Insolvency can't be used to frustrate ED probe against bankrupt firm: NCLT

New Delhi, July 3 The National Company Law Tribunal (NCLT) has upheld the primacy of the Enforcement Directorate in dealing with proceeds of crime linked to money laundering over claims by creditors against a ‘bankrupt’ company under the insolvency code, an official said on Thursday.

The verdict of the Tribunal’s bench comprising Bachu Venkat Balram Das and Sanjeev Ranjan, delivered in a matter related to Shakti Bhog Snacks Limited, said: “The Insolvency and Bankruptcy Code (IBC) cannot be used as a mechanism to frustrate or sidestep the legitimate process of law under the Prevention of Money Laundering Act, 2002.”

The NCLT verdict, delivered on June 30, said: “Dissolution under Section 54 of the IBC results in the Corporate Debtor ceasing to exist as a legal entity. Such a consequence would inevitably frustrate the ongoing criminal prosecution under the PMLA.

“Accordingly, this Adjudicating Authority finds no merit in the request for dissolution and declines to grant the relief sought under Section 54 of the Code."

In view of the grave and substantiated allegations of money laundering, the admitted implication of the Corporate Debtor as an accused party in pending proceedings under the Prevention of Money Laundering Act, 2002, and the ongoing prosecution before the Special Court, this Adjudicating Authority is of the considered view that allowing “dissolution of the Corporate Debtor at this juncture would be premature, impermissible, and contrary to the settled scheme of law”.

The NCLT accepted the ED’s contention that permitting dissolution despite the pendency of the Special PMLA Court’s cognizance over the Corporate Debtor would amount to judicial overreach and impair the federal probe agency’s ability to complete its investigation, pursue trial, and recover proceeds of crime.

The ED told the NCLT that it filed a fifth Supplementary Prosecution Complaint September 20, 2024 naming the Corporate Debtor as an accused and attaching one of its bank accounts under PMLA.

It was earlier alleged that the company indulged in money laundering and routed Rs 97.87 crore to six entities from the loan funds of its parent company, Shakti Bhog Foods Limited.

The Tribunal bench also quoted a Supreme Court judgment that said that the NCLT and the National Company Law Appellate Tribunal (NCLAT) do not have jurisdiction to interfere with proceedings or orders passed under the PMLA, including attachment orders or criminal prosecution.

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