IBC Cannot Be Used To Legitimize Proceeds of Crime: NCLT Recalls Alchemist Limited CIRP

The National Company Law Tribunal (NCLT) at New Delhi has recalled its own order admitting insolvency proceedings against Alchemist Limited, holding that the Code cannot be used to legitimise proceeds of crime.

The tribunal found that the Corporate Insolvency Resolution Process (CIRP) was “vitiated by fraud, collusion and malicious intent.”

Invoking its powers under Section 65 of the Insolvency and Bankruptcy Code (IBC) suo motu while allowing an application filed by the Directorate of Enforcement (ED), the Bench set aside the admission order dated November 30, 2021, and terminated the insolvency process.

A Bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi imposed a penalty of Rs 5 lakh on the operational creditor, Sai Tech Medicare Private Limited. The amount has been directed to be deposited with the Insolvency and Bankruptcy Board of India (IBBI) within ten days.

The CIRP had been admitted on a Section 9 application filed by Sai Tech Medicare.

Alchemist Limited is part of the Alchemist Group. The order refers to Kanwar Deep Singh as Chairman Emeritus of the Alchemist Group and an ex-MP, Rajya Sabha.

The ED alleged that funds collected from the public were diverted and layered through group companies, and that more than ₹1,300 crore was involved in the transactions under investigation. It alleged that entities controlling the Committee of Creditors (CoC) were recipients or beneficiaries of these funds.

According to the ED, the insolvency process was being misused to “legitimize proceeds of crime,” regain control over assets attached under the Prevention of Money Laundering Act, 2002 (PMLA), and ultimately obtain immunity under Section 32A of the IBC.

The agency also alleged that the Resolution Professional (RP) had previously been employed by the group and delayed impleadment of the ED despite Tribunal directions.

The RP denied the allegations. He stated that he was not named in any FIR, ECIR, or prosecution complaint. He submitted that his employment between 2009 and 2011 had been disclosed to the IBBI. He argued that proceedings under the IBC and PMLA operate in distinct fields and can run in parallel.

The Tribunal held that though the application was filed under Section 60(5), “the nature of allegations squarely raise issues touching upon fraudulent initiation and malicious conduct of CIRP, warranting examination under Section 65 of the Code.”

Cautioning against misuse of the insolvency framework, the Bench observed that “the Code was never envisaged as a mechanism to sanitize tainted transactions, legitimize proceeds of crime, or provide a protective umbrella against penal consequences arising under other statutes.”

It noted that the CoC was overwhelmingly dominated by group entities alleged to be recipients or conduits of proceeds of crime.

“A CoC so constituted, where related and interested entities accused of criminal misconduct exercise near-total control, fundamentally erodes the independence, commercial wisdom, and fairness that underpin the CIRP mechanism. The Code presupposes a CoC acting at arm's length from the Corporate Debtor, not a self-controlled loop where the alleged wrongdoers sit in judgment over their own claims,” the tribunal held.

Concluding that continuation of the CIRP would undermine both insolvency and criminal enforcement frameworks, the Bench observed that “permitting the CIRP to continue would not only prejudice statutory proceedings under the PMLA but would also undermine the integrity of the insolvency regime itself.”

The tribunal accordingly set aside the admission order, withdrew the moratorium, and declared the appointment of the RP and all consequential actions to be null.

The RP was directed to hand over management to the ex-management/suspended board of directors. The operational creditor was directed to bear the CIRP costs and pay a Rs. 5 lakh penalty imposed under Section 65 of the IBC.

For Applicant: Special Counsel Zohaib Hossain, Panel Counsel Vivek Gurnani, Advocates Vivek Gaurav and Ashraf Belal

For Respondent: Advocates Kanishk Khetan, Akash Srivastava, and RP Gaurav Misra