking whether a property has been mortgaged. A secured creditor dealing with a financially distressed borrower must consider whether the borrower or its promoters are facing criminal investigations, whether the property is potentially connected with proceeds of crime, whether any PMLA attachment exists, whether CIRP has commenced and whether another statutory authority has asserted a competing claim.
For resolution applicants, the stakes can be even higher. The commercial value of a distressed company may change dramatically if its principal properties are unavailable because of PMLA attachment. A resolution plan that appears attractive on paper can face implementation problems if the resolution applicant cannot obtain effective possession or control over critical assets. Section 32A can provide significant protection in qualifying circumstances, but the statutory conditions and jurisdictional questions must be examined before assuming that every attached asset will automatically become available following approval of a resolution plan.
For borrowers and promoters, the intersection of these laws creates a different set of risks. A borrower facing SARFAESI action cannot necessarily rely on a subsequent IBC proceeding to erase an independent PMLA investigation. Likewise, an individual facing PMLA proceedings cannot assume that the existence of a bank mortgage will prevent attachment. The legal consequences depend on the nature of the property, the source of the property, the timing of the security interest, the conduct of the secured creditor and the stage reached in each statutory proceeding.
The concept of “proceeds of crime” is therefore central to understanding the PMLA side of the dispute. PMLA does not operate merely because a borrower has defaulted on a loan or because a company has become insolvent. There must be a statutory connection between the property and criminal activity relating to a scheduled offence. The Supreme Court has repeatedly treated PMLA as a distinct criminal-law framework rather than an alternative method of recovering government or private debts.
This distinction also explains why Section 26-E of SARFAESI and Section 31-B of the RDB Act cannot simply be read as automatically defeating a PMLA attachment. Those provisions confer priority on secured creditors in the circumstances contemplated by the respective statutes, but PMLA operates on the separate legal premise that property representing proceeds of crime is subject to attachment and confiscation. The 2026 Bombay High Court ruling is significant precisely because it rejected an automatic application of secured-creditor priority to property treated as proceeds of crime while preserving the possibility of relief through the PMLA restoration mechanism.
The restoration mechanism under Section 8(8) can therefore become an important route for a bona fide secured creditor. Rather than assuming that its SARFAESI priority automatically defeats the ED’s attachment, the creditor may need to establish its entitlement within the PMLA framework and seek restoration in accordance with the statute. The precise requirements and forum will depend on the procedural stage of the PMLA case.
The emerging legal landscape consequently has three different timelines operating simultaneously. The SARFAESI timeline may run from the Section 13(2) demand notice through Section 13(4) enforcement, possession and sale. The IBC timeline may begin with admission of a CIRP application, followed by moratorium, resolution and possible liquidation. The PMLA timeline may involve investigation, provisional attachment, adjudication, confirmation and eventual confiscation or restoration. A dispute becomes particularly difficult when these timelines overlap over the same property.
For legal practitioners, one of the most important tasks is therefore to construct a precise chronology before deciding which remedy to pursue. The date of mortgage creation, date of alleged criminal activity, date of default, date of NPA classification, date of SARFAESI notice, date of possession, date of PMLA provisional attachment, date of confirmation, date of CIRP commencement and date of resolution-plan approval can each materially affect the legal position.
The developing jurisprudence shows that there is no single universal rule that “SARFAESI wins,” “IBC wins” or “PMLA wins.” The answer depends upon the nature of the right being asserted and the stage at which the competing statutory processes operate. SARFAESI protects and enforces legitimate security interests; IBC restructures or liquidates the debtor through a collective process; and PMLA seeks to prevent criminals from retaining property connected with money laundering. Courts are consequently required to reconcile these objectives without allowing one statute to be used mechanically to defeat another.
As of September 2026, the most consequential practical principle is that parties should not treat an attached or mortgaged asset as legally interchangeable with an ordinary corporate asset. Before a bank proceeds with SARFAESI, before a resolution applicant values an asset in an insolvency process, or before a purchaser acquires property from a distressed company, the property’s statutory history must be examined carefully. Existing mortgages, SARFAESI measures, PMLA attachments, criminal proceedings, CIRP status and Section 32A eligibility can all materially affect the eventual title, possession and ability to realise value.
The intersection of SARFAESI, IBC and PMLA is consequently becoming one of the most technically significant areas of Indian financial law. The central legal challenge is not simply determining which statute has an overriding clause, but understanding the different purposes, jurisdictional boundaries, timing rules and remedies contained in each statute. Recent decisions, particularly the 2026 Bombay High Court ruling concerning HDFC Bank and the continuing Section 32A jurisprudence, show that secured creditors, insolvency professionals, resolution applicants and property purchasers must examine these statutes together rather than in isolation.
This article reflects the statutory framework and judicial developments available as of September 2026. For a specific property dispute, the dates and documents—especially the mortgage, SARFAESI notices, possession records, PMLA attachment orders and CIRP orders—can materially change the legal position.
