ED, IBBI create mechanism to restore properties of firms under insolvency

THe Enforcement room of directors (ED) and Insolvency and failure Board of bharat (IBBI) feature created a mechanism for resolution professionals to give undertakings to the court stating that the assets of companies undergoing insolvency proceedings and attached under the Prevention of Money Laundering Act (PMLA) can only be used for the benefit of creditors, such as banks and homebuyers, and shall not flow back to the promoters or other accused persons.The IBBI issued a circular in this regard on Tuesday, setting a standard operating procedure to enable asset restoration to the victims.In a statement on Wednesday, the ED said it has taken proactive steps to support successful resolutions under the Insolvency and Bankruptcy Code (IBC) by enabling the restoration of assets attached under the PMLA. “This measure is aimed at maximising value for creditors, including banks and homebuyers. In several insolvency cases, assets of the corporate debtor were under PMLA attachment, which restricted their use in the resolution process.”It added to address this issue, multiple rounds of coordination meetings were held between ED and IBBI to create a standard mechanism for restitution of attached assets during the corporate insolvency resolution process (CIRP), or liquidation. “This process now enables Resolution Professionals to seek release of such assets through applications under sections 8(7) and 8(8) of PMLA [restitution of properties],” the statement said.The ED said that as a result of this coordinated approach, a standard undertaking to be filed by insolvency professionals before the special court has been finalised and circulated through the IBBI circular.“The move ensures that the restituted assets are used only for the benefit of creditors, no advantage flows back to the accused or promoters, full reporting and compliance safeguards remain in place until resolution is completed.”The ED has attached assets under PMLA in several cases where companies are or were under CIRP. The companies include Reliance Communications, Dewan Housing Finance Ltd and Bhushan Steel Ltd.The ED said that the latest initiative demonstrates that strict enforcement under PMLA and value maximisation under IBC are not conflicting objectives. “Instead, when coordinated, they ensure prosecution of economic offenders while protecting public and creditor interest through lawful resolution.”The ED said it remains committed to ensuring that proceeds of crime are not enjoyed by offenders and at the same time recovery value for creditors is enhanced through timely cooperation with the insolvency framework. “The initiatives were taken to expedite the resolution process before the IBC. Further this simplified mechanism would help to resolve the various litigations pending before the courts.”Senior advocate Vikas Pahwa said the ED’s initiative to facilitate the release of attached assets for IBC resolution is a welcome and pragmatic step. “It reflects a mature balance between strict enforcement under the PMLA and the objective of value maximisation under the IBC.”Pahwa said by enabling the use of attached assets for creditor recovery while ensuring that no benefit flows back to the accused, this coordinated mechanism will not only expedite insolvency proceedings but also reduce prolonged litigation. “It strengthens the ecosystem by aligning enforcement with economic revival and public interest.”