Ibbi regulation on restitution of ed- attached assets

The Insolvency and Bankruptcy Board of India (“IBBI” or “Board”) issued a circular on November 04, 2025 (“November 2025 Circular”) guiding insolvency professionals (“IP”) to file applications for the restoration of assets attached by the enforcement directorate (“ED”) under the Prevention of Money Laundering Act, 2002 (“PMLA”).

The Board observed that the assets of companies undergoing insolvency proceedings are often attached by the ED, which hinders value realisation during the corporate insolvency resolution process (“CIRP”) or liquidation process. The November 2025 Circular aims to streamline the process for the release and restoration of such ED attached assets, maximize recovery for creditors, reduce friction between PMLA and Insolvency and Bankruptcy Code, 2016 (“IBC”) provisions and support the resolution of stressed companies.

Factual Overview:

In several insolvency proceedings, assets of corporate debtors have been attached by the ED under the PMLA on account of alleged money laundering by former management or related parties. Such attachments have often resulted in jurisdictional overlaps and operational inconsistencies between the PMLA and the IBC. The core of the conflict lies in the differing objectives of PMLA and IBC: the PMLA seeks to punish and confiscate proceeds of crime, whereas the IBC is designed to preserve asset value and ensure equitable distribution among creditors. The IBBI taking note of this recurring issue and in consultation with the ED, has introduced a structured mechanism to assist IP in reclaiming attached assets for the benefit of creditors.

Procedural Overview

The November 2025 Circular establishes a framework enabling all registered IP to file applications before the Special Courts under Sections 8(7) and 8(8) of the PMLA for restitution of the ED attached assets that forms part of the insolvency estate. The IPs may apply before the PMLA Special Court for restoration of attached assets to be used in CIRP. The circular further mandates filing of an undertaking (which is as prescribed by the IBBI through the November 2025 Circular) by the IP ensuring that the: (1) restored assets will be used only for creditors’ benefit; (2) neither restituted assets are transferred nor utilised for the benefit of persons disqualified under Section 29A of the IBC or accused in the predicate offence; (3) quarterly status reports are submitted to the Special Court regarding the use and distribution of restituted assets; (4) attached properties are fully disclosed in the information memorandum or auction notice, updating disclosures as new information emerges; (5) ED investigations are coordinated with, by providing details of PUFE transactions, the Committee of Creditors composition, and the Successful Resolution Applicants; and (6) sensitive documents are share commercially only after ED formally acknowledges their sensitivity.

The obligations under the undertaking remain in force until the resolution plan or dissolution order receives approval from the Adjudicating Authority, ensuring transparency and value maximisation throughout the insolvency process.

Judicial Backdrop and Evolving Balance

Earlier judicial pronouncements such as the Gujarat High Court’s decision in the Varsana Ispat Limited Case (Standard Chartered Bank v. Directorate of Enforcement) [2019], accorded primacy to the PMLA and upheld ED attachments notwithstanding the moratorium under Section 14 of the IBC. This approach created significant concern for creditors and resolution professionals. Subsequent jurisprudence, most notably the Supreme Court’s ruling in the Rotomac Global Private Limited Case (Directorate of Enforcement v. Manoj Kumar Agarwal & Anr.) [2021], recalibrated this balance by recognising the overriding objective of the IBC during CIRP and limiting the enforcement of attachment powers against the corporate debtor’s assets.

The November 2025 Circular marks a significant regulatory intervention aimed at mitigating the persistent jurisdictional conflict between the PMLA and the IBC by providing a structured route for restitution of attached assets through the Special Court under Sections 8(7) and 8(8) of the PMLA. It enhances procedural certainty and fosters coordination between the ED and insolvency authorities, thereby facilitating asset recovery within the insolvency framework. However, its practical efficacy remains subject to judicial discretion and the interpretational scope of “proceeds of crime,” which continues to be a contentious issue. The obligation imposed on insolvency professionals to furnish undertakings ensures fiduciary discipline but simultaneously enlarges their compliance and liability exposure, without offering reciprocal procedural safeguards. Despite these limitations, the framework represents a progressive step towards harmonizing penal and insolvency regimes, balancing the objectives of deterrence under the PMLA with value maximization and equitable distribution under the IBC.